Torstar Corp. stock hit a historic low as shareholders reacted to continued plummeting revenue and the suspension of the company’s dividend.
Torstar, owner of the Toronto Star, also said the Ontario Securities Commission made it change past disclosures to investors because they emphasized results that didn’t conform to generally accepted accounting principles.
Torstar shares traded as low as 53 cents before ending Wednesday at 60 cents, down nearly 30 per cent from Tuesday’s closing price.
Like many legacy newspaper companies, Torstar is trying to navigate the shift from print to digital, and from advertising revenue to subscription sales. The results for its recent quarter show rough going: Print ad revenue declined 23 per cent, while subscription revenue was up just 2 per cent. Worse, digital ad revenue declined 8 per cent, and sales in an advertising-flier distribution business fell 10 per cent. All told, revenue declined nearly 12 per cent in the third quarter from a year earlier and its loss deepened to $40.9-million from $18.8-million.
Torstar management warned investors to expect more of the same in coming quarters.
“It’s hard to find anything optimistic in these results or the outlook,” wrote BMO Nesbitt Burns analyst Tim Casey, who has a “market perform” rating and no target price on the shares.
At the end of trading, Torstar’s market capitalization was just less than $50-million. The company had $52.3-million in cash on its balance sheet at Sept. 30, and no long-term debt or bank borrowings. The company says it expects adequate cash flow to cover its losses through 2020, but may need to sell assets or borrow after that. It says it’s put a property in Hamilton up for sale.
Torstar had been paying a quarterly dividend of three cents a share, which worked out to a double-digit yield for shareholders. The company has suspended the dividend for at least a year, saying its board intends to review its dividend policy again in the fourth quarter of 2020.
“We’re suspending the dividend just to, again, try to preserve cash and see through some of the transformation to the new digital world,” Lorenzo DeMarchi, the company’s chief financial officer, said on a conference call Wednesday.
The company will also need to review the dividend in a year for another reason. If it fails for eight consecutive quarters to pay an annual dividend of 7.5 cents a year on its Class B non-voting shares, the shares are given voting power to elect the board.
Currently, 99 per cent of the Class A voting shares are owned by seven shareholders who have formed a trust to run the company per the principles of long-time former Star publisher Joseph E. Atkinson, while the public holders of the Class B shares, listed on the Toronto Stock Exchange, have no vote.
Torstar said it is refiling past management’s discussion and analysis after the OSC reviewed its disclosures. The company revised disclosure for all of 2018 and 2019 by refiling the 2018 full-year MD&A as well as taking the new approach with the year-to-date results in the third-quarter 2019 report.
Torstar owns 56 per cent of Web search company VerticalScope, but says it does not control the company because of a voting agreement with other owners. Under International Financial Reporting Standards, a company would normally take a slice of the company’s profit or loss, proportional to its ownership, and report it as an addition to profit at the bottom of the income statement.
However, Torstar had been including 56 per cent of VerticalScope’s sales in an alternate revenue figure, discussed prominently in its results. Since VerticalScope’s sales numbers have typically been better than Torstar’s legacy business, the revenue changes looked better than the company’s revenue calculated according to IFRS.
In the revised filings, Torstar no longer highlights the revenue figure that includes VerticalScope and more clearly labels its profit measures as including a slice of that company’s profits.
In an e-mailed response to questions, Mr. DeMarchi said the notes to the financial statements, as well as his statements on conference calls, comply with IFRS and presented the relationship accurately.