TORONTO - Weaker advertising revenues will continue to pinch Torstar Corp. (TSX:TS.B), owner of Canada's largest circulation daily, as the company faces the widespread struggle in the newspaper industry and a battered economy, interim president and CEO David Holland told shareholders Wednesday.

"Our economic outlook remains a concern given the sensitivity of ad revenues," Holland said at the company's annual meeting in Toronto.

"The restructuring efforts undertaken in the newspaper and digital division will assist in the face of the recent challenge."

Holland's outlook came after Torstar reported earlier Wednesday that its net loss grew seven-fold in the first quarter as the company took a restructuring charge on its books and saw its revenues squeezed by the recession.

The media company, which operates the Toronto Star newspaper, the Hamilton Spectator and other dailies in southern Ontario and owns the Harlequin romance fiction publisher, reported Wednesday it lost $21.4 million or 27 cents a share for the three months ended March 31.

That compared with a net loss of $3 million or four cents a share in the first quarter of 2008.

Despite the weaker financial results, Torstar said it expects things to improve as the economy gradually recovers and the impact of an aggressive efficiency drive boosts the bottom line.

"We are taking the difficult steps to improve our positioning," said Holland, who had been Torstar's chief financial officer before been appointed interim CEO.

He told shareholders that the newspaper division should get some relief from newsprint prices, which are expected to fall over the next three quarters because of softer demand in the market.

In its financial report, Torstar said overall revenue fell by $12.3 million to $339 million in the latest quarter, from $351.3 million last year.

Torstar's outgoing president and chief executive Robert Prichard said newspaper and digital revenues dropped 11 per cent as the recession impacted advertising areas like employment listings, as well as real estate and automotive promotions.

"While aggressive cost management across our newspaper businesses mitigated the impact of the revenue reduction, it has been insufficient to prevent a sharp drop in profitability," he said in the earnings release.

"The newspapers also faced higher pension costs and newsprint pricing in the quarter which accentuated the reduction in profitability."

Torstar also booked a $25.9 million restructuring charge in the quarter for staff cuts and streamlining efforts to boost the bottom line. The moves have cut 260 jobs but will save $16.2 million in labour costs this year.

In addition, the company took $12.8 million in charges in the quarter "related to the transition in leadership at Torstar corporate."

Much of that reflects severance payments to Prichard, who has been president and CEO since 2002 and officially stepped down at Wednesday's annual meeting.

Union officials are calling for Prichard to give back what they say is a $9.6 million severance package -- though reports vary on the size of the payment -- and pressed him to respond to their demands during the meeting.

"That kind of money seems neither right nor fair to us," Toronto Star union official Dan Smith told Prichard from the audience of Torstar shareholders.

He said the company's recent financial troubles and job cuts should make Prichard think twice about the multimillion-dollar package.

Torstar chairman Frank Iacobucci responded to the union concerns by explaining that Prichard's severance pay was negotiated as part of his hiring agreement in 2001.

That was during a period when corporate governance and executive pay issues weren't the lightening rod of discontent they became later for shareholders and corporate critics.

The collapse of Enron, WorldCom and other major North American companies wiped out hundreds of billions of dollars of stock value and produced widespread layoffs, leading governments to crack down on white collar crime, increase regulation and impose tough new corporate reporting rules.

"The EO has a contractual right to receive severance and the board honoured that contract," Iacobucci said.

Prichard said the payment "was judged by the board of directors unanimously in the best interests of the company -- and that speaks for itself."

His next job will be acting as an adviser for regional transit agency Metrolinx.

In another development, Torstar said that late in the first quarter, Harlequin announced the decision to close its direct-to-consumer distribution centre in the U.K. and outsource the business.

"The first quarter was a tale of two solitudes: Harlequin delivered an excellent quarter of growth while our newspaper businesses confronted lower advertising revenues as a result of the recession," Prichard said in the earnings statement.

"Harlequin has made a strong start and is on course for another solid year. Despite the global recession, Harlequin's overall performance remains strong with digital revenue growth offsetting some print declines in Japan and the U.K."

Torstar shares fell 41 cents to $6, a drop of six per cent, in Wednesday trading on the TSX.