Postmedia Network Canada Corp.
J.P. Morgan Global High Yield & Leveraged
Finance Conference
February 24, 2014
Forward-Looking Statements
This presentation may include certain information that is “forward-looking information” under applicable Canadian
securities laws and “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. The Company has tried, where possible, to identify such information and statements by using words
such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “may,” “will,” “could,” “would,” “should” and similar
expressions and derivations thereof in connection with any discussion of future events, trends or prospects or future
operating or financial performance. Forward-looking statements in this presentation include statements with respect
to the implementation and results of the Company’s transformation initiatives and the realization of anticipated cost
savings.
By their nature, forward-looking information and statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the future. These risks and uncertainties include,
among others, competition from other newspapers and alternative forms of media; the effect of economic conditions
on advertising revenue; the ability of the Company to build out its digital media and online businesses; the failure to
maintain current print and online newspaper readership and circulation levels; the realization of anticipated cost
savings; possible damage to the reputation of the Company’s brands or trademarks; possible labour disruptions;
possible environmental liabilities, litigation and pension plan obligations; not being able to refinance our ABL Facility
on attractive terms or at all; fluctuations in foreign exchange rates and the prices of newsprint and other commodities.
For a complete list of our risk factors please refer to the section entitled “Risk Factors” contained in our annual
management’s discussion and analysis for the years ended August 31, 2013, 2012 and 2011, which can be found on
the Company’s website at www.postmedia.com, on SEDAR at www.sedar.com or on the SEC’s website at
www.sec.gov. Although the Company bases such information and statements on assumptions believed to be
reasonable when made, they are not guarantees of future performance and actual results of operations, financial
condition and liquidity, and developments in the industry in which the Company operates may differ materially from
any such information and statements in this presentation.
Given these risks and uncertainties, undue reliance should not be placed on any forward-looking information or
forward-looking statements, which speak only as of the date of such information or statements. Other than as
required by law, the Company does not undertake, and specifically declines, any obligation to update such
information or statements or to publicly announce the results of any revisions to any such information or statements.
Unless otherwise noted, all references to “$” are to Canadian dollars.
2
Our English-language
paid daily newspapers
have, in total, the
highest weekly print
readership when
compared to other
media organizations in
Canada, reaching 4.2
million Canadians each
week(1)
Digital properties with
6.1 million average
monthly unique
visitors(2), including
newspaper sites ranked
#1 in Canada that reach
31% of Canadian
newspaper site visitors(2)
(1) Source: NADbank 2012
(2) Source: comScore, MediaMetrix, Total Canada, All Locations, Q1F’14 (3month Average Sept-Nov 2013)
3
Company Highlights
Transformation into
leading multi-platform
content provider
Significant cost
savings opportunities
Strong free cash flow
with track record of
debt repayment
• #1 English news source in its key markets provides strong value proposition to
advertisers for local, regional, and national reach
• Four platform strategy driving conversion from legacy printing business into a
content engine offering customized bundles to both readers and advertisers
• Reinvesting in local news content within its markets and its already extensive
portfolio of premium digital media, online and mobile assets
• Robust, enterprise-wide audience data analytics will drive sales approach
• Multiple cost reduction initiatives successfully completed in 2010, 2011, and
2012
• Three-year transformation program initiated in Q3 of F2012 with target of
eliminating 15% to 20% of operating costs
• As of November 30, 2013 implemented initiatives expected to yield net
annualized cost savings of $87 million or approximately a 13% decrease in
operating costs
• Shifting cost structure for higher margin digital environment
• Attractive margins and modest capital expenditures continue to drive strong
free cash flow
• Approximately $229 million of debt repaid since July 2010 (excluding
repayments made on refinancing)
4
Company Highlights
Substantial owned
real estate value
• Significant tangible asset base of owned real estate
• Currently have three facilities being marketed for sale (Calgary, Edmonton and
Vancouver)
• Potential for additional asset sales to accelerate debt repayment
Strong, well-respected
management team
• Management and Board of Directors have extensive industry experience
• CEO Paul Godfrey is a respected figure in Canadian media with long-standing
relationships with key advertisers in major sectors such as auto and financial
5
INDUSTRY AND
COMPETITION
Canada Newspaper Industry to Outpace U.S.
•
Canadian newspaper advertising market forecast to outperform the U.S. market
over the next four years
–
•
Driven by greater growth in digital advertising segment and slower decline in traditional
print advertising
Newspaper digital advertising market in Canada expected to grow to US$439
million by 2017
–
Accelerated growth rate versus U.S. driven by less developed market in Canada
Newspaper Print Advertising Growth
U.S. CAGR: -7.9%
Newspaper Digital Advertising Growth
Canada CAGR: -7.0%
0.0%
U.S. CAGR: 9.6%
Canada CAGR: 10.8%
12.0%
-2.0%
10.0%
-4.0%
8.0%
6.0%
-6.0%
4.0%
-8.0%
-10.0%
2.0%
2013
2014
2015
United States
2016
Canada
2017
0.0%
2013
2014
2015
United States
2016
2017
Canada
Source: PwC Global Entertainment and Media Outlook (June 2013)
7
Internet #1 share of advertising spending
•
Internet accounts for 31% and Newspapers account for 15% of advertising spend
•
Total advertising spend projected to grow about 4% annually for next three years
2013 Advertising Spending Segmentation
Canadian Advertising Spending Forecast
Source: ZenithOptimedia Advertising Expenditure Forecasts, December 2013
Note: Internet includes Online and Mobile
8
Display Advertising represents 29% of all
Canadian Internet Ad Revenue
18%
$6,000
2013 Internet Revenue and %Share by Advertising Vehicle
Classified
$590 million
17%
Search
$1.5 billion
43%
Display
$998 million
29%
$5,000
14%
12%
$4,000
10%
$3,000
8%
6%
$2,000
Y-o-Y % Change
Email
$11 million
16%
Mobile
$240 million
7%
C$millions
Video
$115 million
3%
4%
$1,000
2%
0%
$0
2011
2012
2013E 2014E 2015E 2016E
Display
Video
Classified
Search
Email
Mobile
YoY Change
• Total 2013 Internet advertising revenue was $3.4 billion
• Search and Display grew substantially in 2013 and collectively represent 72% of all Canadian Internet ad revenue
• Search +13% to $1.5 billion and Display +9% to $998 million
• Classifieds increased only +1% in 2013 to $590 million from $584 million
• Collectively, these three ad vehicles represent 89% of all Internet advertising booked in 2013
• Video advertising grew +25% from $92 million in 2012 to $115 million in 2013
• Mobile has leaped +50% to $240 million from $160 million in 2012
Source: ZenithOptimedia Advertising Expenditure Forecasts, December 2013
Note: Internet includes Online and Mobile
9
Newspaper Readership in Canada Still Strong
•
Canadian newspaper print and website readership continues to grow despite
strong competition from online news leaders
–
+8.9% growth from 2008
•
Weekly newspaper print readership has been stable despite challenging
economic and structural trends
•
Website / digital properties enhancing 24/7 news capabilities
Weekly Print & Website Readership Growing
Weekly Print Readership Stable
(millions)
(millions)
CAGR: 1.7%
Source: NADbank 2012, top 19 markets
Readership = Weekly Print and Online (newspaper and hub websites)
CAGR: 0.7%
Source: NADbank 2012, top 19 markets
Readership = 6/7 day Weekly Print + PDF cume
10
The Postmedia Network Advantage
Postmedia daily newspapers reach 4.2 million Canadian adults each week
Weekly Print/PDF Readership(1) – Adults 18+
% Share of Total Paid Daily Circulation(2)
4.2 Million
25
Other 27
3.1 Million 3.0 Million
2.7 Million
2.5 Million
1.6 Million
7
13
28
Toronto Star Network: Toronto Star, KW Record, Guelph Mercury and Hamilton Spectator
Sun Media: Calgary Sun, Edmonton Sun, Winnipeg Sun, Toronto Sun and Ottawa Sun
Metro Network: Metro - Vancouver, Calgary, Edmonton, Toronto, Ottawa and Halifax
24 Hours Network: 24 Hours - Vancouver, Toronto
Postmedia Network owned properties: National Post, The Vancouver Sun, The Province, Calgary Herald, Edmonton
Journal, Regina Leader-Post, The StarPhoenix (Saskatoon), The Windsor Star, Ottawa Citizen, The Gazette (Montreal)
(1)
(2)
Source: NADbank 2012; For comparative purposes, Networks based on English language readership. Weekly Readership = print/pdf 6/7 day cumulative (cume) Postmedia, Sun Media, TorStar, Globe and Mail; 5-day print cume+6/7day
pdf cume Metro and 24 Hours Base:, Postmedia Network owned properties , Sun Media (5 markets + 15 markets for Toronto Sun), Torstar (19 markets), Globe and Mail (48 markets), Metro (6 markets), 24 Hours (2 markets).
Source: Newspapers Canada 2012 Circulation Data Report; Postmedia includes disposed properties. Based on Paid English Language Dailies, 33% share for Postmedia
11
Postmedia is #1 in Online Newspaper Audience
Newspaper Category
Unique Visitors (000) – Q1 F’14
Postmedia Newspapers
5,314
31%
35%
Reach
Reach
Canoe Sun Media Newspapers
5,309
The Globe And Mail
3,607
Toronto Star
3,519
Mail Online
2,869
Transcontinental Digital Local
Solutions Group
2,198
The New York Times Brand
2,104
The Guardian
Telegraph Media Group
T365 - Tribune Newspapers
Postmedia Newspapers
reach 31% of all Canadians
who visit newspaper
websites
2,016
1,374
1,136
Source: comScore, MediaMetrix, Total Canada, All Locations. Q1 = Sept/Oct/Nov 2013.
12
Postmedia is #6 in News & Information Category
News and Information Category
Unique Visitors (000) - Q1 F’14
Canoe
9,078
CBC-Radio Canada Sites
8,327
About
6,576
Yahoo-ABC News Network
6,515
Pelmorex Media Inc. Weather
Postmedia Network
6,304
6,109
25% Reach
HPMG News
5,873
CNN Network
Torstar Digital
CTV
5,417
Postmedia Newspapers
reach 25% of all Canadians
who visit
Newspaper & Information
websites
5,193
4,396
Source: comScore, MediaMetrix, Total Canada, All Locations. Q1 = Sept/Oct/Nov 2013.
13
BUSINESS OVERVIEW
Postmedia Network
•
Newspaper brands that reach as far back as 1778
•
Daily newspapers, weekly community publications, magazines
•
Multiplatform content delivery – web, smartphone, tablet, print
•
28 destination websites – news, sports, entertainment, business
•
National news coverage – leveraging more than 900 journalists across the chain
•
Editorial services operation – pagination, sports agate, comics
•
Media monitoring B2B subscription service
•
Print and digital sales representation
•
Flyer distribution operations
15
Well-Established and Trusted Brands
#1
70% M.S.
#1
100% M.S.(1)
#1
66% M.S.
#1
100% M.S.
#1
100% M.S.
#3(2)
100% M.S.
#2(1)
100% M.S.(1)
#1
100% M.S.
#1
73% M.S.
•
Postmedia’s newspaper brands are woven into the fabric of the communities they serve, some for over a century
•
Each of the Corporation’s nine daily metropolitan newspapers has the highest circulation and readership among
English-language newspapers in the market that it serves (except for The Province and The Vancouver Sun,
both of which are Postmedia Newspapers, which are second in their market to each other for circulation and
readership, respectively)
•
Brands include the Calgary Herald, Montreal Gazette and Vancouver Sun
–
100% market share of paid daily English language newspapers in five of nine markets
•
The National Post, one of Canada’s two daily national newspapers
•
Five community newspapers, serving areas in Southwestern Ontario
Note: Market shares represent local market share of paid daily newspapers
(1) The Province and The Vancouver Sun, both of which are Postmedia Newspapers, which are second in their market to each other for circulation and readership, respectively
(2) Number one among English-language paid daily newspapers, number three overall among paid daily newspapers
16
Strong and Diversified Revenue Base
Revenue by Type – F2013
Insert advertising
17%
Other advertising
4%
National
advertising
38%
Classified
advertising
17%
Advertising Revenue Mix – F2013
Retail advertising
24%
Digital
12%
Print
circulation
26%
Other
3%
Print
advertising
59%
17
Portfolio of Premium Digital Assets
•
Postmedia owns and represents 22 destination websites and has exclusive advertising
representation agreements with high-profile third party sites
•
Postmedia Network sites’ audience of 6.4 million average monthly unique visitors (“UVs”) combined
with third party sites of 1.5 million UVs for a net audience(1) of 7.2 million UVs
Postmedia Network Sites
Infomart.ca
6.4 million UVs (2)
Ranks #6 in News & Information category
Approximately 1,000 subscribers(3)
3rd Party Sites Managed &
Exclusive Ad Agreements
1.5 million UVs(2)
Newspaper sites
5.6 million monthly UVs
•
•
canada.com (site)
canada.com classifieds
(1)
(2)
(3)
Electronic resource of Canadian news
and business information products
Integrated monitoring of over 1,600
licensed news & broadcast sources,
and hundreds of thousands of social
media sources including blogs, online
news, Twitter, YouTube, Facebook,
and Forums)
Number of individuals, households, etc., potentially exposed to a 'Media Vehicle' or 'Media Schedule' at least once using successive issues and/or broadcasts. Commonly termed 'Net
Unduplicated Audience', 'Unduplicated Audience', 'Cumulative Audience', 'Cumulative Reach' or just 'Reach'.Those individuals exposed to more than one insertion are only counted once.
Source: comScore, MediaMetrix, Total Canada, All Locations, Q4F’13 (3 month Average Jun-Aug 2013)
Source: Infomart customer database
18
Postmedia Newspaper websites have grown
+73% since 2009
•
Postmedia Newspaper sites reach over 5.3 million average monthly UVs in Q1F’14
•
Versus F2013, Q1F’14 UVs have declined 6%
+73% Since 2009
Average Monthly Unique Visitors (000)
6,000
5,333
5,639
5,314
4,825
5,000
+5%
4,050
4,000
+11%
+19%
3,065
3,000
-6%
+32%
2,000
1,000
0
F2009
F2010
F2011
F2012
F2013
Q1 F14
Source: comScore, MediaMetrix, Total Canada, All Locations, Postmedia Newspapers, Average Monthly Unique Visitor Trends Fiscal 2008 to Fiscal 2013 plus Q1 F’14
19
Mobile Audience is growing Dramatically and Now
Represents the Majority of Digital Traffic
300
Page Views (millions)
250
• Mobile page views
include smartphones,
tablets and apps.
200
• Mobile page views now
represent 65% of total
traffic
150
100
• Traditional desktop
traffic has plateaued as
audiences shift rapidly
to mobile devices.
50
0
Q3 F'13
Q4 F'13
Desktop
Mobile
Q1 F14
Q2 F'14
Total
Source: Omniture SiteCatalyst, average monthly PVs March 2013 – January 2014. Omniture data includes total Worldwide audience.
20
BUSINESS STRATEGY
22
MONETIZE
Capitalize on our audience-selling capabilities, leverage our audience engagement,
build profitable relationships between advertisers and their targets, drive our
All Access and Digital Access offerings with consumers.
Audience based selling
•
Shift of sales focus from traditional sale of “impressions” to
selling audience and results
•
Development of deep audience database with full data
analytics
•
Aggressive digital growth through greater local client
penetration, behavioural targeting, real-time bidding, video
and mobile
•
Proactive, key account strategy
•
Complete implementation of customer relationship
management system
•
Redesign sales compensation plan to support new sales
strategy
•
Training/development to support new sales strategy
•
Move towards a strategic and targeted subscriber
acquisition model
All Access & Digital Access Bundles
23
DIFFERENTIATE
Create distinctive and differentiated products across four platforms (print, web, tablet &
smartphone) leveraging their unique features and uses to deliver personalized
experiences to specific audiences, with a strong focus on local content.
Content designed to connect with
more audiences, in more meaningful ways,
more times throughout the day.
Specific approach to storytelling that fits the unique
attributes of the platform and device, the distinct
characteristics of an audience, and the expectations of
that audience given the time of day.
Launching new suite of products beginning in Q3 F14 in Ottawa.
24
ENGAGE
Leverage our differentiated products and advanced audience analytics capabilities to
create experiences that exceed the expectations of loyal subscribers, deepen
relationships with engaged users, and create a following among urban Canadians.
THE ENGAGEMENT GOAL
25
How We’ll Get There
Engaged and Aligned Employees
We will empower and engage employees by
connecting their work directly to the
audience and advertiser experience.
Efficient Cost Structure
We will continue the transformation from the legacy
processes and costs of a traditional newspaper
publisher to the efficient, responsive systems and
processes required of a competitive, multi-platform,
modern media company.
26
FINANCIAL HIGHLIGHTS
Revenue and Operating Income Performance
•
Revenue environment remains challenging – expect to stabilize EBITDA in fiscal
2013 based on significant cost reductions
Experienced modest EBITDA growth in December
•
LTM Consolidated
Revenue(1)
(C$ millions)
LTM Operating Income before Depreciation,
Amortization and Restructuring(1)
(C$ millions)
$1,200
$300
$1,000
$250
$800
$200
$600
$150
$400
$100
$200
$50
$0
$0
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
F11 (2)F12 F12 F12 F12 F13 F13 F13 F13 F14
(1)
(2)
Q4
Q1
F11(2) F12
Q2
F12
Q3
F12
Q4
F12
Q1
F13
Q2
F13
Q3
F13
Q4
F13
Q1
F14
Postmedia adopted IFRS on September 1, 2011. For a full discussion of the impact of the transition to IFRS see the interim condensed consolidated financial statements and
MD&A of Postmedia for the three months ended November 30, 2011 and 2010.
Fiscal 2011 adjusted financial information is based on actual fiscal 2011 results adjusted to exclude the Disposed Properties (Times-Colonist, Vancouver Island Newspaper Group,
and BC community newspapers).
28
Debt Repayment Record and FCF Generation
•
Transformation has helped stabilize cash flow
•
•
Top priority for free cash flow(1,2) continues to be debt reduction
Pursuing additional real estate opportunities (Vancouver, Calgary and Edmonton)
to accelerate debt repayment
•
Approximately $229 million repaid since July 2010
LTM Cash Flow(2) (C$ millions)
Consolidated Debt (C$ millions)
$200
$800
$150
$600
$100
$400
$50
$200
$0
$0
Q4
F11
Q1
F12
Q2
F12
Q3
F12
Q4
F12
Q1
F13
Q2
F13
Q3
F13
Q4
F13
Q1
F14
July 13,
2010
Q4
F10
Q4
F11
Q4
F12
Q4
F13
Q1
F14
(1) Represents a non-IFRS financial measure. Postmedia believes this measure is beneficial from the perspective of assessing the Company’s financial performance. However, non-IFRS financial measures do not have any standard definition
prescribed under IFRS and as such may not be comparable to similar measures used by other companies.
(2) Cash flow defined as LTM Operating Income before Depreciation, Amortization and Restructuring less Capital Expenditures.
29
Ongoing Reduction of Print Related Infrastructure
Current Status of Transformation Program
•
The company successfully implemented over $50 million of operating cost reductions to the end of fiscal 2011
•
In late fiscal 2012, initiated a new transformation program with target of eliminating additional 15% to 20% of
operating costs over next 3 years
•
As of November 30, 2013 the company has implemented net annualized savings of approximately $87 million or
approximately 12.5% of net operating costs
Track Record of Cost Reduction (1)
Transformation Priorities
$720
Operating Costs (C$ millions)
Targeting operating cost reductions from F’14 to F’15 in the following
areas:
i. Streamlining of organizational structure based on shift from
geographic to functional focus.
ii. Ongoing centralization of common functions such as content
production, marketing, newspaper layout and design, sales
support, collections, and financial analysis and reporting.
iii. Outsourcing of non-strategic functions including production,
technology hosting, and admin functions.
iv. Exploration of alternative print formats (tab vs. broadsheet).
v. Ongoing optimization of distribution footprint as audience
migrates from print to digital products.
vi. Monetization of real estate assets to accelerate debt repayment.
$680
$640
$600
$560
$520
F2011
F2012
F2013
LTM Q1
F2014
(1) Financial information for periods prior to July 13, 2010 relate to Canwest Limited Partnership and for periods subsequent to July 13, 2010 relate to Postmedia Network Canada Corp. (“Postmedia” or the “Company”). Postmedia adopted IFRS on
September 1, 2011. As a result, financial information for periods prior to F2011 have been prepared in accordance with Canadian GAAP - Part V and financial information for periods subsequent to F2010 have been prepared in accordance with
IFRS. For a full discussion of the impact of the transition to IFRS see the consolidated financial statements and MD&A for the years ended August 31, 2012 and 2011.
(2) On November 30, 2011, the Company completed the sale of the Victoria Times Colonist, Vancouver Island Newspaper Group and certain community newspapers in British Columbia (the “Disposed Properties”) to affiliates of Glacier Media Inc. As a
result of the sale, the Company has presented the results of the Disposed Properties as discontinued operations and as such the F2011 financial information has been revised to reflect this change in presentation.
30
Significant Value in Real Estate
Owned Properties(1)
Summary of Facilities
City
Edmonton, AB
Production
187,000 sq. ft.
Saskatoon, SK
Combined Facilities
110,084 sq. ft.
Edmonton, AB
Office
(1)
133,250 sq. ft.
Regina, SK
Combined Facilities
102,537 sq. ft.
Surrey, BC
Production
208,047 sq. ft.
2
9
1
Montreal, QC
Production
165,000 sq. ft.
4
6
7
Ottawa, ON
Combined Facilities
183,000 sq. ft.
Sq.ft.
1
Calgary, AB
383,000
2
Surrey, BC
208,047
3
Ottawa, ON
183,000
4
Edmonton, AB
187,000
5
Montreal, QC
165,000
6
Saskatoon, SK
110,884
7
Regina, SK
102,537
8
Windsor, ON
60,000
Total Owned
1,399,468
Edmonton, AB(1)
9
133,250(1)
5
Windsor, ON
Production Facility
60,000 sq. ft.
Calgary, AB
Combined Facilities
383,000 sq. ft.
Other Leased
3
Total
359,685
1,892,403
8
(1) Edmonton,
AB office is subject to a sale leaseback agreement,
whereby Postmedia owns the land and space above and can repurchase
the building in 2041.
Property currently for sale
31
Low Capital Expenditures Requirements
•
Priorities for capital investments
include:
–
–
Capital Expenditures (C$ millions)
$8
Updated sales productivity technology
(CRM)
$7
Development of new digital products
to support 4-platform strategy
(tablets/smartphones/websites)
$5
$6
$4
$3
–
Development of integrated audience
database analysis and targeting
capabilities
$2
$1
$0
–
•
Technology infrastructure to support
centralization efforts
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
F11 F11 F11 F11 F12 F12 F12 F12 F13 F13 F13 F13 F14
Continued reduction of capex related
to legacy print business
32
Capital Structure
• Company has no maintenance covenants related to first or second lien notes
• Mandatory repayment of 1st lien notes is $12.5 million/year
• Currency exposure is limited to non-swapped portion of 2nd lien notes totaling
US$101 million
Capitalization Table
at Nov 30,
2013
xLTM
EBITDA
($35.1)
(0.28x)
-
-
$211.7
1.67x
Net First-Lien Secured Debt
$176.6
1.39x
US$167.5 2nd Lien Notes(1) – 2018 (swapped)
$173.4
1.36x
US$101.1 2nd Lien Notes(2) – 2018 (non-swapped)
$111.2
0.88x
Net Debt
$461.2
3.63x
$82.2
0.65x
Total Capitalization
$543.4
4.28x
LTM EBITDA(4)
$127.0
Capitalization (C$ MM)
Cash
$60.0 ABL Facility – 2014
C$250.0
Market
1st
Lien Notes – 2017
Capitalization(3)
(1) Translated at swapped rate of US$1.00 = C$1.035.
(2) Translated at closing f/x rate on February 12, 2014.
(3) Based on closing value of PNC.A and PNC.B shares on February 12, 2014.
(4) Based on LTM Operating Income before Depreciation, Amortization and Restructuring as of November 30, 2013.
33
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