GVIC Communications Corp.

March 22, 2010 19:55 ET

GVIC Reports 2009 Year-End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 22, 2010) - GVIC Communications Corp. (TSX:GCT) ("GVIC" or the "Company") reported cash flow, earnings and revenue for the period ending December 31, 2009.

Summary Results
thousands of dollars
except share and Year Ended Year Ended Year Ended Year Ended
per share amounts 31-Dec-09 31-Dec-08 31-Dec-07 31-Dec-06

Revenue $229,128 $249,093 $216,402 $186,189
Gross profit $ 82,179 $ 97,252 $ 85,156 $ 66,793
Gross margin 35.9% 39.0% 39.4% 35.9%
EBITA (1) $ 36,463 $ 52,389 $ 48,039 $ 35,935
EBITA margin (1) 15.9% 21.0% 22.2% 19.3%
EBITA per share (1) $ 0.12 $ 0.17 $ 0.16 $ 0.12
Interest expense, net $ 9,314 $ 11,486 $ 11,958 $ 10,200
Net income before
non-recurring items (2)(3) $ 20,890 $ 34,072 $ 30,112 $ 11,846
Net income before non-recurring
items per share (2)(3) $ 0.07 $ 0.11 $ 0.10 $ 0.04
Net income $ 12,653 $ 27,378 $ 30,112 $ 11,846
Net income per share $ 0.04 $ 0.09 $ 0.10 $ 0.04
Cash flow from operations
(1)(2)(3) $ 28,263 $ 42,963 $ 37,133 $ 26,288
Cash flow from operations
per share (1)(2)(3) $ 0.09 $ 0.14 $ 0.13 $ 0.09
Capital expenditures $ 9,345 $ 9,483 $ 2,944 $ 1,948
Total assets $501,680 $512,243 $459,432 $454,312
Debt net of cash outstanding
before deferred financing
charges and other expenses $114,503 $128,191 $130,659 $162,318
Shareholders' equity $278,540 $266,287 $238,366 $198,094
Weighted average shares
outstanding, net 300,425,031 300,425,031 294,578,533 288,635,131
(1) Refer to "Financial Measures" following for disclosure regarding
non-GAAP measures used in this table.
(2) Fiscal 2009 excludes $5.8 million goodwill and intangible assets
impairment charge, $2.0 million restructuring expense, and $0.4 million
non-recurring item.
(3) Fiscal 2008 excludes $6.3 million non-recurring item and $0.4 million
restructuring expense.

- GVIC's fourth quarter results for 2009 showed significant improvements, with EBITA increasing 5.3% from the same period last year and revenue declining only 2.4%;

- GVIC's consolidated revenue declined 8.0% to $229.1 million from $249.1 million for the year prior;

- GVIC's consolidated EBITA declined 30.4% to $36.5 million from $52.4 million for the year prior;

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and adjusted for non-recurring items) declined 34.2% to $28.3 million from $43.0 million for the year prior; and

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and adjusted for non-recurring items) per share declined 34.2% to $0.09 per share from $0.14 per share last year.

Operating Performance

2009 was a challenging year for GVIC as revenue and EBITA were negatively impacted by the recession.

The significant downturn in the economy caused a reduction in advertising and other customer spending across the majority of GVIC's operations. On a same-store basis for 2009, revenues declined 7% for the business and professional information group, and 11% for the local newspaper and trade information group.

As previously reported, revenues began to decline in December of 2008 then gradually worsened during the first three quarters of 2009, with the third quarter decline of 15.2% being the largest. Revenues began to improve in September as local newspaper and business and professional revenues both recovered to 90% of prior year levels, with local newspaper revenues being 10.3% less than prior year and business and professional revenues being 9.7% less. For comparative purposes, it is important to note that 2008 represented record revenue levels for GVIC. GVIC's consolidated revenue grew 15.1% in 2008 compared to the year prior, with organic revenue generating approximately half of the growth. Revenue grew strongly until and including October of 2008, grew at a slower pace in November of 2008, then declined 3% in December.

Fourth Quarter Results Stronger

GVIC's sales improved significantly in the fourth quarter of 2009. Consolidated revenues for the quarter ending December 31, 2009 were $60.0 million, representing a decline of only 2.4% from the fourth quarter of 2008.

Consolidated EBITA increased 5.3% to $11.3 million for the fourth quarter of 2009 compared to 2008. The improved profitability was a result of both improved revenues and cost reduction measures.

A number of efforts were made during 2009 to increase sales effectiveness despite the recession. These have proven successful, as GVIC's revenue declines have been less than other media companies, and many businesses in general. New revenues were generated in a number of areas including special publishing initiatives, special features, supplements, new community magazines, production and promotion of community events, custom publishing, sponsored industry specific research studies, conferences and tradeshows, new directories, and other new revenue initiatives. GVIC was the exclusive publisher of the Olympic Official Vancouver 2010 Souvenir Program as well as the Olympic Hockey Guide. Efforts continue to be made to leverage and monetize content across print, online, wireless and other channels and platforms. These sales initiatives contributed to the fourth quarter improvement, as well as improved economic conditions in various markets.

Of particular importance, GVIC continued to increase its investment in electronic, wireless and Internet platforms and resources throughout the recession. The investment has resulted in a variety of new sources of revenue for the Company's local newspapers, trade information and business information operations.

Investments to improve printing facilities have also resulted in increased revenues and cash flows as well as improvements in quality. Subsequent to year end, GVIC was awarded the contract to print The Globe and Mail for Saskatchewan and Manitoba.

Cost Reduction Strategy and Results

GVIC reduced its cost base significantly during 2009 in order to mitigate the impact of the decline in revenues. As previously reported, management was proactive in the period preceding the recession and began efforts to identify comprehensive cost reduction opportunities and contingency plans at the beginning of 2008 in order to be prepared for a potential economic downturn. Some of these initiatives were implemented during the year which contributed to the higher profit levels achieved in 2008, which made the Company's year-over-year EBITA decline appear greater than would have been the case had management waited until 2009 to reduce costs.

Beginning in the first quarter of 2009, significant additional cost reduction measures were targeted to offset the revenue declines experienced by the Company's operations, including staff layoffs, reduction in hours for part-time employees, reduction in newsprint consumption, and a wide variety of other measures. The Company structured these cost reduction initiatives to reduce operating expenses while maintaining the strength of its businesses and competitiveness as much as possible.

Consequently, management chose to monitor revenue declines as the recession unfolded and phase in cost reductions as required so as not to overreach in the reduction of resources. This was deemed better for the business than cutting costs deeper initially than might have been required and weakening operating strength.

The result of this was that some of the initiatives were implemented part way through the first, second and third quarters with only a portion of the benefit of the savings being realized in 2009. The full annualized benefit will be realized in 2010. In total, non-variable costs were reduced more than $14 million on an annualized basis.

Variable costs including newsprint consumption and sales commission expense also reduced in 2009 as revenues declined. The reduced newsprint volumes were initially offset by newsprint price increases in January 2009 , which prices remained at this level for the first three months of 2009, then declined and remained at June 2009 levels for the remainder of the year.

The contribution of the cost savings was partially offset by lower advertising rates that resulted from price discounting in some markets. While considerable efforts have been made to maintain prices, some discounting has been required to retain revenue and corresponding profit, albeit at lower margins.

Financial Position

Management focused on reducing debt levels during the recession and did not make any material acquisitions as a result of this prioritization of resource utilization and capital allocation. Proactive efforts had been made to reduce debt to 2.5x EBITA at the end of 2008 in order to be in a strong financial position with which to sustain operations during the recession and not be forced to damage the long-term viability of the business as a result of higher leverage levels.

The Company used its cash flow from operations to pay down $14.5 million of debt during the year. GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was $114.5 million as at December 31, 2009 compared to $128.2 million as at December 31, 2008.

While paying down debt, GVIC was also able to fund $9.3 million of capital expenditures, $6.1 million of which were investment capital expenditures made primarily to consolidate and expand several printing facilities and upgrade production technology. These investments have resulted in attractive direct revenue and cash flow improvements and payback consistent with GVIC's targeted return on investment, as well as improved quality and colour capacity.

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was 3.1x EBITA as at year end. GVIC's consolidated debt excluding note payable to Glacier Media Inc., net of cash outstanding before deferred financing charges and other expenses was 2.8x EBITA as at year end. During the first quarter of 2009, GVIC restructured its senior credit facility into a single revolving loan facility that has no required principal repayments and significantly increased borrowing capacity. The Company subsequently amended its revolving facility by extending the maturity date to July 1, 2011 on substantially the same terms and conditions.

Outlook for 2010

Overall there is reason for cautious optimism. While some areas of GVIC`s businesses are not yet experiencing signs of growth and are still experiencing weakened business activity from the recession, it appears that most areas of GVIC's business have at minimum stabilized in terms of revenue levels (with some of these revenues stabilizing at levels less than the first part of 2009), while other areas have begun to show signs of growth.

The combination of the stabilization of revenue for some operations, growth opportunities for others and the lower cost base should result in significantly increased profitability during 2010.

It is also important to note that GVIC's operations were generating strong organic same-store revenue growth in late 2008 just before the recession began, which reflects the strength of 1) its local newspapers that are a primary source of information for the communities they serve and a primary marketing channel for advertisers and 2) its trade and business and professional information operations that provide essential information for business and industry readers who need information to make informed and prudent decisions.

In particular, GVIC's local community newspapers were growing organically at approximately 8% for 2008 and during the months immediately prior to the downturn. This underscores the different attributes that exist between local community newspapers and large metropolitan daily newspapers. While secular risks exist as a result of the Internet, GVIC's local newspapers offer a unique selling proposition and competitive advantage through the local information that they provide. This information can be delivered by GVIC in print or online, or perhaps in tablet form in the future. Given that the demand for this information is expected to exist for the long term, GVIC expects to be able to continue to monetize the information and marketing value through advertising and other revenue sources. As 85% of GVIC's local newspaper distribution is free, this also provides for a more durable reach of readership for advertisers over the long term where total market coverage can always be provided.

Opportunities for Value Creation

GVIC's primary objective during 2009 was to reduce debt and maintain profitability while preserving operational strength.

Despite the reduction of revenues and profitability during the year, GVIC is still generating strong operating cash flow, which is expected to improve in 2010 as stated.

Given that the economy appears to be recovering, GVIC is now reviewing acquisition opportunities that fit with the Company's business strategy.

In this regard, GVIC would like to expand its electronic business information and online operations given the growth prospects of these businesses. This strategy will be pursued as a complementary strategy that will augment GVIC's existing print businesses, which continue to offer significant utility to readers and advertisers, as both print and online formats continue to work well for GVIC's customers. Growth will be targeted through a balance of utilizing print, online and other channels, as well as content and product innovation and diversification.

Shares in GVIC can be traded on the Toronto Stock Exchange under the symbol GCT.

About the Company: GVIC Communications Corp. is an information communications company focused on the provision of primary and essential information and related services through print, electronic and online media. GVIC is pursuing this strategy through its core businesses: the local newspaper, trade information and business and professional information markets.

Financial Measures

To supplement the consolidated financial statements presented in accordance with Canadian generally accepted accounting principles (GAAP), GVIC uses certain non-GAAP measures that may be different from the performance measures used by other companies. These non-GAAP measures include cash flow from operations (before changes in non-cash operating accounts and non-recurring items) and earnings before interest, taxes and amortization (EBITA), which are not alternatives to GAAP financial measures. Management focuses on operating cash flow per share as the primary measure of operating profitability, free cash flow and value. EBITA per share is also an important measure as the Company has low ongoing capital expenditures and amortization largely relates to acquisition goodwill and copyrights and does not represent a corresponding sustaining capital expense. These non-GAAP measures do not have any standardized meanings prescribed by GAAP and accordingly they are unlikely to be comparable to similar measures presented by other issuers.

Forward Looking Statements

This news release contains forward-looking statements that relate to, among other things, the Company's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates. These forward-looking statements include, among other things, statements under the headings "Cost Reduction Strategy and Results", "Financial Position" "Outlook for 2010", and "Opportunities for Value Creation" and statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability, including our expectations that revenue growth will resume once the economy recovers, that debt will be maintained at manageable levels, and that cost savings will be realized during in 2010. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements are based on certain assumptions, including those assumptions described under the headings "Operating Performance", "Cost Reduction Strategy and Results", "Financial Position", "Outlook for 2010", and "Opportunities for Value Creation" and are subject to risks, uncertainties and other factors which may cause results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, and undue reliance should not be placed on such statements.

Important factors that could cause actual results to differ materially from these expectations are listed in the Company's Annual Information Form under the heading "Risk Factors" and in the Company's MD&A under the heading "Business Environment and Risks", many of which are out of the Company's control. These factors include, but are not limited to, the ability of the Company to sell advertising and subscriptions related to its publications, foreign exchange rate fluctuations, the seasonal and cyclical nature of the agricultural industry, discontinuation of Department of Canadian Heritage postal subsidies, general market conditions in both Canada and the United States, changes in the prices of purchased supplies including newsprint, the effects of competition in the Company's markets, dependence on key personnel, integration of newly acquired businesses, technological changes, and financing and debt service risk.

The forward-looking statements made in this news release relate only to events or information as of the date on which the statements are made. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Contact Information

  • GVIC Communications Corp.
    Mr. Orest Smysnuik
    Chief Financial Officer