Canwest Global Communications Corp. F1Q09 (Qtr End 11/30/08) Earnings Call Transcript

Canwest Global Communications Corp. (CWGVF.PK)

F1Q09 Earnings Call

January 14, 2009 1:00 pm ET

Executives

Hugh Harley – Director, Investor Relations

Leonard J. Asper – President and Chief Executive Officer

Dennis Skulsky – President and Chief Executive Officer, Canwest MediaWorks Publications, Inc.

Peter Viner – Interim President, Canadian Television of Canwest MediaWorks, Inc.

John E. McGuire – Chief Financial Officer

Analysts

Paul Steep – Scotia Capital

Jason Jacobson – GMP Securities

Scott Cusperson – TD Newcrest

Tim Casey – BMO Capital Markets

Benjamin Mogil – Thomas Weisel Partners

David McFadgen – Cormark Securities, Inc.

Drew McReynolds – RBC Capital Markets

[Robert Berser] – [Beach Point Capital]

Adam Spielman – PPM America

Randall Rudinkski – Credit Suisse

Sam Jones – Private Investor

Presentation

Operator

Welcome to the Canwest Global Communication’s first quarter fiscal year 2009 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 call is being recorded, on Wednesday, January 14, 2009 at 1:00 pm Eastern time.

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

Hugh Harley

Welcome to Canwest’s first quarter fiscal 2009 conference call. Earlier this morning we released our first quarter fiscal 2009 results. A news release and associated Management Discussion Analysis can be found on our website, www.canwest.com. In addition, for holders of the limited partnership the first quarter financials for Canwest Limited Partnership can also be found on the same website.

The slides that summarize the prepared comments made 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/2009. On the call this afternoon we have Leonard Asper, President and CEO; John Maguire, CFO; Peter Viner, Interim President of Canadian Television; and 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, Peter Viner, and John Maguire followed by a question and answer period.

We expect this call to be approximately one hour long and I would ask that 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 J. Asper

Just a couple of opening comments. These results do reflect the current challenging economy. We have seen advertising slow and drop in many sectors and Canwest has adjusted its plan to manage through this period while maintaining the flexibility to continue to invest in the strategic areas that will allow our growth and transformation to continue.

Results also demonstrate our commitment to cost containment and taking the necessary steps to better position the company over the longer term, which includes both operational improvements and the sale of non-core assets.

Despite the challenges that we face, our transformation does continue with double-digit growth in our specialty channels, well above industry average I would point out, and our digital properties. With every quarter these businesses demonstrate their growth potential and they illustrate the progressive we are making to our content, platform agnostics, grow our audiences, and create a higher growth profile for our company.

Slides 4 and 5 provide a summary of our first quarter fiscal 2009 financial results, Slide 4 being the summary and Slide 5 being the segmented results. I would point out the comparisons for last year and the comparing of the CW assets and trust for part of the year but I think the numbers are fairly self-explanatory. You all have some time to look at them.

On our Slide 6 our Australian operations, I just wanted to make a couple of comments there. We did report there first quarter results a few weeks ago that reflected the decline in the advertising market there. The same thing that is going on in Australia is going on here. Also, very tough comparables in the first quarter for Australia, because last year we had the AFL Grand Final and the Rugby Roll Cups plus some election spending which occurred in the first quarter of the last fiscal year.

TEN does continue to have a very challenging external environment and like here, there is limited visibility. However, we do have, as I’ve mentioned many times before, long-term programming contracts with CBS, Paramount, and Fox, plus some very strong sports franchises and local franchises like So You Think You Can Dance, and Australian Idol, and others that we expect will continue to drive decent ratings there and will continue to position us well for a recovery.

TEN is also preparing for the multi-channeling, the ability to launch new channels on digital terrestrial television there to an increasing number of homes. We will be launching our sports channel there, which is being much talked about, and with the premium sports properties and we will be launching that in about April 2009. Eye Corp. is also well positioned for an upturn and that will eventually occur in Australia and some of its other markets, particularly the U.S.

But it is a challenging operating environment. We are cutting costs significantly there, as we have here, and will continue to cut costs over the balance of the year.

I am going to now turn it over to Dennis, and subsequently Peter, to discuss first publishing and then television.

Dennis Skulsky

As you can see on Slide 7 is the Publishing segment details. The economic pressures contributed to our revenue decline of about 7%. As we have in the past enjoyed some of the benefits of our geographic diversity, this hasn’t helped us in this most recent quarter as some of the regional economic impact has been mitigated by the depth and the speed of the current downturn.

On a positive note, circulation revenues were consistent with the prior year. That is significant because that is part of certainly our revenue picture and it reinforces that people pay for quality content.

On the upside, digital revenues were up 17% over the prior year, led by growth in our canada.com and Infomart. The way our online digital revenues are tracking right now, for the quarter we were in the range of $25.0 million and we are tracking towards about $100.0 million achievement for the first time in fiscal 2009.

Our operating profit, excluding restructuring costs, declined 28% relative to prior year. You should remember the first quarter of fiscal 2008 was particularly strong, making the year-over-year comparison more difficult. To just put some context to that, last year the comparable quarter, we had 5% revenue growth and 16% EBITDA growth, so that’s the backdrop of these number comparisons.

You saw greatest impact hitting us in the advertising in employment, real estate, and technology and also in the back end of the quarter in the auto sector. We continue to exercise due diligence around the costs and a result operating expenses for the quarter, excluding those associated with newsprint increase and severance, were 1% lower than last year.

Our digital group continues to build audiences by improving our online offerings with initiatives such as the recent redesign of our 10 metro daily newspaper websites and we’re developing partnerships with organizations like TELUS, Oodle, and ShopLocal to deliver greater offerings to advertisers and audiences. Our agreement with TELUS is particularly exciting because we are providing advertising sales representation on behalf of TELUS websites.

The alignment of our digital teams announced in Q1 will also allow for greater collaboration across all of our Canwest digital properties.

With some of the challenges on the revenue side we put more focus than ever on the cost side. Cost savings from restructuring initiatives will begin to be recognized in Q2 and over the rest of the fiscal year. We are on track for a committed headcount reduction of approximately 350 by year end, with 242 positions eliminated as of December 31.

We expect to realize savings between $25.0 million to $30.0 million in fiscal 2009. We expect continuing economic pressures to the traditional heavy-weight advertisers, such as the auto manufacturing industry and real estate and we expect that to continue into the new year of 2009.

We will continue to accelerate efforts to transform our business and modify the business model as required to reflect the changed landscape and remain diligent around cost management.

Now it is my pleasure to turn it over to Peter Viner.

Peter Viner

On Slide 9 we turn to our Canadian Television segment, which includes the Global and E! stations and our specialty networks.

Despite pronounced softness in the conventional television advertising market, EBITDA, before restructuring, exceeded the prior year by 10%.

Total revenues for the quarter were down from the prior year by less than 1%, including an 8% decrease in conventional ad revenue. The softness in conventional revenues were driven by the economic environment, a shift in advertising from conventional to specialty, and reduced spending in the automotive sector. The decrease in conventional ad revenue was partially offset by a $9.5 million increase in specialty advertising over 2008. This represents a 14% year-over-year increase.

Program amortization was slightly lower compared to the prior year and decreases in discretionary spending and lower staffing helped to reduce operating costs.

The realization of savings announced on November 12 are currently on target to realized savings of approximately $17.0 million in this fiscal.

For 2008 consolidated specialty channel delivered strong growth. Advertising revenues grew by 14% and subscriber revenues increased by 5%. Our growth in advertising revenues grew at nearly five times greater than the industry growth.

For fiscal 2009 Canwest has increased its share of English specialty viewing by 9% among adults 25 to 54 and by 14% among adults 18 to 49 and we maintain the largest share of viewing among women.

In terms of channel rankings, Canwest’s leadership in specialty channels continued in the first quarter as we had five of the top ten analog specialties, including two of the top five. This was up from zero in the fall of 2007.

In the performance of our digital specialty channels it was even greater as Canwest owns eight of the top ten channels in Canada, including four of the top five. This is significant because of the growth in digital subscribers. Two out of three television subscribers now have digital.

The audience of our top ten digital channels increased by a remarkable 30% over last year. History and Showcase achieved particularly impressive growth, increasing audience by 56% and 30% respectively.

The growth shown by History and Showcase, each of the benefits derived from an integrated broadcast portfolio and to the evolving role of conventional as the first window platform that drives revenue and audience downstream to the other network.

We continue to maximize the value of our specialty portfolio. We will continue to new offerings or expanding the distribution of existing channels and we look forward to announcing new specialty and HD channels in the coming year.

Moving to Slide 11, in addition to moving forward with the cost savings initiative announced November 12, we are on target with a number of other strategic initiatives.

Our digital news project is proceeding and is in its final stages with successful launches of Winnipeg, Red Deer, and [Leftridge].

We are on target in terms of achieving overall financial savings of approximately $19.0 million with an additional 2009 savings expected to be approximately $7.0 million.

Integration savings related to the Alliance-Atlantis merger are on track.

For CW Media and Canwest combined, we realized integration cost savings of approximately $8.0 million the first quarter. By the end of the fiscal, we expect to have realized cost savings of approximately $34.0 million.

We move to Slide 12 and our current priorities. On Monday we submitted applications to the CRTC to renew our conventional station licenses. This has an expected hearing date of April this year. Given the regulatory environment, we will be looking to reduce our obligation and be asking for increased flexibility.

Our license applications reflect a larger regulatory strategy aimed at changing the existing broadcasting environment and this is just one of the many initiatives that will be taken at various levels to the CRTC and other government bodies.

Our initiatives include part 2Cs and video-on-demand advertising. We are also currently negotiating with several BDUs and to negotiate just in signal compensation in accordance with the recent CRTC ruling.

We are also focused on expanding new media revenues and have recently integrated our digital media team with the resources of Canwest Publishing. With this combination, we expect to leverage our significant presence in local markets and to increase sponsorship in audience to local broadcast sites.

We also continue to increase our VOD offerings from the Q1 Rodger’s agreement that provides more than 60 hours of first-run Global and E! material to other carriers.

We will also continue to advance the transformation of the broadcasted list by extending our brands across various platforms and developing and acquiring compelling content and continuing to work and improve the Canadian regulatory environment.

Thank you and now I will turn it over to John McGuire.

John E. McGuire

On Slide 13 you can find the snapshot of the company’s consolidated debt position at November 30. The schedule shows debt both at a swap rate and in accordance with the new financial instrument, [inaudible], introduced one year ago.

Debt at the swap rate, that is the amount that has to be repaid, totaled $3.7 billion. Tests presented according to the new rules totaled $3.9 billion. The increase compared to August reflects the decline in the Canadian currency versus best dollar wherever it also in the money position hedging derivatives amounted to $167.0 million during the [inaudible].

I do want to highlight that our nearest debt maturity is not until September 2010, and our credit agreement [break up in audio] at November 30, 2008, for bank purposes they were [inaudible] dollars drawn against that facility. Our other maturities fall after 2010, starting in 2011, going out to 2015.

Also to update you on our overhanging swap positions, November we made a net payment of $12.0 million on the one portion of that swap which as a currency swap. As at the end of November the mark to market of the entire overhanging swap position after PMI totaled $111.0 million, which $105.0 million subject to be settled in the next 12 months.

On Slide 14 we have provided the debt ratios for Canwest Media Inc. Our restricted payment basket has a fast date in November with $527.0 million.

On Slide 15, for our information we have also summarized the debt ratios and debt positions for Canwest Partnership.

With that, I will turn things back to Leonard.

Leonard J. Asper

We do expect that the economy will continue to challenge the media sector throughout the year and we are prepared for it. We remain committed to our cost containment plan, identifying operational efficiencies, and making strategic investments in high-growth media to fuel continued transformation and new revenue and profit streams. This includes implementing all the restructuring initiatives announced in November.

Today we continue to lever the industry-leading growth in specialty television that we promised and our digital assets continue to produce double-digit revenue growth. We continue to move ahead with initiatives to adjust the challenged conventional television logs, both on a regulatory front and on a business front. As this, as I said, it includes a regulatory strategy but not just a regulatory strategy.

Our CW Media integration with Canwest is tracking as planned. It’s gotten better and we will continue the transformation of Canwest into being the best provider of relevant content in Canada by building our core assets and investing in the higher-growth media.

Our strategy is working and we’re going to meet the challenges of the future as well as meeting the challenges of the present.

TEN is well positioned when the market upturns as well and we believe that asset will continue to show the promise and come back with the return of the strong market there.

Turning to Slide 17, we will also continue to focus on strengthening our balance sheet and exacting the best possible performance from our core assets and as I said at the outset, we will continue to review this portfolio of assets to make sure we continue to invest in the ones that provide the greatest area of return.

We are investing in the digital opportunities by aligning ourselves with online partners that enable us to seize the local digital markets. What I mean by that is search and display categories for developing new online vertical platforms that allow us to create communities of interest and we are building online audiences now around our hit television shows by streaming content over a number of platforms.

As Peter mentioned earlier, Video-on-Demand in increasing and going to become part of our portfolio and we are expecting and hoping the CRTC will allow us to sell advertising, for which there is demand, in our content stream when they review the quality this spring.

As I said, we will meet the challenges of the here and now, but we will be staying our course for the future.

That concludes my prepared remarks and we will be happy to take some questions.

Question-and-Answer Session

Operator

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

Paul Steep – Scotia Capital

I just want to go to the commentary of your outlook around the negative conditions relating to the debt. First, if you could talk a little bit about which facility and which entity you are worried about the covenants on, and secondly, you have given us a few good examples as we have gone here, but maybe more concretely where you are at in terms of negotiating the covenants and some of the strategies you are going after on the debt.

John E. McGuire

I think it is fair to say that the facility with the most pressure is the senior facility at CW Media Inc. and given the uncertainty in our outlook, we felt it appropriate to provide that cautionary note in our disclosure. We believe that 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. So if there are actions we can take that will serve compliance. I don’t think we are going to go into any detail on those actions at this time. Just say as in our news release that we are reviewing all of our options.

Paul Steep – Scotia Capital

On that topic, in terms of the restructuring, I know the timing as a little off and it was a little hard to hear you and I think Dennis, as well. I just want to confirm where we are on the plan and then just on the income statement where the charges will fall.

John E. McGuire

Restructuring charges, we have provided a number of provisions to date and they are clearly shown in the quarterly financial statements, for both Publishing and Canadian Television. And I think within the notes we have some record of the history of the accruals and expenditures against those accruals to date.

Paul Steep – Scotia Capital

Just in terms of your filing yesterday with the commission, you talked about some of the [inaudible] consolidate the news operations from Publishing and from the Global side. Maybe you can give us an understanding of what that’s actually going to mean in terms of savings, if the commission goes for it?

Peter Viner

We did not file with any intent to combine the newsrooms of Publishing and Broadcasting. We filed on behalf of our station in Montreal and the general direction of the filing was a reduction in our current obligations and more flexibility in terms of production of local and minority programming. There was no combination.

Paul Steep – Scotia Capital

And April, that’s going to be part of the regular licensing review?

Peter Viner

Yes. There will be a review we think the last week of April and the first week of May.

Leonard J. Asper

The application itself will be public the end of February. Until that time I don’t think we want to be specific on what’s in that application.

Operator

Your next question comes from Jason Jacobson – GMP Securities.

Jason Jacobson – GMP Securities

Following on that question, in terms of the timing of that CRTC decision, I guess the hearings are expected the end of April, beginning of May. When do you expect the decision would be made and then if there were any changes in your favor, would that be a fiscal 2010 initiative?

Peter Viner

Yes, it would be. I wouldn’t expect the decision to made until early autumn.

Leonard J. Asper

If I could just comment here. I think that to just put it all in context, the things we have sought in our application are not going to necessarily, by themselves, fix the issues we see in conventional television. We have made it quite clear to the commission, on many occasions as well as in the application process, that this is one part of the fix. Other government bodies can do other things to change the outdated regulation and protect our program rights. But there are business issues that we and everyone from CBS have talked and we need to, and CTV are all going to have to do as well, to change the model.

But I assume the license usually takes two or three months to get a decision so you are talking June, July, or August and of course anything we would be doing would be effective the next fiscal year.

Jason Jacobson – GMP Securities

And then moving on to the publishing side, I was wondering what the trends you are seeing into Q2, whether the pace of deterioration has slowed or continued at that level. And if you could talk about the geographic performance of your papers.

Dennis Skulsky

Sure. We haven’t seen much upside in the early start of the second quarter, so similar trends are there. You have to remember, ultimately our biggest categories of real estate and the auto sector and the employments are all three that are very much driven by the economic woes that we have going on right now. So, we don’t see that being a quick fix and that turning around real quick.

At the same time, we did have some growth in a few other categories, as highlighted before, on the digital front.

Jason Jacobson – GMP Securities

And just geographically.

Dennis Skulsky

I think as I stated earlier, we have been fortunate to have our assets diversified across the country, from a geography point of view, and we have been benefiting from Alberta and Saskatchewan having very hot economies and NBC somewhat. And even those markets have started to feel, over the last three or four months, five months, that slowdown. So that is starting to have some impact now. We were offsetting some of the softness in the East before with the West. We are now in the same economic climate across the board.

Jason Jacobson – GMP Securities

With respect to the asset review, what are the limitations within your agreement with Goldman, if you did determine that some of the CW Media assets were non-core, be it partial interest or what-not, if you wanted to divest of certain assets to alleviate some of the balance sheet pressure.

Leonard J. Asper

There are some thresholds in terms of size of assets or I guess value of assets that where if we were to want to sell them, Goldman would have a say in the matter. But I think it is worth pointing out that as we look at our portfolio, selling assets in that CW Media on one hand, and selling assets in the limited partnership, which is the newspaper group, on the other, do less for us than selling assets that are wholly-owned by CMI, the parent company.

Because as John said earlier, where we are mindful of our covenants and where there is some pressure is at the CMI level. So selling an asset in CW Media and having the cash trapped there, the proceeds from that would go to pay off the senior lenders in that subsidiary and would not come to the parent company.

That said, a reduction of the senior debt in any of the subsidiaries does eventually create more cash flow in those entities that can flow up to the parent so there is an indirect benefit but the compartmentalization of our debt is quite helpful in this regard, in some ways, but it also limiting in terms of the benefit of certain asset sales.

But I think Goldman Sachs, well, I can’t speak for them, but I think they are of the same mind as we are, where we can extract value from assets that aren’t strategic, they are supportive of doing that.

But the thresholds are pretty high so there is a lot of flexibility for us internally in Canwest to make the decisions on the assets sales of CW Media.

Operator

Your next question comes from Scott Cusperson – TD Newcrest.

Scott Cusperson – TD Newcrest

Obviously we have seen quite a bit of economic pressure and that has had a negative impact on the value of assets. I wondered if there is any opportunity within the structure of the deal that you have with Goldman Sachs to reopen the deal with respect to paying 12 times, or any of the other material factors that determine the economics of that. Have you given any thought to that or do you see that as a viable strategy at all to help improve the prospects of the company?

Leonard J. Asper

I think, first of all, that it is worth pointing out that we are also transferring in, as part of the contract, our assets, Global TV and TVTropolis and the other specialty channel we have, E! and add twelve times to that business. They vend value at 12 times as well. So the only time 12 times really becomes an issue is in 2013 if the CW Media television were to be put up for sale, that’s when if we didn’t sell for 12 times there would be dilution of value.

But that’s obviously a long way away and as I say, we will be vending in our assets to the business at 12 times value. So I don’t think that’s really a point of intended renegotiations. Like any transaction, there is no legal right to change the deal but I think that like any, just like there was no legal right to amend bank covenants three months when we did, we went to our partners and we made a deal.

So that’s what people are doing all over the world right now. What car dealers are paying their manufacturers for the cars they get or what, I know at Eye Corp., for example, we are looking at the concessions we get, the fixed prices of what we pay our site renters, the people from whom we rent the sites. I’m sure tenants in shopping malls are going to their landlords and asking for breaks on leases. So I think any deal can be renegotiable if the circumstances are right. And I would say in anything we are doing that just like any company, all bets are off and people are trying to just make sure that the best, seeing if there is opportunity to improve their position. And that is sort of an ongoing thing in this economy, everywhere. And we are no exception. So by implication, if we have to, we will try it.

Scott Cusperson – TD Newcrest

Just turning to the results in CW Media, pretty good results in Q1. Do you think those are sustainable? Is that momentum carrying into Q2, in Q2 bookings?

Peter Viner

There is very limited visibility but we had an okay January and an okay December. If February holds up we should have an okay result. I guess that’s the best way I could put it. Conventional still continues to be soft but specialty continues to be up.

Scott Cusperson – TD Newcrest

So no major changes from Q1?

Peter Viner

Not as yet, no.

Scott Cusperson – TD Newcrest

Just to clarify, I think you said in the MD&A that you expected the overall newsprint cost to be flat because newspaper volume declines will offset higher prices. Am I reading that correctly?

Dennis Skulsky

Yes, a couple of things is our volumes are down and then we have got some favorable pricing that we believe we will have in the back half.

Scott Cusperson – TD Newcrest

And I’ve got to ask you, what of the National Post? Any change in that at all?

Dennis Skulsky

A nice story open because I guess it’s been ten years coming but the National Post had its first profitable quarter and I think it’s a reflection of the strong brand that it’s become and the audience that it has, in this market. And when you have a fall like we’ve had where news has been significant on all fronts, people have turned to the National Post, both in the print product and in particular, online.

With the strength of what we have done with our online product, we are generating significant revenues there now. So then the big question is it is sustainable. And that’s the million dollar question for a lot of companies right now and a lot of assets. We are very positive, feel very good, though, but wary.

And I can just say that now we are following up and the early indications for the new year are pretty good, but December came in strong, too.

Scott Cusperson – TD Newcrest

This is a surprise to me. So the National Post was EBITDA profitable in Q1 and how did that happen? That was because of online revenues?

Dennis Skulsky

It’s a combination of we’ve had a three year plan for a while and the plans continue to be implemented and we also took some measures this past fall to focus in our markets and diversify the way we present online product. We now present that more in Winnipeg, for instance, or in different markets across the country where we have eliminated our print publication.

So there are a dozen initiatives underway and some of them have already paid the right dividends and we have more of them coming.

Leonard J. Asper

Just to be clear, if we pulled out of the print edition, pulled out of Winnipeg, following on pulling out of Halifax as well, and some of the FP content is branded in the paper, like The Winnipeg Free Press, which we don’t own, but they wanted the content, so that’s driving content. When we looked at it, we were doing very well in some markets and not in others. But we have pulled out of the markets where we weren’t and I think we have also, again, if you look at the circulation numbers, we are selling the paper where we are making money and we’re not where we’re not. So that has helped the bottom line there as well.

Operator

Your next question comes from Tim Casey – BMO Capital Markets.

Tim Casey – BMO Capital Markets

What is the outlook for Australian dividend in the back half of the year? What are sort of the dynamics at the Board level on your ability to try and put through a dividend increase, or pay another dividend?

Leonard J. Asper

I don’t think we can preempt that discussion and I think it’s a long way away. I think the decision is made at the June Board meeting and it’s a long way away. As you know very well, the world is changing every week and visibility is very poor so I don’t think we can commit to any kind of commentary on that point.

Tim Casey – BMO Capital Markets

John, you highlighted the facility at the parent company as the one under most pressure. Can you remind us what the recourse is to the bankers, given that the Publishing assets are secured under debt facilities, as are the specialty channels? What recourse do they have if you were in breach?

John E. McGuire

The CMI senior facility is a secured facility so the assets of primarily the Canwest Television business are pledged as security to those lenders. As well, we have pledged the shares of our investment in Australia and our units of the limited partnership in our investment in Turkey.

Tim Casey – BMO Capital Markets

So can they force you to sell those assets on a timely basis?

John E. McGuire

I think that is a potential. At this time I don’t think there is a likelihood that that is going to be the outcome. I should remind you that our bank position is about $72.0 million drawn against the $300.0 million facility and they should have sufficient security a number of times over with the Canadian Television business. We have had their support to date and we expect that support to continue.

Tim Casey – BMO Capital Markets

And the $300.0 million facility, $72.0 million drawn, how much is left available, based on covenants as they are at the end of November?

John E. McGuire

It’s about $189.0 million.

Tim Casey – BMO Capital Markets

Back to the National Post. I mean, Dennis, I understand your comments but are you telling us that on a fully cost allocated cash basis the National Post is profitable now? I mean, revenue is obviously going to get very weak in this quarter and bluntly, you’re ten years into it. How can you justify financing this asset, given the economic reality and the state of your balance sheet? I need some help on that one.

Dennis Skulsky

First off, the numbers are the numbers and they are real. In terms of our gap between profitability and this asset costing us money, that gap has been getting closed over the last number of years, and in particular the last couple of years, in a significant way.

It is also part of the bigger portfolio which has the advantages of some of the selling assets or some of the selling that we have, some of the technology assets we have. We all have central charges associated with them and so with all of those in, that’s what it looks like.

You also have to remember, though, today the National Post circulation and audience is made up differently that it used to be. We have a strong readership number but our circulation base is in the range of 170,000. And it was losing big numbers. It was at 300,000. And it was reaching audiences that were not nearly as appealing.

So it is attracting the right audiences in the right markets now and we have advertisers who are prepared to pay for that. The diversity of the online and what digital and technology has allowed us to do is to become more efficient in reaching these audiences.

So is it going to be profitable this year? By the end of the year, probably not, but it’s getting really close.

Tim Casey – BMO Capital Markets

There’s the problem, Dennis. You are in danger of being in breach of covenants, we have a degenerating economy, and you are funding an asset that 10 years in is still not profitable. The economy is giving you a free out here.

Leonard J. Asper

The National Post has got other strategic value in the company because what is not showing up on its P&L is the content it provides to our metro newspapers and to our online properties, which drive traffic and revenue and profits.

We can’t obviously say whether it will be profitable for the entire year, we can only go month by month, as any company can these days. It’s something we’ve watched very closely and it has progressed and done better every year and there are other assets we should quite frankly look at, and we are looking at, that if we were able to find a buyer for, you know we closed on assets quite quickly and quite swiftly when we thought there was no growth potential for them and they had no potential future value.

We feel quite differently about the Post. We feel it has made the progress, it’s made the slight jump over into the black, and even if it doesn’t end up that way in the 12 months ended 2009, it’s heading that way for sure, in our view.

And that’s not the place to look. There are a lot of other places to look. And this is a unanimously held view among our management and our Board and these are all pretty astute people. We are looking at a lot of places but that’s not the place we think we should look.

Operator

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

Benjamin Mogil – Thomas Weisel Partners

When you look at things like Turkey or you look at things like Australia, assets which are not orphan but are certainly much smaller and sort of stand-alone, that can be divested, how much longer do you think you want to be in these businesses where you simply aren’t having the scale that you do in the television or newspaper businesses that you are in currently?

Leonard J. Asper

I think I’ll just leave it as I said before, that there are lots of places to look and I think to start to discuss specific assets and what we are thinking of doing with them I think would be counterproductive to what we ultimately hope to achieve and want to do with them.

I just think it’s important for everybody to know that no stone will be left unturned in terms of meeting our covenants and improving the financial flexibility of the company. I just don’t think it’s appropriate to talk about the specific assets. But I can assure you that everything in the entire portfolio is getting a good look over.

Benjamin Mogil – Thomas Weisel Partners

John, I just want to make sure I understand this correctly. When we look at the EBITDA for the covenants of CW Media, the 225 on a trailing 12 month basis, is that still basically the Canadian non-CW Television EBITDA, the Australian dividends, and then the cash dividend from the newspaper trust up to the parent?

John E. McGuire

That’s correct. There has been no change in the components of the calculation.

Benjamin Mogil – Thomas Weisel Partners

So basically you would need to see it deteriorate to about 190 on a trailing basis before you have a problem, is that correct? At the current debt level?

John E. McGuire

At the current debt and current covenant level.

Dennis Skulsky

Just one thing. In something you issued this morning, you talked about a 6% decline in circulation and thought that was pretty high. I just want to make sure you are aware that that represents a significant drop that was planned in our circulation numbers for the National Post. So the real number is closer to 3.5% for our major metro markets and it also is planned in terms of reducing bulk where we just didn’t think the value was there.

Benjamin Mogil – Thomas Weisel Partners

So maybe following up on that, at what point do you start, and we see this a lot like in the theater business where you raise ticket prices and then you have attendance dropping at the movies, at what point do you feel that you are at the stage where you are no longer on the elastic part of the demand curve?

Dennis Skulsky

We are obviously not prepared to share where our numbers, the objective to get the National Post audience numbers to, or bring them down to, but at the end of the day the revenue and the advertisers will decide whether we are going to the right audiences.

Benjamin Mogil – Thomas Weisel Partners

Is there a risk that if you are too aggressive on that front that you start to either have, I mean, obviously in major markets you are the number one newspaper, you’re still going to get ad share, but is there any concern that at some point when you hit a certain minimum number that advertisers significantly reduce their ad buys?

Dennis Skulsky

I think that’s a good question and I don’t think there’s a magic answer to that one but I do think, you know, we have a business model we have to lever to, so the pressures come on all sides of that.

Leonard J. Asper

As a general comment, I think you’re seeing in some of the strategies we are employing and not just us, other media companies, particularly the newspaper business, is going. There will be less people reading the newspaper, physical newspaper, and there will be more people reading that content online, and in different ways online. It could be on a phone, it could be a computer and you all know this.

But that is going to have a positive effect on costs. The trip challenge is, of course, to try to preserve the revenue. But the game is not to have the biggest and brightest numbers on physical circulation of a newspaper. The game is to get the content people to handle cost effectively and monetize it. And the Web and phones and PDAs and everything else, Kindles, and whatever they are tomorrow, are going to be the way to do that.

So again, these numbers are indicative and they are relatively important metrics but we are playing this game for profit margins and I think that’s the way we will continue to play it. And the new media will play a role in that.

Operator

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

David McFadgen – Cormark Securities, Inc.

If TEN wanted to, could it do a repayment of capital to its shareholders?

Leonard J. Asper

It’s legally entitled to. I think the decision at the Board level has been to consider that in light of all the other things that are going on in the world, which is there’s a tougher environment so it had decided not to do that, in this current environment, to preserve cash and make sure its balance sheet was strong.

At a time it may be something that the Board, we have said publicly, the TEN Board, that it was something that was very much under review. At this specific time, the Board has decided not to do so but it is something that could be revisited in the right circumstances.

David McFadgen – Cormark Securities, Inc.

Do you know offhand what the maximum could be? Dollar value?

Leonard J. Asper

I do but I think I would have to be careful about, to be frank, I’m not sure what TEN has disclosed about that and there is a practical element, which is what are its covenants and how much financial capacity does it have, but I think that’s obviously one measurement, but I think that’s probably the only thing that would hold it back. It’s just a question of what it could handle.

David McFadgen – Cormark Securities, Inc.

So CW Media, if some assets were sold, does the bank require that that cash be used to reduce its debt or could it be funneled out to the shareholders?

John E. McGuire

CW Media has a secured senior credit facility and all the assets of CW Media are pledged to those lenders so they have first claim on the cash.

David McFadgen – Cormark Securities, Inc.

So they would have to authorize it?

John E. McGuire

That’s correct.

David McFadgen – Cormark Securities, Inc.

And does that same situation exist at the newspaper LP?

John E. McGuire

It does.

David McFadgen – Cormark Securities, Inc.

Is E! losing money?

Peter Viner

Yes, they are.

David McFadgen – Cormark Securities, Inc.

Would you ever contemplate just shutting it down?

Peter Viner

Maybe. That’s an option we have to think very hard about.

David McFadgen – Cormark Securities, Inc.

Can you quantify how much they’re losing?

Peter Viner

No, I can’t.

David McFadgen – Cormark Securities, Inc.

And then, a question for Leonard because you’re on the Board of TEN, what was the rationale behind just paying out 40% of the net income? Was it just in case the latter half of the year is really bad?

Leonard J. Asper

I think, yes, it’s a matter of being conservative and lack of visibility of the advertising markets. I think it’s just based on the entire world economy. I think everybody is just making sure they can keep cash around and keep flexibility and I think that would be the reason there, just to be conservative and prudent.

I just wanted to make a comment about E!. I think what’s gone on in the conventional TV business is that the two major networks, Global and CTV is I can them that, with all due respect to City TV, I think are in better shape than the three second tier networks, the Cit and E! and the A channels that CTV has got. So that’s a struggle in the industry. And we buy programming as a group, for both of those networks, and so it’s complicated in the sense of what the actual P&L of each of those two, Global and E!. I’m sure CTV would have the same issue with A, but it’s clear that the second-tier networks are struggling. We have made that point to the CRTC many times over and I think I can simply say that things are going to change in the conventional TV business and it won’t look like it did a year or two ago.

Operator

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

Drew McReynolds – RBC Capital Markets

With respect to the balance sheet and covenants, I was a little surprised this quarter to see in the L MD&A the same type of disclosure with respect to may not be able to comply with certain covenants. Just wondering, in my forecast in fiscal 2009 it would appear you do have certainly more cushion than you do at the holding company level. Just wondering why that was put in and whether this is a little bit more standard practice by auditors or there is something a little more here.

John E. McGuire

I would agree with you in terms of your projections and the greater degree of cushion at the LP. I would say we don’t expect we are going to breach covenants at LP based on projections, but just given the current environment, that disclosure was viewed to be cautionary and just reflects the uncertainty in the market. And we have a lot of discussions with our auditors on this disclosure and I suspect you are going to see a similar disclosure become the standard for many companies.

Drew McReynolds – RBC Capital Markets

You did mention earlier, I think $72.0 million was drawn at the holding company credit facility. In one of the notes on the balance sheet I see $30.0 million.

John E. McGuire

There’s $30.0 million drawn but for covenant purposes we also have letters of credit, for $42.0 million, so they really are effectively drawn against.

Drew McReynolds – RBC Capital Markets

Peter, you gave a cost savings target for fiscal 2009 within Canadian Television, not the $17.0 million related to the November restructuring, but I think it’s related to the previous digital reorg than is ongoing. Can you just repeat what that number was? Based on the integration.

Peter Viner

We have achieved $19.0 million and we expect additional savings of another $7.0 million approximately.

Operator

Your next question comes from [Robert Berser] – [Beach Point Capital].

[Robert Berser] – [Beach Point Capital]

It appears that you are not announcing any additional cost-cutting programs today, that you are just simply giving some estimates with respect to programs that were previously announced as part of the last quarter’s conference call, is that correct?

Leonard J. Asper

Yes, but I think it is safe to say that management cost cutting in ongoing in the company. We have told our staff that this is something we are going to continue to do and it’s not just staffing count, it’s obviously from travel and entertainment to cell phone usage to whatever. And obviously newsprint consumption. There are a lot of levers we have to pull and we’re pulling every one of them.

[Robert Berser] – [Beach Point Capital]

And the time that you announced the last round of cost cuts, back in November, you obviously anticipated a certain level of activity within the economy and certain EBITDA level. Under the assumption that you were not expecting to be in trouble of missing covenants upon reporting the next quarter, it sounds like you have not made those goals and that you would be in line for some cost cuts as a result. Is that a reasonable way of interpreting the situation?

Leonard J. Asper

The way I would put is that we made one major effort at cost cutting but as I said, we told our staff and folks that we didn’t put down our pencils after that. We just said that’s one major impetus. And I will say that, I think being consistent with everybody else you will probably talk to, the economy didn’t get any better. In fact, one could argue it’s possibly worse, in some areas. Some sectors are better but some are worse so it’s a bit of a hodge-podge. But it certainly didn’t get better.

And with trends continuing, as I said, we didn’t put down our pencils and we’re looking at every nickel we can find. So that’s ongoing. I can’t state today whether it will be one big further announcement but I think we have done a number of things even since November 12 that have reduced our costs overall and we will continue to do that.

[Robert Berser] – [Beach Point Capital]

With respect to the National Post, given that it is a national paper and given that you’ve got newspapers spread out throughout the country, one would think that there is a certain amount of cannibalism between National Post and your other newspapers. If the operations of the National Post were to be discontinued, would you expect a corresponding increase in circ of your other newspapers?

Dennis Skulsky

There isn’t as much of an overlap as you would think. And I guess the other important factor that Leonard and I didn’t dwell on, but the National Post also gives us a significance presence in Toronto and that’s an important market.

[Robert Berser] – [Beach Point Capital]

So you do not think that there would be any meaningful positive circulation benefits if the National Post were to cease operation?

Dennis Skulsky

I think it would be minimal if it were.

Leonard J. Asper

I think it’s worth commenting on the Post, too. When Dennis said it gives us presence in Toronto, when we go to sell national ads for our newspaper group and they want Toronto, we have something to offer them. I think that’s why I say it plays an important role. That doesn’t accrue to the P&L of the National Post.

Now, the other newspapers get content from the National Post so if the National Post were discontinued for example, we would to develop a source of Toronto news for our group and that would mean some sort of a bureau here, however large or small that would be.

And to answer Tim’s question earlier, it really is fully costed in our group. So when one looks actually at what a Canwest newspaper group looks like without the National Post, it’s not much different, as some of those costs are already there for which the National Post is being charged.

It’s a fair price, the right transfer price. But those costs don’t go away if the National Post does. For example, printing at the Calgary Herald. They also have the press there and print the paper there. National Post is absorbing some of those costs.

Operator

Your next question comes from Adam Spielman – PPM America.

Adam Spielman – PPM America

On the balance sheet, just looking at Slide 13 where you compare this quarter’s debt to last quarter’s, there is this big change in the adjustment for spot rates. It was negative and then it went positive. Is that simply the movement in Canadian/U.S. dollar exchange rate?

John E. McGuire

Yes it is. The Canadian dollar weakened significantly from August 31 to November 30.

Adam Spielman – PPM America

And moving to Slide 15 where you detailed the balance sheet and metrics that came with LP, your debt for covenant purposes, how does that treat FX or swap liabilities?

John E. McGuire

We include this debt at the swapped rate so it takes into account not necessarily the mark to market on the swap at the particular time but it effectively takes the debt and factors in the swaps that are associated with that debt.

Adam Spielman – PPM America

So it effectively treats it at a constant currency to the extent you swapped it?

John E. McGuire

Yes.

Adam Spielman – PPM America

Basically Canwest Publishing was down 7% this quarter through November. Just given what the rest of the world is doing in advertising and people saying December was bad, is it fair to say that declines are still accelerating at this point, in terms of percentage declines?

John E. McGuire

Yes, they’re at the double-digit level.

Adam Spielman – PPM America

Double digit in the top line?

John E. McGuire

Yes.

Adam Spielman – PPM America

You made the comment that you don’t envision having a covenant issue at Canwest from the partnership. If one were to simply extrapolate the kind of EBITDA decline we saw this quarter, you could trip a covenant easily. Basically are you saying we still have to see a lot of cost cuts come through?

John E. McGuire

We have cost cuts come through. We are also distributing cash up to CMI so there is an ability to pare back on the amount of cash that is distributed upstream.

Adam Spielman – PPM America

And on that point I think you said $35.0 million this quarter was comparable with past quarters. Should we expect those distributions to slow down beginning with the current quarter? Or how are you thinking about the distributions.

John E. McGuire

I think it’s likely that they will be at a slightly lower level than the first quarter.

Leonard J. Asper

I think also, as a comment on the Publishing, you’ve got to look at the comparables, too. The first quarter Publishing EBITDA and revenue for last year was I think revenue up 5% and EBITDA 16%. So those comparables will scale a little bit better over the second, third and fourth quarters.

Adam Spielman – PPM America

In the broad advertising community, people have ranged from saying things like calendar Q4 is the bottom to saying there is no visibility. Do you have any thoughts on how bad it is versus how bad it might get?

Leonard J. Asper

I think we have no certainty that we are at the bottom. I don’t think anyone in this room feels comfortable saying that. It’s hard to say it’s getting worse, but it’s certainly not getting better. There is still a lot of money flowing but these businesses are obviously leveraged to the revenues so even at down 10% instead of $2.0 billion it’s $1.8 billion of revenue in the company, in the Canadian operations here. But whatever the percentages are, whether it’s 5%, 8%, 10%, or 12%, we’re still seeing something in that range. And I wouldn’t say anyone is really comfortable that we would say we’ve hit bottom. The steepness has certainly gone in the curve but it’s probably about a month or two too early to tell at this point.

Operator

Your next question comes from Randall Rudinkski – Credit Suisse.

Randall Rudinkski – Credit Suisse

Pertaining to the LP, if we looked at the other way and you were going to have better room on your covenants there, through either cost cutting or whatever, would the LP have the capability to make any kind of capital payment up to CMI to help the debt covenant ratio there?

John E. McGuire

If there were no issues with respect to covenants at the LP, yes, the LP does have some abilities to increase its distribution to CMI. There is a restrictive payments basket concept in its sub notes, which do provide a bit of a governor on the amount of distributions but yes, there is the capacity to increase.

Randall Rudinkski – Credit Suisse

Could you share the size of the basket?

John E. McGuire

There are two baskets actually. There is one in the senior credit and there is the second concept in the sub debt and its original basket in the senior $75.0 million and the basket within the sub notes is a little less than that.

Randall Rudinkski – Credit Suisse

Can you remind us what the veto thresholds are at the CW Media that that would require Goldman Sachs’ approval for certain thresholds of asset sale?

Leonard J. Asper

There are a variety of circumstances. They kind of range up to the $20.0 million to $30.0 million range. Buying an asset as one threshold and selling an asset has another. But they’re kind of in that range.

I think if we were going to be looking at assets in the portfolio, as I said, some of them are these smaller assets that would be below that level. There may be one or two above that level, but that’s about the threshold.

Randall Rudinkski – Credit Suisse

If you were to decide that you wanted to sell any of the specialty assets that you own 100% of currently, such as TVTropolis for example, would the formula that drives your equity stakes ultimately in CW Media, when you merge it with your existing PD assets, would that impact your ultimate equity stake down the road?

Leonard J. Asper

It would. The pricing of a sale, I think, at less than 12 times affects it negatively and more than 12 times affects it positively. So I think those are some of the benchmarks. They’re not necessarily indicative of any expectations or anything but that’s how it affects the formula.

Randall Rudinkski – Credit Suisse

Program amortization in conventional television, I think it as down 6% year-over-year in the quarter. What should we expect for the full year?

Peter Viner

It’s a little difficult to tell because some of it is out of our control. The big numbers are in our output deals and we are, to some degree, at the mercy of the U.S. networks cancelling a show that they see as poor performing. But I would expect it to be down year-over-year.

Operator

Your next question comes from Your last question comes from Sam Jones – Private Investor.

Sam Jones – Private Investor

What are the growth opportunities for Canwest?

Leonard J. Asper

I think organically we’re trying to invest in the high-growth businesses we have, which is really the digital and specialty assets and so we are continuing to do things that, obviously capital is not plentiful these days and so we are growing our operations by the kinds of things we did with making a deal with ShopLocal to get into more local content and build our website and we are making sure when we acquire a television program and we have video-on-demand and streaming rights and basically as wide a platform of rights as we can get, as swath of rights that we can get, in order to put that content on the platforms where we can develop new revenue streams that are higher growth.

But I think in terms of acquisitions, that’s not on the table right now for us obviously. We are trying to make sure we generate capital right now and in doing that, by improving the operating profits, selling assets that don’t fit right now, and investing the cash our business does throw off into where it makes sense in the higher-growth assets.

We think things like even potentially launching a new specialty channel, that’s something we can do for almost no cash. We’ve got the infrastructure, we’ve got the programming, we’ve got the systems in. those are the kinds of things where we think we can turn a profit quickly with limited investment and that’s what we’re focused on.

Sam Jones – Private Investor

What about [Oodles], what was that deal about? What’s with them?

Peter Viner

Well, what it is, it’s an engine that allows us to take our classified listings and the business that we have and as part of a old local strategy, it allows us to have an online presence with a search engine that is very strong that takes our listings and ads that we have across the country, bring content into that and it allows us to own local and certainly have a good opportunity to grow the audiences there and monetize them.

Leonard J. Asper

It is a way of creating a local version of Kijiji and Craig’s List, which are general buy and sell sites. But in complementary to our vertical classified sites, so we have a job site, a driving site, a real estate site, a dating site. But Kijiji and Craig’s List are competitors that have all of that on one site and that’s what we’re trying to create, but on a market-by-market basis. So that’s to complement the strength of our local newspaper brands and those websites in those markets.

Sam Jones – Private Investor

Those businesses, you’ve got to have a strong flow right?

Leonard J. Asper

We believe that is a high-growth area. Local search and local advertising display is double-digit growth and we’re trying to compete in those markets and beat the competitors there. And I think we’re off to a good start.

Operator

There are no further questions in the queue.

Leonard J. Asper

This 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 today’s conference call.

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