GVIC Communications Corp.

November 15, 2010 08:45 ET

GVIC Reports Third Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 15, 2010) - GVIC Communications Corp. (TSX:GCT) ("GVIC" or the "Company") reported cash flow, earnings and revenue for the period ending September 30, 2010.

Summary Results  
(thousands of dollars except share and per share amounts)   Three Months Ended
    Three Months Ended
    Nine Months Ended
    Nine Months Ended
Revenue $ 54,891   $ 50,838   $ 179,538   $ 169,146  
Gross profit $ 18,814   $ 16,227   $ 66,172   $ 59,284  
Gross margin   34.3 %   31.9 %   36.9 %   35.0 %
EBITA (1) $ 8,282   $ 5,785   $ 32,853   $ 25,207  
EBITA margin (1)   15.1 %   11.4 %   18.3 %   14.9 %
EBITA per share (1) $ 0.028   $ 0.019   $ 0.109   $ 0.084  
Interest expense, net $ 2,173   $ 2,012   $ 6,963   $ 6,972  
Net income before non-recurring items (1)(2)(3) $ 2,714   $ 3,987   $ 17,043   $ 15,839  
Net income before non-recurring items per share (1)(2)(3) $ 0.009   $ 0.013   $ 0.057   $ 0.053  
Net income $ 2,632   $ 3,611   $ 16,659   $ 14,117  
Net income per share $ 0.009   $ 0.012   $ 0.055   $ 0.047  
Cash flow from operations (1)(2)(3) $ 6,547   $ 3,935   $ 26,888   $ 18,929  
Cash flow from operations per share (1)(2)(3) $ 0.022   $ 0.013   $ 0.090   $ 0.063  
Capital expenditures $ 1,356   $ 1,891   $ 4,193   $ 7,159  
Total assets $ 499,473   $ 502,727   $ 499,473   $ 502,727  
Debt net of cash outstanding before deferred financing charges and other expenses $ 111,289   $ 119,352   $ 111,289   $ 119,352  
Shareholders' equity $ 295,139   $ 280,014   $ 295,139   $ 280,014  
Weighted average shares outstanding, net   300,425,031     300,425,031     300,425,031     300,425,031  
(1) Refer to "Financial Measures" following for disclosure regarding non-GAAP measures used in this table.
(2) Three months ended September 30, 2010 and 2009 amounts exclude $0.1 million and $0.4 million restructuring expense, respectively.
(3) Nine months ended September 30, 2010 and 2009 amounts exclude $0.4 million and $1.7 million restructuring expense, respectively.


GVIC's results for the third quarter of 2010 reflect the continued improvements in operations:

  • Consolidated revenue for the three months ended September 30, 2010 increased 8.0% to $54.9 million from $50.8 million for the year prior. Consolidated revenue for the nine months ended September 30, 2010 increased 6.1% to $179.5 million from $169.1 million for the year prior;
  • GVIC's consolidated cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) increased 66.4% to $6.5 million for the three months ended September 30, 2010 from $3.9 million for the year prior. Cash flow from operations (before changes in non-cash operating accounts and excluding restructuring expenses) increased 42.0% to $26.9 million from $18.9 million for the nine months ended September 30, 2010 as compared to 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 for the quarter increased 66.4% to $0.022 per share from $0.013 per share for the same period last year and for the nine months ended September 30, 2010 increased 42.0% to $0.090 per share from $0.063 per share last year; and
  • EBITA for the third quarter ended September 30, 2010 increased 43.2% to $8.3 million from $5.8 million for the same period last year. EBITA for the nine months ended September 30, 2010 increased 30.3% an increase of $7.6 million over the same period in the prior year. 

Review of Operations

Improving Revenues

GVIC's revenue continued to grow on a consolidated basis in the third quarter. The continued improvements in the overall economy and the markets in which GVIC does business as well as continued effectiveness in sales efforts are driving resumed growth in GVIC's operations. 

After experiencing revenue declines during the first three quarters of 2009, with the worst results occurring in the summer of 2009, GVIC's revenue began to improve in September 2009 and continued strengthening such that GVIC's revenue returned to 97.6% of 2008 levels for the fourth quarter of 2009. Consolidated revenues then grew 4.9% in the first quarter of 2010, 5.7% in the second quarter and 8.0% in the third quarter. Approximately half of the third quarter revenue growth was a result of same-store revenue improvement. The remainder of the year over year revenue growth for the quarter came from several small acquisitions and related consolidation. 

The trend in revenue performance is encouraging in that the majority of GVIC's businesses are experiencing organic growth.

GVIC's trade and business information operations continued to strengthen. These operations generated strong organic revenue growth across a wide variety of sector niches in the third quarter as advertising spending has begun to pick up well. Business and trade advertising tends to lag economic recovery more than local newspapers because advertisers tend to plan their marketing campaigns and budgets on more of an annual basis. As a result, it took longer for advertising levels to pick up after the recession for these operations. 

GVIC's local newspapers' revenue continued to grow on a same-store basis in the third quarter across the Western Canadian provinces. It is instructive to note that these local newspapers were growing at approximately 8% in same-store revenue until October of 2008 while the economy was strong and have resumed growth as the economy has recovered. During 2009, despite all of the uncertainty instilled by the recession and its impact, same-store local newspaper revenues remained at 89% of 2008 levels, which was a record year. These statistics underscore the continued effectiveness of local newspapers for readers and advertisers, and the different attributes that exist between local community newspapers and large metropolitan daily newspapers. GVIC's local newspapers offer a unique selling proposition and competitive advantage through the local information that they provide, of which they are a primary source. This information can be delivered by GVIC in print or online, or by tablet and smartphone or other wireless platforms 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 time wherein total market coverage can always be provided. 

GVIC is pursuing a complementary platform strategy in which the Internet, wireless and other information delivery devices are fully utilized, and in which print delivery of quality content augmented with attractive design continues to be fully utilized. Towards this end, GVIC continued to increase its investment in electronic, wireless and Internet platforms and resources throughout 2009 and 2010 despite the overall focus on cost reduction. Senior management personnel have been hired from outside the newspaper and trade magazine industry to strengthen and complement GVIC's digital team, and a diverse array of digital initiatives is being implemented. This investment and effort have resulted in a variety of new sources of revenue for the Company's local newspapers, trade information and business information operations. 

A number of other efforts have been made during 2009 and 2010 to increase sales effectiveness despite the recession. New revenues have been 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. Efforts continue to be made to leverage and monetize the diverse and rich content and distribution channels GVIC owns and is developing. 

Investments to expand printing facilities have also resulted in increased revenues and cash flows as well as improvements in quality. As previously announced, GVIC was awarded the contract to print The Globe and Mail for Saskatchewan and Manitoba. Printing of The Globe and Mail commenced October 1, 2010 at GVIC's Estevan, Saskatchewan plant. GVIC's investment in the Estevan printing facility will not only satisfy the high quality requirements of the newly redesigned Globe and Mail, but will also allow significant improvements in quality and colour capacity for GVIC's Prairie newspapers that are printed in Estevan. 

While the North American economy continues to evidence some areas of weakness and while caution should be maintained in assessing outlook, a variety of economic indicators have been strengthening, which should bode well for GVIC's businesses assuming the generally favourable economic trend continues. 

Improving Profitability

GVIC's consolidated EBITA grew 43.2% to $8.3 million for the third quarter compared to last year. This was a result of both the high level of profitability associated with GVIC's incremental print and digital revenues, as well as the realization of a wide variety of cost reduction initiatives that were implemented during 2009, the majority of which were only fully implemented in the second and third quarters of last year. These initiatives included staff layoffs, reduction in hours for part-time employees, reduction in newsprint consumption, and a wide variety of other measures. Newsprint prices increased approximately $25 per tonne during the quarter, which partially offset these cost savings (although the net impact was not significant). 

In total, GVIC reduced its non-variable expenses in 2009 by more than $14 million on an annualized basis. The Company structured these cost reduction initiatives to reduce operating expenses while maintaining the strength of its businesses, quality of content and competitiveness. This strategy appears to have been effective, as GVIC staff is proving able to respond quickly and successfully in generating revenue growth as the economy recovers, while benefiting from greater operating cost efficiency. 

Consolidated general and administrative expenses as reported on the Company's financial statements increased nominally to $10.5 million from $10.4 million on a year-over-year basis during the three months ended September 30, 2010. Direct expenses for the third quarter increased marginally to $36.1 million from $34.6 million for the same period last year as a result of the increase in same-store sales and related expenses, as well as inclusion of expenses from the small acquisitions and related consolidation, offset by the non-variable cost savings relating to direct expenses. 

Financial Position and Other Developments

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses was $111.3 million as at September 30, 2010 compared to $114.5 million as at December 31, 2009. 

The majority of the $2.3 million of 2010 year to date investment capital expenditures have been made to expand GVIC's Estevan, Saskatchewan press facility for printing of the re-designed Globe and Mail (for distribution in Saskatchewan and Manitoba), for which GVIC had previously received a long-term print contract. An additional $5.6 million was spent as part of the Estevan plan expansion (which expenditures were financed through a capital lease). The Estevan project and other investment capital expenditures made in the last several years have been undertaken because they have generated attractive investment returns through new revenue as well as technology driven cost savings. These investments have offered the added benefit of improving quality and colour capacity for the Company's own publications printed at these facilities. Management carefully measures the cash investment returns relating to these projects and has proceeded with them because their investment returns have been comparable to acquisition returns and other uses of capital. The ongoing sustaining capital expenditures required to maintain GVIC's operations remain low, at levels that have been relatively unchanged over the last number of years. 

GVIC's consolidated debt net of cash outstanding before deferred financing charges and other expenses to EBITA ratio was 2.5x trailing 12 months EBITA as at September 30, 2010. 

During the quarter, GVIC sold some of its community newspaper operations in British Columbia and acquired other community newspaper operations in Alberta. These transactions are expected to result in an incremental reduction in GVIC's revenue but an increase in its consolidated profitability. 

Subsequent to quarter end, GVIC extended the maturity date of its senior revolving loan facility, which has no required principal repayments, until October 1, 2011.

Subsequent to quarter end, GVIC acquired the assets of Ag Dealer, which include a popular website and monthly magazine distributed across Canada facilitating the buying and selling of agricultural machinery and equipment.


The economic recovery and concerted efforts by staff and management to advance performance continue to be reflected in the improvement in GVIC's operating results. Management remains cautiously optimistic that the recovery will continue. 

As a result, GVIC is reviewing transaction opportunities that fit with the Company's business strategy. A core component of GVIC's historical success has been the realization of growth through accretive acquisitions. The Company has been able to prudently acquire and organically grow a significant number of businesses with above average returns.

Management continues to focus on paying down debt, maintaining a balance of operating cost reduction and long-term operating strength, and integrating and improving the operations acquired over the past several years. These efforts have produced a stable and growing platform of operations from which to pursue acquisitions and other opportunities to grow shareholder value using internally generated cash flow.

GVIC is encouraged by the opportunities for value creation that are arising from the economic conditions and intends to pursue transactions and initiatives that will strengthen the Company's existing operating platforms and allocate capital to attractive growth areas. 

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), net income before 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 "Improving Revenues", "Improving Profitability", "Financial Position and Other Developments", and "Outlook" and statements relating to the Company's expectations regarding revenues, expenses, cash flows and future profitability, including our expectations to the revenue and profitability impact from new transactions, that profitability will continue to improve as the economy recovers, and that cost savings will be maintained and further efficiencies pursued. These forward looking statements are based on certain assumptions, including continued economic recovery and the realization of cost savings, 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, Canada Periodical Fund, 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