Torstar cost cutting helps offset impact of lower revenue

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Cost-cutting initiatives helped Torstar Corp. to narrow its losses in 2017, as revenue continued to decline.

The company, which owns daily newspapers including the Toronto Star and The Hamilton Spectator, as well as community papers and websites, reported fourth-quarter and full-year financial results on Wednesday. It had operating revenue of $615.7-million for 2017, down 11 per cent from $685.1-million in the prior year. The company's net loss for the year was $29.3-million, an improvement from a $79.9-million loss in 2016.

For the three months ended Dec. 31, 2017, Torstar reported segmented operating revenue of $189.5-million, down 9.2 per cent from the fourth quarter of 2016. Net income from continuing operations was $7.8-million, or 10 cents a share, up from $0.7-million or 1 cent a share a year earlier. The improvement was largely a result of reductions in costs, as well as the benefit of a digital media tax credit.

In November, Torstar and its competitor, Postmedia Network Canada Corp., agreed to swap a total of 41 newspapers – mostly community papers and some dailies and free commuter papers – and then shut down most of them. The exchange involved no cash; in its financial reports on Wednesday, Torstar estimated the fair value of all of those 41 papers combined was $3.5-million. Torstar expects its part of the deal, which handed 22 of its community weeklies and two commuter papers to Postmedia, will result in a $5-million to $7-million improvement in earnings in 2018. Torstar continues to operate four of the daily papers it acquired from Postmedia: the St. Catharines Standard, the Niagara Falls Review, the Welland Tribune and the Peterborough Examiner.

Torstar reduced its head count across the company by approximately 250 jobs in 2017, accounting for both departures (whether through normal attrition such as retirement, and also buyouts and layoffs) as well as hiring. In 2016, the company eliminated roughly 590 positions, including the closing of its Vaughan printing plant that affected 220 full-time and 65 part-time employees.

As with most media companies, Torstar is grappling with long-term declines in print advertising revenue and only modest returns from digital advertising.

As well as competition for digital audiences from giants such as Facebook and Google, which not only overshadow other media companies in scale but also appeal to advertisers with the reams of data they collect on internet users. That information is highly in demand from advertisers looking to deliver more precisely targeted ads to potential customers.

As part of its budget on Tuesday, the federal government announced it would consider giving media companies charitable status, which would allow them to raise funds for journalism initiatives through tax-deductible donations. On a conference call with analysts Wednesday, Torstar chief executive officer John Boynton said the budget measures would have "very little" impact on the company, and deferred all other questions about the budget to industry group News Media Canada.

In an interview with The Globe and Mail on Tuesday, News Media Canada president and CEO John Hinds said the charitable status was "the one aspect that we're very pleased about" in the budget. However, wider funding for ailing news media companies, which the group pushed for, did not come to pass.

In an interview with The Globe in February, Torstar chair John Honderich said the industry is at a crisis point and "the silence from Ottawa is deafening."

"We have very little time left. More cuts will be coming, guaranteed," Mr. Honderich said. "I'm not going to speculate on various competitors, but we're very, very close to the end."

Mr. Honderich also told The Globe that, because of the decimation of advertising revenue that used to sustain the business, every news organization has to consider digital paywalls as part of their strategy. When asked about that statement on the call Wednesday, Mr. Boynton replied: "We don't have anything to say in terms of our transformation strategy."

The company declined a request for an interview on Wednesday.

Recently, the company reorganized its management structure into three business segments: daily brands (which now includes the four daily newspapers the company acquired from Postmedia,) community brands, and digital ventures. Torstar saw revenues decline in all of those segments in 2017. Torstar's digital segment is driven by growth in its investment in website publisher VerticalScope, which saw $6.6-million in earnings in the quarter, with a majority of its growth driven by acquisitions. That was offset by declines in other businesses, such as Workopolis.

"Looking forward, we expect to continue to benefit from a solid financial position, having finished 2017 with $71.4-million in unrestricted cash and no bank debt.In 2018, we expect earnings to benefit from growth at VerticalScope and continued efforts on costs which we anticipate will help to offset pressures on print advertising revenues in the newspaper operations while we transform our core brands," Mr. Boynton said in a statement Wednesday.

For the full year in 2017, Torstar's daily brands division reported an 11-per-cent decline in revenue to $40.2-million, largely due to declines in print advertising, which was down 32 per cent for national advertising and 9.5 per cent for local advertising. Subscriber revenues, which make up just over one-third of the daily segment's revenues, were down 3.6 per cent. Due to the closing of the Star Touch tablet project, digital revenues fell 6.6 per cent – not including Star Touch, they were up 1.9 per cent for the year.

The company's community brands division saw revenues drop 8.5 per cent to $28.1-million, due largely to declines in local print and digital advertising revenues that make up the bulk of the community papers' business. Digital declines were attributed to daily-deals website WagJag, which Torstar sold for roughly $500,000 on Oct. 30; not including WagJag, digital revenues were up 2.5 per cent in 2017.

Torstar's digital ventures division saw revenues driven down by Workopolis and marketing company Eyereturn, for an overall decline of 2.3 per cent to $1.7-million for the year. Revenue at VerticalScope grew 12 per cent last year; Torstar's share of its revenue was $44.9-million for 2017.