Torstar Corporation Reports Third Quarter Results

Marketwired

TORONTO, ONTARIO--(Marketwire - Oct. 31, 2012) - Torstar Corporation (TS.B) today reported financial results for the third quarter ended September 30, 2012.

Highlights for the quarter:

  • Revenue was $355.3 million in the third quarter of 2012, down $23.4 million (6.2%) from $378.7 million in the third quarter of 2011. Excluding the impact of acquisitions and TMGTV product sales, revenue was down $16.0 million (4.5%).


  • EBITDA (see "non-IFRS measures") was $43.2 million in the third quarter of 2012, down $10.5 million from $53.7 million in the third quarter of 2011.


  • Net income attributable to equity shareholders was $14.1 million ($0.18 per share) in the third quarter down $11.1 million ($0.14 per share) from $25.2 million ($0.32 per share) last year.


  • Adjusted earnings per share (excluding for both years restructuring and other charges, non-cash foreign exchange, loss of associated businesses and adjustments to contingent consideration) was $0.29 in the third quarter of 2012, down $0.08 from $0.37 in the third quarter of 2011.


  • Net debt was $159.5 million at September 30, 2012, up $2.3 million from $157.2 million at June 30, 2012.

"Results in the quarter were not immune from the challenges of the current environment," said David Holland, President and CEO of Torstar Corporation. "EBITDA of $43.2 million was down $10.5 million versus prior year. In the Media Segment, after experiencing some improvement in year-over-year trending in July and August, the advertising trend weakened in September, resulting in EBITDA of $26.7 million in the quarter, down $6.1 million versus prior year. At Harlequin, given the particularly strong performance in the third quarter of 2011, results were lower as expected. The decline of $5.0 million was more than anticipated as results were affected by the market share impact of the exceptional performance of a competitor's bestseller and weak global economic conditions. On a positive note at Harlequin, the print market in the third quarter continued to exhibit the stability that emerged in the second quarter."

"Looking forward, visibility remains limited. In the Media Segment, the advertising weakness experienced in September has continued into October. As we did this quarter, we will continue to take action on costs within the Media Segment as we work through the current challenges. At Harlequin, we would anticipate a modest decline in results in the fourth quarter attributable to factors such as the increase in digital royalty rates and weak global economic conditions."

"Across the Torstar operations, we are very committed to the long-term and will continue investing back into the business when appropriate. Our modest leverage is beneficial as we continue to progress and adapt to this dynamic environment."

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

  Third Quarter
Net income attributable to equity shareholders per share 2011 $0.32
Changes  
•  Operations (0.08)
Restructuring and other charges (0.06)
Non-cash foreign exchange 0.04
Loss of associated businesses (0.03)
Adjustment to contingent consideration (0.01)
Net income attributable to equity shareholders per share 2012 $0.18

 
OPERATING RESULTS - THIRD QUARTER 2012
Overall Performance

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

    Third Quarter 2012   Third Quarter 2011  

(in $000's)

 

Media

  Book

Publishing

 

Corporate

 

Total

 

Media

  Book

Publishing

 

Corporate

 

Total

 
Operating revenue   $247,531   $107,805       $355,336   $262,980   $115,697       $378,677  
                                   
Salaries and benefits   (101,622 ) (22,795 ) $(2,487 ) (126,904 ) (99,817 ) (24,760 ) $(3,036 ) (127,613 )
Other operating costs   (119,259 ) (65,228 ) (775 ) (185,262 ) (130,414 ) (66,156 ) (803 ) (197,373 )
EBITDA   26,650   19,782   (3,262 ) 43,170   32,749   24,781   (3,839 ) 53,691  
Amortization & depreciation   (8,525 ) (1,030 ) (10 ) (9,565 ) (7,461 ) (1,024 ) (15 ) (8,500 )
Operating earnings   18,125   18,752   (3,272 ) 33,605   25,288   23,757   (3,854 ) 45,191  
Restructuring and other charges   (7,547 ) (336 )     (7,883 ) (1,523 ) (438 )     (1,961 )
Operating profit   $10,578   $18,416   $(3,272 ) $25,722   $23,765   $23,319   $(3,854 ) $43,230  

Revenue

Total revenue was $355.3 million in the third quarter of 2012, down $23.4 million (6.2%) from $378.7 million in the third quarter of 2011. Excluding the impact of acquisitions and Metroland Media Group's TMGTV product sales, revenue was down $16.0 million (4.5%) in the third quarter.

Media Segment revenues were down $15.5 million in the third quarter of 2012 including an increase of $9.5 million from acquisitions made in 2011 and a decrease of $16.8 million in product sale revenues in Metroland Media Group's TMGTV operations. Excluding the impact of acquisitions and product sales, revenues were down $8.2 million in the quarter, or 3.4%. The declines in product sale revenues in Metroland Media Group's TMGTV operations are consistent with expected product life cycles in this business. Digital revenues were down in the quarter. The quarter was impacted by the comparison to particularly strong digital revenue in 2011 which included the roll-out of WagJag. The quarter was 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 in 2012 were 11.4% of total Media Segment revenues in the third quarter versus 11.2% last year.

Book Publishing Segment revenues were down $7.9 million in the third quarter of 2012 including a $1.9 million decline from the impact of foreign exchange. Excluding the impact of foreign exchange, revenues were down $6.0 million in the quarter with declines in print revenues more than offsetting digital revenue growth.

EBITDA

Total EBITDA was $43.2 million in the third quarter of 2012, down $10.5 million from $53.7 million in the third quarter of 2011.

Media Segment EBITDA was down $6.1 million in the third quarter. Prior year acquisitions provided $1.1 million of EBITDA growth in the quarter. Advertising revenue declines and Metroland Media Group's TMGTV lower product sales were partially offset by $4.4 million of cost savings from restructuring initiatives, lower marketing costs in the digital properties and general cost savings.

Book Publishing Segment EBITDA decreased $5.0 million in the third quarter. The third quarter included revenue declines in most markets and increased spending in the North American digital business.

Corporate expenses were $3.3 million in the third quarter of 2012, down $0.5 million from $3.8 million in the third quarter of 2011. The decrease was primarily related to year over year differences in the mark-to-market of a share-based hedging instrument.

Restructuring and other charges

Restructuring and other charges of $7.9 million were recorded in the third quarter of 2012. In 2011, restructuring and other charges were $2.0 million in the third quarter. In the third quarter of 2012, the Media Segment recorded $6.6 million of restructuring charges and $1.0 million of impairment charges related to software and property, plant and equipment. In the third quarter of 2011, the Media Segment recorded $1.5 million of restructuring charges. The restructuring charges reflect the ongoing focus on cost reduction. In the third quarter, the Book Publishing Segment also recorded restructuring charges of $0.3 million in 2012 and $0.4 million in 2011.

Operating profit

Operating profit was $25.7 million in the third quarter of 2012, down $17.5 million from $43.2 million in the third quarter of 2011.

Loss of associated businesses

The loss of associated businesses was $3.1 million in the third quarter of 2012 versus losses in 2011 of $0.6 million. The 2012 loss included a loss of $2.7 million from Blue Ant in the quarter. Blue Ant completed its acquisition of High Fidelity HDTV in the quarter and the loss includes expenses for Canadian Radio-television Telecommunication Commission benefit obligations and reorganization charges. The Shop.ca website was launched late in the second quarter of 2012 and Torstar's loss was $0.5 million in the third quarter. The 2011 loss in the third quarter included a loss of $0.5 million from Canadian Press and a loss of $0.1 million from Q-ponz Inc.

Net income attributable to equity shareholders

Torstar reported net income attributable to equity shareholders of $14.1 million or $0.18 per share in the third quarter of 2012 down $11.1 million or $0.14 per share from $25.2 million or $0.32 per share in the third quarter of 2011.

DIVIDEND

On October 30, 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 December 31, 2012, to shareholders of record at the close of business on December 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 September 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 October 31, 2012 at 8:15 a.m. to discuss its third 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 As at 
 September 30, 2012 December 31, 2011 
Assets    
 Current:    
 Cash and cash equivalents$49,791 $50,588 
 Receivables255,517 278,010 
 Inventories32,700 36,995 
 Derivative financial instruments2,182 367 
 Prepaid expenses and other current assets47,463 47,063 
 Prepaid and recoverable income taxes13,193 2,451 
 Total current assets400,846 415,474 
Property, plant and equipment168,752 177,245 
Investment in associated businesses38,414 16,935 
Intangible assets108,577 107,845 
Goodwill662,029 665,029 
Other assets7,689 1,798 
Deferred income tax assets100,393 100,441 
Total assets$1,486,700 $1,484,767 
     
Liabilities and Equity    
 Current:    
 Bank overdraft$9,947 $7,661 
 Current portion of long-term debt  196,191 
 Accounts payable and accrued liabilities196,825 210,567 
 Provisions18,455 22,599 
 Income tax payable13,192 17,398 
 Total current liabilities238,419 454,416 
Long-term debt199,296   
Derivative financial instruments7,701 8,761 
Provisions12,614 16,906 
Other liabilities27,202 27,900 
Employee benefits300,064 262,876 
Deferred income tax liabilities5,253 7,644 
Equity:    
 Share capital397,345 395,334 
 Contributed surplus15,720 14,828 
 Retained earnings289,398 301,863 
 Accumulated other comprehensive loss(8,931)(8,286)
 Total equity attributable to equity shareholders693,532 703,739 
 Minority interests2,619 2,525 
Total equity696,151 706,264 
Total liabilities and equity$1,486,700 $1,484,767 
  
Torstar Corporation 
Consolidated Statement of Income 
  
(Thousands of Canadian Dollars except per share amounts) 
(Unaudited) 
  
  Three months ended  Nine months ended 
  September 30  September 30 
  2012  2011  2012  2011 
             
Operating revenue $355,336  $378,677  $1,089,998  $1,123,421 
             
Salaries and benefits (126,904) (127,613) (388,296) (378,398)
Other operating costs (185,262) (197,373) (558,525) (583,962)
Amortization and depreciation (9,565) (8,500) (28,176) (23,966)
Restructuring and other charges (7,883) (1,961) (12,397) (5,748)
Operating profit 25,722  43,230  102,604  131,347 
Interest and financing costs (2,194) (1,814) (6,758) (14,568)
Adjustment to contingent consideration (239) 701  (239) 701 
Foreign exchange 267  (4,585) (149) (2,961)
Loss of associated businesses (3,096) (582) (3,369) (1,769)
Gain on sale of assets       7,148    
Other income    29  10,407  29 
Gain on sale of CTV Inc.          74,590 
Investment write-down and loss (93)    (93)   
  20,367  36,979  109,551  187,369 
Income and other taxes (6,100) (11,700) (30,100) (33,800)
Net income $14,267  $25,279  $79,451  $153,569 
Attributable to:            
 Equity shareholders $14,120  $25,239  $79,107  $153,438 
 Minority interests $147  $40  $344  $131 
             
Net income attributable to equity            
shareholders per Class A (voting) and Class            
B (non-voting) share:            
Basic $0.18  $0.32  $0.99  $1.93 
Diluted $0.18  $0.32  $0.99  $1.92 
  
  
Torstar Corporation 
Consolidated Statement of Cash Flows 
  
(Thousands of Canadian Dollars) 
(Unaudited) 
  
  Three months ended  Nine months ended 
  September 30  September 30 
  2012  2011  2012  2011 
Cash was provided by (used in)            
 Operating activities $26,524  $44,615  $60,201  $68,644 
 Investing activities (21,229) (10,295) (38,729) 239,139 
 Financing activities (5,555) (17,660) (23,705) (298,559)
Increase (decrease) in cash (260) 16,660  (2,233) 9,224 
Effect of exchange rate changes (615) 1,263  (850) 1,858 
Cash, beginning of period 40,719  29,192  42,927  36,033 
Cash, end of period $39,844  $47,115  $39,844  $47,115 
Operating activities:            
 Net income $14,267  $25,279  $79,451  $153,569 
 Amortization and depreciation 9,565  8,500  28,176  23,966 
 Deferred income taxes 4,600  3,900  16,600  8,000 
 Loss of associated businesses 3,096  582  3,369  1,769 
 Gain on sale of CTV Inc.          (74,590)
 Non-cash employee benefit expense 3,984  3,610  11,764  10,954 
 Employee benefits funding (18,490) (13,991) (55,715) (41,299)
 Other (1,491) 2,853  (20,950) (3,152)
  15,531  30,733  62,695  79,217 
Decrease (increase) in non-cash working capital 10,993  13,882  (2,494) (10,573)
Cash provided by operating activities $26,524  $44,615  $60,201  $68,644 
Investing activities:            
 Additions to property, plant and equipment and            
 intangible assets $(9,020) $(9,290) $(23,457) $(26,326)
 Proceeds from sale of CTV Inc.          291,590 
 Investment in associated businesses (5,765) (1,150) (11,265)   
 Acquisitions and investments (6,455)    (10,473) (26,067)
 Proceeds from sale of assets       6,450    
 Other 11  145  16  (58)
Cash provided by (used in) investing activities $(21,229) $(10,295) $(38,729) $239,139 
Financing activities:            
 Issuance of bankers' acceptances $4,488     $5,991  $8,521 
 Repayment of bankers' acceptances    $(8,265) (111) (281,430)
 Dividends paid (10,392) (9,880) (30,668) (26,986)
 Exercise of share options       413  311 
 Other 349  485  670  1,025 
Cash used in financing activities $(5,555) $(17,660) $(23,705) $(298,559)
Cash represented by:            
 Cash $37,252  $48,921  $37,252  $48,921 
 Cash equivalents - short-term deposits 12,539  7,728  12,539  7,728 
 Cash and cash equivalents 49,791  56,649  49,791  56,649 
 Bank overdraft (9,947) (9,534) (9,947) (9,534)
  $39,844  $47,115  $39,844  $47,115 
Contact:
Torstar Corporation
L. DeMarchi
Executive Vice-President and Chief Financial Officer
(416) 869-4776
www.torstar.com

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