Torstar's Q1 net income reaches C$7.1M, up from C$4.2M a year ago, as lower restructuring charges and operating costs yield higher operating profit; net revenues down 6.6% to C$310.5M
May 7, 2014
– Torstar Corporation (TSX:TS.B) today reported financial results for the first quarter ended March 31, 2014.
Highlights for the first quarter:
“Results in the quarter were relatively stable with segment EBITDA down $0.9 million to $28.5 million” said David Holland, President and CEO of Torstar Corporation. “A strong earnings performance in the media businesses, up $2.8 million, was more than offset by an earnings decline at Harlequin. In the media operations, continuing efforts on costs exceeded the impact of revenue declines. Revenues were affected by continued shifts in spending by advertisers. Harlequin’s results were down $4.2 million to $13.9 million. Lower results were anticipated due to the comparison to a very strong first quarter in 2013.”
“Looking forward, Harlequin’s results for the balance of the year are expected to be relatively stable compared to 2013. In the media operations, for the balance of the year, we expect continued pressure on print advertising revenues, relative stability in multi-platform subscriber revenues, and a continuation of modest growth in distribution revenues. Our results will continue to benefit from restructuring efforts to date and ongoing efforts to control costs. We will remain committed to investing in those areas of highest value to our customers as we
adapt to the changing media environment.”
“The recently announced agreement to sell Harlequin is subject to regulatory approval. We will be working through this process in the coming months.”
Segmented revenue was $310.5 million down $21.8 million or 6.6% in the first quarter of 2014 inclusive of a $3.9 million decrease in revenue at Metroland Media Group’s TMGTV which was primarily due to lower product sales.
Media Segment revenues, excluding the $3.9 million decrease in Metroland Media Group’s TMGTV, were down $14.6 million or 6.5% in the first quarter, largely due to print advertising revenue declines at the newspapers partially offset by growth in distribution revenue. Print advertising revenues continued to be under pressure during the first quarter of 2014, and were believed to be negatively impacted in part by reduced retailer advertising on account of poor winter weather and the impact of the transition of advertising sales for the Toronto Star to Metro effective February 28, 2014. Digital revenue in the Media Segment was down 2.7% in the first quarter of 2014 primarily as a result of lower revenues at WagJag and Workopolis largely offset by growth in other digital properties including eyeReturn Marketing, the Metroland community websites and Olive Media. Digital revenues were 12.2% of total Media Segment revenues in the first quarter of 2014 up from 11.3% in the same period last year.
Book Publishing Segment revenues were down $3.3 million in the first quarter of 2014 including a $7.6 million increase from the impact of foreign exchange. Excluding the impact of foreign exchange, revenues were down $10.9 million in the first quarter primarily as a result of revenue declines in all channels compared to a strong first quarter in 2013. Book Publishing revenues in the first quarter of 2014 were comparable to the fourth quarter of 2013.
Total Segmented EBITDA was $28.5 million down $0.9 million in the first quarter of 2014 reflecting a $2.8 million increase in EBITDA in the Media Segment and a decrease of $0.5 million in Corporate expenses, offset by a $4.2 million decrease in EBITDA in the Book Publishing Segment.
Media Segment EBITDA was $17.6 million, up $2.8 million in the first quarter as cost reductions exceeded print advertising revenue declines and general wage increases. Overall Media Segment costs decreased by $21.3 million in the first quarter of 2014 including $6.7 million of savings from restructuring initiatives, the benefit of other cost reduction initiatives, lower pension costs, and the impact of lower newsprint price and consumption.
Book Publishing Segment EBITDA was down $4.2 million compared to a very strong first quarter in 2013. Results in the first quarter included a $1.6 million positive impact from foreign exchange and primarily reflect lower revenues which were partially offset by lower advertising and promotional spending and savings from restructuring initiatives.
Total Segmented operating earnings were down $1.5 million in the first quarter of 2014, from $19.9 million in the first quarter of 2013.
Restructuring and other charges
Segmented restructuring and other charges of $3.6 million were recorded in the first quarter of 2014. These charges primarily related to the Media Segment and reflect ongoing efforts to reduce costs and reflect a reduction of approximately 55 positions which are expected to result in annualized net labour savings of $3.4 million in the Media Segment. Of the annualized savings anticipated as a result of the initiatives undertaken within the first quarter of 2014, $2.9 million of the savings are expected to be realized in 2014 (including $0.5 million in the first quarter) and $0.5 million in 2015.
Segmented operating profit was $14.5 million in the first quarter of 2014, up $2.6 million from $11.9 million in the first quarter of 2013.
Interest and financing costs
Interest and financing costs were $2.4 million in the first quarter of 2014, down $1.9 million from the first quarter of 2013. The lower expense primarily reflects lower financing costs related to employee benefit plans. Average netdebt (current portion of long-term debt, long-term debt and bank overdraft, net of cash and cash equivalents) was $165.6 million during the first quarter of 2014 up marginally from $165.3 million in the same period last year. Torstar’s effective interest rate on long-term debt was 4.3% in the first quarter of 2014, compared to 4.1% in the same period last year.
Torstar reported a non-cash foreign exchange loss of $1.8 million in the first quarter of 2014 and a loss of $0.2 million in the same period last year. The loss in the first quarter of 2014 was the result of the Canadian dollar being weaker at the end of the quarter relative to the beginning of the quarter and with Torstar’s Canadian operations being in a net liability position in U.S. dollars for the quarter.
Income from joint ventures
Income from joint ventures was $2.1 million in the first quarter of 2014 and $2.0 million in the first quarter of 2013 as included in the above discussions of Segmented Revenue and Segmented EBITDA.
Loss of associated businesses
Loss of associated businesses was $0.7 million in the first quarter of 2014 and $0.5 million in the first quarter of 2013. The 2014 loss includes a loss of $0.4 million from Blue Ant and a loss of $0.4 million from Shop.ca partially offset by income of $0.1 million from Tuango and income of less than $0.1 million from Black Press. The 2013 loss included a loss of $0.3 million from Blue Ant and a loss of $0.6 million from Shop.ca partially offset by income of $0.4 million from Black Press and less than $0.1 million from Tuango. Subsequent to March 31, 2014, as part of a broader financing Torstar invested an additional $1.0 million in Shop.ca.
Other income (expense)
In March 2014, Torstar and Metro International S.A. agreed to an early settlement of the existing put and call arrangements between them with regards to the remaining 10% interest in Metro English Canada (previously owned by Metro International S.A.). The agreed upon price for the early settlement was $10.1 million. The existing put and call arrangements were both exerciseable at the same fixed price of $11.2 million beginning in October 2014. Accordingly, Torstar recorded a gain of $1.1 million on the transaction.
Net income attributable to equity shareholders
Torstar reported net income attributable to equity shareholders of $7.1 million or $0.09 per share in the first quarter of 2014 up $2.9 million or $0.04 per share from $4.2 million or $0.05 per share in the first quarter of 2013.
Through the first quarter of 2014, the Media Segment continued to face challenges as a result of continued shifts in spending by advertisers. Print advertising revenue was also believed to be impacted by reduced retailer advertising on account of poor winter weather and the impact of the transition of advertising sales for the Toronto Star to Metro effective February 28, 2014. Visibility on how advertising revenues will evolve over the balance of the year remains limited. However, distribution revenues are expected to grow in the balance of the year. Across Torstar, cost reduction has been and is expected to remain an important area of focus. The Media Segment is anticipated to realize $17.1 million of savings in the balance of 2014 from restructuring initiatives undertaken through the end of the first quarter of 2014. Net investment spending associated with growth initiatives in 2014 is currently expected to be consistent with 2013 levels.
Harlequin anticipated that earnings would be lower in the first quarter of 2014 relative to the very strong results posted in the first quarter of 2013 which represented the strongest quarter of 2013. Harlequin’s underlying revenues were stable in the first quarter of 2014 relative to the fourth quarter of 2013. Looking forward to the balance of the year, with comparable earnings less challenging for the remaining three quarters of 2014, Harlequin’s results in the balance of 2014 are expected to be relatively stable compared to 2013, including the benefit of foreign exchange. If the Canadian dollar remains at its current levels relative to the U.S. dollar and overseas currencies, Harlequin anticipates a year over year positive foreign currency impact of approximately $5.7 million including the impact of U.S. dollar hedges currently in place. The impact of Harlequin’s earnings on Torstar’s 2014 results will be dependent upon the timing of the anticipated closing of the announced agreement to sell Harlequin. The transaction is subject to customary approvals and closing conditions, including regulatory approvals and approval by Torstar’s Class A shareholders.
On May 6, 2014, Torstar declared a quarterly dividend of 13.125 cents per share on its Class A shares and Class B non-voting shares, payable on June 30, 2014, to shareholders of record at the close of business on June 13, 2014. Torstar advises that, for the purposes of the Income Tax Act, Canada and for any relevant provincial tax legislation, this dividend is designated as an eligible dividend.