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Postmedia Network posts bigger Q4 loss as print advertising revenue slides 21%

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Postmedia Network Canada (TSE:PNC.A) (TSE:PNC.B) posted a bigger net loss in its fiscal fourth quarter than a year earlier as revenues declined over 13 percent on a slump in print advertising sales.

The Canadian media company -- which earlier this month agreed to acquire Sun Media's stable of 175 English language newspapers, specialty publications and digital properties for $316 mln -- posted a net loss of $49.8 million, or $1.24 per share, for the three months to August 31, up from a net loss of $47.9 million, or $1.19 per share, in the same quarter last year.

Revenue fell to $146.8 million from $169.31 million as print advertising sales fell 21 percent , with declines across all categories, Postmedia said.

Print circulation revenue also decreased by 2.7 percent to $48 million on lower volumes, while digital revenue dropped 5.3 percent from a year ago to $20.26 million.

The company's operating income, which excludes depreciation, amortization, impairment and restructuring of $15.7 million in the quarter, decreased 32.1 percent from the same period last year, despite the over 10 percent drop in operating expenses.

Operating expenses were cut in compensation, newsprint, distribution as well as other categories, while costs increased for production as a result of the Edmonton Journal and the Calgary Herald being outsourced in the first quarter of fiscal 2014.

Postmedia is in the midst of a three-year turnaround plan that is aimed at generating operating cost savings of between 15 and 20 percent. Since the plan started, total net annualized cost savings have reached $109 million.

“While we continue to see the impacts of a very challenging revenue environment, particularly with respect to declines in print advertising, we are focused on potential growth areas,” said president and chief executive officer, Paul Godfrey. 

“Our four platform strategy is bolstered by the recent launch of entirely new products on print, web, tablet and smartphone platforms – most recently in Montreal, to be followed soon by Calgary. 

"Subject to regulatory approval, we believe the proposed acquisition of the Sun Media assets will strengthen the company and the future of the news media business in Canada.”

Postmedia's purchase of the Sun Media assets from Quebecor Media includes the Sun chain of dailies, which consists of the Toronto Sun, as well as the London Free Press and the free 24 Hours dailies in Toronto and Vancouver. It also brings associated English-language digital properties such as the Canoe portal outside of Quebec as well as QMI's Islington printing plant in Ontario and 34-owned real estate properties in Ontario, Alberta and Manitoba with an estimated value of $50 to $60 million.

The deal marked a major shakeup in Canada's media landscape. Postmedia said the acquisition is expected to significantly improve its cash flow profile and reduce its net debt, with anticipated cost synergies of up to $10 million annually within two years from the deal. 

The transaction also extends the company's digital reach amid a slumping print media industry, it said, and better positions Postmedia to compete against foreign-based digital offerings.

Postmedia Network is the largest publisher by circulation of paid English-language daily newspapers in Canada. Shares jumped 15 percent to C$2.30 in Toronto on Friday.

Quick facts: Postmedia Network Canada

Price: 2.25 CAD

TSX:PNC.B
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Market Cap: $210.92 m
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