Canwest has $33M quarterly loss, debt worry rises in 'challenging economy'

By Kristine Owram, The Canadian Press

TORONTO - With advertising sales eroded by a deteriorating economy, Canwest Global Communications Corp. (TSX: CGS.TO) has dropped to a $33-million quarterly loss and said it may have trouble keeping onside with creditors.

"These results do reflect the current challenging economy," Leonard Asper, chief executive of the media company, said in a conference call Wednesday.

"We've seen advertising slow and drop in many sectors and Canwest has adjusted its plan to manage through this period, while maintaining flexibility to continue to invest in the strategic areas that would allow our growth and transformation to continue."

Dennis Skulsky, president of Canwest's newspaper division, said advertising revenues from the troubled automotive industry, as well as from real estate and employment, have shrunk considerably.

"We expect continuing economic pressures to the traditional heavyweight advertisers," Skulsky said.

Canwest, the Winnipeg-based owner of the Global television network and Canada's largest chain of big-city newspapers, said it lost 18 cents per share in its first quarter ended Nov. 30. This reversed a year-earlier profit of $41 million or 23 cents per share.

Revenue was $886 million, up two per cent from $867 million.

Canwest said adjusted earnings - stripping out one-time items such as currency gains or losses and restructuring expenses - came to $27 million or 15 cents per share, down from $61 million or 35 cents per share in the year-earlier period.

Analysts surveyed by Thomson Financial had looked on average for adjusted earnings of 21 cents per share on revenue of $895 million.

Canwest said operating profit dropped to $204 million from $223 million, and warned it may be unable to meet some covenants in its credit facilities due to "continuation of negative conditions."

However, "we do have a number of levers that can be pulled or actions that can be taken that will help to alleviate the covenant situation and avoid a breach," said chief financial officer John Maguire.

Shares in Canwest lost 28 cents or 35 per cent to 52 cents on the Toronto Stock Exchange, down from over $6 a year ago.

The Communications Workers of America, representing some Canwest employees, said the company's results should concern Canadians.

"On a day when Nortel has filed for bankruptcy protection, Canadians have good reason to fear that their daily newspapers and radio and TV stations may also disappear if things continue on this path," stated CWA Canada director Arnold Amber.

"We need to start considering new ways to finance the gathering and reporting of news in this country or else our sources of quality information could dry up."

In a piece of good news, Canwest said the National Post posted a quarterly profit for the first time in the paper's 10-year history. The size of the profit was not specified, but Canwest credited a revamped website and a decision to stop selling the Post in the unprofitable markets of Halifax, Winnipeg, Regina and Saskatoon.

"I think it's a reflection of the strong brand that it's become and the audience it has in this market, and when you have a fall where news has been significant on all fronts, people have turned to the National Post, both in publishing and online," said Skulsky.

"But the million-dollar question is, is it sustainable?"

Peter Viner, interim president of Canwest's broadcasting division, said the television properties were hit by the slump in advertising, as well as a shift away from conventional TV to specialty channels.

In October, Canwest and other broadcasters asked the Canadian Radio-television and Telecommunications Commission to let them charge cable and satellite distributors for carrying their signals, but the federal broadcast regulator rejected the request, which would have been worth about $300 million a year to the broadcasters.

Viner said Canwest asked the CRTC "to reduce our obligations and for increased flexibility" when it applied to renew its conventional TV licences this week.

Canwest's Australian operations saw a decline in profit to $74.4 million from $103.5 million a year earlier.

"We are cutting costs significantly there as we have here," Asper said.

In November, Canwest announced 560 Canadian job cuts, mostly at Global.

Canwest's debt is rated speculative by DBRS, after it bought the former Southam newspaper chain from Conrad Black's Hollinger group in 2000 for $3.2 billion, then spent $2.3 billion for the Alliance Atlantis specialty TV broadcaster two years ago.

About two-thirds of the Alliance debt is held by New York-based investment bank Goldman Sachs, which can effectively take control of Canwest if it falls short of cash-flow and rate-of-return benchmarks.

But Asper has called the company's $3.7-billion debt load "manageable."