TVA Group Inc.
TSX : TVA.B

TVA Group Inc.

May 06, 2014 08:53 ET

TVA Group Reports $10.2 Million Net Loss Attributable to Shareholders in First Quarter Ended March 31, 2014

MONTREAL, CANADA--(Marketwired - May 6, 2014) - TVA Group Inc. (the "Corporation") (TSX:TVA.B) announces that it recorded a net loss attributable to shareholders in the amount of $10.2 million, or $0.43 per share, in the first quarter of 2014, compared with a net loss attributable to shareholders of $5.9 million, or $0.25 per share, in the same quarter of 2013.

First quarter operating highlights:

  • The consolidated adjusted operating loss(1) totalled $6,025,000, compared with adjusted operating income of $895,000 in the same quarter of 2013.

  • The Television segment generated an adjusted operating loss of $8,211,000, an $8,951,000 unfavourable variance primarily due to:

    • decrease in TVA Network's adjusted operating income due to the combined impact of a 5.8% decrease in advertising revenues and higher content expenditures;

      partially offset by:

    • decrease in the adjusted operating loss of the specialty services, directly attributable to an 8.2% increase in subscription revenues.

  • The Publishing segment generated adjusted operating income in the amount of $2,186,000, a $2,031,000 favourable variance due mainly to the inclusion of the operating results of La Semaine magazine since July 18, 2013, as well as lower expenses as a result of cost savings related to volume and to the operating expense reduction plan implemented in the second quarter of 2013.

"The Television segment's first quarter 2014 financial results fell short of our expectations," commented Pierre Dion, President and CEO of the Corporation. "Advertising revenues are under heavy pressure despite strong ratings. TVA Group's total market shares for the period from January 1 to March 31, 2014 held steady at 32.8%, compared with 32.7% in the same period of 2013. In addition to the phenomenal success of La Voix, which drew an average of 2,644,000 viewers for the Sunday night shows, new TVA Network shows such as Les Beaux Malaises, Les Jeunes loups and Destination Fort Boyard achieved excellent ratings, with audiences of more than 1,500,000".

(1) See definition of adjusted operating income (loss) below.

"The Publishing segment registered healthy growth in adjusted operating income because of the inclusion of the results of our latest acquisition, La Semaine magazine, and 5.3% growth in newsstand sales of our other magazines. We also launched a new magazine, Femmes etc…, at the end of March. The first issue was so successful that we had to order a second print run to meet the demand," concluded Pierre Dion.

Cash flows provided by operating activities totalled $4.9 million in the quarter; in the same quarter of 2013, operating activities used cash flows in the amount of $2.5 million. The $7.4 million increase was essentially due to favourable variance in accounts receivable, partially offset by the decrease in adjusted operating income.

Definition

Adjusted operating income (loss)

In its analysis of operating results, the Corporation defines adjusted operating income (loss) as net income (loss) before amortization of property, plant and equipment and intangible assets, financial expenses, operational restructuring costs, impairment of assets and other costs, income taxes and share of loss (income) of associated corporations. Adjusted operating income (loss) as defined above is not a measure of results that is consistent with International Financial Reporting Standards ("IFRS"). Neither is it intended to be regarded as an alternative to other financial performance measures or to the statement of cash flows as a measure of liquidity. This measure is not intended to represent funds available for debt service, dividend payment, reinvestment or other discretionary uses, and should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS. Adjusted operating income (loss) is used by the Corporation because management believes it is a meaningful measure of performance.

This measure is used by management and the Board of Directors to evaluate the Corporation's consolidated results and the results of its business segments. Measurements such as adjusted operating income (loss) are also commonly used by the investment community to analyze and compare the performance of companies in the industries in which the Corporation is active. The Corporation's definition of adjusted operating income (loss) may not be identical to similarly titled measures reported by other companies.

Forward-looking information disclaimer

The statements in this news release that are not historical facts may be forward-looking statements and are subject to important known and unknown risks, uncertainties and assumptions which could cause the Corporation's actual results for future periods to differ materially from those set forth in the forward-looking statements. Forward-looking statements generally can be identified by the use of the conditional, the use of forward-looking terminology such as "propose," "will," "expect," "may," "anticipate," "intend," "estimate," "plan," "foresee," "believe" or the negative of these terms or variations of them or similar terminology. Factors that may cause actual results to differ from current expectations include seasonality, operational risks (including pricing actions by competitors), programming, content and production cost risks, credit risk, government regulation risks, government assistance risks, changes in economic conditions, fragmentation of the media landscape, and labour relation risks. Investors and others are cautioned that the foregoing list of factors that may affect future results is not exhaustive and that undue reliance should not be placed on any forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Corporation's actual results to differ from current expectations please refer to the Corporation's public filings available at www.sedar.com and http://groupetva.ca including, in particular, the "Risks and Uncertainties" section of the Corporation's annual Management's Discussion and Analysis for the year ended December 31, 2013.

The forward-looking statements in this news release reflect the Corporation's expectations as of May 6, 2014, and are subject to change after this date. The Corporation expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by the applicable securities laws.

TVA Group

TVA Group Inc., a subsidiary of Quebecor Media Inc., is an integrated communications company engaged in the creation, production, broadcast and distribution of audiovisual products, and in magazine publishing. TVA Group Inc. is the largest broadcaster of French-language entertainment, information and public affairs programming in North America, the largest publisher of French-language magazines, and one of the largest private-sector producers of French-language content. The Corporation's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B.

TVA GROUP INC.
Consolidated statements of loss and comprehensive loss
(unaudited)
(in thousands of Canadian dollars, except per-share amounts)
Three-month periods
ended March 31
Note 2014 2013
Revenues 3 $ 105,321 $ 111,070
Purchases of goods and services 4,10 78,469 75,093
Employee costs 32,877 35,082
Amortization of property, plant and equipment and intangible assets 5,384 5,088
Financial expenses 5 1,120 1,604
Operational restructuring costs, impairment of assets and other costs 6 952
Loss before tax recovery and share of loss of associated corporations (12,529 ) (6,749 )
Tax recovery (4,147 ) (2,424 )
Share of loss of associated corporations 1,781 1,563
Net loss and comprehensive loss attributable to shareholders $ (10,163 ) $ (5,888 )
Basic and diluted loss per share attributable to shareholders 7 (c ) $ (0.43 ) $ (0.25 )

See accompanying notes to condensed consolidated financial statements.

TVA GROUP INC.
Consolidated statements of equity
(unaudited)
(in thousands of Canadian dollars)
Equity attributable to shareholders Total
equity
Capital
stock
(note 7)
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
(loss) income -
Defined
benefit plans
Balance as at December 31, 2012 $ 98,647 $ 581 $ 187,937 $ (20,620 ) $ 266,545
Net loss - - (5,888 ) - (5,888 )
Balance as at March 31, 2013 98,647 581 182,049 (20,620 ) 260,657
Net income - - 21,634 - 21,634
Other comprehensive income - - - 25,768 25,768
Balance as at December 31, 2013 98,647 581 203,683 5,148 308,059
Net loss - - (10,163 ) - (10,163 )
Balance as at March 31, 2014 $ 98,647 $ 581 $ 193,520 $ 5,148 $ 297,896

See accompanying notes to condensed consolidated financial statements.

TVA GROUP INC.
Consolidated balance sheets
(unaudited)
(in thousands of Canadian dollars)
Note March 31,
2014
December 31,
2013
Assets
Current assets
Cash $ 3,560 $ 7,717
Accounts receivable 120,909 136,408
Income taxes 6,307 124
Programs, broadcast and distribution rights and inventories 52,151 61,428
Prepaid expenses 3,164 2,380
186,091 208,057
Non-current assets
Broadcast and distribution rights 36,262 31,985
Investments 14,462 14,822
Property, plant and equipment 100,749 100,962
Licences and other intangible assets 111,529 112,566
Goodwill 44,469 44,536
Defined benefit plan asset 10,283 8,238
Deferred income taxes 571 885
318,325 313,994
Total assets $ 504,416 $ 522,051
Liabilities and equity
Current liabilities
Accounts payable and accrued liabilities $ 74,759 $ 85,960
Income taxes 353 1,828
Broadcast and distribution rights payable 24,380 17,304
Provisions 305 645
Deferred revenues 7,463 9,302
Short-term debt 74,691 74,640
181,951 189,679
Non-current liabilities
Other liabilities 3,958 3,974
Deferred income taxes 20,611 20,339
24,569 24,313
Equity
Capital stock 7 98,647 98,647
Contributed surplus 581 581
Retained earnings 193,520 203,683
Accumulated other comprehensive income 5,148 5,148
Equity attributable to shareholders 297,896 308,059
Guarantees 10
Total liabilities and equity $ 504,416 $ 522,051

See accompanying notes to condensed consolidated financial statements.

On May 6, 2014, the Board of Directors approved the condensed consolidated financial statements for the three-month periods ended March 31, 2014 and 2013.

TVA GROUP INC.
Consolidated statements of cash flows
(unaudited)
(in thousands of Canadian dollars)
Three-month periods
ended March 31
Note 2014 2013
Cash flows related to operating activities
Net loss $ (10,163 ) $ (5,888 )
Adjustments for:
Amortization 5,435 5,139
Impairment of assets 6 - 387
Share of loss of associated corporations 1,781 1,563
Deferred income taxes 565 1,024
(2,382 ) 2,225
Net change in non-cash balances related to operating activities 7,254 (4,768 )
Cash flows provided by (used in) operating activities 4,872 (2,543 )
Cash flows related to investing activities
Additions to property, plant and equipment (6,339 ) (5,312 )
Additions to intangible assets (768 ) (584 )
Net change in investments 9 (1,421 ) 799
Final adjustment to the cost of a business acquisition (501 ) -
Cash flows used in investing activities (9,029 ) (5,097 )
Cash flows related to financing activities
Net change in revolving credit facility - 254
Cash flows provided by financing activities - 254
Net change in cash (4,157 ) (7,386 )
Cash at beginning of period 7,717 10,619
Cash at end of period $ 3,560 $ 3,233
Interest and taxes reflected as operating activities
Net interest (received) paid $ (82 ) $ 81
Income taxes paid (net of refunds) 2,946 1,968

See accompanying notes to condensed consolidated financial statements.

TVA GROUP INC.
Notes to condensed consolidated financial statements
Three-month periods ended March 31, 2014 and 2013 (unaudited)
(Tabular amounts are expressed in thousands of Canadian dollars, except per share and per option amounts)

TVA Group Inc. ("TVA Group" or the "Corporation") is governed by the Québec Business Corporations Act. TVA Group is an integrated communications company with two operating segments: Television and Publishing (note 11). The Corporation is a subsidiary of Quebecor Media Inc. ("Quebecor Media" or the "parent corporation") and the ultimate parent corporation is Quebecor Inc. ("Quebecor"). The Corporation's head office is located at 1600 de Maisonneuve Boulevard East, Montreal, Quebec, Canada.

The Corporation's businesses experience significant seasonality due, among other factors, to seasonal advertising patterns and influences on people's viewing, reading and listening habits. Because the Corporation depends on the sale of advertising for a significant portion of its revenues, operating results are also sensitive to prevailing economic conditions, including changes in local, regional and national economic conditions, particularly as they may affect advertising expenditures. Accordingly, the results of operations for interim periods should not necessarily be considered indicative of full-year results.

1. Basis of presentation

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), except that they do not include all disclosures required under IFRS for annual consolidated financial statements. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and accordingly, they are condensed consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation's 2013 annual consolidated financial statements, which describe the accounting policies used to prepare these financial statements.

Comparative figures for the three-month period ended March 31, 2013, have been reclassified to conform to the presentation adopted for the three-month period ended March 31, 2014.

2. Change in accounting policies

On January 1, 2014, the Corporation adopted retrospectively IFRIC 21 - Levies, which clarifies the timing of accounting for a liability for outflow of resources that is imposed by governments in accordance with legislation, based on the activity that triggers the payment. The adoption of this interpretation did not have a material impact on the consolidated financial statements.

3. Revenues

The breakdown of revenues between services rendered and product sales is as follows:

Three-month periods
ended March 31
2014 2013
Services rendered $ 82,588 $ 85,977
Product sales 22,733 25,093
$ 105,321 $ 111,070

4. Purchases of goods and services

The main components of purchases of goods and services are as follows:

Three-month periods
ended March 31
2014 2013
Royalties, rights and production costs $ 57,022 $ 48,988
Printing and distribution 4,094 4,598
Marketing, advertising and promotion 4,241 5,153
Building costs 2,436 2,183
Services rendered by parent corporation 5,796 5,935
Other 4,880 8,236
$ 78,469 $ 75,093

5. Financial expenses

Three-month periods
ended March 31
2014 2013
Interest on long-term debt $ 1,122 $ 1,122
Amortization of financing costs 51 51
(Revenues) interest expense on net defined benefit asset or liability (72 ) 420
Other 19 11
$ 1,120 $ 1,604

6. Operational restructuring costs, impairment of assets and other costs

In the three-month period ended March 31, 2013, the Corporation had recorded operational restructuring costs in the amount of $565,000 for legal expenses in connection with a trial related to a legal dispute involving a former subsidiary. The Corporation had also recorded a $387,000 impairment charge related to its non-current distribution rights inventory following its decision to discontinue theatrical distribution of new Quebec films.

7. Capital stock

a) Authorized capital stock

An unlimited number of Class A common shares, participating, voting, without par value.

An unlimited number of Class B shares, participating, non-voting, without par value.

An unlimited number of preferred shares, non-participating, non-voting, with a par value of $10 each, issuable in series.

b) Issued and outstanding capital stock

March 31, 2014 December 31,
2013
4,320,000 Class A Common Shares $ 72 $ 72
19,450,906 Class B shares 98,575 98,575
$ 98,647 $ 98,647

c) Loss per share attributable to shareholders

The following table sets forth the computation of basic and diluted loss per share attributable to shareholders:

Three-month periods
ended March 31
2014 2013
Net loss attributable to shareholders $ (10,163 ) $ (5,888 )
Weighted average number of basic and diluted shares outstanding 23,770,906 23,770,906
Basic and diluted loss per share attributable to shareholders $ (0.43 ) $ (0.25 )

The diluted loss per share calculation does not take into consideration the potential dilutive effect of stock options of the Corporation since their impact is anti-dilutive.

8. Stock-based compensation and other stock-based payments

Three-month period ended March 31, 2014
Corporation's Class B
stock options
Quebecor Media
stock options
Number Weighted
average
exercise price
Number Weighted
average
exercise price
Balance as at December 31, 2013 691,076 $ 16.54 331,407 $ 53.35
Exercised - - (21,375 ) 46.48
Balance as at March 31, 2014 691,076 $ 16.54 310,032 $ 53.82

Of the number of options outstanding as at March 31, 2014, 691,076 Corporation's Class B stock options at an average exercise price of $16.54 and 64,032 Quebecor Media stock options at an average price of $45.96 could be exercised.

During the three-month period ended March 31, 2014, 21,375 Quebecor Media stock options were exercised for a cash consideration of $352,000 (19,957 stock options were exercised for a cash consideration of $228,000 during the three-month period ended March 31, 2013).

During the three-month period ended March 31, 2014, the Corporation recorded a $31,000 compensation expense reversal ($52,000 compensation expense in the same period of 2013) in relation to the Corporation's Class B stock options and a compensation expense of $400,000 ($29,000 compensation expense reversal in the same period of 2013) in relation to Quebecor Media stock options.

9. Related party transactions

Capital contributions to SUN News

During the three-month period ended March 31, 2014, the partners in SUN News made a capital contribution of $2,900,000 (nil in 2013), including $1,421,000 from the Corporation and $1,479,000 from Sun Media Corporation, a company under common control.

10. Guarantees

In the normal course of business, the Corporation enters into indemnification agreements with third parties as part of certain transactions, including acquisition contracts for goods, service agreements and leases. These indemnification agreements require the Corporation to compensate the third parties for costs incurred as a result of specific circumstances. The terms of these indemnification agreements vary from transaction to transaction, based on the contract terms. The nature of these indemnification agreements prevents the Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay to third parties for all of its commitments. In light of new developments in the first quarter of 2014, the liability risk under specific commitments, which totalled $4,700,000 as at December 31, 2013, was recognized in purchases of goods and services in the three-month period ended March 31, 2014.

11. Segmented information

Management made changes to the Corporation's management structure at the beginning of 2014. As a result of those changes, the custom publishing, commercial print production and premedia services previously provided by the TVA Studio division in the Publishing segment are now part of the operations of TVA Accès inc. in the Television segment. Prior period disclosures have been restated to reflect this new presentation.

The Corporation's operations consist of the following segments:

- The Television segment includes the operations of TVA Network (including the subsidiaries and divisions TVA Productions Inc., TVA Sales and Marketing Inc., TVA Nouvelles and TVA Interactif), specialty services, the marketing of digital products associated with the various televisual brands, the commercial production and dubbing operations of TVA Accès Inc., the home and online shopping services of the TVA Boutiques division up to the second quarter of 2013, and the distribution of audiovisual products by the TVA Films division.
- The Publishing segment includes the operations of TVA Publications Inc. and Les Publications Charron & Cie Inc., which publish French-language magazines in various fields such as the arts, entertainment, television, fashion and decoration, and market digital products associated with the various magazine brands.
Three-month periods
ended March 31
2014 2013
Revenues
Television $ 90,936 $ 98,120
Publishing 15,138 13,913
Intersegment items (753 ) (963 )
$ 105,321 111,070
Adjusted operating (loss) income(1)
Television (8,211 ) 740
Publishing 2,186 155
(6,025 ) 895
Amortization of property, plant and equipment and intangible assets 5,384 5,088
Financial expenses 1,120 1,604
Operational restructuring costs, impairment of assets and other costs - 952
Loss before tax recovery and share of loss of associated corporations $ (12,529 ) $ (6,749 )

The above-noted intersegment items represent the elimination of normal course business transactions between the Corporation's business segments regarding revenues.

(1) The Chief Executive Officer uses adjusted operating income (loss) as a measure of financial performance for assessing the performance of each of the Corporation's segments. Adjusted operating income (loss) is defined as net income (loss) before amortization of property, plant and equipment and intangible assets, financial expenses, operational restructuring costs, impairment of assets and other costs, income taxes and share of loss (income) of associated corporations. Adjusted operating income (loss) as defined above is not a measure of results that is consistent with IFRS.

Contact Information

  • Denis Rozon, CPA, CA
    Vice President and Chief Financial Officer
    (514) 598-2808