Business News

Torstar Corporation Reports Higher Second Quarter Revenue and Earnings

Wednesday 28. July 2010 - Torstar Corporation (TSX:TS.B) today reported financial results for the second quarter ended June 30, 2010.

Highlights for the quarter:
Revenue was $376.5 million in the quarter, up $2.8 million from $373.7 million in the second quarter of last year. Excluding the $12.4 million decrease from the stronger Canadian dollar, revenue was up $15.2 million or 4.2% in the quarter.
EBITDA (operating profit, as presented on the consolidated statements of income which is before charges for interest and taxes, adjusted for depreciation and amortization of intangible assets, and restructuring and other charges – see “non-GAAP measures”) was $66.6 million in the quarter, up $12.0 million or 22% from $54.6 million in the second quarter of 2009.
Net income was $22.7 million ($0.29 per share) in the second quarter of 2010 up $27.1 million ($0.35 per share) from a loss of $4.4 million ($0.06 per share) in the second quarter last year.
Net debt was $480.1 million at June 30, 2010, down $13.1 million from $493.2 million at March 31, 2010.
“We continue to be pleased with results in 2010,” said David Holland, President and Chief Executive Officer of Torstar Corporation. “EBITDA was up in the quarter with continued recovery in the Newspapers and Digital division and another strong performance at Harlequin. In the Newspapers and Digital division, similar to the first quarter, a modest recovery in revenues coupled with lower costs to yield the earnings improvement. At Harlequin, growth in earnings from operations was more than sufficient to offset the foreign exchange headwinds we are confronting. In both of our divisions we are pleased with the progress we are making in adapting to the increasingly digital environment.”
“Free cash flow generation remains a focus throughout the business. In the quarter, net borrowings declined by $13 million to $480 million. Year to date, net borrowings have declined by $36 million.”
“Looking forward, we continue to be cautious on the Newspapers and Digital revenue outlook given our revenue experience in the first half of the year and the nature of the economic recovery we are experiencing. At Harlequin, we anticipate another good year operationally but the anticipated improvement in earnings is likely to be offset by the negative impact of the strong Canadian dollar on results.”
The following chart provides a continuity of earnings per share from 2009 to 2010:
Second Quarter Year to Date
Net loss per share 2009 ($0.06 ) ($0.33 )
Changes
• Operations 0.11 0.29
• Restructuring and other charges (0.01 ) 0.14
• Loss from associated businesses
• Impairments (0.15 ) (0.08 )
• Tax valuation allowance (2009) 0.38 0.38
• Other 0.03 0.00
• Non-cash foreign exchange (0.01 ) (0.02 )
Net income per share 2010 $0.29 $0.38
OPERATING RESULTS – Second quarter and year to date June 30, 2010
Overall Performance
Total revenue was $376.5 million in the second quarter of 2010, up $2.8 million from $373.7 million in the second quarter of 2009. Excluding the $12.4 million decrease from the stronger Canadian dollar, total revenue would have been up $15.2 million in the quarter. Newspapers and Digital revenue was $258.7 million in the quarter, up $9.1 million or 3.6% from $249.6 million in 2009 reflecting strong national advertising in both print and digital media. Retail and employment advertising remained soft during the quarter. Book Publishing revenue was $117.9 million in the second quarter of 2010, down $6.2 million from $124.1 million in the second quarter of 2009. Excluding the impact of the strong Canadian dollar, Book Publishing revenues were up $6.2 million in the quarter. The North America Direct-To-Consumer and Overseas divisions had revenue growth in the second quarter that was partially offset by lower North America Retail revenues.
Year to date total revenue was $710.7 million, down $2.0 million from $712.7 million in the first six months of 2009. Newspapers and Digital revenue was $480.1 million year to date, up $15.9 million or 3.4% from $464.2 million in the same period last year. Book Publishing revenue was $230.6 million year to date, down $18.0 million from $248.6 million in the same period last year. Excluding the impact of the stronger Canadian dollar, Book Publishing revenues were up $4.5 million year to date.
Operating profit before restructuring and other charges was $54.9 million in the second quarter of 2010, up $13.4 million from $41.5 million in the second quarter of 2009. Including the $4.8 million of restructuring and other charges, operating profit was $50.1 million in the second quarter of 2010, up $12.4 million from $37.7 million in 2009 (which included $3.8 million of restructuring and other charges). Year to date, operating profit before restructuring and other charges was $87.5 million up $34.4 million from $53.1 million in the first six months of 2009. Including the $13.1 million of restructuring and other charges, operating profit was $74.4 million year to date, up $51.0 million from $23.4 million in the same period last year (which included $29.7 million of restructuring and other charges).
Newspapers and Digital Segment operating profit was $38.3 million in the second quarter of 2010, up $13.1 million from $25.2 million in the same quarter last year. Year to date, Newspapers and Digital Segment operating profit was $51.5 million, up $31.2 million from $20.3 million in 2009. In both the quarter and the year to date, results benefited from revenue improvement and lower newsprint pricing, lower pension costs and labour cost savings from restructuring initiatives.
Book Publishing operating profit was $20.4 million in the second quarter of 2010, up $0.7 million from $19.7 million in the second quarter of 2009, as $3.1 million of underlying growth more than offset a negative $2.3 million from the impact of foreign exchange. Year to date, Book Publishing operating profit was $43.1 million, up $2.8 million from $40.3 million last year as $4.7 million of underlying growth more than offset a negative $1.9 million from the impact of foreign exchange. In both the quarter and the year to date, operating results were up in the North America Direct-To-Consumer and Overseas divisions and down in the North America Retail division.
Corporate costs were $3.8 million in the second quarter, up $0.5 million from $3.3 million in the same period last year. Year to date, corporate costs were $7.1 million, down $0.4 million from $7.5 million in 2009.
EBITDA, excluding restructuring and other charges, was $66.6 million in the second quarter of 2010, up $12.0 million from $54.6 million in the same period last year. Year to date, EBITDA, excluding restructuring and other charges, was $111.3 million, up $31.9 million from $79.4 million in 2009.
Second Quarter Year to Date
(in $000’s) 2010 2009 2010 2009
Newspapers and Digital $48,774 $37,083 $73,039 $44,240
Book Publishing 21,617 20,774 45,345 42,562
Corporate (3,794 ) (3,292 ) (7,106 ) (7,429 )
EBITDA, excluding
restructuring and other
charges $66,597 $54,565 $111,278 $79,373
Restructuring and other charges
Restructuring and other charges of $4.8 million were recorded in the second quarter of 2010 compared with $3.8 million in the second quarter of 2009. The 2010 amount included $2.0 million related to restructuring provisions in the Newspapers and Digital Segment and $2.8 million of costs related to Torstar’s bid to purchase the newspaper and digital businesses of Canwest Limited Partnership and its related entities. In 2009, the restructuring and other charges were related to restructuring provisions in the Newspapers and Digital Segment.
Year to date, restructuring and other charges of $13.1 million were recorded compared with $29.7 million in 2009. The 2010 amount included $10.3 million related to restructuring provisions in the Newspapers and Digital Segment and $2.8 million of costs related to Torstar’s bid to purchase the newspaper and digital businesses of Canwest Limited Partnership and its related entities. In 2009, the restructuring and other charges included $12.8 million related to the transition in leadership at Torstar Corporate, $15.5 million for restructuring provisions in the Newspapers and Digital Segment and $1.4 million related to the closure of a distribution centre in Harlequin’s U.K. operation.
The restructuring charges in the Newspapers and Digital Segment reflect the ongoing focus on reducing operating costs in both Metroland Media Group and Star Media Group. Total annualized net savings from the second quarter 2010 restructuring activities are expected to be approximately $2.5 million (with approximately $1.0 million to be realized during the last six months of 2010) and a reduction of approximately 43 positions.
Interest
Interest expense was $6.6 million in the second quarter of 2010, up $1.3 million from $5.3 million in the second quarter of 2009. The higher expense reflects higher effective interest rates partially offset by the lower level of average net debt outstanding in 2010. Torstar’s effective interest rate was 5.4% in the second quarter of 2010 and 3.4% in the second quarter of 2009. This higher rate reflects the impact of the higher interest rate spread that was effective starting in 2010 for borrowings under Torstar’s long-term credit facility. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $486.7 million in the second quarter of 2010, down $134.6 million from $621.3 million in the same period last year.
Year to date interest expense was $10.9 million, up $0.1 million from $10.8 million in 2009. The flat year over year expense reflects higher effective interest rates offset by the lower level of average net debt outstanding in 2010. Year to date, Torstar’s effective interest rate was 4.4% compared with 3.5% in the first six months of 2009. Year to date, the average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $496.4 million, down $126.9 million from $623.3 million in the same period last year.
Net debt was $480.1 million at June 30, 2010, down $35.7 million from $515.8 million at December 31, 2009.
Foreign exchange
Torstar reported a non-cash foreign exchange loss of $0.9 million in the second quarter of 2010 and $1.7 million year to date. These losses arose from the translation of foreign-currency (primarily U.S. dollars) denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any year will vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or net liability position in the foreign currency. A non-cash foreign exchange loss of $0.3 million was reported in the first six months of 2009.
Loss from associated businesses
The loss from associated businesses was $6.9 million in the second quarter of 2010 compared with a loss of $27.7 million in the second quarter of 2009. Year to date, the loss from associated businesses was $11.2 million compared with a loss of $34.7 million in 2009.
Torstar’s share of CTVgm’s net loss was $6.8 million in the second quarter of 2010 compared with a loss of $27.6 million in the second quarter of 2009. The second quarter of 2010 included an $11.6 million impairment loss on a broadcast licence and the second quarter of 2009 included a $29.9 million valuation allowance that was provided against certain of CTVgm’s future income tax assets. Excluding these two items, Torstar would have reported income of $4.8 million in the second quarter of 2010 compared with $2.4 million in the same period last year. The improved results reflect higher revenues and EBITDA, partially offset by higher amortization and interest expense.
Year to date, Torstar’s share of CTVgm’s net loss was $11.2 million in 2010 compared with a loss of $34.5 million in 2009. In addition to the second quarter items noted above, the 2009 year to date results included an after tax $5.3 million write-down of the carrying value of certain conventional television licences that CTVgm had decided not to renew offset by a gain on the sale of one-half of CTVgm’s interest in Maple Leaf Sports and Entertainment Ltd. Excluding all these items, Torstar would have reported income of $0.4 million year to date in 2010 compared with a loss of $4.5 million in 2009.
Torstar is not currently recording its share of Black Press’s results. Torstar’s carrying value in Black Press was reduced to nil in the fourth quarter of 2008. Under Canadian GAAP a negative carrying value is not recorded, but any deficit must be recovered prior to the reporting of any further results. Torstar’s share of Black Press’s net income would have been $2.0 million in the second quarter of 2010 compared with a loss of $0.4 million in the same period last year. Year to date, Torstar’s share of Black Press’s net income would have been a loss of $1.6 million, including a $3.1 million impairment loss related to a customer-related intangible asset and goodwill related to a printing operation. Excluding the impairment charge, Torstar’s share of Black Press’s net income would have been $1.5 million year to date compared with $0.6 million in the same period last year. Black Press’s operating results have improved in 2010 as revenue declines have slowed and cost savings have been realized.
Income and other taxes
Torstar’s effective tax rate was 36.6% in the second quarter of 2010. In the second quarter of 2009, Torstar recorded a tax provision of $9.1 million on income before taxes of $4.7 million. In both years the loss from associated businesses was not tax affected. Excluding the impact from not tax-affecting the losses, the effective tax rate would have been 30.7% in the second quarter of 2010 and 28.0% in 2009. The higher effective tax rate in 2010 reflects the impact of permanent differences, including a larger amount of expenses that are only partially deductible for income tax purposes, in the quarter compared to the prior year.
Year to date Torstar’s effective tax rate was 40.5%. In the first six months of 2009, Torstar recorded a tax provision of $3.4 million on a loss before taxes of $22.3 million. In both years the loss from associated businesses was not tax affected. Excluding the impact from not tax-affecting the losses, the effective tax rate for the first six months would have been 33.2% in 2010 and 27.5% in 2009. The higher effective tax rate in 2010 reflects the impact of permanent differences compared to the prior year.
Net income (loss)
Torstar reported net income of $22.7 million or $0.29 per share in the second quarter of 2010. In the second quarter of 2009 Torstar reported a net loss of $4.4 million or $0.06 per share. Year to date Torstar reported net income of $30.1 million or $0.38 per share compared with a net loss of $25.7 million or $0.33 per share in 2009.
The average number of Class A and Class B non-voting shares outstanding was 79.1 million in the second quarter of 2010 and 79.0 million year to date. In 2009, 79.0 million were outstanding in the second quarter and 78.9 million year to date.
OUTLOOK
The Newspapers and Digital Segment had revenue growth of 3.6% in the second quarter of 2010 and 3.4% year to date. This modest growth was achieved relative to a weak performance in the first six months of 2009. The continued softness of the retail and employment advertising categories suggests that the strength of the economic recovery is still in question. Revenue trends in July are consistent with the year to date experience. The businesses will continue to benefit from the lower cost base achieved from restructuring efforts over the past few years. In the second half of 2010, the Segment will benefit from $6.1 million of net cost savings from restructuring activities undertaken in 2009 and 2010 and $4.2 million in lower pension expense. The impact of newsprint pricing is expected to be slightly negative in the second half of 2010. Torstar has arrangements in place with its suppliers that will fix the price for the majority of Torstar’s newsprint requirements in 2010. As newsprint pricing decreased during 2009, the year over year pricing comparative for the second half of 2010 will be slightly negative.
Harlequin’s 2010 outlook continues to be for relatively stable year over year results, including the negative earnings impact of foreign exchange. The growth in the North America digital sales and the acquisition of the other half of the German joint venture in April 2010 will offset the expected decline from the Softbank contribution, lower North America Retail volumes and the negative impact of foreign exchange. Year to date, Harlequin realized a net negative impact of $1.9 million from foreign exchange (including the impact of the U.S. dollar hedges). If the Canadian dollar remains at its current levels relative to the U.S. dollar and overseas currencies, Harlequin anticipates a negative foreign exchange impact of approximately $2.1 million (including the impact of the U.S. dollar hedges) for the balance of the year.
Torstar’s effective interest rate will increase in the second half of 2010 due to the higher interest rate spread that is applicable to borrowings under its long-term credit facility.
SUBSEQUENT EVENTS
In July the Toronto Star reached an agreement with the Communications, Energy and Paperworkers Union to extend the current collective agreement that covers approximately 550 employees at One Yonge Street. This collective agreement was scheduled to expire in December 2010 but will now be extended to December 2012.
OTHER
On July 27, 2010, Torstar declared a quarterly dividend of 9.25 cents per share on its Class A shares and Class B non-voting shares, payable on September 30, 2010, to shareholders of record at the close of business on September 10, 2010. 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 consolidated financial statements and interim Management’s Discussion and Analysis (“MD&A”) for the period ended June 30, 2010. Both documents will be filed today with SEDAR and are available on Torstar’s corporate website www.torstar.com.