GVIC Communications Corp.
TSX : GCT

August 10, 2009 20:00 ET

GVIC Reports Second Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 10, 2009) - GVIC Communications Corp. ("GVIC" or the "Company") (TSX:GCT) reported cash flow, earnings and revenue for the period ending June 30, 2009.

Summary Results



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3 Months 3 Months 6 Months 6 Months
thousands of dollars Ending Ending Ending Ending
except share and per June 30, June 30, June 30, June 30,
share amounts 2009 2008 2009 2008
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Revenue $ 63,513 $ 68,884 $ 118,308 $ 127,715
Gross profit $ 25,389 $ 30,316 $ 43,057 $ 52,791
Gross margin 40.0% 44.0% 36.4% 41.3%
EBITA (1) $ 12,453 $ 18,494 $ 19,422 $ 31,597
EBITA margin (1) 19.6% 26.8% 16.4% 24.7%
EBITA per share
(1) $ 0.04 $ 0.06 $ 0.07 $ 0.11
Interest expense,
net $ 2,811 $ 2,920 $ 4,960 $ 5,727
Net income before
non-recurring
items (2) $ 8,758 $ 12,910 $ 11,852 $ 20,562
Net income before
non-recurring
items per share
(2) $ 0.03 $ 0.04 $ 0.04 $ 0.07
Net income $ 8,407 $ 12,910 $ 10,506 $ 20,562
Net income per
share $ 0.03 $ 0.04 $ 0.03 $ 0.07
Cash flow from
operations
(1)(2) $ 9,737 $ 15,745 $ 14,994 $ 26,478
Cash flow from
operations per
share (1)(2) $ 0.03 $ 0.05 $ 0.05 $ 0.09
Capital expendit-
ures (3) $ 2,824 $ 1,826 $ 5,268 $ 2,717
Total assets $ 502,490 $ 504,909 $ 502,490 $ 504,909
Debt net of cash
outstanding
before deferred
financing charges
and other
expenses $ 123,964 $ 138,761 $ 123,964 $ 138,761
Shareholders'
equity $ 276,772 $ 259,084 $ 276,772 $ 259,084
Weighted average
shares
outstanding, net 300,425,031 300,425,031 300,425,031 300,425,031
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(1) Refer to "Financial Measures" following for disclosure regarding
non-GAAP measures used in this table.
(2) Three months ending June 30, 2009 excludes $0.4 million restructuring
expenses. Six months ending June 30, 2009 excludes $1.4 million
restructuring expenses.
(3) Capital expenditures for the three and six months ending June 30, 2009
include investment capital expenditures of $2.0 million and $3.8
million, respectively compared to $1.0 million and $1.2 million in the
same periods for the prior year. The remaining expenditures are
sustaining capital expenditures.


- GVIC's consolidated revenue for the second quarter declined 7.8% to $63.5 million from $68.9 million for the same period in the prior year. Consolidated revenue for the six months ended June 30, 2009 decreased to $118.3 million from $127.7 million for the same period in the prior year.

- GVIC's consolidated EBITA for the quarter declined 32.7% to $12.5 million from $18.5 million for the same period last year and $19.4 million compared to $31.6 million for the six months ended June 30, 2009 and 2008 respectively;

- Significant cost reduction initiatives have been implemented during the year to offset the reduction in revenues;

- GVIC's EBITA per share for the quarter was $0.04 compared to $0.06 for the same period last year and $0.07 compared to $0.11 for the six months ended June 30, 2009 and 2008 respectively;

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) was $9.7 million and $15.0 million for the three and six months ended June 30, 2009 respectively, as compared to $15.7 million and $26.5 million for the same three and six month periods last year;

- GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) per share for the quarter decreased 38.2% to $0.03 per share from $0.05 per share for the same period last year and for the six months ended June 30, 2009 decreased 43.4% to $0.05 per share from $0.09 per share last year.

Review of Operations

GVIC's consolidated revenue for the second quarter declined 7.8% and consolidated EBITA declined 32.7% compared to the same period last year, as the recession continued to impact advertising revenues. Same-store revenues and EBITA for the newspaper and trade group declined 10.9% and 23.1% respectively for the quarter compared to last year. Same-store revenues and EBITA for the business and professional information group declined 5.1% and 3.5% respectively for the quarter compared to last year. The remainder of the consolidated revenue and EBITA decline was a result of lower sales for GVIC's standalone real estate and commercial printing businesses. A significant amount of GVIC's trade publication printing is being moved from outside printers to GVIC's printing operations in order to capture profit associated with this printing.

The consolidated revenue decline was less than the same-store revenue decline because of the acquisitions completed during the first half of 2008, as the revenue for these businesses was only recorded from the date of acquisition for GAAP financial statement purposes. GVIC's April and May 2009 consolidated revenue declines levelled off compared to last year, then declined at a greater level in June. It appears that a number of advertisers may have cut back for the summer months in anticipation of slower business and consumer activity, particularly national advertisers.

When comparing results to last year, it is relevant to note that the second quarter of 2008 was one of GVIC's strongest quarters on record, with revenue growth of 22.4% and EBITA growth of 35.8% compared to the prior year.

Despite the continued softness in advertising revenue during the quarter, a number of areas indicate signs for potential sales improvement. Agriculture, medical, and financial information revenues grew during the second quarter of 2009 compared to last year. Revenues for the energy, regulatory & compliance and environmental information businesses declined less in the second quarter of 2009 compared to the first quarter. Local newspaper revenues in a number of B.C., Alberta, Saskatchewan and Manitoba markets grew compared to last year during various months of the quarter. Subscription revenues for GVIC's paid local newspapers, energy, technical and regulatory information and business directories continued to be resilient. GVIC's trade information Internet revenue has held up well, being essentially flat to prior year. GVIC continues to make progress on expanding its Internet presence in its local newspaper markets.

While the summer months are expected to be slow, there are some encouraging factors for the latter part of 2009. A number of economic indicators suggest that the recession may be levelling out. While management will operate GVIC's businesses on the assumption that the recession will continue for the near term, some sectors of the economy are evidencing positive signs, including real estate and automotive, amongst others.

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 contributed to the higher profit levels achieved in 2008. This has 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.

During 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 further 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.

A significant number of cost reduction measures have been implemented that have resulted in over $14 million of annualized non-variable cost savings. Some of these initiatives were implemented part way through the second quarter, and the full benefit of the savings will be realized during the remainder of the year. Variable costs including newsprint consumption and sales commission expense have also reduced as revenues have declined. Newsprint prices fell during the quarter, although the savings were only realized in May and June after existing inventories were consumed in April.

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

The net cost savings contributed to the relative improvement in consolidated EBITA for the second quarter, which as stated declined 32.7% compared to last year. This was an improvement from the 46.8% decline in the first quarter of 2009 compared to the same period last year.

While management continues to pursue additional cost reduction measures, care is being taken not to adversely impact content quality and the competitiveness of our businesses as mentioned.

It is also 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.

Financial Position and Investment Opportunities

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was $124.0 million as at June 30, 2009 as compared to $130.2 million as at March 31, 2009.

The Company used its cash flow from operations to pay down debt during the quarter and fund $2.8 million of capital expenditures, $2.0 million of which were investment capital expenditures made primarily 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. As the investment projects are substantially completed, capital expenditures are expected to reduce significantly for the remainder of the year.

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was 3.1x trailing 12 months EBITA as at June 30, 2009. During the first quarter of 2009, 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, use free cash flow generated to maintain debt at manageable ongoing levels, evaluate acquisitions and operating investment opportunities within the context of expected investment returns and related risk profiles. These investments will only be undertaken if debt and operating levels are deemed prudent within the context of the increased risks entailed in a recessionary environment. While there are increasing signs that the recession may be abating, management intends to be cautious until greater certainty is apparent in this regard.

Management is monitoring opportunities in the United States and Canada closely to identify acquisitions 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 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.

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 Investment Opportunities", and statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability, including our expectations that the Company will capture profit associated with printing operations, that revenue growth will resume once the economy recovers, and that capital expenditures will reduce significantly for the remainder of the year. 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 Investment 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
    604-708-3264