Torstar Corporation Reports Second Quarter Results

TORONTO, ON--(Marketwired - July 29, 2015) - Torstar Corporation (TSX: TS.B) today reported financial results for the second quarter ended June 30, 2015.

Highlights for the second quarter:

• Net loss from continuing operations was $1.1 million ($0.01 per share) in the second quarter of 2015, a decrease of $19.2 million ($0.24 per share) from net income from continuing operations of $18.1 million ($0.23 per share) in the second quarter of 2014.

• Net loss attributable to equity shareholders was $1.1 million ($0.01 per share) in the second quarter of 2015 compared to net income attributable to equity shareholders of $19.7 million ($0.25 per share) in the second quarter of 2014.

• Adjusted earnings per share (see "non-IFRS measures") was $0.13 in the second quarter of 2015, down $0.07 from the second quarter of 2014.

• Second quarter 2015 segmented operating profit (see "non-IFRS measures") decreased $21.6 million from the second quarter of 2014.

• Segmented adjusted EBITDA (see "non-IFRS measures") was $20.8 million in the second quarter of 2015, down $11.7 million (36.0%) from $32.5 million in the second quarter of 2014.

• Segmented revenue (see "non-IFRS measures") was $216.9 million in the second quarter of 2015, down $20.3 million (8.6%) from $237.2 million in the second quarter of 2014.

• Ended the second quarter of 2015 with total cash and cash equivalents and restricted cash of $265.0 million.

• Subsequent to the end of the second quarter, Torstar acquired 56% of VerticalScope Holdings Inc. ("VerticalScope") for aggregate consideration of $200 million.

"Results in the quarter were lower with segmented adjusted EBITDA down $11.7 million to $20.8 million as the impact of continued print advertising pressures more than offset continued efforts on costs," said David Holland, President and CEO of Torstar Corporation. "On a positive note, we saw a continuation of the easing of print advertising revenue declines at the Toronto Star which began in the first quarter of the year and we are pleased with the continued growth of local digital advertising revenue at Metroland."

"We remain focused on looking forward and positioning ourselves for a more digitally oriented future. The Toronto Star's launch of its innovative tablet edition, Star Touch, remains on track for mid-September and we are encouraged by advertisers' early reactions. We have also announced this morning in a separate release, our acquisition of a 56% interest in VerticalScope, a digital media company based in Toronto that owns and operates more than 600 consumer enthusiast online forums and premium content sites across North America. We are enthusiastic about this investment, which achieves our objective of allocating capital to a high-growth business opportunity. It is an important step forward in the transformation of Torstar, positioning the company for future growth."

The following chart provides a continuity of earnings per share from the second quarter and first six months of 2014 to the second quarter and first six months of 2015:

^{* Items are excluded from definition of adjusted earnings per share, see "Non-IFRS measures."}

OPERATING RESULTS -- SECOND QUARTER 2015
The following tables set out, in $000's the segmented results for the three months ended June 30, 2015 and 2014:

^{* Includes proportionately consolidated share of joint venture operations. ** These are non-IFRS or additional IFRS measures, see "non-IFRS measures."}

Revenue
Segmented revenue was down $20.3 million or 8.6% in the second quarter. Revenue excluding the proportionate share of revenue from joint ventures ("operating revenue") was down $19.3 million or 8.5%. These declines were largely due to print advertising revenue declines, which continued to be under pressure in the second quarter, combined with declines in flyer distribution revenues. Multi-platform subscriber revenues¹ were down 3.2% in the second quarter of 2015. At the Star Media Group, trends in print advertising revenue declines eased somewhat in the second quarter reflecting a moderation in the rate of decline in national advertising at the Toronto Star. Star Media Group revenues in the second quarter were also negatively affected by the closure of print operations in three of Metro's smaller regions in the third quarter of 2014. At Metroland Media Group, the decline in print advertising revenues in the second quarter reflects pressures on national advertising revenues which increased in the second quarter. Flyer distribution revenues were also down largely as a result of closures of a few large retail customers but were partially offset by the impact of price increases.

Digital revenue¹ was comparable to the second quarter of 2014 reflecting lower revenues at Olive Media, Workopolis and WagJag offset by continued growth at eyeReturn Marketing, the Metroland local community websites and digital services. Digital revenues were 12.7% of total segment revenues in the second quarter of 2015 compared to 11.7% in the second quarter of 2014.

Salaries and benefits
Segmented salaries and benefit costs were down $3.0 million or 3.1% in the second quarter of 2015. This decrease reflects the benefit of $5.9 million in savings from restructuring initiatives partially offset by the impact of increased staffing associated with the planned launch of the Toronto Star's tablet product and general wage increases.

Other operating costs
Other operating costs primarily consist of circulation/flyer distribution costs, newsprint costs and production costs which represented 26.5%, 8.9% and 6.8% respectively of segmented other operating costs for the second quarter. Segmented other operating costs were down $5.7 million or 5.2% in the second quarter of 2015 largely as a result of lower circulation/flyer distribution costs, lower newsprint consumption and price, and other cost reductions.

Adjusted EBITDA
Segmented adjusted EBITDA was $20.8 million in the second quarter of 2015, down $11.7 million from the second quarter of 2014. This decrease primarily reflects the above noted revenue declines which were only partially offset by the impact of cost reductions.

Restructuring and other charges
Total segmented restructuring and other charges were $15.9 million in the second quarter of 2015 and $4.4 million in the comparable period of 2014. These charges largely related to ongoing efforts to reduce costs as well as a charge related to Metroland Media Group's decision to phase out product sales. Restructuring charges through the end of the second quarter of 2015 reflect a reduction of approximately 155 positions which are expected to result in annualized net labour savings of $12.5 million. Of the annualized savings anticipated as a result of the initiatives undertaken through the first six months of 2015, $7.8 million of the savings are expected to be realized in 2015 (including $1.5 million in the first six months) and $4.7 million in 2016.

Operating profit
Segmented operating profit decreased $21.6 million in the second quarter of 2015. Operating profit excluding the proportionate share of revenue from joint ventures was down $20.6 million in the second quarter. These decreases primarily reflect the above noted revenue declines and increased restructuring and other costs which were only partially offset by the impact of cost reductions and lower amortization and depreciation.

Interest and financing costs
Interest and financing costs were $0.2 million in the second quarter of 2015, down $2.0 million from the second quarter of 2014. The lower interest and financing costs reflect $0.7 million of interest earned on cash and cash equivalents as well as a $2.0 million decrease in interest on debt, as all amounts outstanding under previous debt facilities were repaid during the third quarter of 2014 using proceeds from the sale of Harlequin. These decreases were partially offset by an increase in financing costs related to employee benefit plans.

Income (loss) from joint ventures
Income from joint ventures was $0.6 million in the second quarter of 2015 and $1.5 million in the second quarter of 2014. This decrease was primarily attributable to the impact of lower revenues which reflect the trends and pressures noted in the discussion of segmented operating revenues above, and were only partially offset by lower salaries and benefits and other operating costs.

Income (loss) of associated businesses
Income of associated businesses was $1.3 million in the second quarter of 2015 and $0.1 million in the second quarter of 2014. The 2015 second quarter includes income of $1.2 million from Black Press and income of $0.7 million from Blue Ant, partially offset by a loss of $0.7 million from Shop.ca. The second quarter of 2014 includes income of $0.7 million from Black Press, income of $0.3 million from Blue Ant and income of $0.1 million from Tuango, partially offset by a loss of $1.0 million from Shop.ca.

Net loss from continuing operations
Net loss from continuing operations was $1.1 million ($0.01 per share) in the second quarter of 2015, a decrease of $19.2 million ($0.24 per share) from income from continuing operations of $18.1 million ($0.23 per share) in the second quarter of 2014.

Income (loss) from discontinued operations
On August 1, 2014 Torstar sold all of the shares of Harlequin to a division of HarperCollins Publishers L.L.C., a subsidiary of News Corp., for a purchase price of $455.0 million, subject to certain adjustments for working capital and other related items. Effective the second quarter of 2014, Harlequin was reclassified as Assets Held for Sale and Discontinued Operations. Upon the closing of the sale in the third quarter of 2014, the net assets of Harlequin were no longer included in Assets Held for Sale. Net income from discontinued operations was $1.6 million in the second quarter of 2014.

Net income (loss) attributable to equity shareholders
Net loss attributable to equity shareholders was $1.1 million ($0.01 per share) in the second quarter of 2015 compared to net income attributable to equity shareholders of $19.7 million ($0.25 per share) in the second quarter of 2014.

OUTLOOK
While the print advertising environment is expected to remain challenging, early indications in the third quarter are somewhat encouraging. At the Toronto Star, the moderated rate of print advertising revenue decline experienced in the second quarter has continued early into the third quarter and at Metroland Media Group, early indications are that trends in July have improved relative to those experienced in the second quarter. However, it is difficult to predict if these trends will continue in the balance of 2015. Torstar expects that flyer distribution revenues in the balance of the year will continue to be negatively affected by closures of a few large retail customers, partially offset by the benefit of price increases. Subscriber revenues were down modestly in the first six months of 2015, but will likely experience some further degree of decline in the balance of 2015 arising from the decision to launch the Toronto Star's new tablet product. Digital revenue is expected to grow in the balance of 2015.

The Toronto Star's launch of its new tablet offering remains on track and is currently expected to launch in mid-September. Operating costs associated with the Toronto Star's planned launch of the tablet product in the balance of 2015 are currently expected to be in the range of $6 to $7 million and as previously communicated, are expected to peak in the fourth quarter. Across Torstar, cost reduction will remain an important area of focus and Metroland Media Group and Star Media Group are anticipated to realize $8.1 million of savings in the balance of 2015 from restructuring initiatives undertaken through the end of the second quarter of 2015 ($5.9 million in Metroland Media Group and $2.2 million in the Star Media Group). Excluding the impact of launching the Toronto Star's tablet product, net investment spending associated with growth initiatives in the balance of 2015 is currently expected to be somewhat lower than 2014 levels.

On June 30, 2015, Torstar was informed that effective January 2016, it will no longer print the National Post on behalf of Postmedia Network Inc. This is not anticipated to impact the balance of 2015.

Subsequent to the end of the second quarter, the Company purchased a 56% interest in VerticalScope, a Toronto based digital media company that owns and operates more than 600 consumer enthusiast online forums and premium content sites across North America, for aggregate consideration of $200.1 million. Torstar's investment has been financed from its cash resources. Torstar will share control with the continuing shareholders and currently anticipates equity accounting for this investment.

¹ The paywall at the Toronto Star was eliminated effective April 1, 2015. Revenues associated with the paywall were not material and were excluded from both the current and prior periods for comparison purposes in the discussions of digital and multi-platform subscriber revenues.

ANNOUNCEMENT OF BOARD OF DIRECTORS APPOINTMENT
Torstar also announces that Ms. Daryl Aitken has been appointed to the Board of Directors. Ms. Aitken is the owner of Fabric Spark, an e-commerce property to sell designer fabric in North America. She is the past President of Dashboard, a marketing agency with a focus on digital innovation. Prior to that, she was the head of marketing at eBay Canada (2001 to 2005), EVP, Managing Director Retail at BBDO Canada (1996 to 2001), General Manager - Marketing at Eaton's Canada (1993 to 1996), and worked at Ogilvy & Mather Advertising and MacLaren Advertising.

DIVIDEND
On July 28, 2015, 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, 2015, to shareholders of record at the close of business on September 11, 2015. 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 for the period ended June 30, 2015 and the Interim Management's Discussion and Analysis ("MD&A"). 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 29, 2015 at 8:15 a.m. to discuss its second quarter results. The dial-in number is (416) 340-8527 or 1-800-355-4959. A live broadcast of the conference call will be available over the internet on the Presentations, Events and Conference Calls page (Investor Relations) on Torstar's website www.torstar.com. A recording of the conference call will be available for 9 days at (905) 694-9451 or 1-800-408-3053 reservation number 4754322. An online archive of the broadcast will be available shortly after the completion of the call and will be accessible by visiting the Presentations, Events and Conference Calls (Investor Relations) page on Torstar's website www.torstar.com.

About Torstar Corporation
Torstar Corporation is a broadly based media 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 Free Daily News Group Inc., which publishes the English-language Metro newspapers in several Canadian cities; Metroland Media Group, publisher of community and daily newspapers in Ontario; and also include digital properties including thestar.com, Workopolis, wagjag.com, toronto.com, save.ca, Olive Media and eyeReturn Marketing.

Non-IFRS measures
In addition to operating profit, an additional IFRS measure, as presented in the consolidated statement of income, management uses segmented revenue, adjusted EBITDA ("EBITDA") (and where applicable segmented adjusted EBITDA), operating earnings (and where applicable segmented operating earnings), and adjusted earnings per share as measures to assess the consolidated performance and the performance of the reporting units and business segments. Please refer to Section 11 of Torstar's MD&A for the three and six months ended June 30, 2015 for a reconciliation of adjusted EBITDA and Operating earnings (and Segmented adjusted EBITDA/Segmented Operating earnings -- as applicable) with Operating profit (Segmented Operating profit -- as applicable) and adjusted earnings per share to earnings per share.

Segmented revenue
Segmented revenue is calculated in the same manner as operating revenue in the Condensed Consolidated Financial Statements, except that it is calculated using total segment results which includes Torstar's proportionately consolidated share of revenues from joint ventures. Management of each segment is accountable for the revenues, including the proportionately consolidated share of revenues from joint venture operations. Management believes that segmented revenue is a useful measure for investors as it is a measure of the revenues for which management of each segment is accountable. The intent of segmented revenue is to provide additional useful information to investors, analysts and readers of Torstar's financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies.

Adjusted EBITDA (Segmented Adjusted EBITDA)
Management believes that adjusted EBITDA is an important proxy for the amount of cash generated by Torstar's ongoing operations (or by a reporting unit or business segment) to generate liquidity to fund future capital needs and management uses this metric for this purpose. Adjusted EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under IFRS. Torstar calculates adjusted EBITDA as operating revenue, less salaries and benefits and other operating costs, as presented on the consolidated statement of income, and excludes restructuring and other charges and impairment of assets. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. The exclusion of impairment of assets also eliminates the non-cash impact. Adjusted EBITDA is also used by investors and analysts for valuation purposes. The intent of adjusted EBITDA is to provide additional useful information to investors, analysts and readers of Torstar's financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies (including calculating EBITDA on an adjusted basis to exclude restructuring and other charges and impairment of assets). Segmented adjusted EBITDA is calculated in the same manner described above, except that it is calculated using total segment results including proportionately consolidated results for joint ventures.

Operating earnings/Segmented operating earnings
Operating earnings is used by management to represent the results of ongoing operations inclusive of amortization and depreciation. Management uses operating earnings as a measure of the amount of income generated by Torstar's ongoing operations (or by a reporting unit or business segment) after giving effect to amortization and depreciation. Management believes this metric is also useful for investors for this purpose. 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. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. Torstar's method of calculating operating earnings (including calculating operating earnings on an adjusted basis to exclude restructuring and other charges and impairment of assets) may differ from other companies and accordingly may not be comparable to measures used by other companies. The intent of operating earnings is to provide additional useful information to investors, analysts and readers of Torstar's financial statements. The measure does not have any standardized meaning under IFRS, is not a recognized measure of financial performance under IFRS, 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 including proportionately consolidated operating earnings for joint ventures for which management is accountable.

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. Management uses adjusted earnings per share as a measure, on a per share basis, of earnings from Torstar's ongoing operations (or by a reporting unit or business segment). Management believes this metric is also useful for investors for this purpose. Torstar calculates adjusted earnings per share as earnings per share from continuing operations less the per share effect of restructuring and other charges, impairment of assets, non-cash foreign exchange, other income (expense) and change in deferred taxes. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. Non-cash foreign exchange, other income (expense) and changes in deferred taxes are eliminated as these are not related to ongoing operating activities. The intent of presenting adjusted earnings per share is to provide additional useful information to investors, analysts and readers of Torstar's financial statements. The measure does not have any standardized meaning under IFRS, is not a recognized measure of financial performance under IFRS, and accordingly may not be comparable to measures used by other companies. 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.

Operating profit/Segmented operating profit
Operating profit is an additional IFRS measure. Management uses operating profit to measure the results of operations inclusive of impairments and restructuring and other charges. Operating profit appears in Torstar's consolidated statement of income. Management believes that operating profit provides additional useful information to investors, analysts and readers of Torstar's financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies. Torstar's method of calculating operating profit may differ from other companies and accordingly may not be comparable to measures used by other companies. Segmented operating profit is calculated in the same manner described above, except that it is calculated using total segment results including proportionately consolidated results for joint ventures.

Forward-looking statements
Certain statements in this press release and in Torstar's oral and written public communications may constitute forward-looking statements that reflect management's expectations regarding Torstar'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", "estimate", "intend", "would", "could", "if", "may" and similar expressions.

This press release includes, among others, forward-looking statements regarding Torstar's expected revenues, expected net savings from restructuring initiatives, the outlook for the balance of 2015, the expected development and launch, including the timing thereof, of the Toronto Star digital tablet edition and expected expenses associated therewith, expected investment spending associated with other growth initiatives and Torstar's objectives to allocate capital and the future growth of investments and the impact of investments on Torstar's future growth and digital position. 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: Torstar's ability to operate in highly competitive industries; Torstar's ability to compete with digital media, other newspapers and other forms of media; Torstar's ability to respond to the shift to digital media and the shift by advertisers to other digital platforms; Torstar's ability to attract, grow and retain its digital audience and profitably develop its digital platforms; Torstar's ability to attract and retain advertisers; Torstar's ability to maintain adequate circulation/subscription levels; Torstar's ability to attract and retain readers; Torstar's ability to integrate the technology associated with new digital platforms, including the Toronto Star's new digital tablet product which is currently under development; general economic conditions and customer prospects in the principal markets in which Torstar operates; Torstar's ability to reduce costs; loss of reputation; dependence on third party suppliers and service providers; reliance on technology and information systems; Torstar's ability to execute appropriate strategic growth initiatives; unexpected costs or liabilities related to acquisitions and dispositions; changes in employee future benefit obligations; labour disruptions; newsprint costs; reliance on its printing operations; litigation; privacy, anti-spam, communications, e-commerce and environmental laws, health and safety regulations and other laws and regulations applicable generally to Torstar's businesses; availability of insurance; dependence on key personnel; intellectual property rights; credit risk; product revenue and product liability; changes in deposit interest rates; foreign exchange fluctuations and foreign operations; income tax and other taxes; results of impairment tests and uncertainties associated with critical accounting estimates; and control of the Company by the Voting Trust.

Torstar cautions 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 economies; tax laws; continued availability of printing operations; availability of financing on appropriate terms; exchange rates; market competition; rates of return and discount rates relating to pension expense and pension plan obligations; expected future revenues; availability of appropriate opportunities for VerticalScope to grow its business; expected future liabilities; expected future cash flows and discount rates relating to valuation of goodwill and intangible assets; and successful development and launch of new products including the Toronto Star digital tablet edition. 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 Torstar and its securities, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Torstar 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 2014 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.