Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 5%, to C$107.5 million ($67 million), at Harlequin in 2001, and executives told analysts in a conference call that they expect EBITDA to grow by at least that much over the next several years at the romance publisher. Revenues in the year rose 0.6%, to C$582.6 million ($366 million).
One reason for the optimistic outlook for Harlequin is the success of its single-title publishing program, which generated more than 50% of retail sales in North America last year. Because Harlequin pays low advances, does little marketing, focuses only on women's fiction and has low returns, its single-title books yield higher margins than the 18% margins provided by the publisher's series books, executives said. The company hopes to replicate the success of the single-title program in its overseas markets.
Boosted by the gains in the single-title program, earnings in North America rose by C$3 million last year, with a C$10-million gain in retail sales offsetting a C$7-million decline in direct-marketing profits. The direct-marketing operation was hurt by higher postage costs and a shift in business to its online book club operation, eHarlequin. Executives estimated that about C$3 million in direct-marketing profits have been "cannibalized" by eHarlequin. The online club has 650,000 active members, with about 3% buying books regularly.
Another soft spot in the year was Harlequin's creativity division, where earnings fell by C$4 million. While sales in children's continuity programs were up, sales in adult continuities did not meet expectations, and the company is closing down that operation. In addition, the division's curiosity kits unit had a disappointing year, due in part to financial trouble at some key accounts, including a C$1-million loss when Zany Brainy filed for bankruptcy.
In Harlequin's overseas markets, profits fell by C$1 million. Results improved in the U.K., Australia and Poland, but declined in Japan and Spain.
Executives said that although Harlequin, as well as Torstar's newspaper business, generated "lots of free cash flow," they have no intention of trying to build a "third leg" to complement its two existing businesses. An earlier effort to create a major presence in the supplementary education market met with disastrous results. The company said any acquisitions it would make would be to support its existing operations.
