FP Canadian Newspapers Limited Partnerships' Q1 net income up 26.1% year-over-year to C$2.9M, net sales down 4.6% to C$25.7M affected by a 5% decline in advertising revenues
May 14, 2013
FP Newspapers Inc. ("FPI") announces financial results for the quarter ended March 31, 2013. FPI is the successor to the business of the FP Newspapers Income Fund and owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP").
First quarter operating results of FPI
FPI reported net earnings of $1.0 million or $0.141 per share for the three months ended March 31, 2013, compared to net earnings of $0.8 million or $0.116 per share in the same period last year.
First quarter operating results of FPLP
FPLP's revenue for the three months ended March 2013 was $25.7 million, a decrease of $1.3 million or 4.6% from the same three months in the prior year. Advertising revenues for the three months ended March 2013 were $17.0 million, a $0.9 million or 5.0% decrease compared to the same period last year. The first quarter of 2013 had two fewer publishing days than the prior year as last year was a leap year and the Good Friday non-publishing day fell in the first quarter this year, but was in the second quarter in 2012. FPLP's largest advertising revenue category, display advertising including colour, was $11.3 million, a decrease of $0.4 million or 3.5% from the same period in the prior year, primarily due to decreased spending in the automotive and travel categories and less revenue from third party magazines, partially offset by increased spending in the department store category. Classified advertising revenues for the first quarter decreased by $0.3 million or 12.3% compared to the same period last year, primarily due to lower spending in the automotive and employment categories, partly offset by increased spending in the real estate category. Flyer distribution revenues for the quarter decreased by $0.2 million or 4.4% primarily due to a small decrease in flyer volumes, partly offset by slightly higher earned rates.
Circulation revenues for the three months ended March 2013 were $6.4 million, a decrease of $0.1 million from the first quarter of 2012, with lower unit sales offsetting increased revenue from higher subscription rates. Commercial printing revenues for the quarter increased by $0.2 million, primarily attributable to increased printing at the Derksen Printers operation. Other revenues for the first quarter decreased by $0.4 million, primarily due to non-recurring sales of the Winnipeg Jets officially licensed medallion collection in the first quarter of 2012.
Operating expenses for the three months ended March 2013 were $22.4 million, a decrease of $1.7 million or 7.2% compared to the same quarter last year. Employee compensation costs for the first quarter decreased by $0.4 million from the same period in the prior year, primarily due to fewer employees, partially offset by wage increases included in the collective agreements effective October 1, 2012 and an increase in the expense for the defined benefit pension plan. Newsprint expense for FPLP's own publications for the first quarter decreased by $0.2 million or 10.6% compared to the same period in the prior year, primarily due to lower volumes resulting from fewer circulation copies. Newsprint expense for commercial printing remained at relatively the same level as the first quarter in 2012. Other expenses decreased by $0.9 million or 16.6% compared to the same quarter last year, primarily due to non-recurring costs relating to the Winnipeg Jets medallion circulation promotion project in the first quarter last year, lower costs for producing third party magazines and lower marketing expenses.
EBITDA(1) for the three months ended March 31, 2013 was $4.4 million compared to $3.9 million for the same period last year, an increase of 11.8%. EBITDA(1) margin for the three months ending March 31, 2013 was 16.9%, compared to 14.5% in the same period last year.
FPLP's net earnings were $2.9 million for the three months ended March 31, 2013, compared to $2.3 million for the same period last year.
Finance costs for the three months ended March 31, 2013 decreased by $0.2 million compared to the previous year, primarily due to lower principal balances together with a reduction in interest rates resulting from the long-term loan renewal agreement effective the beginning of June 2012 and the elimination of the guarantee fee.
Cash available for distribution attributable to FPI(2) was $1.0 million or $0.150 per share for the three months ended March 31, 2013, compared to $0.4 million or $0.061 per share for the same period last year.
FPI declared dividends to shareholders of $1.0 million or $0.150 per share for the three months ended March 31, 2013 and the three months ended March 31, 2012.
May 2013 Dividend
FPI today announced a cash dividend of $0.05 per share, payable on June 28, 2013 to shareholders of record at the close of business on May 31, 2013.
Total advertising revenues for the first quarter were 5% lower than the prior year, partly due to two fewer publishing days. Early into the second quarter we have seen a small improvement in advertising revenues. Newsprint suppliers, which had not changed pricing since September 2010, implemented a small decrease in March which results in our average newsprint price decreasing by 2.7%.
We are required to have our actuarial consultants complete a valuation of the Winnipeg defined benefit pension plan as of December 31, 2012. This valuation will determine the minimum funding levels for the 2013 year. While this report has not yet been finalized, the preliminary findings are showing an increase in the solvency deficiency compared to the prior year due primarily to a decrease in the discount rate used to value the pension obligations. The preliminary findings are showing the estimated 2013 employer funding requirements will be approximately $0.5 million higher than the 2012 funding level. During the second quarter we will be completing the formal pension amendments required for implementing the changes agreed to in the newly completed Winnipeg collective bargaining agreement.
Preliminary discussions with the union representatives for the Brandon Sun are expected to start during the second quarter to work towards completing the renewal of these contracts, which expire on December 31, 2013.
During the second quarter our Winnipeg production staff will start working on a project to upgrade the press conveyor, which transfers printed papers from our presses into the packaging and distribution department. A refurbished used conveyor has been sourced for this upgrade and the total maintenance capital investment is $1.5 million. The board of directors of FPLP approved a strategic capital investment of $2.7 million to acquire a new high capacity inserting line to be installed in the Winnipeg packaging and distribution department. Expected payback on the investment is under two years, with the majority of savings coming from the consolidation of inserting functions that were previously being performed by an outside independent contractor. It is expected a new equipment lease will be arranged to finance this equipment, which is estimated to be operational before the end of this year.
Additional information including financial statements and management's discussion and analysis can be found on the Company's website at www.fpnewspapers.com or on SEDAR at www.sedar.com.
Caution Regarding Forward-looking Statements
Certain statements in this news release may constitute forward-looking statements within the meaning of applicable securities laws. All statements other than statements of historical fact are forward-looking statements. These statements include but are not limited to statements regarding management's intent, belief or current expectations with respect to market and general economic conditions, future costs and operating performance. Generally, but not always, forward-looking statements will be indicated by words such as "may", "will", "intend", "anticipate", "expect", "believe", "plan", "is budgeting for" or similar terminology.
Forward-looking statements are subject to known and unknown risks and uncertainties that may cause the actual results, performance or achievements of FPI or FPLP, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the current general economic uncertainty, FPLP's ability to effectively manage growth and maintain its profitability, FPLP's ability to operate in a highly competitive industry, FPLP's ability to compete with other forms of media, FPLP's ability to attract advertisers, FPLP's reliance upon key personnel, FPLP's relatively high fixed costs, FPLP's dependence upon particular advertising customer segments, indebtedness incurred in making acquisitions, the availability of financing for capital improvements, costs related to capital expenditures, cyclical and seasonal variations in FPLP's revenues, acts of terrorism, the cost of newsprint, the potential for labour disruptions, the risk of equipment failure, and the effect of Canadian tax laws. Additional information about these and other factors is discussed under "Risk Factors" in FPI's Annual Information Form dated March 13, 2013, which is available at www.sedar.com.
In addition, although the forward-looking statements contained in this news release are based upon assumptions that management of FPI and FPLP believe to be reasonable, such assumptions may prove to be incorrect.
Forward-looking statements speak only as of the date hereof and, except as required by law, FPI and FPLP assume no obligation to update or revise them to reflect new events or circumstances. Because forward-looking statements are inherently uncertain, readers should not place undue reliance on them.
FPI owns securities entitling it to 49% of the distributable cash of FP Canadian Newspapers Limited Partnership ("FPLP"). FPLP owns the Winnipeg Free Press, the Brandon Sun, and their related businesses, as well as the Canstar Community News division, the publisher of six community newspapers in the Winnipeg region, The Carillon in Steinbach with its related commercial printing operations and the Carberry News Express weekly publication. The Winnipeg Free Press publishes six days a week for delivery to subscribers and single copy sales, serving Winnipeg and Manitoba with an average Monday through Saturday circulation of approximately 111,200 copies. On Sundays the Winnipeg Free Press publishes a newspaper sold through single-copy retail outlets and vending boxes. The Brandon Sun publishes six days a week, serving the region with an average circulation of approximately 12,475 copies. Canstar Community News publishes weekly with an average circulation of approximately 200,000 copies. The businesses employ approximately 540 people in Winnipeg, Brandon, Steinbach and Carberry, Manitoba.
FPI invites you to participate in a conference call on Tuesday, May 14, 2013 at 1:30 p.m. Eastern (12:30 p.m. Central) to discuss the first quarter results.
The dial-in number is 416-340-2216, or dial toll free at 866-226-1792. To ensure your participation, please dial in five minutes before the start of the conference call. To participate in the call, the required information is "FP Newspapers Inc." Management's presentation will be followed by a question and answer period.
For those unable to participate, the call will be available to listeners upon completion of the call until May 28, 2013. To hear the replay, dial 905-694-9451 or dial toll free at 800-408-3053. The replay code is 9076644.
Non-IFRS financial measures
FPLP believes that in addition to net earnings as reported on FPLP's interim condensed consolidated statements of earnings, EBITDA is a useful supplemental measure as it is a measure used by many of FPLP's unitholders, creditors and analysts as a proxy for the amount of cash generated by FPLP's operating activities and is not a recognized measure of financial performance under IFRS. Investors are cautioned that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS as an indicator of FPLP`s performance. FPLP's method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to measures used by other issuers. FPLP's method of calculating EBITDA is detailed in the Management's Discussion and Analysis for the quarter ended March 31, 2013 on FPI's website www.fpnewspapers.com or on SEDAR at www.sedar.com.
(2) Distributable Cash Attributable to FPI
FPI believes that in addition to the disclosure of cash flow from operations, distributable cash attributable to FPI is an important supplemental measure of cash flow because it provides investors with an indication of the amount of cash available for distribution to Shareholders and because such calculations are required by the terms of the partnership agreement governing FPLP. Distributable cash attributable to FPI is not a defined term under IFRS, and it should not be construed as an alternative to using net earnings or the statements of cash flows as measures of profitability and cash flow. Readers are cautioned that distributable cash as calculated by FPI may not be comparable to similar measures presented by other issuers. FPI uses this measure as a factor to determine whether to adjust its monthly dividends to Shareholders. FPLP's method of calculating distributable cash attributable to FPI is detailed in the Management's Discussion and Analysis for the quarter ended March 31, 2013 on FPI's website www.fpnewspapers.com or on SEDAR at www.sedar.com.