Torstar Corporation Q1 2010 Earnings Call Transcript

May. 5.10 | About: Torstar Corp. (TORSF)

Torstar Corporation (OTC:TORSF) Q1 2010 Earnings Call May 5, 2010 8:15 AM ET

Executives

David Holland – President & CEO

Lorenzo DeMarchi – EVP & CFO

Donna Hayes – CEO Harlequin

Ian Oliver – President Metroland Media Group

John Cruickshank – Publisher & President Star Media Group

Analysts

Adam Shine – National Bank Financial

Paul Steep – Scotia Capital

Drew McReynolds – RBC Capital Markets

Scott Cuthbertson – TD Newcrest

David McFadden – Cormark Securities

Tim Casey – BMO Capital Markets

Randal Rudniski – Credit Suisse

Operator

Good morning ladies and gentlemen, welcome to Torstar Corporation’s first quarter 2010 results conference call. (Operator Instructions) Your speakers for today are Mr. David Holland, President and CEO, Mr. Lorenzo DeMarchi, Executive Vice President and CFO of Torstar Corporation. I would now like to turn the meeting over to Mr. Holland; please go ahead.

David Holland

Good morning everyone, I just have to read the forward-looking language first, certain statements in the 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 inaccurate and to differ materially from actual results.

Additional information regarding these assumptions, risks, and uncertainties are described in more detail in the corporation’s 2010 AIF and 2009 Annual Report beginning on page seven which can be found on our website and at www.sedar.com.

Good morning again and I’m very pleased to be joined on the call today with the three leaders of our major operating divisions, Donna Hayes, President and Publisher of Harlequin Enterprises; Ian Oliver, President of Metroland Media Group; and John Cruickshank, Publisher of the Toronto Star and President of Star Media Group, and also Lorenzo DeMarchi, Executive Vice President and Chief Financial Officer.

I plan to make some very brief opening comments on the results in the quarter and the operations of the newspaper and digital division as a whole, I’ll then turn it over to the three leaders of our major operating divisions who will comment briefly on their operations. Lorenzo will close things off with some financial commentary and a view on our outlook. At that point any of us will be happy to take your questions.

Operating results, we were pleased with our results in the quarter. Our EBITDA of $44.7 million was up $19.9 million versus the prior year. The newspaper and digital division was the driver of the growth with earnings in the division increasing by $17.1 million from $7.2 million to $24.3 million.

The newspaper and digital revenue stabilized in the quarter and were up 3.2%. I do want to note and its important to note that the 2010 result is up against a very slow start in the first quarter of 2009. Revenue remains well below 2008 levels.

Lower costs were the main contributor to the growth experienced. On Harlequin, Harlequin continued to perform very well aided in the quarter by a strong North American digital performance. We continue to make progress on debt reduction in the quarter reducing our net borrowing by $23 million from $516 million at the year-end to $493 million at the end of the quarter.

And with that I’ll turn it over to Ian Oliver.

Ian Oliver

Thank you David, Metroland had a positive start to the year with a combination of revenue growth and lower expenses generating a 44% increase in EBITDA compared to last year. EBITDA was $14.8 million, up $4.5 million from $10.3 million a year ago.

Revenues were $114.4 million, up $2.2 million or 2% representing the first increase in total revenue since the middle of 2008. The growth was distributed across our main categories with growth in retail and national ROP, wire distribution, and our digital businesses.

Classified revenue was down, however the decline was less significant than previous quarters as the rate of employment declined slowed and real estate revenues were up. On the expense side, lower staffing levels as a result of restructuring and lower newsprint pricing were the main areas of savings.

John Cruickshank

Thank you Ian, Star Media Group showed substantial improvement in EBITDA in the first quarter of 2010 earning $9.5 million, which is $12.6 million higher than the first quarter loss of $3.1 million in the same period last year.

Revenues at $107.1, were $4.8 million or 4.7% higher than the first quarter of 2009. The Toronto Star saw advertising revenue increase by 2.1% in the quarter compared to prior year continuing the trend of revenue firming seen in the fourth quarter of 2009.

This improvement in the revenue trend was also reflected in the performance at Metro, [inaudible], and Star Media Groups digital properties, including Workopolis and Olive which were collectively up 17.6% in the quarter.

The EBITDA improvement in the quarter is a combination of the revenue growth and the impact of cost reduction measures taken through the course of the prior year. Continuing low newsprint prices and the strong performance of our digital businesses also contributed to EBITDA growth.

Donna Hayes

Good morning, Harlequin had a good first quarter, EBITDA was $23.7 million, up $1.9 million to last year which includes $400,000 of favorable foreign exchange impact and $1.5 million increase in the underlying business. Operating profit growth of $1.6 million in the quarter excluding foreign exchange resulted from cost savings across all divisions and growth in North American digital sales, partially offset by lower retail sales in North America and a number of overseas markets.

In Q1 revenue from digital sales worldwide was $6.9 million and represented 6.1% of total revenue. This represents an increase of 61% from Q1 of last year.

Lorenzo DeMarchi

Good morning everyone, in the first quarter net income was $7.4 million compared to a net loss of $21.4 million in 2009. Its also worth noting that the restructuring charges net of cash were $5.9 million in the quarter.

Excluding restructuring charges net income was $13.3 million. In the first quarter of 2009 restructuring charges net of tax were $18 million. On a per share basis, earnings of $0.09 per share was reported, a $0.36 increase over 2009 with stronger operating results and reduced restructuring expense contributing to the improvement.

EBITDA in the quarter prior to restructuring was $44.7 million, up $19.9 million from $24.8 million reported a year earlier. These results reflect year over year improvement across all business units in addition to lower corporate costs.

Lower newsprint pricing, labor cost reductions, and lower pension expense in our newspapers and digital segments accounted for $12.1 million of the $19.9 million improvement. Revenues in our newspaper and digital segment posted modest growth in the quarter. As David said its important to keep in mind the low prior year levels that they are compared against.

Revenues were down in the quarter mostly the result of unfavorable foreign exchange movement against the Canadian dollar. Turning to our investment associated businesses, associated businesses reported a net loss in the quarter of $4.3 million compared to a loss of $7 million in 2009 as operating results at CTV improved in the quarter.

Lower operating costs, revenue growth in some areas of their business and to a less extent the Olympics contributed to the year over year improvement at CTV. Turning to net borrowings, as at March 31, Torstar had long-term debt of $532 million and a cash balance of $39 million net of the bank overdraft, resulting in a net debt of $493 million.

This is a reduction of $23 million from $516 million at year end. This reduction was achieved while at the same time funding approximately $6 million in restructuring payments pre-tax. We continue to pay close attention to employment of capital and are pleased with our year to date progress in reducing debt.

Looking forward, revenue performance in our media business began to stabilize in Q4 last year and continues to improve in Q1 with our newspapers and digital segments generating modest growth in the quarter against weak prior year results.

April revenue performance continued the trend of stability, but the softness in the retail and employment advertising categories, suggest its still too early to anticipate a robust recovery. Over the balance of the year the businesses will benefit from approximately $11 million of labor savings associated with restructuring activity initiated this year and in 2009, and approximately $7 million in lower pension expense.

Torstar also has a [inaudible] that will fix the price for the majority of Torstar’s newsprint requirements in 2010. As a result we will experience newsprint pricing savings in the first half of the year but will give back some of these gains in the second half of the year as prices increase significantly during 2009. Harlequin can expect 2010 results to be relatively stable despite the anticipated impact on earnings from a strengthening Canadian dollar.

If the Canadian dollar remains at current levels relative to the US dollar and overseas currencies, Harlequin would expect a negative foreign exchange impact of approximately $5.5 million for the balance of the year including the impact of the US dollar hedges.

Strengthening sales of Harlequin’s digital products in North America and the acquisition of the other half of the German joint venture will help offset the impact of foreign exchange. Lastly Torstar had an effective interest rate in the quarter, was 3.4% but we expect that rate will increase somewhat for the balance of the year as a result of the renewal of our banking facility at the end of last year.

The impact is likely to increase our full year interest rates by approximately 1.5 percentage points. That concludes our opening comments, David, Donna, Ian, John, and I would be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Adam Shine – National Bank Financial

Adam Shine – National Bank Financial

Maybe just starting off with a few questions on the [lineage] trends, we’ve seen some very strong national trends obviously got to believe that it was driven significantly by a renewal in automotive spending, can you talk about some of the key categories and maybe just remind us how significant automotive is for in particular to the Toronto Star.

David Holland

I’ll make a quick comment and then I’ll actually turn it over to John Cruickshank to comment on the Star, but you’re right, the national trending is quite good and we experienced it in the quarter. I think the automotive in particular was quite positive and it is a meaningful portion of our national ad revenue base so I don’t know how precise I want to get on it, but its meaningful.

John Cruickshank

The national auto end and retail auto for that matter were big early in the quarter but other segments of national came through at various times during the quarter so that there was overall significant growth there. So we saw a bump in financial, we saw a bump in technology, and in government.

Adam Shine – National Bank Financial

And what about, are you getting any benefits from the wireless, the new entrance of I guess the incumbents sort of fighting back.

John Cruickshank

Yes, that’s the technology category and that started just at the end of the fourth quarter.

Adam Shine – National Bank Financial

Just on the Harlequin side, I think the publication schedule in Q1 was perhaps a bit lighter so maybe (a) you can talk to what the schedule sort of skews to for the rest of the year and also it looked as though promotional spending was also a bit lighter, is that just relative to Q1 last year where it might have been stronger or again is there a timing issue there.

Donna Hayes

On the promotional spending it’s a timing issue. On the publication schedule Q1 would definitely have been slightly weaker particularly with one author, Linda Lael Miller, who, her schedule is slightly different this year so she will be stronger in Q2. For the most part the rest of it is the same so there’s some benefit in Q2 of a stronger publication schedule.

Adam Shine – National Bank Financial

And I imagine that the whole Canwest dynamic is a sensitive issue that you’re probably not going to address but maybe I can hit you with something that you could talk to, if you happen to find yourself a month or two from now the winner of this auction you end up in the perverse situation of controlling the National Post and at the same time on the other side of the equation through the CTV media investment owning the Globe and Mail, how do you see that particular predicament playing out.

David Holland

Your first comment was the right comment which is we’re just not going to comment at all. We issued the release and we’re just not going to add any additional comment.

Operator

Your next question comes from the line of Paul Steep – Scotia Capital

Paul Steep – Scotia Capital

Maybe we could talk a little bit I guess more about the major markets the Star in particular and Ian can hopefully chime in on Hamilton and the other markets in terms of what you’ve seen in terms of any improvement in visibility. I know its been poor and then more importantly pricing behavior in the market if things have been more rationale then maybe over the last couple of years.

David Holland

I’ll start briefly on visibility generally and then John and Ian can pipe in, as we noted in the MB&A, the trending in April is probably similar to what we saw in the first three months of the year so we’re certainly not seeing a big robust recovery but we’re not seeing further decline. And I still think that the visibility around the balance of the year on the revenue side isn’t particularly good because I think it does tie in to how the economy plays out the balance of the year and I don’t think anybody is to sure.

The outlook for the economy is pretty, varies pretty widely depending on who you talk to.

John Cruickshank

I think David covered it very, very well.

Ian Oliver

I would agree, its kind of a week to week situation right now with advertising, lineage and revenues.

Paul Steep – Scotia Capital

And pricing behavior, no significant shifts by anyone, people are trying their best to hold price.

Ian Oliver

From Metroland side it feels very steady.

John Cruickshank

We’ve seen some pretty heavy discounting in auto retail in the market, but that’s, is an almost seasonal factor these days.

Paul Steep – Scotia Capital

In CTV were there any, was there anything unusual there in the quarter or just looking at sort of the bounce back, would have expected maybe to see the move a little bit more to profit, but maybe one-times or other costs, that’s what I wanted to dig into.

Lorenzo DeMarchi

Nothing unusual in the business obviously they put a lot of revenue through the business as a result of the Olympics. There’s probably a little bit of movement from the conventional business into that Olympic spend, but aside from that they definitely saw an improvement, largely I would say on the cost side of the business similar to what we’ve experienced.

Paul Steep – Scotia Capital

The trends that you’re hearing back from Black Press, pretty much similar and maybe a little stronger out west or is there anything materially different that they’re seeing in their markets from Ontario.

David Holland

I don’t think there’s anything that’s materially different.

Operator

Your next question comes from the line of Drew McReynolds – RBC Capital Markets

Drew McReynolds – RBC Capital Markets

Just want to look into 2011 on the cost side and maybe starting with you David, just on, where do we stand with respect to pension costs and funding, is there any change based on what was mentioned last quarter.

David Holland

I think in your assessment of that you have to make a distinction between expense and funding and I think when you’re talking about funding when we look ahead to 2011 we’re, as of today we’d certainly anticipate a pretty good increase in the funding requirement. Hard to be really precise about it but its I think this year we’re probably funding in the range of $15, $16 million and it could easily be double that into 2011.

Drew McReynolds – RBC Capital Markets

And on the expense side, is it just too early to do any actuarial reviews—

David Holland

Yes, I think it really is because its so dependent on where investment returns land by the end of the year and where the discount rate is at the end of the year so its probably a little early to call it. I should also say on the funding side as well, it does not take much of a move in the discount rate to have a meaningful effect on our funding and I think if anything, the likelihood of a discount rate moving up is probably a little greater than it moving down at this point.

So, its possible that that might relieve some of the funding that I just mentioned but we’re not counting on it.

Drew McReynolds – RBC Capital Markets

And just on the newsprint prices, pretty good guidance, certainly for 2010 how should we look at it in 2011. Should we just at this point take our own forecasts for what the spot price does year over year, looking there.

Lorenzo DeMarchi

Yes, I’d say that’s probably the safest assumption for now.

Drew McReynolds – RBC Capital Markets

And just on the CapEx, $25 million is still what’s expected for 2010.

Lorenzo DeMarchi

I think in that range.

Drew McReynolds – RBC Capital Markets

And just looking for kind of broad strokes, when we look at newspapers and digital on a consolidated basis in rough strokes could you maybe just strip out what rough percentage relates to retail and employment just so we can kind of better understand what the drag is at the moment going forward.

David Holland

I think you’re getting into a level of precision that we’re not comfortable getting into.

Operator

Your next question comes from the line of Scott Cuthbertson – TD Newcrest

Scott Cuthbertson – TD Newcrest

Just wondered, you’ve done a great job on cost front, but are there any other areas where you think you can gain efficiencies this year, anything you’re currently working on that looks promising in that regard.

David Holland

John will comment a little bit on the, from his perspective.

John Cruickshank

We still have some efficiencies that were announced last year but are just working their way through the system now, so we’ll see a fairly significant number of departures in the next couple of months. We’ve done some frankly some great work in driving efficiencies and productivity gains, significant productivity gains in production and that in an agreement with the Guild, CEP, I think an improving relationship.

And we’re also going to see some changes in the advertising department where some of the numbers of sales people will come down.

Scott Cuthbertson – TD Newcrest

Are all these initiatives things that you’ve announced and quantified before or will we look forward to some better cost numbers as these flow through.

John Cruickshank

All those numbers have been announced, there’s other stuff of course that’s just going on on a continuing basis. We’re continuing to tighten.

Lorenzo DeMarchi

Is your question for the balance of 2010 or 2011.

Scott Cuthbertson – TD Newcrest

Frankly its hard to keep up with all the different, every quarter there’s a charge and then there’s savings, and this much this year, this much next year, I’m just trying to figure out if you the departures that are coming in the next couple of months—

Lorenzo DeMarchi

For the rest of the year on the labor cost savings front we’ll probably anticipate something in the order of $11 million. And then there’s probably another $7 million reduction in pension expense. And then on paper you saw what we had a pretty good pick up in Q1. As I said we’re going to give, we’re probably going to give a little bit of that back over the course of the rest of the year.

Scott Cuthbertson – TD Newcrest

Thanks for bringing that up, it sounded like I think on the last conference call you said your, basically your newsprint costs would be flat this year with some savings in Q1 offset by an equal amount of higher prices in Q2, but from the tone of it here it sounds like you might end up the year maybe a little bit better than that. Is that a safe—

Lorenzo DeMarchi

Yes, we will be a little bit better this year then last year, something under 5%.

Scott Cuthbertson – TD Newcrest

The other question I had was just for Donna, just again on the outlook I think the last conference call we were looking for a relatively flat performance from Harlequin this year, just wondered if that was still the case and also was very interested in the MD&A you gave a little comment on the positive impact of E-Readers in the quarter, just wondered I know its early days on this new technology but can you help us with what the potential is that you see there and anything you can tell us just on the relative contribution that you get from selling a book on an E-Reader versus that traditional format.

Donna Hayes

Let me start with the outlook, and as we said in the press release the outlook is to be pretty much matching the results we had from last year which were pretty strong as you know and probably what we’re looking at is digital on the positive side of that and some softness in the US retail market that we’re seeing which will offset that to some degree.

And of course foreign exchange. So on balance we’d say pretty close to last year’s results would be what we’d be expecting. On digital itself we had a terrific first quarter in digital largely driven by North American digital and really based on the release of all of these new E-Readers primarily of course the Kindle but also the Nook, which is the Barnes and Noble reader which contributed to that strong result as well.

And as you know others will now come online including the Apple iPad and including Google will start selling books I think in June or July is the latest information that we’re getting. So we certainly see that as a real positive in terms of lots of competition with terrific brand names around how to promote and sell eBooks to consumers in North America.

I don’t think we’re going to comment on the relative contribution because we don’t usually talk at that level of granularity but its certainly great for the revenue picture and we feel good about where it will be by the end of the year. I would caution that in Q1 we do think that a lot of E-Readers got sold as Christmas gifts in December so there was a lot of buying around those devices.

So we’ll have to watch and see how this plays out for the rest of the year through the quarters, but we certainly expect good growth there.

Scott Cuthbertson – TD Newcrest

The only other thing I wanted to ask and I heard your response to Adam, so this does pertain to Canwest but all I’m looking for is just kind of the timing on the process, can you tell us when we’ll know if your bid won, if there’s any other major milestones, just sort of the timing of how this will unfold.

David Holland

I’m not sure I think its probably best to look to whatever is publically available on that because I’m getting into some predictive stuff that I just don’t think I should be into.

Operator

Your next question comes from the line of David McFadden – Cormark Securities

David McFadden – Cormark Securities

Just following on Scott’s question, so for the balance of 2010 you talked about the fact that you’re still reducing expenses do you think that there could be some still material reductions in the expenses going forward or is it just going to be more fine tuning.

Lorenzo DeMarchi

We’re still really in the middle of executing on the last wave of things we’ve announced so we’re not ready to say anything more about what could happen going forward.

David McFadden – Cormark Securities

And then when you look at the various categories on the newspaper business, what are the ones that are still lagging, you talked about national is going quite well but what are the ones that are really lagging.

John Cruickshank

I think both David and Lorenzo indicated that we haven’t seen the full cyclical return of retail and classified, the employment category is not where we’d like to see it.

Ian Oliver

I would say the employment category is still the biggest drag for Metroland.

David McFadden – Cormark Securities

But there’s a lot of people that think that’ll never come back to what it was say in 2007 or 2008 but what’s your view on that and would Workopolis compensate for it.

David Holland

I think a hard reality is transitioning from print dollars to digital dollars that they don’t tend to translate one for one. We do really like the Workopolis position. We’ve already on the print side suffered pretty substantial declines in classifieds from a more structural perspective so from this point going forward I think obviously it hurts us on the print side but we do mitigate it a little bit with where Workopolis is.

Ian Oliver

I’ll just add that for the first time in a while not all our markets are down in employment so where there is hiring going on people are starting to use the newspaper in conjunction with online, so it is on the local level its promising that when they are placing or spending on recruitment that they are still using print.

David McFadden – Cormark Securities

And then what would be the maximum debt to EBITDA level that you would be comfortable with.

David Holland

That sounds a little bit of a question that’s connected to announcement of Monday and we’re just not prepared to offer any comment.

David McFadden – Cormark Securities

No I was just looking just generally in terms of running the business.

David Holland

That’s my response.

Operator

Your next question comes from the line of Tim Casey – BMO Capital Markets

Tim Casey – BMO Capital Markets

You mentioned roughly $18 million in savings that are in the can for the rest of the year on pension and labor are there any offsets to that, is there any price increases in any other buckets. You mentioned newsprint was one, is there any way to quantify that.

Lorenzo DeMarchi

Through the first quarter we’re about $4 million favorable in newsprint pricing. Like I said we’re going to give some of that back but not a lot. So we should hold on to the majority of that I think. In terms of the savings that I talked about, the labor cost reductions were associated with the initiatives that we took last year in 2009 and also started this year. That’s the savings connected to those initiatives.

Aside from that you’ve got regular inflationary increases throughout the businesses, so you’ve got that working against you and offsetting that there may be some modest revenue growth. So you still have to look at the rest of your cost base. What I’m saying is that relative to last year there’s $18 million in those two categories that will be better.

I guess the only other significant area that we are incurring meaningful expense is in growing developing the digital online offerings at Metroland. The folks at Metroland and Ian put a pretty concerted effort behind that last year and we’re going to continue that through this year.

Tim Casey – BMO Capital Markets

Is it fair to say that’s something in the mid single-digit millions range annually.

Lorenzo DeMarchi

Yes.

Tim Casey – BMO Capital Markets

And I’ve got to try again, I respect the fact that you don’t want to say anything on Canwest but I don’t think a leverage target or a leverage comfort range is critical to this. We’re just interested in where you want to take the business.

David Holland

Yes, I hear you but I guess I disagree with you. I think it is related to how we might think about Canwest and I just really am not prepared to offer any further comment.

Operator

Your next question comes from the line of Randal Rudniski – Credit Suisse

Randal Rudniski – Credit Suisse

On the newspaper, the digital operations within the newspaper segment, I was hoping that you could give us just a rough idea for the relative performance of each of the big units within that being probably star.com, Olive and Workopolis, how each performed and then part B, associated with the digital question is margins on digital, is growth in this business, is it now accretive to the consolidated newspaper division margin.

David Holland

I’ll start to say that we were pleased with our performance in our digital group and as you say its comprised of star.com, Workopolis, Olive, and its also fair to say that as we’re growing the business its now contributing to the earnings of the newspaper and digital division.

And I think I’ll just turn it over to John to comment briefly on the star.com and then maybe Lorenzo can comment briefly on Workopolis and Olive Media.

John Cruickshank

I was very, very pleased with the growth first in audience at star.com where in the first quarter we posted really substantial gains year over year, helped by the Olympics and the fact that at least during that period we have the Raptors and the Leafs playing.

The revenues also came through very very strongly, so we’re seeing significant growth with the growth in audience.

Lorenzo DeMarchi

And that last thing I’d say is that at Workopolis, obviously felt the impact last year of the economy like all businesses did. On the revenue side we returned to growth in Q1 which is pretty encouraging. On the earnings side, they’re all up pretty significantly. We’ve always got the individual businesses, have been profitable, encouraging as the portfolio, as David said, in the quarter, they were a meaningful contributor to total profitability.

Randal Rudniski – Credit Suisse

On Harlequin, the North American direct to consumer business has been really strong the last couple of quarters with revenues probably up double-digits in percentages, I was hoping Donna could help us understand what’s happening in the direct to consumer segment because retail is obviously still down.

Donna Hayes

The reason that its up is primarily the digital business because the digital revenue is included in our direct to consumer division, so I’d say the underlying, that the traditional book club is doing very well and kind of matching last year and then we’re adding, which is great, and we’re adding on top of that this digital growth which really explains why it was the star division of the quarter.

Randal Rudniski – Credit Suisse

And the last question pertains to the Star, you told us what the advertising revenues did in the quarter I was hoping that you could share what advertising lineage did.

John Cruickshank

It was, you know what, I don’t have the number in my head for the Star alone, but we saw fairly significant growth in national, treading water in retail or going backwards a little bit and classified remained down.

David Holland

In general we’re a lot more focused on the reporting on the revenue trend.

Randal Rudniski – Credit Suisse

I guess that’s kind of a cost question on the line rate, what’s happening in terms of that.

David Holland

I understand.

Operator

Your final question is a follow-up from the line of Adam Shine – National Bank Financial

Adam Shine – National Bank Financial

In the North American retail you noted in the MD&A positive mix in cover prices, maybe you can just remind me, every two years Harlequin has been instituting price increases, was there a price increase sort of mid last year or do we expect one perhaps this year.

Donna Hayes

I wouldn’t expect one this year, so when we think about pricing we really think about splitting the business into two, our series business and then our single title business. When you think about single titles, we’re pretty much at the maximum market price for single titles in the US which is $7.99, so you won’t really see much movement there.

On series, we did take a price increase in our book club business last year which contributed quite nicely to results. The last retail increase was the prior year and we would not anticipate a series increase at retail until at least next year but we’re only talking about that at this stage.

Adam Shine – National Bank Financial

And just to put a clarification, when we’re talking about sort of flattish results at Harlequin we’re talking about the profit line or are we starting to get into revenue as well because I guess the nuance being soft bank was going to be lower this year in terms of its contribution I think presumably at the top line now you’re saying that might get mitigated perhaps by the evolving trend in digital and perhaps as well the incremental contribution from the German partner acquisition.

Donna Hayes

Yes, exactly.

Adam Shine – National Bank Financial

So flat at the top line.

Donna Hayes

Yes.

Lorenzo DeMarchi

But that’s neutral FX, so as this year progresses the strength of the Canadian dollar versus the other currencies, I think Donna’s comments about the underlying revenue—

Adam Shine – National Bank Financial

Absolutely, and one last point then perhaps we do see shifts quarter to quarter in the context of your corporate cost, this quarter was perhaps a little bit lower vis-a-vie last year a little bit more closer to the Q2 last year, do we use this as the run rate or do we assume a level slightly above last year just for inflationary issues.

David Holland

Yes, I think that’s a safe bet.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

David Holland

Thank you very much and I think as many of you do know we have our Annual Meeting this morning at One Yonge Street, scheduled for 10:00 am and I think its also webcast. So with that, thanks very much for joining us this morning.

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