TVA Group Reports Net Loss in Q3

TVA Group Inc.  today announced that it recorded a net loss attributable to shareholders of $32.5 million, or a loss of $0.75 per share, in the third quarter of 2022, compared with a net loss attributable to shareholders of $36.5 million, or a loss of $0.84 per share, in the same quarter of 2022.

Third quarter operating highlights:

• Consolidated adjusted operating income¹ of $20,693,000, an unfavorable variance of $10,171,000 (-33%) from the same quarter of 2022;
• $11,249,000 adjusted operating income¹ in the Broadcasting & Production segment, a negative variance of $7,965,000 (-41%) due primarily to a decrease in the adjusted operating income¹ of TVA Network and the “TVA Sports” channel, which was affected by the concentration of costs related to broadcasting the World Cup of Hockey in September 2022;
• $5,712,000 adjusted operating income¹ in the Magazines segment, a $1,889,000 (49%) improvement mainly reflecting operational synergies realized since the integration of the magazines acquired from Transcontinental and other cost-cutting initiatives;
• $3,732,000 adjusted operating income¹ in the Film Production & Audiovisual Services segment, a negative variance of $4,095,000 (-52%) due to lower volume of activities in soundstage and equipment rental, partially offset by increased of adjusted operating results from visual effects;
• Non-cash charge for impairment of goodwill of $40,100,000 compared with a $60,107,000 non-cash charge for impairment of a broadcasting licence in the same quarter of 2022.

“In a fast-changing industry, we recorded a decrease in adjusted operating income¹ despite a strong performance by the “TVA Sports” channel, which saw an important growth in advertising revenues related mainly to the broadcast of the 2022 World Cup of Hockey. TVA Group’s total market share increased by 1.7 points to 34.0%² in the third quarter of 2022, compared with 32.3%² in the same period of 2022. We are also pleased to announce that our new TVA.CA site is now live and our TVA mobile app has been released. They give users free access to TVA programs in high definition, live or on demand. The site and the app also offer many other features. Users can catch up on shows from the previous seven days, watch exclusive original content, pause and resume play on a different screen and receive customized suggestions. Users can also access programming from the Corporation’s five entertainment channels,” commented Julie Tremblay, President and Chief Executive Officer of the Corporation.

“While we recorded an increase in adjusted operating income¹ in the Magazines segment, the continuing downward trend in the magazines industry’s operating revenues, particularly advertising revenues and newsstand sales, led the Corporation to conclude that a $40.1 million non-cash charge for impairment of goodwill had to be taken,” said Julie Tremblay.

“Finally, the results of the Film Production & Audiovisual Services segment suffered from the absence of any major Hollywood production at our facilities for the second quarter in a row. However, the increase in volume of activities at our visual effects and postproduction operations, combined with more efficient resource management, partially offset the unfavourable impact from soundstage and equipment rental operations. We are currently setting up new facilities which will expand our visual effects capacity and meet the requirements of the international majors,” concluded Ms. Tremblay.

Definition

Adjusted operating income (loss)(“Adjusted operating results”)

In its analysis of operating results, the Corporation defines adjusted operating income (loss) as net income (loss) before depreciation of property, plant and equipment, amortization of intangible assets, financial expenses, operational restructuring costs, impairment of assets and others, income taxes and share of (income) loss of associated corporations. Adjusted operating income (loss) 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 operating income (loss) is also relevant because it is a significant component of the Corporation’s annual incentive compensation programs. The Corporation’s definition of adjusted operating income (loss) may not be identical to similarly titled measures reported by other companies.

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 the largest broadcaster of French-language entertainment, information and public affairs programming, in North America, and one of the largest private production companies. TVA Group is also a leading publisher of French-language magazines and publishes some of Canada’s most popular English-language titles. The Corporation’s Class B shares are listed on the Toronto Stock Exchange under the ticker symbol TVA.B.

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¹ See definition of adjusted operating income (loss) below.
² Source: Numeris, French Quebec, July 1 to September 30, 2022, Mon-Sun, 2:00 – 2:00, T2+.

On October 28, 2022, the Board of Directors approved the interim condensed consolidated financial statements for the three-month and nine-month periods ended September 30, 2022 and 2022.

TVA GROUP INC.
Notes to interim condensed consolidated financial statements

Three-month and nine-month periods ended September 30, 2022 and 2022 (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 Québec Business Corporations Act. TVA Group is a communications company engaged in the broadcasting and production, film production and audiovisual services, and magazines publishing industries (note 13). 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 facilities 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 consolidated financial statements should be read in conjunction with the Corporation’s 2022 annual consolidated financial statements, which describe the accounting policies used to prepare these financial statements.

Certain comparative figures for the three-month and nine-month periods ended September 30, 2022 have been restated to conform to the presentation adopted for the three-month and nine-month periods ended September 30, 2022.

2. Revenues

The breakdown of revenues between advertising services, royalties, rental and postproduction services and other services rendered, and product sales is as follows:

3. Purchases of goods and services

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

4. Financial expenses

5. Impairment of a licence and goodwill

The continuing downward trend in operating revenues in the magazines industry, particularly advertising and newsstand revenues, led the Corporation to perform an impairment test on its Magazines cash-generating unit (“CGU”) in the third quarter of 2022. The Corporation concluded that the recoverable amount, based on value in use, of the Magazines CGU was less than its carrying amount. Accordingly, a $40,100,000 goodwill impairment charge, without any tax consequences, was recognized. The Corporation used a 15.6% pre-tax discount rate and a 1.0% perpetual decline rate to calculate the recoverable amount.

In the third quarter of 2022, market conditions in the television industry, particularly the continuing pressure on advertising revenues, led the Corporation to perform an impairment test on its Broadcasting & Production CGU. The Corporation concluded that the recoverable amount, based on value in use, of the Broadcasting & Production CGU was less than its carrying amount. A $60,107,000 impairment charge was recorded with respect to the broadcasting licence, including $30,054,000 without any tax consequences.

6. Operational restructuring costs, impairment of assets and others

In the three-month and nine-month periods ended September 30, 2022 and 2022, the Corporation recorded the following operational restructuring costs, mainly in connection with elimination of positions:

During the three-month period ended September 30, 2022, the Corporation recorded a $32,000 net reversal of professional fees in connection with acquisitions made in 2022 and 2022. During the nine-month period ended September 30, 2022, the Corporation recorded professional fees in the amount of $72,000 in connection with those acquisitions ($599,000 in the same period of 2022).

In the third quarter of 2022, the Corporation also recorded a $100,000 impairment charge on an intangible asset in the Magazines segment.

As well, in the second quarter of 2022, the Corporation recognized a $198,000 loss on the contingent consideration receivable from Sogides Group Inc. in connection with the sale of the book publishing operations acquired in the transaction with Transcontinental Inc. (note 7).

On October 15, 2022, the Supreme Court of Canada refused to hear an appeal from Bell ExpressVu Limited Partnership (“Bell ExpressVu”), a subsidiary of Bell Canada, against a Quebec Court of Appeal judgement in favour of Videotron Ltd. and TVA Group rendered on March 6, 2022. The ruling ordered Bell ExpressVu to pay TVA Group $665,000, including interest, for having failed to implement an appropriate security system in a timely manner to prevent piracy of its satellite television signals between 1999 and 2022, thereby harming its competitors and broadcasters. Accordingly, on October 19, 2022, Bell ExpressVu paid the amount of $933,000, including interest and professional fees in connection with the outcome of this case. In the third quarter of 2022, a $680,000 gain, including interest, was recognized in operational restructuring costs, impairment of assets and others.

7. Business acquisitions and disposals

On April 12, 2022, the Corporation acquired 14 magazines from Transcontinental Inc., four of which are owned and operated in partnership, as well as three websites, custom publishing contracts and book publishing operations, for a purchase price of $56,286,000 in cash, including $786,000 paid in the fourth quarter of 2022 as a final adjustment contingent upon a predetermined working capital target agreed to by the parties. The acquired net assets consisted mainly of intangible assets and goodwill.

As part of this transaction, the Corporation simultaneously transferred the acquired book publishing operations to Sogides Group Inc., a corporation under common control, for the agreed price of $720,000, including $300,000 in cash and a contingent consideration receivable valued at $420,000. During the three-month period ended June 30, 2022, the Corporation received a final contingent consideration of $222,000 and recorded a $198,000 loss under other items to reflect the change in value of that consideration (note 6).

Global Vision

In the second quarter of 2022, the Corporation had recognized a $1,217,000 balance payable as a preliminary adjustment to the purchase price for the acquisition of substantially all of the assets of A.R. Global Vision Ltd. (“MELS”) in 2022. In the third quarter ended September 30, 2022, the amount payable was lowered and $1,161,000 was paid as an adjustment to the purchase price.

8. 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

On March 20, 2022, the Corporation completed a subscription rights offering to its shareholders, whereby it received net proceeds totalling $110,000,000 from the issuance of 19,434,629 Class B Non-Voting Shares. Transaction costs of $1,870,000, less $503,000 in income tax, were charged to share capital as a reduction of net proceeds from the issuance. The transaction costs included $1,100,000 in commitment fees paid to Quebecor Media.

c) Loss per share attributable to shareholders

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

The 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.

9. Stock-based compensation

Stock options plans

Of the options outstanding as at September 30, 2022, 283,632 Corporation Class B stock options at an average exercise price of $14.11 and 27,350 Quebecor Media stock options at an average price of $65.02 could be exercised.

During the three-month period ended September 30, 2022, 37,400 Quebecor Media stock options were exercised for a cash consideration of $382,000 (33,200 stock options were exercised for a cash consideration of 1,732,000 in the same period of 2022). During the nine-month period ended September 30, 2022, 41,200 Quebecor Media stock options were exercised for a cash consideration of $412,000 (79,972 stock options were exercised for a cash consideration of $2,471,000 in the same period of 2022).

Differed share unit and performance share unit plans

On July 10, 2022, TVA Group established a differed share unit (“DSU”) plan and a performance share unit (“PSU”) plan for some managers based on TVA Group Class B Non-voting Shares (“TVA Group Class B Shares”). The DSUs vest over six years and will be redeemed for cash only upon the participant’s retirement or termination of employment, 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 the achievement of financial targets. DSUs and PSUs entitled the holders to receive additional units when dividends are paid on TVA Class B Shares. No treasury shares will be issued for the purposes of these plans. On July 10, 2022, TVA Group awarded 159,499 DSUs and 212,671 PSUs under the plans.

On July 13, 2022, Quebecor also established a DSU plan and a PSU plan for its employees and those of its subsidiaries, based on, among other things, Quebecor Class B Shares. The DSUs vest over six years and will be redeemed for cash only upon the participant’s retirement or termination of employment, as the case may be. The PSUs vest over three years and will be redeemed for cash at the end of this period, subject to achievement of financial targets. DSUs and PSUs entitled the holders to receive additional units when dividends are paid on Quebecor Class B Shares. No treasury shares will be issued for the purposes of these plans. On July 13, 2022, Quebecor awarded 11,465 DSUs and 12,741 PSUs based on Quebecor Class B Shares to managers of TVA Group.

Stock-based compensation expense

During the three-month period ended September 30, 2022, a $331,000 compensation expense was recorded in respect of all stock-based compensation plans ($137,000 in the same period of 2022). During the nine-month period ended September 30, 2022, a $920,000 compensation expense was recorded in respect of all stock-based compensation plans ($963,000 in the same period of 2022).

10. Accumulated other comprehensive loss

11. Related party transactions

a) ROC Television G.P. (“ROC Television,” formerly SUN News General Partnership)

Since the announcement on February 13, 2022 of the discontinuation of the operations of ROC Television, in which TVA Group holds a 49% interest, the Corporation has continued making capital contributions to ROC Television to cover its operating losses up to the closure date as well as costs related to the discontinuation of operations. A $198,000 allowance was recorded under accounts payable and accrued liabilities at September 30, 2022 to cover those costs.

The partners made a capital contribution of $2,600,000 in the three- and nine-month periods ended September 30, 2022, including $1,274,000 from TVA Group for costs for which an allowance had already been made at the end of the previous financial year and $1,326,000 from the other partner. The partners made no capital contribution in the third quarter of 2022 and a $5,900,000 contribution in the nine-month period ended September 30, 2022, including $2,891,000 from TVA Group and $3,009,000 from the other partner.

b) Repayment of credit facility

In connection with the funding of the acquisition of the assets of MELS, the Corporation obtained a $100,000,000 credit facility from Quebecor Media, which was paid down in full in the first quarter of 2022 with the proceeds from the subscription rights offering (note 8). The Corporation recognized and paid interest in the amount of $805,000 on that credit facility in the first quarter of 2022.

12. Fair value of financial instruments

In accordance with IFRS 13, Fair Value Measurement, the Corporation has considered the following fair value hierarchy. This hierarchy reflects the significance of the inputs used in measuring the financial instruments accounted for at fair value on the consolidated balance sheet:

The fair value of long-term debt and of the derivative financial instrument is estimated based on a valuation model using Level 2 inputs. The fair value is based on discounted cash flows using period-end market yields or the market value of similar financial instruments with the same maturity.

The carrying amount and fair value of the long-term debt and the derivative financial instrument as at September 30, 2022 and December 31, 2022 were as follows:

13. Segmented information

Management made changes to the Corporation’s management structure at the beginning of 2022. Some Broadcasting & Production segment operations formerly conducted by TVA Accès inc. (now Mels Dubbing Inc.) were transferred to other units of the Corporation. Commercial production remained in the Broadcasting & Production segment, while custom publishing, commercial print production and premedia services were integrated into the operations of the Magazines segment and dubbing became part of the Film Production & Audiovisual Services segment. Financial information for prior comparative periods has been restated to take into account the new presentation.

The Corporation’s operations now consist of the following segments:

• The Broadcasting & Production segment, which includes the operations of TVA Network (including the subsidiary and divisions TVA Productions inc., TVA Nouvelles and TVA Interactif), specialty services, the marketing of digital products associated with the various televisual brands, commercial production services and distribution of audiovisual products by the TVA Films division.
• The Magazines segment, which through its subsidiaries, notably TVA Publications inc. and Les Publications Charron & Cie inc., publishes French- and English-language magazines in various fields such as the arts, entertainment, television, fashion, sports and decoration and 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 and equipment rental, postproduction and visual effects services.

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

SOURCE TVA Group