TVA Group reports $14.0 million net income attributable to shareholders in Q3 2018

MONTREAL, Nov. 1, 2018 /CNW Telbec/ - TVA Group Inc. ("TVA Group" or the "Corporation") announced today that it recorded net income attributable to shareholders in the amount of $14.0 million or $0.32 per share in the third quarter of 2018, compared with a net loss attributable to shareholders of $15.3 million or a loss of $0.35 per share in the same quarter of 2017.

Third quarter operating highlights:

• Consolidated adjusted EBITDA¹ of $26,968,000 representing an unfavourable variance of $5,967,000 from the same quarter of 2017.
• $16,710,000 adjusted EBITDA¹ in the Broadcasting & Production segment representing an unfavourable variance of $3,192,000 due primarily to a 30% decrease in TVA Network's adjusted EBITDA¹ and an 11% decrease in the adjusted EBITDA¹ of the specialty channels.
• Conclusion of an agreement in principle between the Corporation and its unionized employees in Montreal concerning the collective bargaining agreement expired on December 31, 2016, for a five-year period.
• $1,727,000 adjusted EBITDA¹ in the Magazines segment representing an unfavourable variance of $1,462,000 due mainly to a decrease in operating revenues, which was partially offset by savings generated by rationalization plans implemented in recent quarters.
• $8,531,000 adjusted EBITDA¹ in the Film Production & Audiovisual Services ("MELS") segment representing an unfavourable variance of $1,313,000 essentially due to lower volume of activities in soundstage and equipment rental and in visual effects. These factors were partially offset by the increased postproduction profitability and the addition of mobile unit rental activities to adjusted EBITDA.¹

"Our financial performance in the third quarter of 2018 was impacted by lower operating revenues in our three business segments. Advertising revenues decreased in both our Broadcasting & Production segment and our Magazines segment. TVA Network's financial performance declined with a 10% decrease in advertising revenues in Q3 2018. Our initiatives to reduce operating expenses during recent quarters have not entirely made up for the decline in operating revenues.

TVA Group's market share was up 1.0 points¹ compared with Q3 2017, largely because of the strong performance of the specialty channels, particularly "LCN" which gained an impressive 0.7 points. The election night Quebec 2018 coverage on TVA and "LCN" was watched by up to 2.1 million people, an all-time record. We are also very proud of the audience response in Quebec to our new dance competition, Révolution, a locally created and developed format that is already attracting strong interest in other markets," commented France Lauzière, President of TVA Group.

"In the Magazines segment, we have been taking initiatives for several quarters to offset the drop in revenues by cutting costs and increasing operating efficiencies, and we are continuing our efforts on this front. We are pleased to see that the popularity of our brands remains high. TVA held its position as the top publisher of French-language magazines in Quebec with more than 3.7 million² readers, while our English-language titles are read by 5.7 million¹ people," added Ms Lauzière. 

"The Film Production & Audiovisual Services segment's financial performance declined slightly in Q3 2018 but it remains a growth driver for the Corporation. The movie industry is a fast-growing sector not only for us but for Quebec's cultural industries and the Quebec economy as a whole. As we have said on previous occasions, it is very important that the provincial government commits to maintaining and hopefully enhancing existing tax incentives so that Quebec's economy can reap its share of the benefits generated by the film industry's global growth," concluded Ms. Lauzière.

Definition

Adjusted EBITDA (previously adjusted operating income (loss))

In its analysis of operating results, the Corporation defines adjusted EBITDA as net income (loss) before depreciation of property, plant and equipment, amortization of intangible assets, financial expenses, impairment of goodwill and intangible assets, operational restructuring costs and others, income taxes and share of loss (income) of associated corporations. Adjusted EBITDA as defined above is not a measure of results that is consistent with International Financial Reporting Standards ("IFRS"). Neither is it intended to be regarded as an alternative to other financial performance measures or to the statement of cash flows as a measure of liquidity. This measure should not be considered in isolation or as a substitute for other performance measures prepared in accordance with IFRS. This measure is used by management and the Board of Directors to evaluate the Corporation's consolidated results and the results of its segments. This measure eliminates the significant level of impairment, depreciation and amortization of tangible and intangible assets and is unaffected by the capital structure or investment activities of the Corporation and its segments. Adjusted EBITDA is also relevant because it is a significant component of the Corporation's annual incentive compensation programs. The Corporation's definition of adjusted EBITDA may not be identical to similarly titled measures reported by other companies.

Conference call for investors

TVA Group will hold a conference call to discuss its third quarter 2018 results on November 2, 2018, at 11:00 a.m. EST. There will be a question period reserved for financial analysts. To access the call, please dial 1-877-293-8052, access code for participants 66581#. A tape recording of the call will be available from November 2 to December 2, 2018 by dialling 1-877-293-8133, conference number 1238367#, access code for participants 66581#.

Forward-looking information disclaimer

The statements in this news release that are not historical facts may be forward-looking statements and are subject to important known and unknown risks, uncertainties and assumptions which could cause the Corporation's actual results for future periods to differ materially from those set forth in the forward-looking statements. Forward-looking statements generally can be identified by the use of the conditional, the use of forward-looking terminology such as "propose," "will," "expect," "may," "anticipate," "intend," "estimate," "plan," "foresee," "believe" or the negative of these terms or variations of them or similar terminology. Certain factors that may cause actual results to differ from current expectations include seasonality, operational risks (including pricing actions by competitors and the risk of loss of key customers in the Film Production & Audiovisual Services segment), programming, content and production cost risks, credit risk, government regulation risks, government assistance risks, changes in economic conditions, fragmentation of the media landscape, risk related to the Corporation's ability to adapt to fast-paced technological change and to new delivery and storage methods, and labour relation risks.

Investors and others are cautioned that the foregoing list of factors that may affect future results is not exhaustive and that undue reliance should not be placed on any forward-looking statements. For more information on the risks, uncertainties and assumptions that could cause the Corporation's actual results to differ from current expectations, please refer to the Corporation's public filings, available at www.sedar.com and www.groupetva.ca, including in particular the "Risks and Uncertainties" section of the Corporation's annual Management's Discussion and Analysis for the year ended December 31, 2017 and the "Risk Factors" section in the Corporation's 2017 annual information form.

The forward-looking statements in this news release reflect the Corporation's expectations as of November 1, 2018 and are subject to change after this date. The Corporation expressly disclaims any obligation or intention to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so under applicable securities laws.

TVA Group

TVA Group Inc., a subsidiary of Quebecor Media Inc., is a communications company engaged in the broadcasting, film and audiovisual production, and magazine publishing industries. TVA Group Inc. is North America's largest broadcaster of French-language entertainment, information and public affairs programming and one of the largest private-sector producers of French-language content. It is also the largest publisher of French-language magazines and publishes some of the most popular English-language titles in Canada. The Corporation's Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B. 

See accompanying notes to condensed interim consolidated financial statements.  

See accompanying notes to condensed interim consolidated financial statements.

See accompanying notes to condensed interim consolidated financial statements.

See accompanying notes to condensed interim consolidated financial statements.

On November 1, 2018, the Board of Directors approved the condensed interim consolidated financial statements for the three-month and nine-month periods ended September 30, 2018 and 2017.

See accompanying notes to condensed interim consolidated financial statements.

TVA GROUP INC.
Notes to condensed interim consolidated financial statements

Three-month and nine-month periods ended September 30, 2018 and 2017 (unaudited)
(Tabular amounts are expressed in thousands of Canadian dollars, except per share and per option amounts)

TVA Group Inc. ("TVA Group" or the "Corporation") is governed by the QuebecBusiness Corporations Act. TVA Group is a communications company engaged in the Broadcasting & Production, Film Production & Audiovisual Services, and Magazines businesses (note 12). The Corporation is a subsidiary of Quebecor Media Inc. ("Quebecor Media" or the "parent corporation") and its ultimate parent corporation is Quebecor Inc. ("Quebecor"). The Corporation's head office is located at 1600 de Maisonneuve Boulevard East, Montreal, Quebec, Canada.

The Corporation's businesses experience significant seasonality due to, among other factors, seasonal advertising patterns, consumers' viewing, reading and listening habits, and demand for production services from international and local producers. Because the Corporation depends on the sale of advertising for a significant portion of its revenues, operating results are also sensitive to prevailing economic conditions, including changes in local, regional and national economic conditions, particularly as they may affect advertising expenditures. Accordingly, the results of operations for interim periods should not necessarily be considered indicative of full-year results.

1. Basis of presentation

These consolidated financial statements were prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), except that they do not include all disclosures required under IFRS for annual consolidated financial statements. In particular, these consolidated financial statements were prepared in accordance with IAS 34, Interim Financial Reporting, and are condensed consolidated financial statements. These condensed interim consolidated financial statements should be read in conjunction with the Corporation's 2017 annual consolidated financial statements, which describe the accounting policies used to prepare these financial statements.

Comparative figures for the three-month and nine-month periods ended September 30, 2017 have been restated to conform to the presentation adopted for the three-month and nine-month periods ended September 30, 2018.

2. Changes in accounting policies

(i) IFRS 9 – Financial Instruments

On January 1, 2018, the Corporation adopted the new IFRS 9 requirements, which simplify the measurement and classification of financial assets by reducing the number of measurement categories in IAS 39, Financial Instruments: Recognition and Measurement. The new standard also provides for a fair value option in the designation of a non-derivative financial liability and its related classification and measurement, as well as for a new hedge accounting model more closely aligned with risk management activities undertaken by entities.

Under the new requirements, financial assets and liabilities are now all classified as subsequently measured at amortized cost.

The Corporation also uses the expected credit losses method on its financial assets.

The adoption of IFRS 9 by the Corporation had no impact on the consolidated financial statements.

(ii)   IFRS 15 – Revenue from Contracts with Customers

On January 1, 2018, the Corporation also adopted IFRS 15, which specifies how and when an entity should recognize revenue and the additional disclosures such entities are to provide to users of financial statements.

The standard provides a single, principles-based five-step model to be applied to all contracts with customers. Accordingly, the Corporation now recognizes a contract with a customer only when all of the following criteria are satisfied:

• The parties to the contract have approved the contract - in writing, orally or in accordance with other customary business practices - and are committed to performing their respective obligations;
• The entity can identify each party's rights regarding the goods or services to be transferred;
• The entity can identify the payment terms for the goods or services to be transferred;
• The contract has commercial substance (i.e. the risk, timing or amount of the entity's future cash flows is expected to change as a result of the contract); and
• It is highly probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

The adoption of IFRS 15 by the Corporation had no impact on the consolidated financial statements.

3. Revenues

The breakdown of revenues is as follows:

4. Purchases of goods and services

The main components of purchases of goods and services were as follows:

5. Financial expenses

6. Impairment of goodwill and intangible assets

The continuing downward trend in operating revenues in the magazine industry led the Corporation to perform an impairment test on its Magazines cash-generating unit ("CGU") in the third quarter of 2017. The Corporation concluded that the recoverable amount of the Magazines CGU, based on value in use, was less than its carrying amount. Accordingly, a $29,993,000 goodwill impairment charge, including $1,489,000 without any tax consequences, and a $12,412,000 charge for impairment of certain intangible assets, including $3,103,000 without any tax consequences, were recognized. 

7. Operational restructuring costs and others

Operational restructuring costs

In the three-month and nine-month periods ended September 30, 2018 and 2017, the Corporation recorded the following operational restructuring costs in connection with the elimination of positions:

Others

In the three-month and nine-month periods ended September 30, 2018, the Corporation also made downward adjustments in the amounts of $346,000 and $169,000, respectively ($3,663,000 charge for the nine-month period ended September 30, 2017) to the allowance for onerous leases extending up to June 2022 for premises left unused by the Magazines segment following implementation of rationalization plans. The reductions were due to the signing of an agreement with a lessor to terminate the Corporation's commitment for some premises.

During the three-month period ended September 30, 2018, the Corporation completed the sale of a building in Quebec City for net proceeds on disposal of $3,528,000. The transaction gave rise to the recognition of a $2,936,000 gain on disposal.

In the third quarter of 2018, the Corporation also recorded a $2,000,000 charge impairment on its investment in an associated corporation in the Magazines segment following revised guidance from that corporation's management and the continuing downward trend in operating revenues in the industry.

In the first nine months of 2018, the Corporation recorded a $1,000,000 gain on disposal of assets in connection with the sale of The Hockey News magazine.

8. Business acquisitions

(a) Mobilimage inc.

On January 22, 2018, the Corporation acquired the assets of Mobilimage inc., consisting essentially of mobile production vehicles and equipment, for a cash purchase price of $2,705,000, consisting of the agreed price of $2,750,000 less a $45,000 adjustment related to a pre-established working capital target agreed to by the parties. The acquired company's mobile production vehicle and equipment rental activities have been incorporated into the Film Production & Audiovisual Services segment's operations.

Final allocation of the purchase price was completed during the current quarter. The fair value of assets and liabilities related to the acquisition is broken down as follows:

The acquisition was consistent with the Corporation's strategic objective of offering an array of production equipment and services in order to meet producers' needs and reduce the use of outsourced services for its own production needs. The goodwill related to the acquisition arises mainly from expected synergies.

(b) Audio Zone Inc.

On August 27, 2018, the Corporation signed an agreement to purchase all of the shares of Audio Zone Inc. for a total cash purchase price of $2,026,000 consisting of the agreed price of $2,000,000 and the assumption of a $26,000 bank overdraft. This purchase price is subject to an adjustment that will be known by the end of the year, based on a predetermined working capital target agreed to by the parties. The acquired postproduction sound activities have been incorporated into the Film Production & Audiovisual Services segment's operations.

The acquisition was consistent with the Corporation's strategic objective of offering an array of production services that meet the needs of producers and customers. The goodwill related to the acquisition arises mainly from expected synergies.

The preliminary breakdown of the fair value of assets and liabilities related to the acquisition is as follows:

(c) Serdy Group

On April 30, 2018, the Corporation signed an agreement to acquire the companies in the Serdy Media Inc. group, which owns and operates the "Évasion" and "Zeste" specialty channels, and the companies in the Serdy Video Inc. group, for a total consideration of $24,000,000. The acquisition is subject to approval by the Canadian Radio-television and Telecommunications Commission ("CRTC").

9. Capital stock

(a) Authorized capital stock

An unlimited number of Class A common shares, participating, voting, without par value.

An unlimited number of Class B shares, participating, non-voting, without par value.

An unlimited number of preferred shares, non-participating, non-voting, with a par value of $10 each, issuable in series.

(b) Issued and outstanding capital stock

(c) Earnings (loss) per share attributable to shareholders

The following table shows the computation of earnings (loss) per basic and diluted share attributable to shareholders:

The earnings (loss) per diluted share calculation does not take into consideration the potential dilutive effect of stock options of the Corporation because their impact is non-dilutive.

10. Stock-based compensation and other stock-based payments

(a) Class B stock option plan for officers

During the three-month and nine-month periods ended September 30, 2018, no stock options were granted. As of September 30, 2018 and December 31, 2017, 60,000 options with a weighted average exercise price of $6.85 were outstanding.

Of the options outstanding as at September 30, 2018, 36,000 Corporation Class B stock options could be exercised at an average price of $6.85.

(b) Quebecor Media stock option plan

Of the options outstanding as at September 30, 2018, 46,700 Quebecor Media stock options could be exercised at an average price of $63.66.

During the three-month period ended September 30, 2018, 19,000 Quebecor Media stock options were exercised for a cash consideration of $845,000 (during the same period of 2017, 4,400 stock options were exercised for a cash consideration of $122,000).

During the nine-month period ended September 30, 2018, 37,850 Quebecor Media stock options were exercised for a cash consideration of $1,494,000 (during the same period of 2017, 25,750 stock options were exercised for a cash consideration of $500,000).

(c) Deferred stock unit ("DSU") and performance stock unit ("PSU") plans

TVA Group has a DSU plan and a PSU plan for some management employees based on TVA Group Class B Non-Voting Shares ("TVA Group Class B Shares"). Quebecor also has DSU and PSU plans for its employees and those of its subsidiaries, based on, among other things, Quebecor Class B Shares. Under these plans, the DSUs vest over six years and will be redeemed for cash only upon the participant's retirement or termination, as the case may be. The PSUs vest over three years and will be redeemed for cash at the end of that period, subject to achievement of financial targets. Under the TVA Group plan, holders of DSUs and PSUs are entitled to receive dividends on TVA Group Class B Shares in the form of additional units. Under the Quebecor plan, holders of DSUs and PSUs are entitled to receive dividends on Quebecor Class B Shares in the form of additional units.

As of September 30, 2018, 203,464 DSUs based on TVA Group Class B Shares, 31,440 DSUs based on Quebecor Class B Shares, 270,637 PSUs based on TVA Group Class B Shares, and 34,955 PSUs based on Quebecor Class B Shares were outstanding under the plans.

(d) Deferred stock unit ("DSU") plan for directors

As of September 30, 2018, the total number of DSUs outstanding under this plan was 111,459 (78,012 as of December 31, 2017).

(e) Stock-based compensation expense

During the three-month and nine-month periods ended September 30, 2018, compensation expenses in the amount of $455,000 and $1,777,000 respectively were recorded in respect of all stock-based compensation plans ($941,000 and $2,185,000 in the same periods of 2017).

11. Accumulated other comprehensive income

12. Segmented information

The Corporation's operations consist of the following segments:

• The Broadcasting & Production segment, which includes the operations of TVA Network (including the TVA Productions Inc. subsidiary and the TVA Nouvelles division), specialty services, the marketing of digital products associated with the various televisual brands, commercial production services and distribution of audiovisual products;
• The Magazines segment, which through its subsidiaries, notably TVA Publications inc. and Les Publications Charron & Cie inc., publishes magazines in various fields including the arts, entertainment, television, fashion and decorating; markets digital products associated with the various magazine brands; and provides custom publishing, commercial print production and premedia services;
• The Film Production & Audiovisual Services segment, which through its subsidiaries Mels Studios and Postproduction G.P. and Mels Dubbing Inc. provides soundstage, mobile unit and production equipment rental services, as well as dubbing, postproduction, visual effects and distribution services.

The above-noted intersegment items represent the elimination of normal course business transactions between the Corporation's business segments.

SOURCE TVA Group