Thursday, April 16, 2015

Another bleak update for Postmedia, with a shark waiting to be leaped

It looks like Postmedia has moved into asset-strip mode, based on its latest quarterly report.
The results were dismal, as they have been every quarter since the corporation bought the newspapers of near-bankrupt Canwest in 2010. Revenues are down 11.3 per cent for the first six months of the fiscal year, about $42 million. Expenses were down 10.8 per cent, or $32 million.
Postmedia management appears to have no solutions. They are cutting expenses, but not fast enough to match falling revenues. At the same time, the cuts are reducing value for readers and advertisers, which leads to more revenue losses. It’s a relentless downward spiral.
Paul Godfrey
Earnings before interest, depreciation and taxation were $190 million in 2011. This year, they will be about half that amount. The company is about two years away from being unable to meet the interest payments to the hedge funds that put up the cash to buy the Canwest properties. 
CEO Paul Godfrey initially talked about strategies to increase revenues at the 10 dailies across Canada. He was enthusiastic about  “Digital First,” an early initiative that has been a bust. Digital revenues - subscriptions and advertising - will be about $88 million this year, unchanged in four years. If the future is digital, Postmedia is in trouble.
The latest quarterly update includes a telling note on costs. 
Postmedia has outsourced production at three newspapers over the last 18 months.
Corporations usually contract out because its cheaper. But Postmedia reports production expenses jumped 25 per cent for the first half of this fiscal year, “primarily as a result of outsourced newspaper production of the Calgary Herald in November 2013, the Montreal Gazette in August 2014 and both The Vancouver Sun and The Province in February 2015.” The increased costs are about $9 million a year.
The contracting-out program does free up some real estate for sale, which will let Postmedia reduce its debt load.
But a corporation can look at that process in two ways.
If the debt repayment results in interest-rate savings greater than the increased production costs, the company is protecting its long-term sustainability.
If, however, the increase in production costs is greater than the interest savings, then the company is more focused on loan repayment than its future.
Postmedia looks to be taking the latter approach.
In Vancouver, Postmedia sold the press building for $17.5 million and handed the full amount over to Unifor, the union representing employees. The union agreement had strong language preventing contracting out; the payment was compensation for accepting the change. The deal saw $11.5 million in severance for affected employees, and $6 million paid to Unifor that it can spend “as it sees fit for the benefit” of affected employees.
In Montreal, the press centre was sold for $12.4 million. The Calgary Herald building - constructed in 1980, when newspapers managers thought the future was bright - is assessed at $41 million. Even if it brings $50 million, the interest savings will be barely half the increased production costs.
Which makes Postmedia look like a corporation in the process of wringing value from its assets before selling the remains, or writing them off.
Postmedia’s purchase of Quebecor’s 175 English-language newspapers, including the Toronto Sun and 32 other paid-circulation dailies, doesn’t change that. 
Quebecor sold cheaply at $316 million, or about $1.8 million per newspaper. (Quebecor had spent something over $1.5 billion assembling the group of newspapers since 1998.) The business has been trending steadily downward, but the properties still produce about $85 million in earnings before interest, taxes, depreciation and interest. And Postmedia hopes to make $60 million by selling the newspaper’s offices, and leasing space. (Again, not necessarily a sound long-term decision.)
But the deal does not change the fundamental problems facing Postmedia.
There is a point where business owners decide that the best strategy is to extract the most value in the limited time remaining. Based on the quarterly report, Postmedia looks to have reached that point.

11 comments:

Stephen said...

Big changes and social media I am sure have not helped. But reading Gail Sheehy's memoirs you know that cutting edge reporting is not encouraged and addicted newpaper lovers like me have been heart broken by the shilling and corruption of newspapers. That is why I do not buy papers anymore, and it was an incredible pleasure for a large part of my life. I cannot support shilling.

Anonymous said...

A grim prediction. I understand the interest on the borrowed money is about 13%. Sadly, this is a shrinking industry and it's hard to be hopeful.

Anonymous said...

On the contrary, nothing makes me more hopeful than the thought that the Vancouver Sun and Province might shut down. A rare bit of good news these days.

paul said...

I think you're wrong, Anon 10:08. The Sun and Province have 85 reporters and columnists covering the news. That coverage would be a serious loss. It's also a tad mean-spirited to celebrate the loss of hundreds of jobs.

Anonymous said...

Gutless bc liberal toadies and sycophants that masquerade as journalists in this province ie. palmer, smyth etc. deserve to be unemployed. here`s hoping the globe and mail follows suit.They are all in large measure responsible for giving credence to the white collar crime wave that has destroyed the fabric of what was once a decent province.

Anonymous said...

Well, 2:46 anon, wasn't the same person as me (10:08 anon), but I can't say my opinion is that much different.

"That coverage would be a serious loss."

For the Canadian Taxpayers Federation and the Fraser Institute? Sure. For the province of BC, no, I feel confident it would be a net gain.

"It's also a tad mean-spirited to celebrate the loss of hundreds of jobs."

Not celebrating the loss of the jobs, celebrating something I think will make the province better off in the long run.

Look, if the local media wants to do nothing more than talk about the Canucks and hype up crime stories and act as a stenographer for the right wing noise machine, that's their prerogative - but I, for one, won't miss it.

Anonymous said...

Here's a conversation from a local forum on the transit vote,

"My mom who is for transit expansion voted no purely because the Translink CEO gets paid $39,000/month way more then any other transit CEO."

"Except it's documented that TransLink pays less in CEO compensation than other Canadian transit authorities, so I hope you told your mother she voted No because she is misinformed."

"She watches the news. need I say more?"

If you want people to feel sad that you are losing your job, your job shouldn't be misleading people into voting against their own interests.

Anonymous said...

We need reporters who are objective. I haven't seen any since I. F. Stone.

Mrs Sharon Sim said...

Hello Everybody,
My name is Mrs Sharon Sim. I live in singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) +918376918351 Thank you.

Mrs Sharon Sim said...

Hello Everybody,
My name is Mrs Sharon Sim. I live in singapore and i am a happy woman today? and i told my self that any lender that rescue my family from our poor situation, i will refer any person that is looking for loan to him, he gave me happiness to me and my family, i was in need of a loan of S$250,000.00 to start my life all over as i am a single mother with 3 kids I met this honest and GOD fearing man loan lender that help me with a loan of S$250,000.00 SG. Dollar, he is a GOD fearing man, if you are in need of loan and you will pay back the loan please contact him tell him that is Mrs Sharon, that refer you to him. contact Dr Purva Pius,via email:(urgentloan22@gmail.com) +918376918351 Thank you.

قمم تميز said...

شركة المثالية للتنظيف بالدمام
شركة المثالية لمكافحة الحشرات بالدمام
شركة المثالية للتنظيف بالخبر
شركة المثالية لمكافحة الحشرات بالخبر
شركة المثالية للتنظيف بالجبيل
شركة المثالية لمكافحة الحشرات بالجبيل
شركة المثالية للتنظيف بالقطيف
شركة المثالية لمكافحة الحشرات بالقطيف
شركة المثالية للتنظيف
شركة طيوب للمجارى