Postmedia tightens first-quarter loss with tax credit, lower expenses

TORONTO – Falling print advertising revenues weighed heavily on the latest results from Postmedia Network Canada Corp., but the newspaper publisher reported a slightly smaller first-quarter loss compared with last year due largely to gains from a tax credit and lower restructuring expenses.

The media company, which owns several daily newspapers and websites, including the National Post, says it lost $10.3 million in the quarter, or 26 cents per share. That compared with a loss of $11.8 million, or 29 cents per share, a year earlier.

Overall revenue dropped 12.6 per cent to $169.5 million — mostly because of weaker print advertising sales, which plummeted 20 per cent to $93.1 million. Companies in the automotive, technology and travel sectors in particular reduced how much they spent on newspaper ads.

Print circulation revenues were also down, falling about four per cent to $47.4 million despite price increases, amid a declined in sales.

Digital revenue from advertising and subscriptions on websites and other electronic media grew three per cent to $24.3 million.

Operating income, filtering out factors such as restructuring costs, depreciation and amortization, came to $45.6 million, which held relatively steady compared with a year ago.

Operating expenses were reduced on lower costs for newsprint, paper distribution and employee compensation, though production costs went up after the company outsourced production of the Montreal Gazette and Calgary Herald.

Postmedia’s largest operating expense category was compensation — at $54.1 million — but it was down 26.8 per cent compared with a year earlier, helped in part by the benefits of digital media tax credit from the Ontario government.

For the first time, the company booked $13.8-million from the credit, which is provided by the province to pay for labour and other expenses on interactive digital media projects. Another $3.5 million may be given to the company under its existing credit submission, said chief financial officer Doug Lamb.

Postmedia could get more money from the initiative in the future, which can be reapplied for every two years, he added.

“As long as that program remains in place we will continue to submit claims,” he said.

“We want to get fully through the first claim so we understand the process.”

Postmedia (TSX:PNC.B, TSX:PNC.A) has been undergoing a three-year turnaround plan, which includes cost-cutting and greater emphasis on digital forms of publication in keeping with a broad shift in consumer and advertiser preferences.

The company has also focused on boosting its revenues with a metered wall that asks readers to subscribe after they’ve viewed a specific number of news stories each month.

Chief operating officer Wayne Parrish said Postmedia has no plans to change that strategy, which he believes will help lead the company back to profitability.

“It’s it is a piece of the overall puzzle that you have to work with,” he told analysts.

The Toronto Star has announced plans to tear down its paywall later this year after a short-lived pilot project to increase paid readership.

Postmedia has a different strategy, which includes buying the assets of Sun Media from Quebecor (TSX:QBR.B) for $316 million, a transaction it intends to finance through a combination of debt and equity financings and proceeds from the sale of real estate in Montreal and Calgary.

So far, the company has sold the Montreal facility for $12.5 million, but a conditional offer for the Calgary facility fell through, Godfrey said.

“We continue to market our Calgary property,” he added.

The acquisition of the Sun media newspapers and websites are “critical to the future of the Canadian media industry,” Godfrey said.

“In order to persevere we must have the scale, scope and time to be able to compete with the giant, foreign-owned digital-only companies like Google, Facebook, Yahoo, Twitter and the like.”

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Note to readers: This is a corrected story. Previous versions of the story included erroneous figures for digital revenue.