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Press release from Marketwire

Torstar Corporation Reports Second Quarter Results

Wednesday, July 31, 2013

Torstar Corporation Reports Second Quarter Results

06:30 EDT Wednesday, July 31, 2013

TORONTO, ONTARIO--(Marketwired - July 31, 2013) - Torstar Corporation (TSX:TS.B) today reported financial results for the second quarter ended June 30, 2013.

Highlights for the quarter:

  • Total Segmented revenue was $354.9 million in the second quarter of 2013, down $29.0 million (7.5%) from $383.9 million in the second quarter of 2012.

  • Total Segmented EBITDA (see "non-IFRS measures") was $45.1 million in the second quarter of 2013, down $13.2 million from $58.3 million in the second quarter of 2012.

  • Net income attributable to equity shareholders was $18.0 million ($0.23 per share) in the second quarter down $14.6 million ($0.18 per share) from $32.6 million ($0.41 per share) last year.

  • Adjusted earnings per share (excluding restructuring and other charges, non-cash foreign exchange, gain (loss) on sale of assets and adjustments to contingent consideration) was $0.29 in the second quarter of 2013, down $0.14 from $0.43 in the second quarter of 2012.

  • Net debt was $187.6 million at June 30, 2013, up $19.9 million from $167.7 million at March 31, 2013.

  • In the first six months of 2013, Torstar's net benefit obligation related to its defined benefit pension and post retirement benefit plans decreased by $121.4 million primarily as a result of increased long-term interest rates, asset returns and contributions.

"It was a difficult quarter as declines in results were experienced in both the Book Publishing and Media divisions" said David Holland, President and CEO of Torstar Corporation. EBITDA from the segments was down $13.2 million to $45.1 million. Harlequin results were down $7.6 million. We had anticipated lower earnings at Harlequin in the quarter but not to this extent. Lower volumes, including a deterioration in Overseas volumes were responsible for the shortfall relative to our expectations. The media operations were down $5.8 million as results continue to be affected by a declining print advertising market. Management of costs remains a priority and helped to mitigate the impact of the revenue decline experienced in the quarter. On a positive note, distribution revenue grew in the quarter and profitability from digital activities increased. In addition, an increase in interest rates in the quarter is providing some welcome and meaningful reduction in the pension deficit.

"Looking forward, Harlequin year over year results in the second half will benefit from the completion of the transition to higher digital royalty rates, price increases and restructuring efforts. However, we do expect a modest decline in results in the second half given the recent revenue challenges, particularly in Overseas markets. In the media operations, print advertising revenues are likely to continue to be under pressure. We remain focused on cost reductions but are remaining disciplined in continuing to be invested in those areas of highest value to our customers. We also are continuing to pursue opportunities important to our future including building the Metro franchise across Canada and the introduction of the paywall at the Toronto Star."

The following table provides a continuity of earnings per share from 2012 to 2013:

Second Quarter
Net income attributable to equity shareholders per share 2012 $0.41
Changes
Operations (0.16 )
Restructuring and other charges (0.05 )
Income of associated businesses 0.02
Adjustment to contingent consideration 0.01
Net income attributable to equity shareholders per share 2013 $0.23
OPERATING RESULTS - SECOND QUARTER 2013
Overall Performance
The following table sets out the segmented results for the three months ended June 30, 2013 and 2012.
Three months ended June 30, 2013
Adjustments
& Total Per
Eliminations Consolidated
Book Total for Joint Statement of
(in $000's) Media* Publishing* Corporate Segmented* Ventures Income
Operating revenue $255,397 $99,547 $354,944 $(18,359 ) $336,585
Salaries and benefits (101,512 ) (23,595 ) $(3,120 ) (128,227 ) 6,452 (121,775 )
Other operating costs (116,387 ) (64,447 ) (771 ) (181,605 ) 9,384 (172,221 )
EBITDA 37,498 11,505 (3,891 ) 45,112 (2,523 ) 42,589
Amortization & depreciation (8,695 ) (1,048 ) (10 ) (9,753 ) 724 (9,029 )
Operating earnings 28,803 10,457 (3,901 ) 35,359 (1,799 ) 33,560
Restructuring and other charges (6,093 ) (966 ) (7,059 ) 22 (7,037 )
Impairment of assets (370 ) (370 ) (370 )
Operating profit $22,340 $9,491 $(3,901 ) $27,930 $(1,777 ) $26,153
Three months ended June 30, 2012
Adjustments
& Total Per
Eliminations Consolidated
Book Total for Joint Statement of
(in $000's) Media* Publishing* Corporate Segmented* Ventures Income
Operating revenue $276,861 $107,046 $383,907 $(20,182 ) $363,725
Salaries and benefits (106,792 ) (24,298 ) $(3,136 ) (134,226 ) 6,923 (127,303 )
Other operating costs (126,810 ) (63,670 ) (878 ) (191,358 ) 9,336 (182,022 )
EBITDA 43,259 19,078 (4,014 ) 58,323 (3,923 ) 54,400
Amortization & depreciation (8,326 ) (1,021 ) (11 ) (9,358 ) 698 (8,660 )
Operating earnings 34,933 18,057 (4,025 ) 48,965 (3,225 ) 45,740
Restructuring and other charges (1,630 ) (1,630 ) (1,630 )
Impairment of assets (289 ) (289 ) (289 )
Operating profit $33,014 $18,057 $(4,025 ) $47,046 $(3,225 ) $43,821
* Includes proportionately consolidated share of joint venture operations

Revenue

Segmented revenue was $354.9 million down $29.0 million or 7.5% in the second quarter of 2013 inclusive of a $4.9 million decrease in revenue at Metroland Media Group's TMGTV which was primarily due to lower product sales. Media Segment revenues, excluding the $4.9 million decrease in Metroland Media Group's TMGTV, were down $16.6 million or 6.0% in the second quarter, largely due to print advertising revenue declines at the newspapers partially offset by growth in distribution revenue at Metroland Media Group.

While digital profitability increased during the second quarter, digital revenues in the Media Segment were down 10.1% in the second quarter. This decline was primarily the result of lower revenues at Wagjag offset by growth in other digital properties. Digital revenues were 10.9% of total Media Segment revenues in the second quarter of 2013 compared to 11.1% in the second quarter of 2012.

Book Publishing Segment revenues were down $7.5 million in the second quarter of 2013 including a $0.3 million decrease from the impact of foreign exchange. This decrease was the result of challenging economic conditions in Overseas markets combined with revenue declines in the direct-to-consumer channel both in North America and Overseas.

EBITDA

Total Segmented EBITDA was $45.1 million down $13.2 million in the second quarter of 2013. Media Segment EBITDA was $37.5 million in the second quarter, down $5.8 million from the second quarter of 2012 largely due to print advertising revenue declines, $0.5 million of higher pension costs as well as general wage increases partially offset by cost reduction initiatives. Overall Media Segment costs decreased by $15.7 million in the second quarter of 2013, and included $5.7 million of savings from restructuring initiatives.

Book Publishing Segment EBITDA was down $7.6 million compared to the second quarter of 2012 reflecting a combination of lower revenues, higher author royalties for digital sales and less favourable adjustments to prior year returns provisions partially offset by lower costs and savings from restructuring initiatives.

Corporate expenses were $3.9 million in the second quarter of 2013, down $0.1 million from $4.0 million in the second quarter of 2012.

Operating profit

Segmented operating profit was $27.9 million in the second quarter of 2013, down $19.1 million from $47.0 million in the second quarter of 2012.

Net income attributable to equity shareholders

Torstar reported net income attributable to equity shareholders of $18.0 million or $0.23 per share in the second quarter of 2013 down $14.6 million or $0.18 per share from $32.6 million or $0.41 per share in the second quarter of 2012.

Outlook

In the second quarter and first six months of 2013, the Media Segment continued to face challenges as a result of continued shifts in spending by advertisers combined with economic uncertainty. In the balance of the year, print advertising revenues are likely to continue to be under pressure. However, distribution revenue and digital revenue from existing properties are expected to grow in the balance of 2013. Across Torstar, restructuring and operating cost reduction has been and is expected to remain an important area of focus. The Media Segment is anticipated to realize $23.8 million of savings in 2013 from restructuring initiatives undertaken through the end of the second quarter of 2013 including $11.9 million of savings from restructuring initiatives realized in the first six months of 2013. Net investment spending associated with growth initiatives in 2013 is currently expected to be somewhat lower than 2012 levels. Plans to further reduce costs in the Media Segment over the balance of the year have been developed to mitigate the potential impact of continued revenue declines.

Harlequin finished the first six months of 2013 with operating earnings down compared to prior year, reflecting lower revenues, higher author royalties for digital sales and less favourable adjustments to prior year returns provisions. With revenues weaker than anticipated through the first half of the year, particularly in Overseas markets, Harlequin anticipates that earnings in the second half of 2013 will be moderately lower than 2012 levels.

Compared to the first half of the year, Harlequin's earnings in the second half will no longer be impacted by the unfavourable year over year effect of higher author royalties for digital sales which became effective July 1, 2012, and are expected to benefit from recent consumer price increases for certain product lines in North America, and $1.6 million of savings from restructuring initiatives undertaken through the end of the second quarter of 2013. If the Canadian dollar remains at its current levels relative to the U.S. dollar and overseas currencies, Harlequin anticipates that the impact from foreign exchange in the balance of the year will be neutral including the impact of the U.S. dollar hedges currently in place ($0.5 million negative impact in the first six months of 2013).

From a cash flow perspective, in 2013, Torstar continues to anticipate spending approximately $65.0 million for the minimum required funding of its registered defined benefit pension plans. In the first six months of 2013, Torstar's net benefit obligation related to its defined benefit pension and post retirement benefit plans decreased by $121.4 million primarily as a result of increased long-term interest rates, asset returns and contributions.

Capital expenditures in 2013 are currently anticipated to be approximately $30.0 million for additions to property, plant, equipment and intangible assets.

DIVIDEND

On July 30, 2013, Torstar declared a quarterly dividend of 13.125 cents per share on its Class A shares and Class B non-voting shares, payable on September 30, 2013, to shareholders of record at the close of business on September 13, 2013. 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.

ADDITIONAL INFORMATION

For additional information, please refer to Torstar's condensed consolidated financial statements and interim Management's Discussion and Analysis for the period ended June 30, 2013. Both documents will be filed today on SEDAR and are available on Torstar's corporate website www.torstar.com.

CONFERENCE CALL

Torstar has scheduled a conference call for July 31, 2013 at 8:15 a.m. to discuss its second quarter results. The dial-in number is 416-340-2216 or 1-866-226-1792. A live broadcast of the conference call will also be available over the internet at the Investor Relations section (Presentations, Events and Conference Calls) on Torstar's website www.torstar.com. A recording of the conference call will be available for 9 days by calling 905-694-9451 or 1-800-408-3053 and entering reservation number 5628301. An online archive of the broadcast will be available shortly after the completion of the call and will be accessible by visiting the Investor Relations section (Presentations, Events and Conference Calls) on Torstar's website www.torstar.com.

About Torstar Corporation

Torstar Corporation is a broadly based media and book publishing company listed on the Toronto Stock Exchange (TS.B). Its businesses include the Star Media Group led by the Toronto Star, Canada's largest daily newspaper and digital properties including thestar.com, toronto.com, Workopolis, Olive Media, and eyeReturn Marketing; Metroland Media Group, publisher of community and daily newspapers in Ontario; and Harlequin, a leading global publisher of books for women.

Non-IFRS measures

In addition to operating profit, as presented in the consolidated statement of income, management uses EBITDA (and where applicable Segmented EBITDA) and operating earnings (and where applicable Segmented operating earnings) as measures to assess the consolidated performance and the performance of the reporting units and business segments.

Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")/Segmented EBITDA

EBITDA (earnings before interest, taxes, depreciation and amortization) is a measure that is also used by many of Torstar's shareholders, creditors, other stakeholders and analysts as a proxy for the amount of cash generated by Torstar's operations or by a reporting unit or business segment. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under IFRS. Torstar calculates EBITDA as operating revenue less salaries and benefits and other operating costs as presented on the consolidated statement of income. EBITDA excludes restructuring and other charges and impairment of assets. Torstar's method of calculating EBITDA may differ from other companies and accordingly may not be comparable to measures used by other companies. Segmented EBITDA is calculated in the same manner described above, except that it is calculated using total segment results prior to the elimination of proportionately consolidated results for joint ventures.

Operating earnings/Segmented operating earnings

Operating earnings is used by management to represent the results of ongoing operations and is not a recognized measure of financial performance under IFRS. Torstar calculates operating earnings as operating revenue less salaries and benefits and other operating costs and amortization and depreciation. Operating earnings excludes restructuring and other charges and impairment of assets. Torstar's method of calculating operating earnings may differ from other companies and accordingly may not be comparable to measures used by other companies. Segmented operating earnings is calculated in the same manner described above, except that it is calculated using total segment results prior to the elimination of proportionately consolidated results for joint ventures.

Adjusted Earnings per Share

Adjusted earnings per share is used by management to represent the per share earnings of results of ongoing operations and is not a recognized measure of financial performance under IFRS. Torstar calculates adjusted earnings per share as earnings per share less the per share effect of restructuring and other charges, non-cash foreign exchange and gain (loss) on sale of assets. Torstar's method of calculating adjusted earnings per share may differ from other companies and accordingly may not be comparable to measures used by other companies.

Forward-looking statements

Certain statements in this press release and in the Company's oral and written public communications may constitute forward-looking statements that reflect management's expectations regarding the Company's future growth, financial performance and business prospects and opportunities as of the date of this press release. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "anticipate", "believe", "plan", "forecast", "expect", "intend", "would", "could", "if", "may" and similar expressions. This press release includes, but is not limited to, forward-looking statements regarding the Company's outlook for the balance of 2013. All such statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance, and speak only as of the date of this release. In addition, forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes.

By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that management's assumptions may not be accurate and that actual results, performance or achievements may differ significantly from such predictions, forecasts, conclusions or projections expressed or implied by such forward-looking statements. We caution readers not to place undue reliance on the forward-looking statements in this press release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, outlooks, expectations, goals, estimates or intentions expressed in the forward-looking statements.

These factors include, but are not limited to: the Company's ability to operate in highly competitive industries; the Company's ability to compete with other newspapers and other forms of media and media platforms; general economic conditions in the principal markets in which the Company operates; the Company's ability to attract and retain advertisers; the Company's ability to maintain adequate circulation levels; the Company's ability to attract and retain readers; the Company's ability to retain and grow its digital audience and profitably develop its digital businesses; the trend towards digital books and the Company's ability to distribute its books through the changing distribution landscape; the Company's ability to accurately estimate the rate of book returns through the wholesale and retail channels; the popularity of its authors and its ability to retain popular authors; labour disruptions; newsprint costs; the Company's ability to reduce costs; foreign exchange fluctuations; credit risk; restrictions imposed by existing credit facilities, debt financing and availability of capital; changes in pension fund obligations; results of impairment tests; reliance on its printing operations; reliance on technology and information systems; risks related to business development and acquisition integration; interest rates; availability of insurance; litigation; environmental, privacy, anti-spam, communications and e-commerce laws and regulations applicable generally to the Company's businesses; dependence on key personnel; dependence on third party suppliers and service providers; loss of reputation; product liability; intellectual property rights; control of Torstar by the Voting Trust; and uncertainties associated with critical accounting estimates.

We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results.

In addition, a number of assumptions, including those assumptions specifically identified throughout this press release, were applied in making the forward-looking statements set forth in this press release. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American and global economies; tax laws in the countries in which we operate; continued availability of printing operations; continued availability of financing on appropriate terms; exchange rates; market competition; rates of return and discount rates relating to pension expense and pension plan obligations; royalty rates, expected future revenues, expected future cash flows and discount rates relating to valuation of goodwill and intangible assets; and successful development of new products. There is a risk that some or all of these assumptions may prove to be incorrect.

When relying on our forward-looking statements to make decisions with respect to the Company and its securities, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not intend, and disclaims any obligation to, update any forward-looking statements, whether written or oral, or whether as a result of new information or otherwise, except as may be required by law.

For more information, please see the discussion of risks affecting Torstar and its businesses in Torstar's 2012 Management's Discussion & Analysis which has been filed on www.sedar.com and is available on Torstar's corporate website www.torstar.com.

Torstar's news releases are available on the Internet at www.torstar.com.

Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
(Unaudited)
As at
As at December 31 2012
June 30 2013 Restated*
Assets
Current:
Cash and cash equivalents $19,364 $24,827
Receivables 251,184 263,606
Inventories 29,184 31,637
Derivative financial instruments 1,272
Prepaid expenses and other current assets 50,056 43,254
Prepaid and recoverable income taxes 10,898 10,775
Total current assets 360,686 375,371
Property, plant and equipment 156,477 161,872
Investments in joint ventures 89,466 91,258
Investments in associated businesses 36,455 32,921
Intangible assets 85,987 87,475
Goodwill 597,276 596,703
Other assets 10,836 8,323
Deferred income tax assets 68,676 89,965
Total assets $1,405,859 $1,443,888
Liabilities and Equity
Current:
Bank overdraft $11,824 $9,767
Accounts payable and accrued liabilities 175,756 195,822
Derivative financial instruments 1,441
Provisions 14,908 15,649
Income tax payable 9,005 11,016
Total current liabilities 212,934 232,254
Long-term debt 195,181 178,027
Derivative financial instruments 5,480 7,018
Provisions 13,792 14,520
Other liabilities 23,321 25,362
Employee benefits 134,045 255,434
Deferred income tax liabilities 15,616 7,593
Equity:
Share capital 398,347 397,425
Contributed surplus 16,721 16,057
Retained earnings 398,587 317,033
Accumulated other comprehensive loss (10,547 ) (9,699 )
Total equity attributable to equity shareholders 803,108 720,816
Minority interests 2,382 2,864
Total equity 805,490 723,680
Total liabilities and equity $1,405,859 $1,443,888
* Certain amounts shown here do not correspond to the annual consolidated financial statements as at December 31, 2012 and reflect retroactive adjustments made.
Torstar Corporation
Consolidated Statement of Income
(Thousands of Canadian Dollars except per share amounts)
(Unaudited)
Three months ended Six months ended
June 30 June 30
2012 2012
2013 Restated* 2013 Restated*
Operating revenue $336,585 $363,725 $650,003 $693,054
Salaries and benefits (121,775 ) (127,303 ) (245,083 ) (250,200 )
Other operating costs (172,221 ) (182,022 ) (336,195 ) (355,068 )
Amortization and depreciation (9,029 ) (8,660 ) (17,829 ) (17,179 )
Restructuring and other charges (7,037 ) (1,630 ) (15,033 ) (4,225 )
Impairment of assets (370 ) (289 ) (370 ) (289 )
Operating profit 26,153 43,821 35,493 66,093
Interest and financing costs (4,451 ) (5,083 ) (8,791 ) (10,153 )
Foreign exchange (392 ) (409 ) (553 ) (414 )
Adjustment to contingent consideration 543 620
Income from joint ventures 1,261 5,619 3,286 9,252
Income (loss) of associated businesses 2,152 275 1,686 (75 )
Gain (loss) on sale of assets (226 ) (257 ) 3,417
Investment write-down and loss (62 )
25,040 44,223 31,422 68,120
Income and other taxes (6,900 ) (11,400 ) (9,100 ) (17,800 )
Net income $18,140 $32,823 $22,322 $50,320
Attributable to:
Equity shareholders $18,006 $32,585 $22,179 $50,123
Minority interests $134 $238 $143 $197
Net income attributable to equity shareholders per Class A (voting) and Class B (non-voting) share:
Basic $0.23 $0.41 $0.28 $0.63
Diluted $0.23 $0.41 $0.28 $0.63
* Certain amounts shown here do not correspond to the condensed consolidated financial statements as at June 30, 2012 and reflect retroactive adjustments made.
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
(Unaudited)
Three months ended Six months ended
June 30 June 30
2012 2012
2013 Restated* 2013 Restated*
Cash was provided by (used in)
Operating activities $2,206 $20,135 $15,390 $31,462
Investing activities (7,675 ) (13,528 ) (13,224 ) (19,126 )
Financing activities 918 (8,616 ) (9,325 ) (18,150 )
Decrease in cash (4,551 ) (2,009 ) (7,159 ) (5,814 )
Effect of exchange rate changes (159 ) 196 (361 ) (133 )
Cash, beginning of period 12,250 24,903 15,060 29,037
Cash, end of period $7,540 $23,090 $7,540 $23,090
Operating activities:
Net income $18,140 $32,823 $22,322 $50,320
Amortization and depreciation 9,029 8,660 17,829 17,179
Deferred income taxes 2,000 3,900 4,000 7,700
Income from joint ventures (1,261 ) (5,619 ) (3,286 ) (9,252 )
Distributions from joint ventures 4,626 2,269 5,126 4,669
Loss (income) of associated businesses (2,152 ) (275 ) (1,686 ) 75
Dividend from associated businesses 382
Impairment of assets 370 289 370 289
Non-cash employee benefit expense 8,384 8,089 16,676 16,235
Employee benefits funding (16,177 ) (18,481 ) (32,408 ) (37,225 )
Other (887 ) (1,905 ) (3,658 ) (5,606 )
22,072 29,750 25,667 44,384
Increase in non-cash working capital (19,866 ) (9,615 ) (10,277 ) (12,922 )
Cash provided by operating activities $2,206 $20,135 $15,390 $31,462
Investing activities:
Additions to property, plant and equipment and intangible assets $(6,321 ) $(7,016 ) $(10,411 ) $(13,851 )
Investment in associated businesses (5,000 ) (500 ) (5,500 )
Acquisitions and investments (1,365 ) (1,505 ) (2,427 ) (4,018 )
Proceeds from sale of assets 4,250
Other 11 (7 ) 114 (7 )
Cash used in investing activities $(7,675 ) $(13,528 ) $(13,224 ) $(19,126 )
Financing activities:
Issuance of bankers' acceptances $11,674 $1,503 $11,685 $1,503
Repayment of bankers' acceptances (111 )
Dividends paid (10,380 ) (10,396 ) (20,742 ) (20,276 )
Exercise of share options 64 413
Other (376 ) 213 (268 ) 321
Cash provided by (used in) financing activities $918 $(8,616 ) $(9,325 ) $(18,150 )
Cash represented by:
Cash $15,685 $30,546 $15,685 $30,546
Cash equivalents - short-term deposits 3,679 3,999 3,679 3,999
Cash and cash equivalents 19,364 34,545 19,364 34,545
Bank overdraft (11,824 ) (11,455 ) (11,824 ) (11,455 )
$7,540 $23,090 $7,540 $23,090
* Certain amounts shown here do not correspond to the condensed consolidated financial statements as at June 30, 2012 and reflect retroactive adjustments made.

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Torstar Corporation
L. DeMarchi
Executive Vice-President and Chief Financial Officer
(416) 869-4776
www.torstar.com

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