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CEO Address Postmedia Network Canada Corp. Annual Meeting of Shareholders January 10, 2013
Thank you Mr. Chairman and good afternoon everyone. Mr. Chairman, members of the Board, shareholders and guests – Welcome to Postmedia Network’s annual meeting of shareholders. When choosing a venue for today’s meeting it seemed fitting to be here, in this building, because next year at this time, we won’t be. First built by Southam Inc. in 1986, 1450 Don Mills road has been home to news gatherers and story tellers and visionaries intent on preserving an important cornerstone of our democratic society – free speech. And in 1998, this very building was the birthplace of the National Post. Since then this building has hosted most prime ministers, most would-be prime ministers; most premiers and most would-be premiers, countless titans of commerce, scores of the elite of Canadian academia and media. This building has seen more than its fair share of black limos pulling up to its doors, carrying important people hoping to inject themselves into the national conversation. This building has a proud history as a publishing hub. From Southam, to Hollinger to Canwest these companies are often remembered for their troubled final days. However, they were led by proud and passionate people who fought to protect a vision of the media landscape in Canada. The newspaper industry of the past was coloured by family dynasties – Southam, Asper, and Black. Our future media visionaries are people who move in different circles. They influence social networks that are virtual. They comment and like. They post and pin. If they share a last name at all, it begins with an “at” symbol – on Twitter. We used to construct newspaper buildings to house enormous iron printing presses. We needed our buildings to accommodate shipping docks and distribution trucks.
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Now, we need collaborative spaces, with high speed internet and wireless connectivity, close to the heart of the city and the digital innovation community. And so we are moving to Bloor Street beginning in December – a move that will herald a new chapter in this company’s future. And just as the way we create and distribute news has changed, so too must the business model established over the past two centuries. We will achieve this through our continued commitment to reducing our legacy cost structure and investing our energies in evolving growth areas. But we hope we’re not alone in taking a new look at old ways. We need to embrace the global economy for all it has to offer. While we are not immune to the downturns and uncertainties of a global economy, we should also be able to benefit from the opportunities it holds. Canada is a country that embraces free enterprise. A country that believes in competition – the more, the better. Allowing greater competition through investment, benefits everyone. It maintains diverse journalistic opinions. It provides readers more options and gives advertisers greater choices and more competitive rates. Our government is beginning to address outdated restrictions on foreign ownership for some industries and we will continue to pursue similar consideration for ours. We believe that allowing for foreign investment can help to even the playing field. We need to put a stop to allowing foreign competitors to siphon off revenues without any restrictions while hindering the newspaper industry. Currently, digital businesses operate in Canada without any ownership restrictions. Advertisers can claim advertising as a business expense for tax purposes on digital properties of any ownership structure. For newspaper companies, this is not so. In this new era, where publishing companies such as ours operate increasingly online, these formerly protectionist measures now serve only to move revenue away. These outdated restrictions, in the current climate, serve only to limit the resources available to Canadian publishers and our newspapers across the country. This is an ongoing effort and it will take time and patience. As a former politician, I know the process can take time. Hopefully common sense can prevail.
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For our part, as we enter our third full year, we will keep up efforts to implement initiatives that move this company forward. We must face the implications of a changing audience dynamic and an uncertain revenue outlook. We must ensure that we continue to explore new opportunities and seek a deeper understanding of our audiences. Recreating a cost structure that supports a new business reality rather than continuing to subsidise the nostalgia of a former business model is critical. All of this takes hard work on the part of management and includes making some tough decisions. But we can’t be tentative about this direction if we truly believe in the future of our industry and we do. We led the Canadian industry with the launch of paid online content models adding three more last year. In the year ahead, we’ll roll this out to the rest of our newspapers. We have taken a thoughtful approach to this and through our ongoing pilot projects have developed deep insights and a strong infrastructure of internal expertise and deepening metrics. Increasingly, the industry, across North America is moving away from a free-for-all, always model to some type of pay model. Even the Washington Post, one of the last big holdouts, has recognized that giving your most important commodity away without any charge must come to an end. As far as we can remember, other media have benefitted from the investment newspaper companies have made in journalism. TV and Radio, and now Web players, borrow and take, adapt and redistribute our content every minute of every day. Finally, news organizations have taken notice that the time of spending millions and millions only to give it all away for free is a road that leads to a dead end. We must find ways to continue the important work of providing Canadians with trusted, thoughtful, insightful and validated content and to be appropriately compensated for it. That is one of our greatest challenges.
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One of the truly transformational and innovative steps we’ve undertaken in the past year is what we call our “One Touch” project. The goal of this project was to move all non-local content selection, editing and production out of our individual newspaper newsrooms into an expanded operation at Postmedia Editorial Services in Hamilton – PES, as we know it. In centralizing these functions at PES, we have significantly reduced the duplication of efforts across our newspapers. International news in Vancouver, is international news in Edmonton and Ottawa too. Recreating this content is inefficient and a luxury we can no longer afford. In minimizing the steps required to get shared content across our newspapers, our local operations are now able to focus on their core strengths – local news and sports coverage, exploring stories of importance on a regional, provincial and local level. On the cost side, we are making progress on our three-year transformation program targeting operating cost savings of 15%-20%. As of November 30, 2012 we have implemented initiatives which will result in annualized cost savings of approximately $42 million. And we are committed to paying down corporate debt. During fiscal 2012 we made total debt repayments of $108.3 million. Our record of paying down debt, and our strategic plan for the year ahead, put us in a solid enough position to proactively seek refinancing of some of our debt. In August we issued $250 million in aggregate principal amount of 8.25% senior secured notes and used the net proceeds to pay off an existing term loan facility. This was an important step as we were able to eliminate restrictive covenants, allowing us to invest in the implementation of our strategic plan. For fiscal 2013 we have set aggressive targets and will keep a laser focus on accelerating the transformation necessary to become a more profitable, nimbler and future-focused company. Our strategic imperatives for the year ahead include – a Four Platform Product Strategy with targeted, differentiated products and services, by brand, and across our four platforms of print, web, tablet and smartphone.
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Audience-based Selling which involves a shift of our sales strategy from the traditional sale of “impressions” to advertisers, to selling audience and results. Better knowing our audiences will help us to aggressively grow digital revenue and implement other strategic sales initiatives. As we’ve talked about before, an ongoing Reduction of Print-related Legacy Costs is a critical strategic driver. It is imperative that we reduce our print related infrastructure so that we can both continue to aggressively pay down our corporate debt and so that we can invest in growth areas of the business. And most importantly – Our People. We must encourage and seek out the best ideas from all areas of the company and celebrate our successes. Encouraging collaboration and innovation among Postmedia’s best and brightest. Ladies and Gentlemen, we remain committed to the successful transformation of our company through this rapidly changing landscape. We know that we face an economic climate that remains uncertain. We also know that the days of increasing ad revenues and the monopolistic strength of print advertising are not returning. In spite of all of this, management is confident that while this may be a lower revenue company, it will also be a less expensive one. We are building a smaller, more profitable company. A media company of the future, that leverages the strength of its past while refocusing its efforts on emerging growth areas. I would like to thank you, our shareholders, for your ongoing support of our company. I will now turn the meeting back over to the Chairman of our Board. Mr. Chairman…
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