TVA Group Inc.
TSX : TVA.B

TVA Group Inc.

July 29, 2014 09:06 ET

TVA Group Reports $9.2 Million Net Income Attributable to Shareholders in Second Quarter Ended June 30, 2014

MONTRÉAL, QUÉBEC--(Marketwired - July 29, 2014) - TVA Group Inc. (the "Corporation") (TSX:TVA.B) announces that it recorded a net income attributable to shareholders in the amount of $9.2 million, or $0.39 per share, in the second quarter of 2014, compared with $7.0 million, or $0.29 per share, in the same quarter of 2013.

Second quarter operating highlights:

  • The consolidated adjusted operating income(1) totalled $20,999,000, compared with $20,940,000 for the same quarter of 2013.

  • The Television segment generated an adjusted operating income of $18,070,000, an $1,074,000 unfavourable variance primarily due to:

    • decrease in TVA Network's adjusted operating income due mainly to a 3.1% decrease in advertising revenues;

      partially offset by:

    • decrease in the adjusted operating loss of the specialty services, directly attributable to an 11.6% increase in subscription revenues.

  • The Publishing segment generated adjusted operating income in the amount of $2,929,000, a $1,133,000 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.

"Consolidated financial results for the second quarter of 2014 are stable, although we are again seeing a downward trend in the Television segment's advertising revenues. Despite strong management of our operating expenses, adjusted operating income in the Television segment decreased over the same quarter of 2013. With its high quality programming, TVA Network remained ahead of its conventional rivals with a 21.4% market shares. Our specialty services also posted excellent ratings, giving them a combined increase of 1.1% share in the quarter. We are very excited about the upcoming start of the National Hockey League season and are proud to see viewers' growing interest in TVA Sports," commented Pierre Dion, President and CEO of the Corporation.

"The Publishing segment continues to benefit from the positive impact of the acquisition of La Semaine magazine. Thanks to all the initiatives taken in this segment and the addition of our latest acquisition, revenues in this operating segment increased by 11.2% in the second quarter, while adjusted operating income grew by 63.1% compared with the same quarter of 2013," concluded Pierre Dion.

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

Cash flows provided by operating activities totalled $16.1 million in the second quarter of 2014, compared with $10.7 million in the same quarter of 2013. The increase was essentially due to a favourable variance in accounts payable and accrued liabilities and in the net income, partially offset by an unfavourable variance in income taxes and accounts receivable.

Two new members of the Board of Directors

TVA Group is also pleased to announce the appointments of Annick Mongeau and Jacques Dorion to the Company's Board of Directors. Denis Rozon, who was appointed director on May 6, 2014, has resigned from his seat on the Board.

"The strength of a board of directors lies in the knowledge and expertise of each of its members. We are therefore extremely proud to welcome Ms. Mongeau to the Board and to benefit once more from Mr. Dorion's experience. Their significant expertise in the fields of communications and business development will be definite assets in the growth of our company. We would like to underscore their commitment and thank them for joining TVA Group," said Sylvie Lalande, Chair of the Board of Directors.

Annick Mongeau, ASC, has wide-ranging expertise in communications and public affairs. She is the founding president of the issues management and public affairs firm Annick Mongeau, gestion d'enjeux et affaires publiques Inc., established in 2008. Over the course of her career, she has held a variety of management positions in her areas of expertise, including with the Association québécoise des pharmaciens propriétaires. She holds a Bachelor's degree in communications and political science, as well as a university certificate in corporate governance. She has chaired the board of the Centre communautaire Hochelaga since 2012.

Jacques Dorion has been actively involved in media for the past 30 years and holds a Master's degree in business administration. He has been president of the firm Media Intelligence Inc. since 2013. A strong entrepreneur, he founded a company specializing in media analysis and research in 1979, Strategem Inc. In 1998, he joined the international group Carat, which is owned by the British public company Aegis, where he held the position of President and Chief Executive Officer of Carat Canada and later of Aegis Media Canada. As a consultant with extensive knowledge of the needs of Canadian broadcasters, he has contributed to a number of market studies regarding the future of television and radio advertising in Canada. Mr. Dorion is a member of the board of Radio Nord.

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 should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS.

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. This measure eliminates the significant level of impairment and amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of the Corporation and its segments. Adjusted operating income (loss) is also relevant because it is a significant component of the Corporation's annual incentive compensation programs. 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 July 29, 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 income (loss) and comprehensive income (loss)
(unaudited)
(in thousands of Canadian dollars, except per share amounts)
Three-month periods Six-month periods
ended June 30 ended June 30
Note 2014 2013 2014 2013
Revenues 3 $ 109,700 $ 111,507 $ 215,021 $ 222,577
Purchases of goods and services 4,10 55,934 56,822 134,403 131,915
Employee costs 32,767 33,745 65,644 68,827
Amortization of property, plant and equipment and intangible assets 5,317 5,374 10,701 10,462
Financial expenses 5 975 1,597 2,095 3,201
Operational restructuring costs, impairment of assets and other costs 6 - 2,047 - 2,999
Income before tax expense (recovery) and share of loss of associated corporations 14,707 11,922 2,178 5,173
Tax expense (recovery) 3,628 3,526 (519 ) 1,102
Share of loss of associated corporations 1,916 1,415 3,697 2,978
Net income (loss) and comprehensive income (loss) attributable to shareholders $ 9,163 $ 6,981 $ (1,000 ) $ 1,093
Basic and diluted earnings (loss) per shareattributable to shareholders 7 c) $ 0.39 $ 0.29 $ (0.04 ) $ 0.05
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





Capital
stock
(note 7)






Contributed
surplus






Retained
earnings
Accumulated
other

comprehensive
(loss)

income -
Defined
benefit plans
Total
equity
Balance as at December 31, 2012 $ 98,647 $ 581 $ 187,937 $ (20,620 ) $ 266,545
Net income - - 1,093 - 1,093
Balance as at June 30, 2013 98,647 581 189,030 (20,620 ) 267,638
Net income - - 14,653 - 14,653
Other comprehensive income - - - 25,768 25,768
Balance as at December 31, 2013 98,647 581 203,683 5,148 308,059
Net loss - - (1,000 ) - (1,000 )
Balance as at June 30, 2014 $ 98,647 $ 581 $ 202,683 $ 5,148 $ 307,059
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Consolidated balance sheets
(unaudited)
(in thousands of Canadian dollars)
June 30, December 31,
Note 2014 2013
Assets
Current assets
Cash $ 12,086 $ 7,717
Accounts receivable 115,610 136,408
Income taxes 5,005 124
Programs, broadcast and distribution rights and inventories 52,758 61,428
Prepaid expenses 3,480 2,380
188,939 208,057
Non-current assets
Broadcast and distribution rights 36,997 31,985
Investments 13,892 14,822
Property, plant and equipment 103,068 100,962
Licences and other intangible assets 111,110 112,566
Goodwill 44,469 44,536
Defined benefit plan asset 12,306 8,238
Deferred income taxes 569 885
322,411 313,994
Total assets $ 511,350 $ 522,051
Liabilities and equity
Current liabilities
Accounts payable and accrued liabilities $ 76,384 $ 85,960
Income taxes 528 1,828
Broadcast and distribution rights payable 19,155 17,304
Provisions 234 645
Deferred revenues 5,341 9,302
Short-term debt 74,741 74,640
176,383 189,679
Non-current liabilities
Other liabilities 6,902 3,974
Deferred income taxes 21,006 20,339
27,908 24,313
Equity
Capital stock 7 98,647 98,647
Contributed surplus 581 581
Retained earnings 202,683 203,683
Accumulated other comprehensive income 5,148 5,148
Equity attributable to shareholders 307,059 308,059
Guarantees 10
Total liabilities and equity $ 511,350 $ 522,051
See accompanying notes to condensed consolidated financial statements.
On July 29, 2014, the Board of Directors approved the condensed consolidated financial statements for the three- month and six-month periods ended June 30, 2014 and 2013.
TVA GROUP INC.
Consolidated statements of cash flows
(unaudited)
(in thousands of Canadian dollars)
Three-month periods Six-month periods
ended June 30 ended June 30
Note 2014 2013 2014 2013
Cash flows related to operating activities
Net income (loss) $ 9,163 $ 6,981 $ (1,000 ) $ 1,093
Adjustments for :
Amortization 5,367 5,424 10,802 10,563
Impairment of assets 6 - 612 - 999
Share of loss of associated corporations 1,916 1,415 3,697 2,978
Deferred income taxes 396 (115 ) 961 909
16,842 14,317 14,460 16,542
Net change in non-cash balances related to operating activities (762 ) (3,587 ) 6,492 (8,355 )
Cash flows provided by operating activities 16,080 10,730 20,952 8,187
Cash flows related to investing activities
Additions to property, plant and equipment (5,481 ) (4,236 ) (11,820 ) (9,548 )
Additions to intangible assets (727 ) (338 ) (1,495 ) (922 )
Net change in investments 9 (1,346 ) (1,470 ) (2,767 ) (671 )
Final adjustment to the cost of a business acquisition - - (501 ) -
Cash flows used in investing activities (7,554 ) (6,044 ) (16,583 ) (11,141 )
Cash flows related to financing activities
Net change in revolving credit facility - (254 ) - -
Cash flows used in financing activities - (254 ) - -
Net change in cash 8,526 4,432 4,369 (2,954 )
Cash at beginning of period 3,560 3,233 7,717 10,619
Cash at end of period $ 12,086 $ 7,665 $ 12,086 $ 7,665
Interest and taxes reflected as operating activities
Net interest paid $ 2,113 $ 2,115 $ 2,031 $ 2,196
Income taxes paid (received) 1,755 (579 ) 4,701 1,389
See accompanying notes to condensed consolidated financial statements.
TVA GROUP INC.
Notes to condensed consolidated financial statements
Three-month and six-month periods ended June 30, 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 and six-month periods ended June 30, 2013, have been reclassified to conform to the presentation adopted for the three-month and six-month periods ended June 30, 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 Six-month periods
ended June 30 ended June 30
2014 2013 2014 2013
Services rendered $ 86,124 $ 86,867 $ 168,712 $ 172,844
Product sales 23,576 24,640 46,309 49,733
$ 109,700 $ 111,507 $ 215,021 $ 222,577

4. Purchases of goods and services

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

Three-month periods Six-month periods
ended June 30 ended June 30
2014 2013 2014 2013
Royalties, rights and production costs $ 35,666 $ 32,722 $ 92,688 $ 81,710
Printing and distribution 4,406 4,720 8,500 9,318
Marketing, advertising and promotion 2,354 3,387 6,595 8,540
Building costs 2,244 2,209 4,680 4,392
Services rendered by parent corporation 5,647 6,037 11,443 11,972
Other 5,617 7,747 10,497 15,983
$ 55,934 $ 56,822 $ 134,403 $ 131,915

5. Financial expenses

Three-month periods Six-month periods
ended June 30 ended June 30
2014 2013 2014 2013
Interest on long-term debt $ 1,123 $ 1,126 $ 2,245 $ 2,248
Amortization of financing costs 50 50 101 101
(Revenues) interest expense on net defined benefit asset or liability (71 ) 420 (143 ) 840
Other (127 ) 1 (108 ) 12
$ 975 $ 1,597 $ 2,095 $ 3,201

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

In the three-month and six-month periods ended June 30, 2013, the Corporation recorded $1,646,000 in operational restructuring costs in connection with the elimination of a number of positions, including $897,000 in the Television segment and $749,000 in the Publishing segment.

During the first quarter of 2013, the Corporation decided to discontinue theatrical distribution of new Québec films, whereas in the second quarter of 2013, the Corporation announced that its TVA Boutiques division's home shopping and online shopping operations would be discontinued. As a result of these repositionings, the Corporation recorded a $612,000 inventory impairment charge and a $303,000 provision for operational restructuring costs for the three-month period ended June 30, 2013 and a $999,000 impairment charge and a $303,000 provision for operational restructuring costs for the six-month period ended June 30, 2013.

During the three-month period ended June 30, 2013, the Corporation also reversed a $514,000 provision for restructuring costs following a favourable judgment in a legal dispute related to a former subsidiary's activities. During the six-month period ended June 30, 2013, the Corporation recorded a net charge of $51,000 in connection with this dispute.

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

June 30, December 31,
2014 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) Earnings (loss) per share attributable to shareholders

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

Three-month periods Six-month periods
ended June 30 ended June 30
2014 2013 2014 2013
Net income (loss) attributable to shareholders $ 9,163 $ 6,981 $ (1,000 ) $ 1,093
Weighted average number of basic and diluted shares outstanding 23,770,906 23,770,906 23,770,906 23,770,906
Basic and diluted earnings (loss) per share attributable to shareholders $ 0.39 $ 0.29 $ (0.04 ) $ 0.05

The diluted earnings (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

Six-month period ended June 30, 2014
Corporation's Class B Quebecor Media
stock options stock options
Weighted Weighted
average average
Number exercise price Number exercise price
Balance as at December 31, 2013 691,076 $ 16.54 331,407 $ 53.35
Granted - - 62,000 63.50
Exercised - - (21,375 ) 46.48
Balance as at June 30, 2014 691,076 $ 16.54 372,032 $ 55.44

Of the number of options outstanding as at June 30, 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 June 30, 2014, no Quebecor Media stock options were exercised (21,927 stock options were exercised for a cash consideration of $243,000 in the same period of 2013). During the six- month period ended June 30, 2014, 21,375 Quebecor Media stock options were exercised for a cash consideration of $352,000 (41,884 stock options were exercised for a cash consideration of $471,000 in the same period of 2013).

During the three-month and six-month periods ended June 30, 2014, the Corporation recorded compensation expense reversals of $15,000 and $46,000 respectively (compensation expense reversals of $83,000 and $31,000 respectively in the same periods of 2013) in relation to the Corporation's Class B stock options as well as compensation expense of $197,000 and $597,000 respectively (compensation expense reversals of $41,000 and $70,000 respectively in the same periods of 2013) in relation to Quebecor Media stock options.

9. Related party transactions

Capital contributions to SUN News

During the three-month period ended June 30, 2014, the partners in SUN News made a capital contribution of $3,300,000 ($3,000,000 in 2013), including $1,617,000 ($1,470,000 in 2013) from the Corporation and $1,683,000 ($1,530,000 in 2013) from Sun Media Corporation, a company under common control.

During the six-month period ended June 30, 2014, the partners in SUN News made a capital contribution of $6,200,000 ($3,000,000 in 2013), including $3,038,000 ($1,470,000 in 2013) from the Corporation and $3,162,000 ($1,530,000 in 2013) from Sun Media Corporation.

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 distribution of audiovisual products by the TVA Films division and the home and online shopping services of the TVA Boutiques division up to the second quarter of 2013.

- 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 Six-month periods
ended June 30 ended June 30
2014 2013 2014 2013
Revenues
Television $ 94,240 $ 97,922 $ 185,176 $ 196,042
Publishing 15,958 14,354 31,096 28,267
Intersegment items (498 ) (769 ) (1,251 ) (1,732 )
$ 109,700 $ 111,507 $ 215,021 $ 222,577
Adjusted operating income(1)
Television 18,070 19,144 9,859 19,884
Publishing 2,929 1,796 5,115 1,951
20,999 20,940 14,974 21,835
Amortization of property, plant and equipment and intangible assets 5,317 5,374 10,701 10,462
Financial expenses 975 1,597 2,095 3,201
Operational restructuring costs, impairment of assets and other costs - 2,047 - 2,999
Income before tax expense (recovery) and share of loss of associated corporations $ 14,707 $ 11,922 $ 2,178 $ 5,173

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

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

    New members of the Board of Directors:
    Veronique Mercier
    Vice President, Communications
    (514) 598-3972
    veronique.mercier@tva.ca