Torstar Corporation
TSX : TS.B

Torstar Corporation

August 01, 2012 06:30 ET

Torstar Corporation Reports Second Quarter Results

TORONTO, ONTARIO--(Marketwire - Aug. 1, 2012) - Torstar Corporation (TSX:TS.B) today reported financial results for the second quarter ended June 30, 2012.

Highlights for the quarter:

  • Revenue was $383.9 million in the second quarter of 2012, down $9.4 million (2.4%) from $393.3 million in the second quarter of 2011.

  • EBITDA (see "non-IFRS measures") was $59.8 million in the second quarter of 2012, down $5.9 million from $65.7 million in the second quarter of 2011.

  • Net income attributable to equity shareholders was $35.7 million ($0.45 per share) in the second quarter down $77.0 million ($0.97 per share) from $112.7 million ($1.42 per share) last year. The second quarter of 2011 included a gain of $74.6 million ($0.94 per share) from the sale of Torstar's investment in CTV Inc.

  • Adjusted earnings per share (excluding restructuring and other charges and non-cash foreign exchange in both years, other income and gain on sale of assets in 2012, swap settlement charges and gain on sale of CTV Inc. in 2011) was $0.44 in the second quarter of 2012, down $0.07 from $0.51 in the second quarter of 2011.

  • Net debt was $157.2 million at June 30, 2012, up $1.9 million from $155.3 million at March 31, 2012.

"Our media results were not immune from the soft advertising environment that affected many media operations in the past quarter," said David Holland, President and CEO of Torstar Corporation. "EBITDA was down $5.9 million to $59.8 million as a decline in results from the Media Segment was offset in part by improved Harlequin results."

"In the Media Segment, EBITDA was $44.8 million, down $8.1 million from the prior year. In addition to the soft advertising environment, results were also affected by increased spending on investment initiatives in the quarter. We remain committed to building on the diversity of our media assets through investment in organic initiatives which we believe will yield value to shareholders in the longer term. At Harlequin, EBITDA was up $1.8 million to $19.0 million. We continue to adjust to the evolving book publishing landscape. The shift from print to digital moderated in the second quarter compared to our quarterly experience over the past two years."

"Looking forward, visibility remains limited for the Canadian media operation. After a slow start in April, trending compared to prior year did improve throughout the second quarter and that has continued into July. At Harlequin, we anticipate a decline in second half results attributable to a few factors including higher author royalty rates for digital sales and a comparison to a particularly strong financial performance in the second half of 2011."

The following table provides a continuity of earnings per share from 2011 to 2012:

Second Quarter
Net income attributable to equity shareholders per share 2011 $1.42
• Gain on sale of CTV Inc. (2011) (0.94 )
Adjusted net income attributable to equity shareholders per share 2011 $0.48
Changes
• Operations (0.07 )
• Restructuring and other charges 0.01
• Non-cash foreign exchange (0.01 )
• Gain on sale of assets 0.04
Net income attributable to equity shareholders per share 2012 $0.45

OPERATING RESULTS - SECOND QUARTER 2012

Overall Performance

The following table sets out the segmented results for the three months ended June 30, 2012 and 2011.

Second Quarter 2012 Second Quarter 2011
(in $000's) Media Book Publishing Corporate Total Media Book Publishing Corporate Total
Operating revenue $276,861 $107,046 $383,907 $283,032 $110,290 $393,322
Salaries and benefits (105,213 ) (24,382 ) ($3,179 ) (132,774 ) (100,079 ) (24,930 ) ($3,536 ) (128,545 )
Other operating costs (126,810 ) (63,670 ) (878 ) (191,358 ) (130,060 ) (68,168 ) (858 ) (199,086 )
EBITDA 44,838 18,994 (4,057 ) 59,775 52,893 17,192 (4,394 ) 65,691
Amortization & depreciation (8,326 ) (1,021 ) (11 ) (9,358 ) (6,799 ) (872 ) (15 ) (7,686 )
Operating earnings 36,512 17,973 (4,068 ) 50,417 46,094 16,320 (4,409 ) 58,005
Restructuring and other charges (1,919 ) (1,919 ) (3,386 ) (3,386 )
Operating profit $34,593 $17,973 ($4,068 ) $48,498 $42,708 $16,320 ($4,409 ) $54,619

Revenue

Total revenue was $383.9 million in the second quarter of 2012, down $9.4 million (2.4%) from $393.3 million in the second quarter of 2011.

Media Segment revenues were down $6.2 million in the second quarter of 2012 including an increase of $12.3 million from acquisitions made in 2011. Excluding the impact of acquisitions, revenues were down $18.5 million in the quarter. Print advertising revenues were down at the Toronto Star and Metroland Media Group newspapers partially offset by revenue growth at the Metro newspapers. Product sale revenues in Metroland Media Group's TMGTV operations were down $6.3 million in the quarter consistent with expected product life cycles in this business. Digital revenues were down in the quarter with a comparison to particularly strong digital revenue in the second quarter in 2011 which included the successful roll-out of WagJag. Digital revenues were also impacted by a change in accounting for the investment in Tuango in the first quarter of 2012 (changed to equity accounting in the first quarter of 2012 when Torstar's ownership interest decreased to 38.2%). Digital revenues were 11.1% of total Media Segment revenues in the second quarter down slightly from 12.1% in the same period last year.

Book Publishing Segment revenues were down $3.2 million in the second quarter of 2012 including a $0.1 million decline from the impact of foreign exchange. Excluding the impact of foreign exchange, revenues were down $3.1 million in the quarter with declines in print revenues more than offsetting digital revenue growth.

EBITDA

Total EBITDA was $59.8 million in the second quarter of 2012, down $5.9 million from $65.7 million in the second quarter of 2011.

Media Segment EBITDA was down $8.1 million in the second quarter. Prior year acquisitions provided $2.2 million of EBITDA growth in the quarter. Revenue declines, $0.3 million of higher pension costs and increased investment spending in growth initiatives were partially offset by $3.7 million of cost savings from restructuring initiatives, lower marketing costs in the digital properties and general cost savings.

Book Publishing Segment EBITDA was up $1.8 million in the second quarter. The second quarter included positive year over year adjustments to returns provisions and lower promotional spending.

Corporate expenses were $4.1 million in the second quarter of 2012, down $0.3 million from $4.4 million in the second quarter of 2011. The decrease was primarily related to year over year differences in the mark-to-market of a share-based hedging instrument.

Operating profit

Operating profit was $48.5 million in the second quarter of 2012, down $6.1 million from $54.6 million in the second quarter of 2011.

Other income and gain on sale of assets

During the second quarter of 2012, Torstar recognized a gain on sale of assets of $3.7 million from the sale of Sing Tao's land and buildings in Toronto. Torstar's share of the proceeds included $2.5 million of cash and $3.5 million for a mortgage receivable which will mature in 18 to 24 months.

Net income attributable to equity shareholders

Torstar reported net income attributable to equity shareholders of $35.7 million or $0.45 per share in the second quarter of 2012 down $77.0 million or $0.97 per share from $112.7 million or $1.42 per share in the second quarter of 2011. The 2011 second quarter results included the $74.6 million or $0.94 per share gain on the sale of CTV Inc.

SUBSEQUENT EVENTS

On July 16, 2012, Blue Ant received approval by the Canadian Radio-television and Telecommunications Commission to complete its acquisition of High Fidelity HDTV. When Blue Ant completes the acquisition of High Fidelity HDTV, which is expected to occur in early August, Torstar will invest a further $5.8 million to complete its investment in Blue Ant.

On July 19, 2012, Harlequin was named as defendant in a class action complaint pertaining to ebook author royalties. Harlequin believes that the authors have been recompensed fairly and properly for their work, and will be defending itself vigorously.

DIVIDEND

On July 31, 2012, 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, 2012, to shareholders of record at the close of business on September 7, 2012. 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, 2012. 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 August 1, 2012 at 8:15 a.m. to discuss its second quarter results. The dial-in number is 416-340-8527 or 1-877-240-9772. 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 7117631. 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 operating earnings as measures to assess the consolidated performance and the performance of the reporting units and business segments.

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. Torstar's method of calculating EBITDA may differ from other companies and accordingly may not be comparable to measures used by other companies.

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 other operating costs, salaries and benefits and amortization and depreciation. Operating earnings excludes restructuring and other charges. Torstar's method of calculating operating earnings 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 report. 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. 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 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 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; pension fund obligations; results of impairment tests; reliance on its printing operations; reliance on technology and information systems; risks related to business development; interest rates; availability of insurance; litigation; environmental, privacy, communications and e-commerce laws and regulations applicable generally to our businesses; dependence on key personnel; 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 economy; 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 2011 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 new releases are available on the Internet at www.torstar.com.

Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
(Unaudited)
As at
June 30 2012
As at
December 31 2011
Assets
Current:
Cash and cash equivalents $52,447 $50,588
Receivables 262,953 278,010
Inventories 33,337 36,995
Derivative financial instruments 57 367
Prepaid expenses and other current assets 47,468 47,063
Prepaid and recoverable income taxes 10,439 2,451
Total current assets 406,701 415,474
Property, plant and equipment 170,294 177,245
Investment in associated businesses 35,745 16,935
Intangible assets 108,004 107,845
Goodwill 661,710 665,029
Other assets 6,643 1,798
Deferred income tax assets 98,035 100,441
Total assets $1,487,132 $1,484,767
Liabilities and Equity
Current:
Bank overdraft $11,728 $7,661
Current portion of long-term debt 196,191
Accounts payable and accrued liabilities 191,979 210,567
Provisions 19,990 22,599
Income tax payable 13,582 17,398
Total current liabilities 237,279 454,416
Long-term debt 197,927
Derivative financial instruments 8,108 8,761
Provisions 12,944 16,906
Other liabilities 27,885 27,900
Employee benefits 270,264 262,876
Deferred income tax liabilities 7,560 7,644
Equity:
Share capital 397,271 395,334
Contributed surplus 15,416 14,828
Retained earnings 319,042 301,863
Accumulated other comprehensive loss (9,036 ) (8,286 )
Total equity attributable to equity shareholders 722,693 703,739
Minority interests 2,472 2,525
Total equity 725,165 706,264
Total liabilities and equity $1,487,132 $1,484,767
Torstar Corporation
Consolidated Statement of Income
(Thousands of Canadian Dollars except per share amounts)
(Unaudited)
Three months ended
June 30
Six months ended
June 30
2012 2011 2012 2011
Operating revenue $383,907 $393,322 $734,662 $744,744
Salaries and benefits (132,774 ) (128,545 ) (261,392 ) (250,785 )
Other operating costs (191,358 ) (199,086 ) (373,263 ) (386,589 )
Amortization and depreciation (9,358 ) (7,686 ) (18,611 ) (15,466 )
Restructuring and other charges (1,919 ) (3,386 ) (4,514 ) (3,787 )
Operating profit 48,498 54,619 76,882 88,117
Interest and financing costs (2,293 ) (2,039 ) (4,564 ) (12,754 )
Foreign exchange (410 ) 856 (416 ) 1,624
Income (loss) of associated businesses 139 (624 ) (273 ) (1,187 )
Gain on sale of assets 3,731 7,148
Other income 10,407
Gain on sale of CTV Inc. 74,590 74,590
49,665 127,402 89,184 150,390
Income and other taxes (13,750 ) (14,500 ) (24,000 ) (22,100 )
Net income $35,915 $112,902 $65,184 $128,290
Attributable to:
Equity shareholders $35,677 $112,727 $64,987 $128,199
Minority interests $238 $175 $197 $91
Net income attributable to equity shareholders per Class A (voting) and Class B (non-voting) share:
Basic $0.45 $1.42 $0.82 $1.62
Diluted $0.44 $1.41 $0.81 $1.60
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
(Unaudited)
Three months ended
June 30
Six months ended
June 30
2012 2011 2012 2011
Cash was provided by (used in)
Operating activities $21,207 $15,000 $33,677 $24,029
Investing activities (11,178 ) 259,168 (17,500 ) 249,434
Financing activities (8,616 ) (282,664 ) (18,150 ) (280,899 )
Increase (decrease) in cash 1,413 (8,496 ) (1,973 ) (7,436 )
Effect of exchange rate changes 48 423 (235 ) 595
Cash, beginning of period 39,258 37,265 42,927 36,033
Cash, end of period $40,719 $29,192 $40,719 $29,192
Operating activities:
Net income $35,915 $112,902 $65,184 $128,290
Amortization and depreciation 9,358 7,686 18,611 15,466
Deferred income taxes 5,400 800 12,000 4,100
Loss (income) of associated businesses (139 ) 624 273 1,187
Gain on sale of CTV Inc. (74,590 ) (74,590 )
Non-cash employee benefit expense 3,861 3,662 7,780 7,344
Employee benefits funding (18,481 ) (14,543 ) (37,225 ) (27,308 )
Other (5,378 ) (1,763 ) (19,459 ) (6,005 )
30,536 34,778 47,164 48,484
Increase in non-cash working capital (9,329 ) (19,778 ) (13,487 ) (24,455 )
Cash provided by operating activities $21,207 $15,000 $33,677 $24,029
Investing activities:
Additions to property, plant and equipment and intangible assets
($7,197
)
($8,586
) ($14,437 ) ($17,036 )
Proceeds from sale of CTV Inc. 291,590 291,590
Investment in associated businesses (5,000 ) (5,500 )
Acquisitions and investments (1,505 ) (23,826 ) (4,018 ) (24,917 )
Proceeds from sale of assets 2,519 6,450
Other 5 (10 ) 5 (203 )
Cash provided by (used in) investing activities ($11,178 ) $259,168 ($17,500 ) $249,434
Financing activities:
Issuance of bankers' acceptances $1,503 $1,503 $8,521
Repayment of bankers' acceptances ($273,165 ) (111 ) (273,165 )
Dividends paid (10,396 ) (9,859 ) (20,276 ) (17,106 )
Exercise of share options 64 413 311
Other 213 360 321 540
Cash used in financing activities ($8,616 ) ($282,664 ) ($18,150 ) ($280,899 )
Cash represented by:
Cash $44,611 $24,952 $44,611 $24,952
Cash equivalents - short-term deposits 7,836 7,658 7,836 7,658
Cash and cash equivalents 52,447 32,610 52,447 32,610
Bank overdraft (11,728 ) (3,418 ) (11,728 ) (3,418 )
$40,719 $29,192 $40,719 $29,192

Contact Information

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