Postmedia Network Canada Corp. Investor and Analyst Conference Call July 7, 2016
Forward Looking Statements This presentation may include information that is forward-looking information under applicable Canadian securities laws and forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. 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 presentation include statements with respect to: the implementation and completion of the Recapitalization Transaction, including the New Capital Offering; the anticipated benefits and consequences of the Recapitalization Transaction; the implementation and results of the Company s transformation initiatives, including the realization of anticipated cost savings. 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 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: the risk that the Recapitalization Transaction may not be completed on the terms described in this presentation or at all; the costs associated with the Recapitalization Transaction; the risk that the anticipated benefits and consequences of the Recapitalization Transaction may not be achieved; competition from other newspapers and alternative forms of media; and the effect of structural changes and economic conditions in the industry in which Postmedia operates on advertising, circulation and digital revenue. 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, 2015, 2014 and 2013 and in our annual information form dated November 25, 2015. 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 presentation. 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. Unless otherwise noted, all references to $ are to Canadian dollars. 2
RECAPITALIZATION TRANSACTION
Who is Postmedia? 20 Million monthly reach (digital + print) which is 70% of Canadian adults. Sources: Overall monthly reach figure is derived from internal calculations to factor out duplication Population Base: Vividata Q4 2015, Adults 18+, 28,887,000 Postmedia/SunMedia Print owned & represented readership: Vividata Q4 2015; monthly readership Reach/Frequency per publication: 22 weekday insertions + 4 Sat. + 4 Sun. insertions; + Est d Community Daily/Weekly using Circulation Reports & RPC estimates Digital: comscore Canada Inc. Postmedia Network Canada Corp. Multi-platform, Adults 18+, 3-month Average Jan/Feb/Mar 2016 & Google Analytics for Owned Small Market Dailies (includes duplication) 4
Recapitalization Transaction The Recapitalization Transaction will: Reduce Postmedia s outstanding debt by approximately C$307 million Reduce Postmedia s annual cash interest costs by approximately C$50 million C$110 million of new capital invested in the form of new second lien U.S. dollar denominated secured notes (the New Capital Offering ) Pre- Recapitalization (C$ mm) (C$ mm) First Lien Notes $303 $225 Second Lien Notes $345 -- New Second Lien Notes -- $116 Total Debt $648 $341 (1) Post- Recapitalization (2) 1. Translated to CAD using 04-Jul-16 exchange rate of 1.2844 2. Includes C$110 million capital raise and C$5.5 million backstop fee 5
Key Elements of the Proposed Recapitalization Holders of Existing First Lien Notes Holders of the Existing First Lien Notes will receive their pro rata share (1) of: C$78 million repayment, at par C$225 million New First Lien Notes Interest will continue to be paid in the ordinary course Accrued and unpaid interest up to the Effective Date will be paid in cash at closing Holders of Existing Second Lien Notes Holders of the Existing Second Lien Notes will receive their pro rata share (2) of 98% of the pro forma common equity of the Company The interest payment due July 15, 2016 will be paid in cash at closing; no further cash interest payments thereafter Holders of the Existing Second Lien Notes will have the opportunity to participate in the New Capital Offering, to the extent permissible by law. Holders of Existing Common Shares The holders of the Existing Common Shares will collectively retain approximately 2% of the pro forma common equity of the Company 1. Pro rata share based on the principal amount of their First Lien Notes 2. Pro rata share based on the principal amount of their Second Lien Notes and any accrued and unpaid interest from and after July 15, 2016 6
New Capital Offering Description Postmedia will raise cash proceeds through a New Capital Offering of C$110 million in New Second Lien Notes (US$ denominated) Holders of the Existing Second Lien Notes will have the right, to the extent permissible by law, to participate in the New Capital Offering up to their respective pro rata share, based on the principal amount of their Second Lien Notes held by such holders as at a record date to be determined Holders who participate will receive New Second Lien Notes on a dollar for dollar basis Backstop One of the holders of Second Lien Notes (the Backstop Party ) has agreed to backstop and consummate the New Capital Offering to the extent other holders do not subscribe for their pro rata share of the new Capital Offering In consideration for entering into this agreement, the Backstop Party will receive a fee of 5% of the New Capital Offering (US$ equivalent of C$5.5 million in additional New Second Lien Notes) to be applied to acquire New Second Lien Notes on implementation of the Recapitalization Transaction 7
Key Terms of the New First Lien Notes Principal Amount C$ 225 mm Maturity July 15, 2021 Interest Rate 8.25% Security Same as the First Lien Notes Indenture Redemption Permitted at any time at par (plus accrued and unpaid interest), without make-whole, premium or penalty Mandatory 50% of Excess Cash Flow to pay principal on the New First Lien Notes at par twice per year Minimum Excess Cash Flow payment of C$10 mm annually 8
Key Terms of the New Second Lien Notes Principal Amount US$ equivalent of C$ 115.5 mm Maturity July 15, 2023 Interest Rate 10.25% cash interest or 11.25% PIK interest (1) Security Same as the First Lien Notes Indenture (second priority lien) Redemption Permitted after the New First Lien Notes are repaid in full at par plus accrued and unpaid interest, without make-whole, premium or penalty No mandatory redemption No amortization 1. No cash interest for the first 3 years unless the New First Lien Notes and any other First Lien debt balance is C$112.5 mm or less, and in all cases, there must be nothing drawn on the ABL facility. 9
Timeline and Process Commence CBCA proceedings Early August 2016 Late August 2016 Mailing of Information Circular, Voting Materials and for holders of Existing Second Lien Notes, information about the New Capital Offering Meetings of the First Lien Noteholders, Second Lien Noteholders to approve the Recapitalization September 2016 Transaction expected to be completed by the end of September 2016 subject to obtaining all necessary consents and approvals December 16, 2016 Outside date under the Support Agreements for completing the Recapitalization 10
Strategy Looking Ahead EXTEND THE LEGACY RUNWAY Local Sales National Sales Digital Sales Circulation Infomart NEW REVENUE STREAMS Digital Marketing Services (DMS) - Search & Social Solutions Content Marketing Strategic Media Partnerships 11
Q3 F16 FINANCIAL RESULTS
Q3 Fiscal 2016 Highlights Q3 Operating Results Excluding the impact of the Sun Acquisition, revenue for the quarter was down 12.9% Operating income before depreciation, amortization, impairment and restructuring (EBITDA) decreased $10.9 million relative to Q3 F2015. Excluding the recovery of $3.5 million relating to the company s Ontario Interactive Digital Media Tax Credit in Q3 F2015 EBITDA would have decreased $7.4 million. Cost Savings and Synergies The Company is currently in the process of implementing operating cost reductions expected to total $80 million by the end of fiscal 2017. In Q3, the Company implemented initiatives which are expected to result in approximately $9 million of net annualized cost savings. Total net annualized cost savings, since the program was announced in July 2015, are approximately $64 million or 80% of the $80 million target. 13
Q3 Fiscal 2016 Financial Highlights (In thousands of Canadian dollars) For the three months ended May 31, 2016 and 2015 For the nine months ended May 31, 2016 and 2015 Q3 F2016 Q3 F2015 (1) Variance favourable (unfavourable) Q3 YTD F2016 Q3 YTD F2015 (1) Variance favourable (unfavourable) Revenues Print advertising 115,391 112,177 3,214 369,073 280,815 88,258 Print circulation 64,860 59,043 5,817 196,528 151,989 44,539 Digital 28,041 25,833 2,208 83,661 70,636 13,025 Other 10,026 8,039 1,987 29,220 16,611 12,609 218,318 205,092 13,226 678,482 520,051 158,431 Operating expenses Compensation 91,673 80,527 (11,146) 276,479 201,186 (75,293) Newsprint 12,760 10,300 (2,460) 37,826 23,476 (14,350) Distribution 40,552 33,661 (6,891) 122,811 80,561 (42,250) Production 17,968 17,275 (693) 52,541 39,845 (12,696) Other operating 35,578 32,690 (2,888) 113,845 85,879 (27,966) Operating income before depreciation, amortization, impairment and restructuring 19,787 30,639 (10,852) 74,980 89,104 (14,124) Depreciation 5,280 4,628 (652) 16,419 26,175 9,756 Amortization 5,431 10,236 4,805 16,596 29,299 12,703 Impairments 20,000 151,200 131,200 207,000 153,043 (53,957) Restructuring and other items 7,373 14,357 6,984 30,257 23,273 (6,984) Operating loss (18,297) (149,782) 131,485 (195,292) (142,686) (52,606) Net loss attributable to equity holders of the Company (23,682) (140,840) 117,158 (253,042) (209,313) (43,729) (1) Includes the results of the properties acquired in the Sun Acquisition for the period from April 13, 2015 to May 31, 2015.. 14
Q3 Fiscal 2016 Factors Affecting Revenue Change vs. Same Period Prior Year for Key Revenue Categories Revenue Category 3 months ended August 31, 2015 (1) 3 months ended November 30, 2015 (1) 3 months ended February 29, 2016 (1) 3 months ended May 31, 2016 (1) Local run-of-press revenue -10% -17% -15% -20% National run-of-press revenue -20% -23% -26% -26% Insert revenue -10% -7% -8% -4% Digital revenue - Advertising -5% -10% -6% -6% Digital revenue - Other +2% 0% -1% +4% Print circulation -5% -7% -8% -7% Factors affecting Q3 Fiscal 2016 Revenue Largest decline was in the Automotive category, accounting for 38% of Postmedia print advertising decline. (1) (1) Excludes the impact of the properties acquired in the Sun Acquisition on April 13, 2015. 15