Torstar says changes afoot as it looks to its future after Harlequin sale
TORONTO - Media company Torstar Corp. (TSX:TS.B) says it's headed into another period of change, with more cost cutting and new acquisitions likely, after announcing last week it was selling its Harlequin romance novel division.
"For media businesses, the operating environment has been evolving rapidly for over a decade," David Holland, president and CEO of Torstar said at the company's annual meeting on Wednesday.
"What's undeniable is that the pace of change has accelerated."
The theme of change at Torstar resonated throughout the presentation for the company, which owns the Toronto Star and other newspapers, after it reported its latest financial results.
A video outlined some highlights of the past business year and emphasized the goal of "reporting change, demanding change (and) embracing change."
But questions from an audience of investors and employees focused partly on which path Torstar will take after selling the prized Harlequin book division, which it once boasted as a key foundation of its operations, for $455 million in cash.
Holland told the audience that global media company News Corp. made an unsolicited offer, and that the decision to sell was wholly "opportunistic" and had nothing to do with its financial state.
"There was absolutely no need to do it," he said. "Torstar has a very strong balance sheet."
Holland said Torstar has an "open mind" about exploring potential business opportunities in digital media including the possibility of acquisitions.
"We've got a lot of reflecting to do around what our next step is, and our next stage," he said after the annual meeting.
Reporters at the Toronto Star withdrew their bylines from their stories ahead of the annual meeting to protest recent layoffs at the newspapers and plans to create a separate class of digital reporters, which would be paid less.
On Wednesday, Torstar reported a first-quarter profit of $7.1 million or nine cents per share compared with a profit of $4.2 million or five cents per share a year earlier.
But revenue was $310.5 million in the first quarter of 2014, down 6.6 per cent year-over-year, as a result of a soft advertising market.
Adjusted earnings per share were 14 cents consistent with the same quarter last year and in line with analysts' expectations.
In the media segment, profits were up $2.8 million on continued cost-reduction efforts, but revenues were down $14.6 million to $211.3 million.
Print advertising revenues were also believed to be hit in part by reduced retailer advertising attributed to severe winter weather and the transition of advertising sales for the Toronto Star to Metro effective Feb. 28.
Digital revenue in the media segment was down 2.7 per cent because of lower revenues at websites WagJag and Workopolis, although those were offset by growth in other digital properties including eyeReturn Marketing, the Metroland community websites and Olive Media.
"Visibility on how advertising revenues will evolve over the balance of the year remains limited," said Lorenzo DeMarchi, Torstar's chief financial officer on the company's financial results conference call.
"The improvement in the print advertising trend we experienced toward the end of the fourth quarter did not continue through Q1. However, distribution revenues are expected to grow in the balance of the year."
Cost reduction remains an important area of focus across Torstar, he added, noting that the media segment expects $17.1 million of savings for the balance of 2014 from restructuring moves in the first quarter.
Torstar also recorded $3.6 million in restructuring and other charges in the first quarter after eliminating about 55 positions and other cost-cutting measures.
Harlequin's results, meanwhile, were down $4.2 million to $13.9 million, while revenues in the book publishing division fell $3.3 million to $99.2 million after a strong first quarter.
Torstar's businesses include the Star Media Group led by the Toronto Star, as well as the 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 various digital properties.
During the quarter, the company acquired the remaining 10 per cent interest in Free Daily News Group Inc. for $10.1 million.
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