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Postmedia Reports Second Quarter Results

April 8, 2021 (TORONTO) – Postmedia Network Canada Corp. (“Postmedia” or the “Company”) today released financial information for the three and six months ended February 28, 2021.

Management’s Discussion and Analysis

Consolidated Financial Statements

“Our second quarter represents continued progress on our strategy with measured optimism for the future,” said Andrew MacLeod, President and Chief Executive Officer, Postmedia. “Across our organization, our teams are working together to accelerate our transformation, grow our audiences and architect new digital models to monetize. The reduction of debt and leverage remains a core focus and management expects to further reduce first lien debt by an additional $17 million through mandatory payments by the end of May. This would result in a decline of over 70% of our first lien debt from $225 million to $67 million since our 2016 recapitalization. It is our collective hope that an end to the global pandemic is closer than further and it is Postmedia’s commitment to continue delivering thought-provoking journalism that Canadians rely upon and strong platform solutions for businesses.”

Updates from the Quarter

  • Constraining Costs – In the quarter we realized a 19.7% reduction in operating costs 1, which includes the impact of initiatives implemented in the quarter that are expected to result in approximately $5 million of net annualized cost savings.
  • Preserving Liquidity – Cash management, including the impact of cost savings and government assistance, has resulted in an unrestricted cash balance of $52.8 million as at February 28, 2021.
  • Maximizing Revenue – Second quarter revenue was down 21.0% from the same period in the prior year with revenue trends showing modest improvement each quarter since the start of the pandemic.

Second Quarter Operating Results

Revenue for the quarter was $106.0 million as compared to $134.2 million in the same period in the prior year, representing a decrease of $28.2 million or 21.0%. The revenue decline was primarily due to decreases in print advertising revenue of $14.7 million or 29.3% and digital revenue of $6.2 million or 20.9%. Print circulation revenue decreased by $5.6 million or 11.6%.

Total operating expenses excluding depreciation, amortization, impairment and restructuring decreased $31.0 million or 24.1% for the quarter, relative to the same period in the prior year. The decrease was a result of lower compensation expense and newspaper circulation volumes as well as the implementation of various cost reduction initiatives. Included in the operating expense decrease is the impact of a compensation expense recovery of $5.7 million related to CEWS, partially offset by a decrease in compensation recovery related to journalism tax credits of $0.3 million.

Operating income before depreciation, amortization, impairment and restructuring of $8.3 million in the quarter represents an increase of $2.9 million relative to the same period in the prior year. The increase is due to a decrease in operating expenses excluding depreciation, amortization, impairment and restructuring partially offset by decreases in total revenue Included in the operating expense decreases is the impact of the compensation expense recoveries related to CEWS and journalism tax credits.

Net earnings in the quarter ended February 28, 2021 were $0.7 million, as compared to a net loss of $12.8 million in the same period in the prior year. The change was primarily the result of gains on derivative financial instruments and foreign exchange in the three months ended February 28, 2021, the increase in operating income before depreciation, amortization, impairment and restructuring as well as decreases in depreciation and amortization expenses partially offset by impairment expense of $7.0 million in the three months ended February 28, 2021, and an increase in interest and restructuring expenses.

Year-to-Date Operating Results

Revenue for the six months ended February 28, 2021 was $222.9 million as compared to $290.8 million in the same period in the prior year, a decrease of $67.9 million or 23.3%. The revenue decline was primarily due to decreases in print advertising revenue of $35.3 million or 30.9% and decreases in digital revenue of 16.9 million or 25.9%. Print circulation revenue declined $11.9 million or 12.0%.

Total operating expenses excluding depreciation, amortization, impairment, settlement gains and restructuring decreased $66.5 million or 25.2% for the six months ended February 28, 2021, relative to the same period in the prior year. The decrease was a result of lower compensation expense and newspaper circulation volumes as well as the implementation of various cost reduction initiatives. Included in the operating expense decrease is the impact of a compensation expense recovery of $12.3 million related to CEWS, partially offset by a decrease in compensation recovery related to journalism tax credits of $1.2 million.

Operating income before depreciation, amortization, impairment and restructuring of $25.5 million in the quarter represents a decrease of $1.3 million or 5.0% relative to the same period in the prior year. The decrease is due to the decrease in total revenue partially offset by decreases in operating expenses. Included in the operating expense decreases is the impact of the compensation expense recoveries related to CEWS and journalism tax credits.

Net earnings in the six months ended February 28, 2021 were $53.5 million, as compared to a net loss of $15.8 million in the same period in the prior year. The change was primarily the result of a non-cash settlement gain related to employee benefit plans of $63.1 million, gains on derivative financial instruments and foreign exchange in the six months ended February 28, 2021, decreases in depreciation, amortization and restructuring expenses partially offset by impairment expense of $20.5 million in the six months ended February 28, 2021, the decrease in operating income depreciation, amortization, impairment, settlement gains and restructuring and an increase in interest expense.

COVID-19 Update

The COVID-19 pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. The Company is generally exempt from mandates requiring closures of non-essential businesses and therefore has been able to continue operations, however, advertising revenue declines have accelerated as a result of the COVID-19 pandemic and related government measures. On April 11, 2020, the Government of Canada passed CEWS to support employers facing financial hardship as measured by certain revenue declines as a result of the COVID-19 pandemic. CEWS currently provides a reimbursement of compensation expense to June 5, 2021, provided the applicant has met the applicable criteria. During the three and six months ended February 28, 2021, the Company recognized a recovery of compensation expense of $5.7 million and $13.3 million, respectively, and in total has recognized $52.4 million related to CEWS since the program was announced. As at February 28, 2021, the Company has a receivable related to CEWS in the amount of $4.0 million.

Debt Repayment

Subsequent to February 28, 2021, the Company gave notice to its first-lien noteholders of its intention to redeem $9.6 million of first-lien debt on April 30, 2021 with the proceeds of asset sales. In addition, as required pursuant to the semi-annual excess cash flow requirement contained in the first-lien notes indenture the excess cash flow for the six months ended February 28, 2021 was $7.3 million which is expected to be used to redeem a portion of first-lien debt by May 8, 2021. After these aggregate redemptions of approximately $17 million the Company will have approximately $67 million of first-lien debt outstanding of the original $225.0 million that was issued in October 2016.

Business Transformation Initiatives

During the three months ended February 28, 2021, the Company implemented initiatives related to compensation expense reductions, real estate rationalization, production efficiencies and other transformation programs, which are expected to result in approximately $5 million of net annualized cost savings.

The Company intends to continue to identify and undertake ongoing cost reduction initiatives in an effort to address revenue declination in the legacy print business.

Additional Information

Additional information, including financial statements and management’s discussion and analysis can be found on the Company’s website at www.awantfood.com/investors-governance/quarterly-filings or on SEDAR at www.sedar.com.

Note: All dollar amounts are expressed in Canadian dollars unless otherwise specified.

About Postmedia Network Canada Corp.

Postmedia Network Canada Corp. (TSX:PNC.A, PNC.B) is the holding company that owns Postmedia Network Inc., a Canadian newsmedia company representing more than 120 brands across multiple print, online, and mobile platforms. Award-winning journalists and innovative product development teams bring engaging content to millions of people every week whenever and wherever they want it. This exceptional content, reach and scope offers advertisers and marketers compelling solutions to effectively reach target audiences. For more information, visit www.awantfood.com.

Forward-Looking Information

This news release may include information that is “forward-looking information” under applicable Canadian securities laws. 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 news release include statements with respect to the impact of the COVID-19 pandemic on the Company’s business, the implementation and results of the Company’s transformation initiatives, continued benefits of historical results into future periods, the realization of anticipated cost savings, the receipt of anticipated government assistance and the identification and undertaking of ongoing cost savings initiatives. 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 digital and other 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; fluctuations in foreign exchange rates and the prices of newsprint and other commodities.

In addition, we are subject to the risk and uncertainties related to the COVID-19 pandemic. The pandemic has resulted in governments worldwide enacting emergency measures to combat the spread of the virus including travel bans, self-imposed quarantine periods and social distancing that have caused disruption to businesses resulting in an economic slowdown. We are generally exempt from mandates requiring closures of non-essential businesses and therefore have been able to continue operations however, advertising revenues have declined as a result of COVID-19 pandemic and related government measures. The outbreak of contagious illness such as this can impact our operations in a number of ways including quarantined employees, travel restrictions, temporary closure of our facilities, a decrease in demand for advertising, as well as interruptions to our supply chain, including temporary closure of supplier facilities. Given the high level of uncertainty surrounding the duration of the COVID-19 pandemic it is difficult to reliably estimate its potential impact on the financial condition and results of our business. We are continuing to address the current challenges related to the COVID-19 pandemic and monitoring these challenges as they evolve so as to minimize this risk however it could have a material adverse effect on our business, financial condition, results of operations, liquidity and cash flow. 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, 2020 and 2019. 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 press release. 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.

For more information:

Media Contact

Phyllise Gelfand

Vice President, Communications

(647) 273-9287

pgelfand@postmedia.com

Investor Contact

Brian Bidulka

Executive Vice President and Chief Financial Officer

(416) 383-2325

bbidulka@postmedia.com

1 Operating expenses excluding depreciation, amortization and restructuring as adjusted for the impact of the Canada Emergency Wage Subsidy (“CEWS”).

Consolidated Statements of Operations

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