So how is the Winnipeg Free Press doing?
This is a question that comes up frequently, and has arisen again recently in light of the fact that we have reduced staffing levels in the face of lower revenues. There have been suggestions in some quarters that the paper has been callously raking in profits while eliminating jobs.
As you can imagine, I disagree with this characterization, but you do not have to take my word. The Free Press is probably the most transparent newspaper in Canada for anyone who wants to know since it is by far the largest newspaper business owned by FP Canadian Newspapers Limited Partnership (FPLP).
You can check out the 3rd Quarter results of FPLP and FP Newspapers Inc., the publicly traded entity that owns 49 per cent of FPLP, in a report released this week.
The report outlines what we have been doing to prudently manage the company in the face of challenging times for newspapers, the steps we are taking to respond to try to avert future problems and maintain a solid base for our daily and community newspapers and other publications.
It is never easy for non-accountants to make their way through a public financial report, so I will provide a bit of guidance.
On page 2 you will find an outline of the measures we have taken this year. They include the elimination of 30 positions in the businesses that we operate.
We have not taken any decision to reduce staff lightly.
The 3rd Quarter report notes that advertising and circulation revenues, which make up about 92 per cent of our total revenues, are down 1.3 per cent from the same three months of 2011.
That is an improvement from the 2nd Quarter when such revenues were down by 7.2 per cent. But we still faced a tough slog to keep expenses in check. With all the moves we made, including a number of non-staff changes, expenses for the 3rd Quarter, excluding non-recurring restructuring charges, were lower by 1.6 per cent compared with the same period in 2011. Expenses like wage increases go up even when revenues do not, due to annual contracted increases in labour contracts.
Also, keep in mind that a 1 per cent decrease in revenue for the 2011 year would amount to a reduction of $1.1 million, and a 1 per cent decrease in operating expenses would result in a reduction of $0.9 million, resulting in a decline in the operating earnings of the company of $0.2 million.
There are also cash funding requirements in excess of operating expenses, the biggest ones being the cost of the pension plan enjoyed by employees of the Winnipeg Free Press, debt interest, debt principal repayments and capital investment required to sustain existing operations.
For pensions, the company is required to make up shortfalls in the plan that guarantees defined benefits to retirees. Those shortfalls have become quite large in the era of ultra low interest rates. On page 13 you will see that pension funding in excess of accounting operating expenses for the past 12 months has totalled $2.8 million. It was $1.2 million in the full 12 months of 2011.
Page 13 of the 3rd Quarter report shows how the distributable cash of FPLP is arrived at. This is the amount that is actually available for investors once the company has paid taxes, funded pensions, made loan payments, and covered the cost of maintaining and upgrading buildings and equipment.
It is $8.7 million for the past 12 months ending September 30, 2012. If you look at the 3rd Quarter report for 2011, you'll see it was $11 million for the previous 12 months at that time. That is a drop of 20.2 per cent.
These numbers and trends have guided FP managers as we determine the future course of the company.
We know that paying careful attention and taking action now is a requirement, not an option, to try to restructure the business model in the best long-term interests of all stakeholders, including employees, readers, advertisers, investors, lenders, suppliers, community groups and the many others for whom how the Free Press is doing is an important question.