CanWest Global Communications Corp. F4Q08 (Qtr End 8/31/08) Earnings Call Transcript

CanWest Global Communications Corp. (CWG)

F4Q08 Earnings Call

November 14, 2008 10:00 am ET

Executives

[Hugh Harley] – Director Investor Relations

Leonard Joshua Asper – President, Chief Executive Officer, Director

John E. McGuire – Chief Financial Officer

Kathleen A. Dore – President Canadian Television of CanWest MediaWorks, Inc.

Dennis Skulsky – President, Chief Executive Officer of CanWest MediaWorks Publications, Inc.

Analysts

Paul Steep – Scotia Capital

Scott Cusperson – TD Newcreast

Benjamin Mogil – Thomas Weisel Partners

Drew McReynolds – RBC Capital Markets

David McFadgen – Cormark Securities, Inc.

Randall Rudinkski – Credit Suisse

Adam Shine – National Bank Financial

Adam Spielman – PPM America

Presentation

Welcome to the CanWest Global Communication’s fourth quarter and year end results conference call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session with instructions provided at that time. (Operator Instructions) I would like to remind everyone that this conference is being recorded today, Friday, November 14, 2008 at 10:00 am Eastern time.

I would now like to turn the conference over to Mr. [Hugh Harley], Director of Investor Relations.

[Hugh Harley]

Welcome to CanWest fourth quarter fiscal 2008 conference call. Earlier this morning we released our fourth quarter fiscal 2008 results. A news release and associated MD&A can be found on our website www.canwest.com. In addition for holders of the limited partnership the fourth quarter financials for CanWest Limited Partnership can also be found on the same website.

Slides to summarize the prepared comments during this call can be viewed on our website as well. Specifically all financial information can be located within our website under investors/financial reports/2008. On the call this morning we have Leonard Asper, President and CEO, John Maguire, CFO, Kathy Dore, President of Canadian Television, Dennis Skulsky, President of Publishing.

As is customary, I will remind listeners that statements made on today’s call may contain forward-looking statements and I refer you to Slide 2 for an explanation of the risks and uncertainties with respect to such statements. The format of today’s call will include opening remarks by Leonard Asper, Dennis Skulsky, Kathy Dore and John Maguire followed by a question and answer period.

We expect this call to be approximately an hour long and I would ask in the question and answer period that each questioner please limit the number the questions to respect time for others. With that I will turn the call over to Leonard.

Leonard Joshua Asper

I am starting on Slide 3. Before discussing the quarter and answering some questions, I would like to comment on three things: number one, the impact of the recent SEC announcement; number two, the non-cash write down of goodwill in the broadcast licenses relating to our Canadian conventional television operations; and third, the recently announced restructuring that CanWest has undertaken.

Honestly to our decision, I think it is worth pointing out a little bit more and delineating between the positives and the negatives. It was a mixture of positive and of course, there was a mass of disappointment. It was a decision that failed to recognize our view the economic viability of conventional television in this country and to address the structural issues that threatened local content that we simply can no longer afford.

We are however pleased that the CRTC did at least firm its commitment to the Canadian’s specialty business, paving the way for continued growth of the specialty channels in Canada which now account for 70% of our Canadian television in revenues. We are also very pleased to see that the CRTC believes that we should be compensated when cable and satellite companies retransmit our signals into other provinces and we are just now determining our position as we begin negotiations.

I think [inaudible] just so everyone understands the jargon. When the CRTC talks about something called BDU those are acronym for broadcast distribution undertakings. That means cable, satellite or telephone companies like MTS and Tellus that are also bring television channels into your home. So we call them the BDU’s, but we mean other cable and satellite so the fact that the CRTC has allowed us to, given us the ownership of our signal back so that we can at least negotiate with the BDU’s as to how and if they are going to be able to retransmit these channels, is a significant win for us.

We are also pleased with the CRTC’s decision to allow advertising video on demand and the profits as we see it should allow us to begin selling advertising for video on demand offerings in 2009 at least. We are very well positioned for this development with a lot of great programming from our specialty channel but also our primetime first run programming which we are able to start running on this platform. We have got lots of rights for video on demand and we have already have some experience monetizing video on demand rights at significant premium rates to which is regularly sold, the regular rates for conventional advertising.

We’ll obviously participating in the hearing and the call for comments and we believe the advertising revenues should belong entirely to the broadcasters and we will be pushing that in the regulatory process.

On a negative side though the fact is that the decision sidesteps the real issue which is how the BDU’s share the revenues that are collected from consumers for the programming that is delivered. You all know the big issue is the fee for carriage issue. It is really about the fairness aspect of the system and we are going to continue to keep pushing that and for those of you who are not familiar, I know for some of you this is going to sound like a broken record, but it is worth remembering that we are facing a company in the cable business and satellite business that have been monopolies in some cases for 30 or 40 years that have had the collective subscription revenues from consumers and don’t provide or pay channels but not others.

We are focused on trying to rebalance that regulatory imbalance that exists. The CRTC is not going to give us the revenue that we need or reimburse us for the revenue that has been loss virtually by the CRTC bringing in other program rights to compete against our program rights when you get NBC or CBS which doesn’t happen anywhere else in the world. We are saying that is fine, we are no longer going to be able to afford to do fulfill the obligation that has been put upon us. We are not going to stand by and have our revenue taken away and still have these cost obligations.

We will be aggressively pursuing changes continually as we enter into the license renewal process in the coming months as we get into the hearings into video on demand, as we get into discussions on how the local programming improvement fund the cable companies as the CRTC set up is to work. Right now, it doesn’t work for us, we cannot access it because it penalizes anybody whose managed to actually cut their costs because you have to go and raise your costs to get back at it and get to qualify for the funding as the CRTC as set it out.

So, we will continue the battle whether it is to part two fees or prescription drug advertising, cost obligations, our content obligations, this is not over and we are extremely disappointed with the way the CRTC has come out of this hearing and I say this is far from over. You should all get a sense of where I am coming from when you look at what happened with TQF, the French Television Network television [Quatre Saisons].

Then the license was bought by a new shareholder, they applied, had they asked to do no local programming, I believe the CRTC ended up asking them to do two hours per week. Well we are doing over 35 hours in places like Hamilton, Victoria and some of the western cities and TQF is doing two hours of local programming and CTV even does a lot less local programming in many markets than CanWest does. So, there is going to be a new norm in the obligations they are going to, we think, partially rebalance the system. The deeper carrot is the rightful ability to collect revenue as all other channels do is still something we are going to pursue.

On the conventional television write down, another example of how challenged conventional television is in Canada today, there was a $1 billion write down of goodwill and broadcast licenses which reflect a reduced profitability of the current model and a lower near term growth equity expectation of the model. We know we are not alone in this regard. Other major television networks have reported write downs and significant cost restructuring across the board and these include CBS, FOX, NBC and ABC in the US and ITV channel 4 in the UK and TV3 in Ireland.

In fact, as somebody may know the CBS write down was about $14 billion. I remind everyone this is a non-cash write down that’s charged to the income statement, but it does not affect our liquidity or our cash flows or operating activities or our debt covenants nor does it have any future impact on our operations.

On the restructuring, I think most of the details of that are known from our press release the other day. We are not the first to be doing this and we won’t be the last, I can guarantee that. We are continuing to look at our operating businesses, we did this restructuring because we do see revenue shortfalls and revenue difficulty going forward and we are trying very hard to defend our budgets which are budgets to grow the company and we are trying to mitigate against the revenue declines that we are facing in some of our businesses. So these are just simply just good sound business decisions to try to do right size of business for the revenue environment that we are in.

On Slide 8, I just want to remind everybody of what we’re as management is focused on. The first thing is we are, as we were once when we did the Hollinger transaction years ago, focused on strengthening our balance sheet. We continue to review our portfolio of assets to ensure we are investing in the areas that provide the greatest long term growth and return on our investment.

We are looking for opportunities to drive our cost efficiencies throughout the business and we are looking for any opportunity we can to eliminate cash drag where we don’t see a path to profitability. We are building on our core assets and we are investing in a higher growth media and as such we continue to build on our strong brands by improving the [inaudible] operations and by creating growth through new products and revenue streams.

We are investing out digital businesses and that includes anything from online classifieds to mobile to communities of interest that we are building at www.canada.com, our local website, etc. We always see if you know increase our rights and acquisition activities to include video on demand, online mobile streaming rights, mobile rights and webisodes.

So under the heading strength and balance sheets we, you know, sold our UK radio stations and we have closed some newspapers. We have closed some underperforming specialty channels and we are continuing to explore a variety of ways to improve our balance sheet. That is an ongoing activity.

Building on our core assets as I have talked about before, we have invested in the digital newsroom, four production centers across the country that are now providing news for our 16 television stations and new production support. We have digitized, we have systems in place now where our content in increasingly becoming digitized. It has reduced costs and it has also giving us revenue opportunities. We rebranded Lonestar in to Movie Time. We have reprogrammed several specialty channels and got higher ratings out of them, history channel is just the latest, but TVtropolis was before that and Mystery TV before that.

So, we now have four of the top 10 analog channels and eight of the top 10 digital channels. We are also streaming now more than 50 hit programs. We have invested in a new sales management system that enables us to enter the network sales market in television. We have achieved a 13% growth in our online publishing revenues and we recently launched two new websites like www.househunting.pa and signed some new partnerships for our classified verticals.

I am just turning over to Slide 10. I just wanted to remind everybody of our brand tree. What we do at CanWest. I know there are a lot of people listening today that aren’t familiar with the company. It is very simple, whether it is delivering a newspaper to your door or delivering contents to someone online or through a cell phone. We do four things: we know our consumers; we provide our best content to them; we secure the distribution channel for them to get the content to them; and then we collaborate innovative and customer focus solutions for advertisers and consumers. We know our consumers we get the content, we distribute the content and we sell.

I want to turn over to our 2008 consolidated earnings on page 11 and I want to try to get what we think is the real story here is, I want to get to the year-to-date ’08 earnings, we call them the adjusted earnings $21 million versus $6 million last year. Our earnings are impacted by non-cash charges that create a different picture then we at management look at the business in terms of a different lens.

Non-cash losses on interest rate and foreign currency swaps, we did have higher interest expense which was real cash. We also had restructuring expenses due to technology innovation, some of the stuff we talked about before, but those are not ongoing and we have the accretion of the long-term liability in the accounting of the Alliance Atlantis put option.

We also had some other write downs involved in putting our interest in the score which was writing up on the Alliance Atlantis acquisition to a level far beyond what it was trading at before we did the acquisition. So, adjusted earnings, if we exclude the impact of some of these losses and the impairment loss, we are at $21 million versus $6 million loss last year.

I won’t put too much into segmented results because they are fairly self-explanatory on the Q4 and on Slide 13, I just wanted to highlight again the year-over-year increase in the publishing EBITDA. Revenue growth is 1% and the EBITDA growth was 9% for fiscal 2008 and that showed strong cost containment, obviously, and fiscal management in that division.

In 2008, the Canadian television segment reported overall growth in revenue and EBITDA due to the acquisition of our specialty channels compared to last year on a combined basis, pro forma revenues and EBITDA would have been up 2% and 14% respectively.

That means or Australian Television were up 2% and EBITDA was down 10% for the fiscal year 2008 compared to last year with all of that coming in the fourth quarter. Revenues and EBITDA for the out of home segment were higher year-over-year reflecting increased revenue and profits from expansion activities over the last few years. And, as I said for the 12 months ending August 31^st, we reported $21 million in one-time restructuring expenses associated with the centralization as a result of technology changes and workflow in publishing and central offices of our newest production and broadcast.

Over to Slide 14, we have tried to separate out Alliance Atlantis give the manner we’ve had to account for them partly in trust and partly in non-trust. So, on Slide 15, we show the results for the quarter and the 12 month period. Revenues total $81 million into the three months ending August 31 ’08 representing a 5% increase over the comparable period last year. And, for fiscal 2008 year revenues were $360 million representing an 11% increase over the 2007 fiscal year.

This reflects impressive increase in the quarter and the year of advertising revenues of 6% and 16% respectively in the quarter. So 16% is for the year and 6% for the quarter. Subscriber revenues were up 5% for the year. EBTIDA for the fourth quarter in media was $19 million up $7 million or 57% excluding the transaction related to non-recurring cost for 2007. If you exclude those costs, EBITDA for the year of $121 million was up 45%.

Turning to Australia, those results are well known. Again as I said the first nine months we were up 13% in EBITDA but with the Olympics and the comparable to the year before where we had election spending as well resulted in a decline year-over-year of about 10% overall. We think 10 is well positioned to withstand the current difficult cycle.

The market is difficult in Australia right now but again, 10 has good strong programming franchises and we expect it to come out al little strong in what is our spring in Canada starting in March with some programming. We’ll continue to maintain strong fiscal and operational discipline there as well. I think that asset is in good shape and that market will in due course come back and I’m confident we’ll have strong results there in the future.

I’m going to turn it over to Dennis and Kathy now, starting with Dennis to just talk a little bit more about our publishing and our Canadian television business.

Dennis Skulsky

The economy in Western Canada softened, I’m on Slide #16. The economy in Western Canada softened and contributed to revenue decrease in Q4 of ’08 versus ’07. However, for the year we saw an increase over overall revenue of 1.3%. Also, this was the second highest year in our history for circulation revenue coming in at just over a quarter billion dollars. Despite circulation being down as it is in the industry, our circulation revenue remains at least flat to last year but a lot of that is due to carefully managed price increases which has allowed us to maintain a stable readership.

All of this is in the backdrop of the overall audience growing with our online and digital asset audiences growing. We saw total linage for the fiscal year grow for the second consecutive year, 1.5% despite some tough hits we took in real estate and career advertising in the last quarter. Our own local strategy continues to show success and we are capturing more of the long tail advertisers like local retailers.

Local retail advertising for the year, in fact the lineage was up 5.2 million lines or 3.6%. EBITDA for the quarter declined 5.4% to $54.2 million and for fiscal 2008 as indicated earlier we had EBITDA growth of 9% delivering $294.4 million. We continued rigor around our cost containment so that certainly contributes to the growth in the EBITDA.

Newsprint pricing was relatively flat down 1% in fact from quarter one in fiscal ’07. Overall, commitment to transforming our newspaper company to a multiplatform publishing entity is highlighted by the fact that our digital media counted for 5.7% of our revenue in fiscal ’08 or $74 million. The growth in our online audiences outpaces the market and our own local strategy flourishes on line two with unique visitors to our [inaudible] sites 23% for the quarter and revenue growth for our digital network is demonstrated by 13% year-over-year increases.

Now, moving to Slide #17, we look ahead to both the short and long term initiatives and priorities that we take in to account in the challenging economic times that we’re facing. Obviously, continued rigor and diligence with respect to cost containment is critical and we’ve identified a number of strategic initiatives such as our web width reduction and others that will result in annual savings of $35 million to $40 million.

These initiatives are even more critical as we face a 15% to 20% increase in newsprint pricing. We’re going to continue to focus on growth areas such as digital but also with our CanWest news service and editorial services, using our existing expertise to grow our client base and revenue streams. We continue to look for ways to reduce costs through process improvements while defending our core business with innovative new products that meet the objectives of local advertisers.

Our exclusive 2010 Winter Games partnership with the Vancouver Group are going to provide us with an opportunity to grow some revenues in fiscal ’09 in the range of $5 million to $7 million. We couldn’t have gotten these rights without the association and partnership of our local newspapers in Vancouver.

We’ve added to our band strength and are now poised to go more mobile and local search offerings which include some recently announced partnerships and revenue segments agreements with Oodle, Gas Buddy and ClubZone with more to come. Now, over to Kathy.

Kathleen A. Dore

Turning to Slide 18, our conventional business faced a challenging quarter largely due to prevailing economic conditions and the Olympics which received a disproportionate share of our television advertising dollars. When you combine that with the continuing fragmentation of conventional audiences, fourth quarter conventional revenues fell to 97% of revenue achieved in the prior year’s period.

The new fall season has shown some solid successes despite the long writers’ strike last winter, our top hits including House, Heroes, Survivor and Prison Break have returned to strong ratings. Our big new show of the fall 90210 debut as the most matched new program in Canada this season and it continues to be one of only two new shows in the top 20 in Toronto and Vancouver.

Meanwhile, we’re enjoying the strategic benefits of integrating our conventional assets with specialty. We’ve been successfully leveraging our relationships with US studios, enabling us to air some our key Global and E shows in our special two channels. Our most successful example yet is NCIS, a global program that now airs weeknights on History Television and has become the channel’s number one show helping to propel History in to the second most watched specialty network in Canada.

We also have an active and aggressive cross promotional strategy in place which has enabled us to maximize exposures for our fall shows on Global and E and to drive new viewership to a number of our key specialty networks. Online we’ve been aggressively pursuing digital rights for our conventional content. For the fall season we’ve introduced the country’s most expensive line up of programming available for streaming on our network websites including access to over 50 hit programs online. We were even able to offer an exclusive online preview to Knight Rider’s series premier.

Last month we announced the landmark deal with Rogers that will provide audiences with free access to more than 60 hours of first run Global and E network shows through Rogers On Demand. This marks the first time a full slate of primetime network shows will be available on demand in Canada.

With regard to our digital news project we realized $8 million in cost savings arising from that project in fiscal ’08. We also announced a series of restructuring initiatives which I’ll address momentarily. Turning to Slide 19, as you probably know CanWest operates 18 specialty channels and has interests in six others. Slide 19 focuses on the specialty channels we operate which continue to deliver tremendous results.

For the full year, consolidated specialty subscriber revenue increased 5% and advertising revenues grew 21% compared to average specialty ad growth totaling 8% nationally. [Inaudible] inaudible in particularly exhibited strong growth with total revenues rising 34%. For the current broadcast year-to-date CanWest has increased its share of English specialty viewing by 16% among adults 18 to 49 and maintains the largest share of viewing among women.

In terms of channel rankings, we have five of the top 10 analog channels including two of the top five up from zero in the fall of 2007. For digital specialty we dominate with eight of the top 10 channels including four of the top five. Importantly, viewer count continues to grow rapidly. Combined audiences of the top 10 digital channels has increased 30% versus fall 2007.

We also continue to identify opportunities to maximize the value of our specialty portfolio through rebranding or relaunching new channels and extending the distribution of existing channels. This past year we closed School TV and Extreme Sports and rebranded [6:09 Lonestar’s Movie Time, the go to specialty destinations for hit movies.

We have plans for two specialty and HD channel launches and we expect to be making announcements later this year. Turning to Slide 20, we update the combined Canadian television segment cost initiative. As we reported last quarter, integration savings related to the merging of Alliance Atlantis’ assets and CanWest are on track.

For CW Media and CanWest combined we realized integration cost savings of approximately $16 million in fiscal 2008 which translates in to approximately $20 million on an annualized run rate basis. By the end of the current fiscal year we expect to have achieved annualized run rate integration cost savings in excess of $36 million and realized cost savings of $35 million.

Earlier in the year we launched a review of our operations aimed at increasing profitability. This resulted in a number of decisions which we announced on November 12^th. In particular we determined that we will be making substantial changes to our news operation at each station. We’ll continue to provide local news but we’re reducing our local news infrastructure. We intend to continue to satisfy our regulatory obligations in all markets.

That said, we’ll be focusing the majority of our investment and efforts on the strong news brand that we have in Global News. We will also be eliminating positions in a number of other areas to adjust with the new realities and to ensure we’re focusing on our core business. These areas include positions in national broadcasting operations, long form post productions, close captioning and at a number of our global stations including the cancellations of the Global Ontario Morning Show.

In total these changes will result in the elimination of approximately 210 positions. Excluding program costs, our operating expenses will be lower by $17 million from fiscal 2008 levels. This represents $21 million on an annualized basis. We’re also taking a number of other short term and long term measures to improve our competitive positions. I’ll now turn it over to John McGuire.

John E. McGuire

On Slide 21 we show our debt by subsidiary. The amount shown in each of the four boxes there for the debt shows the debt at its [hedged] rate. In other words it represents that debt that has to be repaid. On this basis our total debt is $3.7 billion and again, as we’ve broken it out, we hold it in four different silos and it’s important to note that the debt within each of those three silos is non-recourse to the parent company CanWest Media, Inc.

Also, given current markets I think it’s important to highlight that our nearest debt maturity is not until October, 2010. That’s the senior credit agreement at CanWest Media, Inc. Other maturities fall after that date starting in 2011 going out to 2015. [Not] shown in this Slide is the arrangement with Goldman Sachs. In 2011 and 2014 Goldman has certain rights to put their interest in CW Media. These put rights extend only to CW Media and not to CanWest Media.

Turning to Slide 22, we’ve provided a year-over-year comparison of debt. This schedule presents debt at the swap rate again for a total of $3.7 billion. However, with the new financial instruments accounting policies introduced in 2008 this results in adjustment to debt balances for debt issuance costs and to mark the debt to current foreign exchange rates. The effect of these changes that are set out on the Slide is to reduce debt for accounting purposes and balance sheet purposes from the $3.7 billion to $3.5 billion.

Just to give you an update on our overhanging [cost] additions, as of August 31^st the cross currency component of our overhanging [costs] to a liability of about $141 million down from $153 million at May 31^st. At market close yesterday this liability was $109 million and as rates have moved in our favor we’ve taken steps to lock in the benefit of those improved rates and at this point we have fixed approximately 50% of the cross currency liability.

Our sensitivity to further changes in the US and Canadian currency translation rates is $1.8 million per cent movement. On Slide 23 we provided the debt ratios for CanWest Media, Inc. [inaudible] for bond holders the restricted payment basket at the end of August stands at $490 million. Turning now to Slide 24, as I believe I indicated in our last conference call, we indicated we were in discussions with our senior lenders to revisit certain provisions of the senior credit facility.

I am pleased to report that these discussions have been concluded on a positive note and with the result that you can see on this Slide. We received unanimous consent for a number of amendments to the covenants. Total leverage covenant ratio steps up overtime from the current 5 times to a high 6.75 times in Q4 2009 before stepping back down over the course of 2010 to 5.25 turns. The step up to the 6.75 level really is in large part to accommodate our settlement of the overhanging [cost] additions. That final payment due in August 2009.

We’ve reset the senior leverage covenant ratio to 2 turns as well as adjusted our interest coverage ratio from the current 2 times to 1.5 times in the third quarter of 2009 and increase of again to [inaudible]. We’ve also reduced the overall size of the facility from $513 million to $300 million. Slide 25 shows the financial covenant ratio for the limited partnership. I won’t go in to that in detail. I’ll turn things back to Len.

Len

Just to summarize fiscal 2008, we delivered industry leading profits in publishing and specialty television and digital media. The CW Media integration with the legacy CanWest television channels is going exactly as planned, if not a little bit better. Despite a ratings comeback in terms of our performance in the top 10, the conventional television revenue model continues to be challenging and I would dare say broken.

We’ll continue to aggressively pursue our regulatory agenda and continue to look at our structural and strategic positioning in this industry as we go forward. We are and we’ll continue to work on our plans and we’re looking new ways to deliver business performance by growing revenues and containing costs with the end goal of, of course, returning better value to our shareholders.

We’ll continue the transformation of CanWest to a multi platform media company building its audience using digital media. I think it was said in 2008 despite the poor finish to the year maintains a strong position and the market is weakening and we firmly believe it will come back. It’s constructionally a much better market than the Canadian television market so we’ll try and hope for the future there.

Just looking ahead, we believe as we’ve said in our release investors should focus on the fundamentals of our business and not some of the noise from the write down or some of the non-cash charges the accountants seem to like. We continue to produce strong cash flows and as I said, we have businesses that are outperforming the industry from publishing to specialty to digital media.

We are dedicated to taking the necessary steps to provide us with as much financial flexibility as possible so we are continuing to look at our capital structure as well as our operating businesses to make sure we, as I said, build as much shareholder value as we can. As I said, we have a very diversified revenue base, we’ve got strong fiscal discipline in place, we’ve got manageable debts because it’s in four different components.

While it’s nice to say it’s $3.7 billion as a total, it is really in four separate companies that the three subsidiaries debt is non-recourse as John said to the parent company. The cash flows match the debt in each of the different subsidiaries. We’ll continue our march onward on a regulatory agenda. We’ll continue to manage our business to deal with the current revenue environment and we’ll, as I said, we’ll be very vigorously pursuing continuing to just do our regulatory agenda.

We would happily meet any of you in Ottawa. That concludes my prepared remarks and we’ll be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Paul Steep – Scotia Capital.

Paul Steep – Scotia Capital

Leonard, maybe you can talk just a little bit on the first one in terms of the outlook, not to get too focused on the near term but just how things have fared thus far in October and hopefully if we’ve seen any sort of stabilization in the last week or two many around specialty TV and then the publishing side of things.

Leonard Joshua Asper

I’ll start and then turn it to Kathy. I think overall the trends continue which is that digital and specialty channel revenue is good, strong and publishing revenues a little more challenging and conventional is the real tough one. I think Kathy, looking over the last several weeks the conventional side has stabilized a little more after a tougher September but do you want to comment a little bit?

Kathleen A. Dore

We’re seeing strong growth in the current quarter in specialty, not quite what it was last year but certainly double digit growth. On the conventional side, we’ve seen the actual money coming in September and October above levels of last year. July and August money coming in for July and August the first quarter were quite a bit below so from that standpoint the conventional revenue situation does seem to be stabilizing.

Leonard Joshua Asper

I think it’s safe to say the conventional revenues market is down a little bit overall. I think the overall market is down and we are down in conventional pacing the quarter. I think there are some bookings that are coming in for January and have come in recently that are encouraging but we’re obviously not going to – everything is very late as usual. The visibility is much reduced from what it was.

There’s money, as we understand it, waiting on the sidelines and I think there’s just a lot of psychological issues with people and they’ve held back for obviously several months now. So, we’re seeing some signs, we signed some major deals for January but we are running behind for the quarter in conventional as well as in specialty. Dennis, do you want to comment on publishing?

Dennis Skulsky

On the publishing it’s first off with the backdrop to last year’s quarter we had one of our best quarters in recent memory last year. But, we are caught in this attitudinal think of what’s going on in the economy. Clearly, the real estate category for us has been a challenge in this first quarter. We’re also continuing to see some of the challenge around the classified working and career business.

The technology is still been a challenge for us over the last number of quarters although we are starting to sense some of the technology players are coming back in to the market.

Paul Steep – Scotia Capital

One last one for me and I’ll pass the line, just Dennis or John, just on the newsprint side of things, maybe you could help clarify it a little bit one, what the sort of exposure there is to the pricing changes we’ve seen and then secondly, you did mention about the web width reductions, when those sort of hit in the year and how much of sort of an offset that is that would help?

Dennis Skulsky

We last year had some very significant savings from newsprint so for us on a year-over-year comparison it’s about a $20 million impact. Now, the difference is it’s $20 if we stood still and did nothing. The web width reduction which is scheduled to take place, we’re doing the refitting of our presses right now. By the end of February we will be up and running the smaller webs in most of our newspapers. That’s worth an annualized $5 million.

We’re also doing some review with the National Post on some of our core markets and the circulation so our overall newsprint consumption, it will decline by about 9% so the net-net is all going to contribute to taking some of the severity of that $20 million if we would have done nothing.

Operator

Our next question comes from Scott Cusperson – TD Newcreast.

Scott Cusperson – TD Newcreast

I’ll just ask a couple of quick ones here, on the interest expense John, $11 million in higher interest expense due to debt issuance costs, I was just wondering what this was specifically related to and is this a one timer or is it going to be ongoing?

John E. McGuire

It’s a one timer, it’s really the debt issuance cost that were first incurred on the bridge in August 2007 to finance the CW acquisition and when we refinanced that bridge in July we were required to write off the deferred financing cost.

Scott Cusperson – TD Newcreast

Just kind of a sources and uses kind of thing, I know you guys have got a lot more room now through covenants but your cash uses are sort of $219 million this year and it doesn’t appear to include all of the severance cost. I guess you’re comfortable funding this with the increased room that you have in your credit facility now?

John E. McGuire

We think we’ll have sufficient liquidity.

Scott Cusperson – TD Newcreast

Just talking about the amortization of the put option, the accretion expense, did you guys change your assumptions on that presuming that you’re going to carry a little bit less EBTIDA over the ultimate payment will be lower so that was instead of an expense it was a gain in the quarter? I just kind of wondered if you could share with us what the changes in your assumptions on performance of the asset were and/or what that line item might look like going forward?

John E. McGuire

That calculation is all driven by what the combined EBITDA for CW Media and legacy CanWest Television is in 2011 and ultimate the cost for the put in 2011 and 2013. With lower forecast for that combined business coming out of our [inaudible] for 2008 as well as our budgeted [inaudible] 2009 and on we had to adjust our estimate of that final liability so that’s the calculation that takes place and resulted in the reversal of some of the expenses that had already been recorded.

Going forward the liability will still accrue at the same effective rate and provided there is no change in our forecast I think it’s pretty simple math on the current balance at August 31^st.

Scott Cusperson – TD Newcreast

That sort of million dollar balance that [inaudible] disclosed.

John E. McGuire

Balance at year end I think was $545.

Scott Cusperson – TD Newcreast

If I can just sneak one last one in there, just quickly, what do you expect to get from Australia this year in distributions?

John E. McGuire

I don’t think we’ve – in fact, we haven’t put our number there as of yet Scott. It will undoubtedly be down somewhat over last year in December because of the results in the fourth quarter. But, I don’t think we’re prepared to say more than that at this time.

Operator

Our next question comes from Benjamin Mogil – Thomas Weisel Partners.

Benjamin Mogil – Thomas Weisel Partners

Sort of first of all a historical operational questions, on the cost cuts that you did earlier this week, should we start to see those cost reduction benefits entirely this year or are they sort of going to be staggered probably this year and probably next year?

Leonard Joshua Asper

I think most if not all of it should be this year. Dennis and Kathy do you want to give a differentiation of timing on different divisions?

Dennis Skulsky

Certainly on the publishing side they’re staggered through the year. As I mentioned a little bit earlier regarding the web width for instance, that doesn’t kick in until February so we’ll have that for the savings on newsprint for start of Q3 and part of Q4. Some of our other ones are evolving as each week and month goes so there will be an overlap of I would say it’s probably skewed on the publishing side of somewhere around 60/40, 60 this year, 40 next year, 70/30 in that range.

Kathleen A. Dore

I think as I said earlier we’re looking to achieve about $17 million here, $21 million on an annualized basis.

Benjamin Mogil – Thomas Weisel Partners

Will that all be in ’09 or will some of it lead in to 2010 as well?

Kathleen A. Dore

The $17 will be in ’09.

Dennis Skulsky

In terms of the eliminations of these positions, ours will definitely all be done this year. In fact, most of them will be done by the end of Q2 with some maybe in to Q3 but almost all of them will be done by the end of Q2. In terms of there’s an annualized savings that will roll, some of it will benefit obviously in to 2010.

Benjamin Mogil – Thomas Weisel Partners

Then I think a couple of questions for John, switching over to the financial side, I’m on to sort of the notes and long term debt on page 29 of I guess the financial statements, I’m trying to understand this here it says you’ve got nothing drawn against your $513 senior secured facility and that’s the one that’s going down to $300 million. But then the next line says you’ve got $161 available on that facility. Can you help me sort of reconcile that?

John E. McGuire

The availability is governed by the covenant threshold.

Benjamin Mogil – Thomas Weisel Partners

But, if I sort of from my perspective you have $513 that is going to be reduced to $300 but you’ve got nothing drawn against it so you’re relatively unimpacted by that covenant change, is that correct?

John E. McGuire

That’s correct.

Benjamin Mogil – Thomas Weisel Partners

The other thing I’ve noticed is you also have another covenant here that the market value of equity of the publically traded investments to seniors debt ration not less than 1.25 times. Is the publically traded investments, is that just sort of 10 and sort of smaller stuff like [spore]?

John E. McGuire

It’s primarily 10 that really drives that ratio.

Benjamin Mogil – Thomas Weisel Partners

So again that’s $300 is the facility and you’ve drawn zero against that, correct?

John E. McGuire

That’s correct.

Benjamin Mogil – Thomas Weisel Partners

Is that a new covenant because I don’t recall seeing that one before?

John E. McGuire

No, that’s no new.

Benjamin Mogil – Thomas Weisel Partners

Was that always the 1.25 ratio?

John E. McGuire

Yes.

Benjamin Mogil – Thomas Weisel Partners

Then maybe Leonard maybe just sort of a larger strategic question, I mean clearly we’ve seen some large media companies go private to sort of mixed results. Where do you feel like from a public perspective, I’m not sort of arguing privatization but from a public perspective do you feel that it’s more increasingly difficult to be a media company and how do you sort of try and balance out the quarterly and the visibility issues against the sort of longer term issues that you’re obviously trying to continue to work with?

Leonard Joshua Asper

I think whether you’re private or public you have to run a business and get a return for your shareholders. Whether for CRTC they’ve got four shareholders sitting called Thompson, [Torstar], Teachers and Bell and [inaudible] or anybody else you’ve got public or private shareholders, it’s about ROI.

If you look at the media business it is to some extent challenging right now but I daresay the forestry or financial services or many other businesses are equally challenging. From a management perspective we like the position we’re in because we’ve got very strong brands and we think we’re sitting on the cusp of a digital age that may provide some real opportunity to monetize those brands in a different way.

So while some people will still look at us as a newspaper company for example, or part of our company as a newspaper company, we’re doing everything we can to make sure that we see ourselves as a content company and there will be admittedly an increasingly smaller number of people who want to get a newspaper on their doorstep everyday or who want to go out and buy a newspaper.

But, if we look at the way we’re trying to run the business, we’re growing our audience because we are delivering slightly less newspapers to people but we’re doubling, tripling, quadrupling the way we’re reaching the online and on mobile. The strategy is really driven by how to monetize that new audience to the extent we were monetizing the audience to whom we were delivering a newspaper.

Really the same thing goes for television, people sitting on their couch watching one channel is fine and there’s still going to be a million people sitting down on a Thursday night and watching a TV show but if it goes to 900,000 just to use that example there’s still another couple hundred thousand now coming on to watch it online or somehow engage with the program whether it’s on an on demand basis or by going to a website that has something to do with the programming and using a sort of community of interest activity.

That’s the way we’re moving the business, to get to the content of people over seven distribution channels instead of one. That’s the challenge. The only thing that is frustrating really is the regulatory environment, I mean it’s one thing to run you business but to try and do it with one hand or sometimes two hands tied behind you back while others are coming in and having three hands and none of them are tied behind their back is the challenging part.

We’re not really interested in terms of whether they’re public or private shareholders watching with us and participating with us is really irrelevant. We’ve still got to come up with the same return on investment for people.

Benjamin Mogil – Thomas Weisel Partners

I guess what I meant was do you find because you’re sort of so visible and your large competitor is not visible do you find that sort of that’s pushing you in to different focuses or different duration of time and investment then they are?

Leonard Joshua Asper

No, I think quite the opposite. We’ve taken some very long term approaches to the world and we bought newspapers. We bought them because we felt the content in the digital age was going to be the most important thing going forward. That didn’t happen day one. We mostly achieved cost synergies on that deal in the early days. That was a long term strategic deal and I think the Alliance Atlantis deal is the same thing.

I think we are adapt at managing how to match debt with cash flows and make big acquisitions and ride them out. We don’t pick highs and lows of the markets because we’re focused more on long term strategy. So, I think we’re not pushed in to anything just to try and meet some quarterly results.

Operator

Our next question comes from Drew McReynolds – RBC Capital Markets.

Drew McReynolds – RBC Capital Markets

First question for Dennis, just on the western economy and the performance of papers there, just wondering when you look in to 2009 how difficult are these year-over-year comparisons in that region going to be based on what you’re seeing in terms of a deceleration there?

Dennis Skulsky

Well, the first two quarters of this year, they’ll be very difficult because of as I mentioned earlier, in particular the softening of the real estate market. We drew some new dollars in from real estate last year that brought us to new levels from that category and it will be difficult to have the same kind of dollars matching in Q1 of this year.

Drew McReynolds – RBC Capital Markets

Outside of real estate is there any other exceptional source of strength in Western Canada in that business in previous years?

Dennis Skulsky

Yes, we had certainly the advantage of the local retail was humming along a little more. I think what’s happened in the last month or two has really kind of slowed down the confidence levels just in buying. So it starts at your local retail and then it goes to your big ticket items. All of that, but at the same time we’re well positioned with our strategy in terms of owning the local market and that’s why if you go to our growth in 2008, our biggest growth came from local. So, while there may be some national slowdown the local is still relatively solid.

Drew McReynolds – RBC Capital Markets

John, just three very quick questions here, corporate expenses just wondering what you’re budgeting for ’09 on that front?

John E. McGuire

We expect to be down modestly from the ’08 level.

Drew McReynolds – RBC Capital Markets

On the swap liabilities, you did mention I think in your verbal remarks at the end of Q4 $141 million down to $109 million currently. How does that $141 compare to the $156 that we see in the financial statements?

John E. McGuire

The overhanging liability of $156 includes really two components, there’s straight interest rate swaps and then there’s the cross currency swap. The cross currency swap is the one that has all the volatility with respect to the changing currencies. The $141 is the cross currency component of the total $156.

Drew McReynolds – RBC Capital Markets

Last question, just after the renegotiation of the covenants, just wondering if there’s been any changes to the definitions that go in to either the debt definition or the trailing 12 month EBITDA definition.

John E. McGuire

There will be no changes.

Operator

Our next question comes from David McFadgen – Cormark Securities, Inc.

David McFadgen – Cormark Securities, Inc.

Just a couple of questions, just on the conventional TV business in Q1, I mean you’ve indicated that it’s going to be challenging. Can you just kind of give us a range as to what you think the revenue might do in Q1 in terms of year-over-year? Would it be down 5%, 10%, just kind of some range for us?

Leonard Joshua Asper

I think we said it’s down. I think it’s safe to say it’s not 1% but it’s not down. I don’t know if we want to get in to the numbers but what we’re trying to do is match our cost structure to what we think is the projected shortfall in revenue to try to defend our budget. We don’t want to get too much more in to that but you can safely say if it was just close to 1% we wouldn’t say it was down.

David McFadgen – Cormark Securities, Inc.

Can you give us the outlook on programming cost inflation for conventional TV business in ’09?

Kathleen A. Dore

David, we expect that our overall acquired programming cost will be relatively flat year-over-year.

David McFadgen – Cormark Securities, Inc.

Then just a couple of questions for John, if network 10 reports a loss would they still pay out a distribution?

John E. McGuire

Network 10 legally cannot – it has to have earnings.

David McFadgen – Cormark Securities, Inc.

On the debt covenants, as they go up, you say they step up over time, can you walk us through how it steps up every quarter?

John E. McGuire

I’d prefer not to do that David.

David McFadgen – Cormark Securities, Inc.

Would it be safe to assume that it kind of steps up in an equal fashion every quarter?

Leonard Joshua Asper

It’s safe to say that it is an arch. It goes up on a slope and then it comes down on a slope.

Operator

Our next question from Randall Rudinkski – Credit Suisse.

Randall Rudinkski – Credit Suisse

I’ve got two questions, first of all in the publishing group, can you give us, and I apologize if I missed it but, an idea of what ad revenues, what the performance in ad revenues was in the fourth quarter?

DD

We were off on revenue by about 5% in the fourth quarter.

Randall Rudinkski – Credit Suisse

Second of all, a question on the Canadian conventional television, I just wanted to ask you, how do you view the sort of longer term position of particularly the small market stations? And, how important will it be to you to get some relief in the upcoming license renewal hearings in order to really secure their sort of longer term viability?

Kathleen A. Dore

Randall, I think it’s fair to say that we think it’s critical to their long term healthy and viability to get relief particularly in the smaller markets. I think you can tell from everything that we’ve said that’s a very, very high priority in terms of our approach to conventional license renewals.

Leonard Joshua Asper

Just to continue on the theme, I think the point of how we look at the businesses, we know we have to invest in programming which is why when we say we expect it to be flat overall, that includes obviously the entire foreign acquisition model which includes foreign acquisitions for the specialty channel as well. But, what we’re going after is the op ex. We have to continue to invest in the programming and continue to buy the rights that give us the ability to monetize that programming over these different platforms beyond conventional.

So, that’s going to be an area we’re going to have to invest in to a great degree. We’re going to manage that carefully but we’re going not have to go after op ex so that does go to the other expenses in the business

Operator

Our next question comes from Adam Shine – National Bank Financial.

Adam Shine – National Bank Financial

Kathy can you tell us what the impact of the Olympics might have been on the specialty TV revenues in Q4?

Kathleen A. Dore

It’s hard to say specifically to get you a dollar amount but we think it certainly was significant. I would say it was probably in the mid to high single digits in terms of to try to put a specific number on it.

Adam Shine – National Bank Financial

John, in regards to the pension situation, we had [Torestar] I guess with their Q3 reporting gave us a certain degree of sensitivities and I think in your MD&A you outlined I think a great deal of commentary surrounding the situation. In terms of the sort of next wave valuation of the plan assets, I think that evolves at the end of this year through next year. So, any adjustments that need to occur obviously subject to how the plan assets remove or recover from ground loss since June 30^th.

Is this more sort of a 2010 impact rather than necessarily something that we could see hit the end of fiscal ’09 in terms of any increases to funding requirements or increases to pension expense?

John E. McGuire

Typical Adam the actuarial valuations are done on as you said September 31^st day and usually not completed until kind of mid-year at end of June and at that point we would have a good precise sense as to the implications for funding. I think really that’s what the implication is, if the plans are further under water funding cost will increase, it won’t particularly impact the accounting expense.

Adam Shine – National Bank Financial

It becomes more of a [inaudible] in terms of timing it becomes more of a fiscal 10 dynamic than a fiscal ’09 dynamic correct?

John E. McGuire

For accounting purposes we do a revaluation as of June 30^th ’09 and so that will get included in the 2009 financials. But ultimately, as I said I think this is a funding issue for funding insolvency deficiencies and unfunded liabilities. There are activities under way by associations of pension fund managers and actuarial associates to date who are in the process of making representations to Ottawa and the other regulatory bodies seeking potential for some type of regulatory relief on that front.

Adam Shine – National Bank Financial

One last question, Leonard, you talked obviously about going into the license renewal process in regards to clearly seeking some adjustments. In regards to this whole issue about the transition or conversion of transmission power, it doesn’t seem to be a topic that is discussed much but obviously the CRTC is still looking to you guys to convert and there’s a ridiculous cost that’s with that effort.

I guess two questions, one is that an area that clearly you’re going to seek relief on in terms of future commitments? Second, in regards to any spending or costs that have to date been incurred, is there a way to quantify those, have any of the powers been converted? How is that evolving?

Leonard Joshua Asper

We haven’t spent a lot to date and where we have spent, it’s been in big markets where it actually makes sense to do it, Toronto, Vancouver and Calgary to come. But yes it’s a big part of the relief being sought but it’s not the only thing obviously. These are prospective expenditures which we are going to obviously fight quite vigorously not to have to make.

But the relief is going to go beyond that. Those are capital expenditures.

Adam Shine – National Bank Financial

I appreciate that, it’s an element that you didn’t discuss earlier.

Leonard Joshua Asper

[Inaudible] of the equation for sure.

Adam Shine – National Bank Financial

I’m sorry to interrupt, Leonard, just in terms of your comment on Toronto and Vancouver, have you actually completed the process in both those markets?

Leonard Joshua Asper

Yes, there’s one major transmitter in each of the markets.

Adam Shine – National Bank Financial

And that’s been done already?

Leonard Joshua Asper

There’s still, by the way, they are starting to selling digital sets that get over the air signals in digital or high definition. It’s a small piece of the pie and it obviously is in only a few markets. We’re to going to want to do it, it was transmitted on hills and in the further reaches of Northern Manitoba but the big cities it does make sense.

Operator

Your next question comes from Adam Spielman – PPM America.

Adam Spielman – PPM America

Two questions, first one publishing, even with your results down a little bit in the quarter, you’re still outperformed by a large amount of some of the things we see in the US newspaper industry. I was just hoping you could, and I know you shed a little bit of light on the trends in Western Canada, but could you give us some sense in the current quarter what you’re seeing? Are things down double digits? I’m not talking about classified but I’m just trying to get a sense, are we heading towards some of the trends we see in the US or do you still see a reason that it won’t decline as much?

Leonard Joshua Asper

I’ll turn it over to Dennis in a minute. I think some of the trends we’re seeing this quarter I would put as more cyclical than structural like the US. We are down in some key categories but it’s not as much across the board and I think it’s really too early to say whether this is any kind of a big structural shift. I think Canada has been different than the US for a number of reasons. I’ll turn it over to Dennis to articulate some of those reasons.

We do in our discussions with our advertisers believe there’s a lot of money sitting on the sidelines. It’s just waiting to come in when I think everybody gets a little bit more settled and the paralysis disappears. Dennis, do you want to add a little bit more?

Dennis Skulsky

Adam, I think still one of the fundamental differences between Canada and the US is our assets are just stronger in the local markets. We’re just more dominant and with the transition to growing our total audiences, it’s helped us mitigate some of the advertising losses that others have had. Now saying all of that, we are off in the quarter, we’re trending to be off. It’s not double digit numbers, I can tell you that.

In term of the categories, the only other category and I think it was asked earlier by Randall, that I would comment on is the auto sector. We had growth last year if you can believe everything that’s gone on in the auto sector, we had 4% growth in our total number of advertising revenues from that sector. Obviously some of the uncertainty there in this first quarter in particular is starting to have some impact.

So you combine the auto sector and real estate is the main and then some of the class five with the working, but it’s not at the levels of the US markets.

Adam Spielman – PPM America

So you’re saying you grew 4% in the last reported quarter in auto?

Dennis Skulsky

No, in fiscal 2008.

Adam Spielman – PPM America

Even though you’re seeing a slowing in Western Canada, is your sense still Western Canada is still growing faster than Eastern Canada?

Dennis Skulsky

Yes.

Adam Spielman – PPM America

Just a second question is you say, I guess this is more for John, you say that you’re addressing the balance sheet. Can you give us some sense of what’s the plan? Are there some major objectives you’re trying to accomplish? You say you’re trying to improve the balance sheet.

John E. McGuire

I don’t think we want to comment on what those are, but some involve we’re continuing to look at our asset base. We’re also looking at our capital structure a little bit more in depth. Unfortunately I can’t be a little bit more in depth than that, but it’s a combination of things. Obviously one way to improve the balance sheet is to grow profits so that’s the operating side.

But then there’s looking at anything that’s driving cash that might have been, I think we have to be a little bit less patient with some assets that have been in growth stages but haven’t yet turned profitable. We’re going to be a little bit more impatient there and then we’re continuing to look at our overall portfolio of assets and we also have to look at where the biggest staying for the buck is in terms of if we were to sell one thing or another thing because there was some speculation about should we sell this TV channel or that newspaper or something and there’s different buckets under which these assets fall.

In some places it doesn’t really help us to sell an asset. We lose EBITDA where EBITDA is the operating profit where operating profits matter. You can imagine our CW Media deal with Goldman Sachs is very much based on the EBITDA we’re able to contribute in 2011 going forward. It has an effect on how we look at our specialty channel base and obviously we look at our specialty channel base and say this is the biggest growth asset we have and we think they’re going to continue to grow and that the amount of jet in that subsidiary is the right amount for the growth factor we have in there.

We are looking at the portfolio overall though. I just think people have to think carefully when they speculate as to what we might be looking at as to what the actual impact is of a sale of any one particular asset and how it fits in the overall portfolio. Obviously there’s some capital structure things that we’re looking at which, let’s see, I have to be a little bit vague about, but we realize that the capital structure of the company is not ideal for the times we’re in.

So we’re exploring ways to improve that. I just want to by the way add one more comment, somebody made a comment, I’m sorry I forget who, about whether we can pay dividends from Australia if it’s not delivering profits. That’s true. I just should remind people that Australia reported profits of $210 million last year and of course there’s pressure on that because of the revenue environment.

It’s an interesting theoretical discussion. In particular quarters obviously it’s seasonal as well. Q4 and Q2 for Australia are weak as well just like they are in Canadian television. Q1 and Q3 obviously are much stronger. But I just wanted to give everybody some perspective on the strength of that business.

Operator

Mr. [Harley], there are no further questions at this time. Please continue.

[Hugh Harley]

That completes our call today. Thank you for participating on the call and I can remind you that this call is available for replay and will be archived on our website, www.CanWest.com.

Operator

This concludes the conference call for today. Thank you for your participation. You may now disconnect your lines.

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