May 3, 2017 Last Updated 2:09 pm

Torstar reports Q1 loss, but media reports of major layoffs to come prove incorrect

The publisher of the Toronto Star reported a $24.4 million loss in the quarter, while the press release rather sloppily mentions ‘a reduction of approximately 110 position’ — something that should have been written more definitively in past tense

This has been a pretty weird day for newspaper news. The New York Times reported better than expected revenue gains, as well as a big bump in digital subscriptions in Q1. But on the other side of the world, the news out of New Zealand and Australia was not so great.

Also today, Torstar, the publisher of the Toronto Star, reported a $24.4 million loss in the quarter (see press release below). The good news, I suppose, is that the loss was even larger in Q1 of last year ($53.5 million).

Things really got bad for a while when some media outlets began to report that Torstar would be cutting 110 jobs as a result of the poor earnings report. That turned out not to be true.

The fault, though, is entirely Torstar’s: their earnings report says “Restructuring charges in the first quarter of 2017 are expected to result in annualized net savings of $5.3 million and a reduction of approximately 110 positions.” That certainly could be interpreted as meaning that the 110 positions are yet to be cut, so one can understand why some media reporters mentioned the cuts as if they were about to happen, rather already did.

Of course, it also means that Q1 was tough for 110 newspaper professionals already — and in some parts, Q2 is not starting out so great either.

Here is Torstar’s earnings press release:


TORONTO, ONTARIO – May 3, 2017 – Torstar Corporation today reported financial results for the first quarter ended March 31, 2017.

Highlights for the first quarter:

  • On March 31, 2017, John Boynton was appointed President and Chief Executive Officer of Torstar and Publisher of the Toronto Star. Mr. Boynton comes to Torstar with deep expertise in marketing, technology and business transformation.
  • Ended the first quarter of 2017 with $59.4 million of cash and cash equivalents and $9.1 million of restricted cash; Torstar has no bank indebtedness.
  • Our net loss was $24.4 million ($0.30 per share) in the first quarter of 2017. This compares to a net loss of $53.5 million ($0.66 per share) in the first quarter of 2016.
  • Our net loss attributable to equity shareholders was $24.3 million ($0.30 per share) in the first quarter of 2017 compared to a net loss attributable to equity shareholders of $53.5 million ($0.66 per share) in the first quarter of 2016.
  • Adjusted loss per share was $0.22 in the first quarter of 2017, an improvement of $0.18 from adjusted loss per share of $0.40 in the first quarter of 2016. Adjusted loss per share in 2017 and 2016 included $0.21 and $0.52 per share effects of amortization and depreciation.
  • Our segmented operating loss was $23.4 million in the first quarter of 2017 which included $17.2 million of non-cash amortization and depreciation expense as well as $4.9 million of restructuring and other charges and $3.0 million of impairment charges.
  • Our segmented adjusted EBITDA was $2.0 million in the first quarter of 2017 up $2.7 million from the prior year. Segmented adjusted EBITDA in the Digital Ventures segment was $5.1 million in the quarter which benefitted from 21% growth in adjusted EBITDA at VerticalScope (25% growth in USD). In the newspaper operations the segmented adjusted EBITDA loss at the Star Media Group was $2.9 million, an improvement of $3.3 million, while segmented adjusted EBITDA at the Metroland Media Group was $1.8 million, down $1.5 million in the quarter.
  • Segmented revenue was $156.7 million in the first quarter of 2017, down $18.1 million (10%) from $174.8 million in the first quarter of 2016 and which included revenue growth of $1.5 million or 18% (22% growth in USD) from VerticalScope.

“Segmented adjusted EBITDA was up $2.7 million to $2.0 million in the first quarter and included $5.1 million from our Digital Ventures segment which continues to benefit from very strong year over year growth in revenue and adjusted EBITDA at VerticalScope. At Metroland and the Star Media Group, we benefitted from continuing efforts on costs which offset the impact of the continuing challenges in the print advertising environment with earnings up $1.9 million across the two operations.” said John Boynton, President and CEO of Torstar Corporation. “Looking forward, we expect earnings in the balance of the year to continue to benefit from growth at VerticalScope and efforts on reducing costs.”

The following chart provides a continuity of earnings per share from the first quarter of 2016 to the first quarter of 2017:

OPERATING RESULTS –FIRST QUARTER 2017
The following tables sets out, in $000’s the segmented results for the three months ended March 31, 2017 and 2016


Revenue
Segmented revenue was down $18.1 million or 10% in the first quarter of 2017, which included revenue growth of $1.5 million or 18% from VerticalScope (22% revenue growth in USD). Segmented revenue in the first quarter of 2017 reflected declines of 19% in print advertising revenues, with particular softness in national advertising revenues, a 9.5% decrease in subscriber revenue and a 0.6% increase in distribution revenues.

Operating revenue (excluding our proportionate share of revenues from our joint ventures and our 56% interest in VerticalScope) was down $18.0 million or 11% in the first quarter 2017.

Digital revenue decreased 4% in the first quarter of 2017 reflecting lower revenues at Workopolis, WagJag and Save.ca, partially offset by strong growth at VerticalScope as well as in local digital advertising within the community websites at Metroland Media Group. Digital revenues were 18% of total revenue in the first quarter of 2017 compared to 17% in the first quarter of 2016.

Salaries and benefits
Segmented salaries and benefits costs were down $12.8 million (15%) in the first quarter of 2017 reflecting the benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower staffing costs associated with Toronto Star Touch.

Other operating costs
Segmented other operating costs primarily include newspaper circulation and flyer distribution costs, production costs and newsprint costs which represented 40%, 13% and 12% respectively of segmented other operating costs for the first quarter of 2017.

Segmented other operating costs were down $7.9 million or 8.6% in the first quarter of 2017 as a result of lower print volumes and the impact of other cost reductions.

Adjusted EBITDA
Our segmented adjusted EBITDA was $2.0 million in the first quarter of 2017 up $2.7 million from the prior year. Segmented adjusted EBITDA in the Digital Ventures segment was $5.1 million in the quarter which benefitted from 21% growth in adjusted EBITDA at VerticalScope (25% growth in USD). In the newspaper operations the segmented adjusted EBITDA loss at the Star Media Group was $2.9 million, an improvement of $3.3 million, while segmented adjusted EBITDA at the Metroland Media Group was $1.8 million, down $1.5 million in the quarter.

Amortization and depreciation
Total segmented amortization and depreciation decreased $24.7 million in the first quarter of 2017, primarily the result of lower amortization associated with our investment in VerticalScope as well as the absence of accelerated amortization of equipment related to the transition of printing of the Toronto Star to Transcontinental Printing in the first quarter of 2016.

Operating earnings (loss)
Segmented operating loss was $15.5 million in the first quarter of 2017 compared to an operating loss of $43.0 million in the first quarter of 2016. This improvement was the result of an increase in adjusted EBITDA combined with lower amortization and depreciation expense.

Restructuring and other charges
Total segmented restructuring and other charges were $4.9 million in the first quarter of 2017 and $31.8 million in the first quarter of 2016. Restructuring charges in the first quarter of 2017 are expected to result in annualized net savings of $5.3 million and a reduction of approximately 110 positions. $0.8 million of the savings associated with these initiatives were realized in the first quarter of 2017. Restructuring charges in the first quarter of 2016 included a charge of $22.4 million for severance and facility related expenses in respect of our decision to outsource printing of the Toronto Star.

Impairment of assets
During the first quarter of 2017, we incurred non-cash charges related to asset impairment of our joint venture investment in Workopolis totalling $3.0 million (2016 – nil). This charge had no impact on cash flows and was the result of a further downward revision in longer term forecasted revenues reflecting further increased competition in the online recruitment and job search markets as well as general market conditions.

Operating profit (loss)
Segmented operating loss of $23.4 million decreased $51.4 million in the first quarter. Operating loss for the first quarter of 2017 included $17.2 million of non-cash amortization and depreciation expense as well as $4.9 million of restructuring and other charges and $3.0 million of impairment charges. Our loss in the first quarter of 2016 included $41.9 million of amortization and depreciation expense and $31.8 million of restructuring and other charges.

Our operating loss excluding our proportionate share of operating profit (loss) from VerticalScope and our joint ventures decreased $32.8 million in the first quarter of 2017 compared to the first quarter of 2016.

Income (loss) from joint ventures
Our loss from joint ventures was $2.8 million in the first quarter of 2017 compared to income of $0.6 million in the first quarter of 2016.The loss from joint ventures in the first quarter of 2017 includes an impairment charge of $3.0 million.

Loss from associated businesses
Our loss from associated businesses was $2.2 million in the first quarter of 2017 compared to a loss of $17.2 million in the first quarter of 2016.

The loss in the first quarter of 2017 included a loss of $0.5 million from Black Press, income of $0.3 million from Blue Ant and a loss of $2.0 million from VerticalScope. The loss from VerticalScope included $6.6 million of amortization expense. The loss in the first quarter of 2016 included income of $0.8 million from Black Press and income of $0.2 million from Blue Ant, offset by a loss of $0.6 million from Shop.ca and a loss of $17.5 million from VerticalScope which included $27.6 million of amortization expense.

Investment in VerticalScope

During 2015, we acquired a 56% interest in VerticalScope. In connection with the investment in VerticalScope, during the first quarters of 2017 and 2016 we recorded $6.6 million and $27.6 million of amortization and depreciation expense.

During the first quarter 2017 VerticalScope generated U.S. $7.9 million of cash from operations and made acquisitions totalling U.S. $1.3 million. VerticalScope’s debt, net of cash on hand, was U.S. $67.8 million at March 31, 2017 down U.S. $6.6 million from U.S. $74.4 million at December 31, 2016.

Other income
Other income of $1.3 million in the first quarter of 2016 primarily reflected a gain recognized on the sale of one of Metroland Media Group’s real estate properties.

Income and other taxes
We recorded a tax recovery of $1.1 million in the first quarter of 2017 compared to a recovery of $13.0 million in the first quarter of 2016. Excluding the impact of deferred income tax assets not recognized in 2017 our effective tax rate was 18.8% in the first quarter of 2017 and 19.5% in the first quarter of 2016.

Net loss
Our net loss was $24.4 million ($0.30 per share) in the first quarter of 2017. This compares to a net loss of $53.5 million ($0.66 per share) in the first quarter of 2016. The first quarter of 2017 included $6.6 million of non-cash amortization and depreciation expense associated with our investment in VerticalScope and $4.9 million of restructuring chargesand$3.0millionofimpairmentcharges. Thefirstquarterof2016included$27.6millionofnon-cashamortization and depreciation expense associated with our investment in VerticalScope as well as $22.4 million of restructuring charges and $4.8 million of additional non-cash amortization and depreciation expense related to the transition of printing of the Toronto Star to Transcontinental Printing.

Net loss attributable to equity shareholders
Our net loss attributable to equity shareholders was $24.3 million ($0.30 per share) in the first quarter of 2017 compared to net loss attributable to equity shareholders of $53.5 million ($0.66 per share) in the first quarter of 2016.

OUTLOOK

In first quarter of 2017, Metroland Media Group and Star Media Group continued to face a challenging print advertising market resulting from ongoing shifts in spending by advertisers, particularly in the national advertising category. Declines were more moderate in the retail and local advertising categories. While these trends have continued early into the second quarter, it is difficult to predict if these trends will continue in the balance of 2017. We currently expect that flyer distribution revenues will decline modestly in the balance of the year. Subscriber revenues declined moderately in the first quarter of 2017 and this trend is expected to continue in the balance of the year. In the balance of 2017, Metroland Media Group and Star Media Group overall digital revenue is expected to be relatively stable with continued growth at thestar.com and in local digital advertising at the Metroland community sites being partially offset by expected continued declines in other areas.

Within the Digital Ventures segment, the trend in revenue growth from a combination of acquisitions and organic revenue growth at VerticalScope experienced in the first quarter of 2017 is expected to continue in the balance of the year. In addition, the revenue trends experienced at Workopolis and eyeReturn in the first quarter of 2017 are expected to continue through the balance of the year.

Cost reduction will remain an important area of focus for us in the balance of 2017. Net savings related to restructuring initiatives undertaken through the end of the first quarter of 2017 are expected to be $13.0 million in the balance of 2017 ($6.3 million in Metroland Media Group and $6.7 million in the Star Media Group). In addition to the $3.7 million of lower net investment in Toronto Star Touch in the first quarter of 2017, we currently expect approximately $2 million of lower net investment in the balance of the year. While newsprint pricing has increased in 2017, we expect that any impact of price increases will continue to be more than offset by lower consumption in the balance of the year.

DIVIDEND

On May 2, 2017, Torstar declared a quarterly dividend of 2.5 cents per share on its Class A shares and Class B non- voting shares, payable on June 30, 2017, to shareholders of record at the close of business on June 9, 2017. 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.

Comments are closed.