GVIC Communications Corp.

May 14, 2009 19:41 ET

GVIC Reports First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 14, 2009) - GVIC Communications Corp. ("GVIC" or the "Company") (TSX:GCT) reported cash flow, earnings and revenue for the period ending March 31, 2009.

Summary Results

(thousands of dollars 3 Months Ending 3 Months Ending
except share and per share amounts) March 31, 2009 March 31, 2008
Revenue $ 54,795 $ 58,830
Gross profit $ 17,668 $ 22,475
Gross margin 32.2% 38.2%
EBITA (1) $ 6,969 $ 13,103
EBITA margin (1) 12.7% 22.3%
EBITA per share (1) $ 0.02 $ 0.04
Interest expense, net $ 2,149 $ 2,808
Net income before non-recurring item (2) $ 3,094 $ 7,651
Net income per share before non-
recurring item (2) $ 0.01 $ 0.03
Net income $ 2,099 $ 7,651
Net income per share $ 0.01 $ 0.03
Cash flow from operations (1)(2) $ 5,257 $ 10,731
Cash flow from operations per share (1)(2) $ 0.02 $ 0.04
Capital expenditures $ 2,444 $ 891
Total assets $ 509,892 $ 497,327
Net debt outstanding before deferred
financing charges and related expenses $ 130,218 $ 141,738
Shareholders' equity $ 268,550 $ 246,034
Weighted average shares outstanding, net 300,425,031 300,425,031
(1) Refer to "Financial Measures" following for disclosure regarding
non-GAAP measures used in this table.
(2) Excludes $1.0 million restructuring expenses.

- GVIC's consolidated revenue for the first quarter decreased 6.9% to $54.8 million from $58.8 million for the same period in the prior year;

- GVIC's consolidated EBITA was $7.0 million compared to $13.1 million last year;

- GVIC's EBITA per share was $0.02 compared to $0.04 for the same period last year;

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) was $5.3 million for the three months ended March 31, 2009, as compared to $10.7 million for the same period last year;

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) per share decreased 51.0% to $0.02 per share from $0.04 per share last year;

- GVIC's net income per share was $0.01 compared to $0.03 for the same period last year; and

- GVIC implemented significant cost reduction initiatives to offset the reduction in revenues, although only a small amount of savings were realized from these initiatives in the first quarter given timing and other factors relating to their implementation.

Review of Operations

GVIC's revenue and cash flow from operations were impacted by the recession in the first quarter of 2009. Same-store revenue and EBITA declined 9.8% and 48.1% respectively compared to the same period last year. For the quarter, business and professional revenues declined 1%, trade information revenues declined 7% and newspaper revenues declined 11% compared to the same period last year (standalone specialty real estate publications accounted for the remainder of the overall revenue decline). National sales, real estate, auto and classified revenues were most impacted, as well as certain sector specific trade related advertising.

The 6.9% decline in GAAP financial statement revenue for the quarter was less than the same-store revenue decline as a result of the acquisitions made subsequent to the first quarter of 2008, including Printwest Communications which historically breaks even in the first quarter. Efforts are being made to move a significant amount of GVIC's trade publication printing from outside printers to Printwest in order to capture the profit associated with this printing.

While the severity of the recession has clearly had a significant impact on advertising revenues, the diversification of GVIC's businesses resulted in better revenue performance than a number of other media companies in Canada and the United States. Local advertising revenue held up relatively well for most of GVIC's local newspapers. Financial information revenue increased despite the severe challenges faced by the investment and banking industry. Agricultural, medical and certain other trade information operations also grew or maintained revenue levels compared to the same period last year. Subscription revenue for GVIC's paid local newspapers, energy, technical and regulatory information and business directories continue to be resilient.

On a same-store basis, GVIC's consolidated revenue declined $6.0 million and EBITA declined $5.7 million. Variable cost savings in newsprint consumption and sales commission (which are typically approximately 25% of revenue) were offset by newsprint prices that were 29% higher in the first quarter compared to the same period last year, lower advertising yields that resulted from rate discounting in some markets, certain wage increases for existing staff, and investment in a substantially expanded Internet presence for local newspaper markets, which offers new revenue growth opportunities. Newsprint prices subsequently fell 20% effective April 1, 2009, although these savings will not be realized by GVIC until existing newsprint inventories are consumed, which is expected by May.

It is important to note that GVIC's operations were generating strong organic same-store revenue growth until the third quarter of 2008, 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. The weakening Canadian and U.S. economies began to affect the Company's revenues primarily in the latter part of the fourth quarter of 2008. It is expected that revenue growth will resume once the economy recovers.

Despite the challenging economic conditions, GVIC expects to generate strong cash flows during the remainder of 2009 and beyond through a combination of the resilience of its businesses and significant cost reduction initiatives as outlined following.

Cost Reduction Strategy

GVIC 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 resulted in the higher profit levels achieved in 2008.

During the first quarter of 2009, significant additional cost reduction measures were implemented 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 savings initiatives, 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 and phase in the cost reductions so as not to overreach in the reduction of resources required. This was deemed better for the business than cutting costs deeper initially than may be required and weakening operating strength as a result. GVIC's same-store revenues declined 3% in December, 9% in January, 11% in February and 5% in March.

As a result of this strategy, the cost reduction initiatives were implemented at various times during the first quarter and weighted towards the end of the quarter. Given the general time required for the programs to come into effect, only a small net amount of cost savings were realized during the quarter.

In total, GVIC has targeted more than $12 million of cost saving initiatives on an annualized basis, excluding direct variable cost savings such as reduced newsprint consumption and sales commissions that result from lower revenues (which as stated are typically approximately 25% of revenue). In addition, GVIC expects to incur lower interest expense during 2009 as a result of lower debt levels and interest rates.

Part of GVIC's past success has come from investing in people and initiatives where prudent and appropriate to drive revenue, quality and competitiveness. Management would like to maintain this long-term strength and competitiveness in order to gain market share during the recession and be in a position to exploit opportunities and grow when the economy recovers. As a result, GVIC intends to pursue cost efficiency initiatives where prudent to reduce operating costs through measures that do not negatively impact content, quality and revenue related resources. Historically this strategy has been successful for GVIC as the combination of revenue growth and related profitability has been balanced with targeted cost savings to result in an overall sustainability of profit growth.

Financial Position and Acquisition Opportunities

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was $130.2 million as at March 31, 2009 as compared to $128.2 million as at December 31, 2008. This variance in debt level was partially the result of i) a $6.3 million payment as a result of the Company's participation in an arbitration settlement between CanWest Global Communications Inc. and Sun Times Media Group Inc. that related to GVIC's acquisition of the Hollinger Canada operations in 2006, and ii) $1.7 million of investment capital expenditures made to consolidate and expand several printing facilities and upgrade production technology, which investments are expected to result in attractive direct cash flow improvements and payback, as well as improved quality and colour capacity. The Company used its cash flow from operations to reduce the increase in debt.

During the quarter, GVIC restructured its senior credit facility into a single revolving loan facility that has no required principal repayments, significantly increased borrowing capacity and does not renew until December 31, 2010.

Management intends to continually assess risk levels in the context of the recession and use free cash flow generated to maintain debt at manageable ongoing levels and carefully target and structure acquisitions within acceptable risk profiles. These acquisitions will only be undertaken if debt and operating levels are deemed prudent within the context of the increased risks entailed in a recessionary environment.

Management is monitoring economic conditions and business events in the United States and Canada closely to identify acquisition opportunities that can benefit GVIC. It is expected that the recession will create distressed conditions that should offer a variety of attractive opportunities. Patience will be exercised to assess optimal timing for these acquisitions.

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 business segments: 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 item) 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.

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 "Review of Operations", "Cost Reduction Strategy" and "Financial Position and Acquisition Opportunities", and statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability. 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 "Review of Operations", "Cost Reduction Strategy" and "Financial Position and Acquisition Opportunities", 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