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## TO OUR SHAREHOLDERS 

2004 was a challenging year for T orstar and our results were mixed; we had strong newspaper results and disappointing book publishing results. As a result, we fell short of our financial goals and our EBITDA dropped by 3.5 per cent from our record high in 2003. 

This decline was reflected in a drop in our stock price, a decline that was amplified by the rapid rise in the Canadian dollar relative to the U.S. dollar This will reduce the translation of our U.S. dollar earnings from Harlequin once our current foreign exchange hedges terminate at the end of the year. 

Our principal challenge in 2004 was Harlequin which had a difficult year . We sold fewer books and had reduced earnings in all three channels: retail, direct-to- consumer and overseas. At the core of our challenge was a very weak market for mass market paperbacks. While all book publishers suffered, we suffered more than others because the vast majority of our sales are concentrated in this segment of book sales. 

While we are disappointed by our results at Harlequin, we are very focused on improving them. Harlequin’s management team, led by Donna Hayes, has a strategy for stabilizing and then growing the business again. In 2005, we expect to maintain current levels of profitability while making important investments in future growth. We are investing more in promoting and developing Harlequin’s brands and authors, re-invigorating our series editorial product, expanding our publishing genres and formats, strengthening our sales teams, growing our overseas business by launching in Brazil and taking numerous other steps to build the business. 

Harlequin is a very good and profitable business and it contributes very importantly to Torstar’s financial success. There have been other years when our newspaper businesses have been challenged and Harlequin has made steady progress. This year the tables were turned. We are determined to return Harlequin to growth and to build on its legacy of profitability. 

Despite these challenges at Harlequin, there were many achievements at Torstar during the year which augur well for our future strength. The record for all our businesses and our detailed financial results follow in the remainder of our Annual Report. Highlights include: 

• Our newspaper businesses performed very well and delivered record financial results. 

• We made steady progress on our dual goals of growing the profits and improving the margins of our daily newspapers. CityMedia Group grew EBITDA by 22 per cent and the Toronto Star by 12 per cent with improved margins in both businesses. 

• Metroland delivered on its goal of double- digit profit growth for the third year in a row, capitalizing on its entrepreneurial business model. 

• We launched a major new community newspaper in the Niagara region, demonstrating Metroland’s capacity for geographic expansion. 

• We made numerous smaller acquisitions of newspapers and related products to build our community newspaper franchises and create value through integration synergies and growth. 

• We launched Torstar Digital to strengthen the Internet-based activities in our newspapers and grow our electronic business franchises including workopolis.com and toronto.com. 

• We expanded our Transit Television Network with new installations in Chicago and Atlanta and are about to expand the system to Los Angeles. 

Individually, these business accomplishments were important. Collectively, they helped us make important progress towards our core goal: outstanding corporate performance that will maximize long-term shareholder value and returns. 

We have many advantages: market-leading franchises, fine leaders, a great balance sheet, unusually strong free cash flow, excellent 

