Q1 2008 Torstar Corp. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Ladies and gentlemen, thank you for standing by and welcome to the Torstar Corporation 2008 first-quarter financial results. During the presentation, all participants will be in a listen-only mode. (OPERATOR INSTRUCTIONS). (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded in Wednesday, April 30, 2008.

Your speakers for today are David Holland, Executive Vice President and Chief Financial Officer and Robert Pritchard, President and Chief Executive Officer. Please, Robert Pritchard, go ahead, sir.

ROBERT PRITCHARD, PRESIDENT AND CEO, TORSTAR CORP.: Good morning. It's Rob Pritchard here. I'll speak first and then David Holland will follow me. I need to begin with the usual disclaimer, which I will try to read quickly.

Certain statements and/or remarks that follow may constitute forward-looking statements and can generally be identified by the use of forward-looking terminology such as anticipate, believe, plan, forecast, expect, intend, would, could, if, may and other similar expressions. These statements reflect current expectations of management regarding future events and operating performance and speak only as of today's date. By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks and uncertainties that may, in turn, cause the predictions, forecasts conclusions, or projections to be an accurate or to differ materially from actual results. Additional information regarding these assumptions, risks and uncertainties are described in more detail in the Corporation's 2008 annual information forum, the Corporation's 2007 annual report beginning on page 22, and the 2008 MD&A for this quarter, which can be found on our website and at SEDAR.com.

Our annual meeting is today at 10 AM, and I will be speaking at some length about 2007, the first-quarter results, our outlook for the year and longer-term plans. As a result, my remarks this morning will be relatively brief. Our annual meeting will be streamed and archived on our website, Torstar.com, and the text of my remarks and supporting slides will be posted on the site at 10 AM today as well. I invite you to read them if you cannot attend the meeting.

A year ago, we reported a very strong first quarter, and we counseled you not to read it as indicative of our full-year outlook, arguing that the rate of growth was not sustainable. Today, we are in the opposite position, up against that excellent quarter, we are reporting on a difficult quarter with both revenue and earnings down. And again, we counsel you that the quarter is not indicative of our full-year outlook. In this case, our outlook is more positive than the quarter, subject only to a deteriorating economy.

It was a difficult quarter for our newspaper businesses. Revenue, particularly in national advertising, was soft, both in the daily and community newspapers. As a result, earnings are down at both the Star Media Group and Metroland Media Group. David will detail the amounts in his remarks.

We also took a substantial restructuring charge in our newspaper division in the quarter, which further lowered our results. This charge will, however, see a net reduction in our work force of 160 employees and reduce costs by an annualized C$12 million per year. We will begin to see the early impact of this in Q2 and the full impact thereafter.

In contrast to the disappointing newspaper results, Harlequin had a solid quarter and is on track for a good year. Harlequin was up against a very high quarter a year ago, but excluding foreign exchange, was off just slightly and ahead of our internal expectations. We remain optimistic Harlequin will deliver growth in underlying earnings this year unless there is a major U.S. retail slowdown, which could affect our North American retail sales.

Our positive outlook for Harlequin is reinforced by our recent agreement with SoftBank Creative in Japan to sell digital manga content to cell phone users. This agreement will deliver revenues and earnings beginning in Q2, and the earnings will grow again in 2009.

In addition to the SoftBank agreement, Harlequin's digital achievements are impressive. We are experiencing double-digit sales growth at eHarlequin and growth in unique visitors of 35% in 2007. We're now the first North American book publisher to release our entire front list in ebook format. Our audio books are available at audible.com, iTunes and Amazon.com and in 2007, we increased sales in digital formats by 112%, and expect to race past one million units in 2008. All of these developments contribute to our confidence not only about 2008 for Harlequin, but for the overall growth of the business in future years.

We are not happy with the soft start to 2008, and are taking aggressive steps to address it. The restructuring we announced recently is clear evidence of our determination. Part of the challenge is the slowing economy in Ontario, which is affecting advertising demand. It is most noticeable in national advertising, where the pullback has been sharpest. Much of the decrease falls directly to the bottom line. Various major advertisers have indicated they still expect their full-year spend to be similar to last year's, which suggests we should see a meaningful pickup later in the year. Any such pickup will make a meaningful difference in both Star Media Group and Metroland Media Group.

I began by saying we do not believe Q1 is indicative of our results for the year. The reasons are as follows. First, we expect Harlequin to grow during the year, excluding FX, even though it is down slightly in Q1. Harlequin is ahead of our internal plans for the year. On foreign exchange, as David will explain, we expect we have already eaten more than half of the full year's foreign exchange headwind.

Second, Metroland's first quarter was hurt by timing and by weather, and Metroland saw better trends in April with good local retail and real estate demand. The only significant missing element was the national advertising. Despite the slow start, we still expect Metroland to grow for the year.

Third, we've moved aggressively on costs through restructuring, and this will mitigate the effect of the anticipated revenue decline at the Star and contribute to profitability at Metroland.

Fourth, TorstarDigital is getting good revenue growth, and we expect to turn that revenue to improved profitability in the second half of the year.

Fifth, we have reduced costs at TTN and expect EBITDA losses for the remainder of the year to be less than C$2 million and potentially as low as C$1.5 million.

Sixth, we will keep a very tight rein on corporate costs, ensuring no increase year-over-year.

As a result, we see the year as better than the quarter. That was true for our internal budgets and remains our view even though we did not anticipate the revenue shortfall in the newspaper division. The one caveat is the economy. If the slowdown continues, it would negatively affect our results as the cyclicality of advertising would drive down revenue and earnings.

We note in the release that IdeaCast has advised us that it will not exercise its option to acquire Transit TV during the option period. We do, however, expect to accept IdeaCast's proposal to extend our strategic sales relationship. In the meantime, we have further reduced our costs at TTN and we now expect EBITDA …