February 6, 2003 -- Quebecor World Inc. (NYSE: IQW) announced 2002 year-end and fourth quarter results. For the full year 2002, revenues were $6.2 billion compared to $6.3 billion in 2001. Net income amounted to $279.3 million or $1.76 per diluted share compared to $22.4 million or $0.00 per diluted share for the years ended December 31, 2002 and 2001 respectively. For the full year 2002, restructuring and other special charges amounted to $24.1 million compared to $226.3 million after tax, in the prior year. Free cash flow increased to $320 million in 2002 from $287 million in 2001, an 11% increase. Revenues for the fourth quarter 2002 increased 5% to $1.7 billion. Operating income increased 7% to $160 million and earnings per share increased 11% on a comparable basis to $0.61 per diluted share. Operating margin in the fourth quarter, before restructuring and other charges, increased to 9.5% compared to 9.3% for the same period last year. The company recorded strong performance in the North American Magazine/Catalog and Directory Groups that helped offset significantly weaker results in the North American Commercial/Direct Group and in French operations. Yes, Mr. Customer, Sir! The outgoing President/CEO of Quebecor World, Charlie Cavell, led his final earnings call before turning the reigns over to Michel Desbiens, the new CEO. Charlie, never a man to mince words, summarized the market thus: the demand for print is still weak, there is no clear indication of sustainable recovery, there is significant unsold capacity and accompanying price pressure, and industry compression and capacity reduction has been about 3% per year since January 2001. The quarterly results: - Extremely good quarter under the circumstances - Focus on cost management and restructuring activities - Strengthening the franchise in most sectors - Can offer value-add services from creation to logistics - “Can Do/Make it Happen” customer service philosophy Business Units Retail - Delivered more volume with 7% less headcount, expect to continue to improve efficiency, pricing changes by sector. Very large accounts – pricing is stable, small accounts more volatile, Food/Drug – pricing erratic Magazine and Catalogs (Mag/Cat) - Good quarter, headcount down 20% since 9/11, costs down through digital prepress, wide web, binding automation, and robotics, the company will continue to push to be the low cost provider, aggressive pricing Books - Volume hard to find, expanded market share, pricing reasonably stable Directory - Margins improved Commercial/Direct - 2002 was a poor year with restructuring problems, pricing very volatile – wider choice of provider, excess capacity Latin America - Will continue to expand with “managed growth” Europe - Worse market conditions than US - except for France – volume up, margins up, expanding market share France – “Industrial Socialism,” French-style labor push back - strikes, plant seizures - taken a reserve to prepare for and fund any further issues in France Questions and Answers: Executives Answer the Analysts 1. There have been some accounting changes; particularly how some costs have been allocated to the reporting units. The financials from the Commercial/Direct unit will not be reported separately in the future, but will be integrated into the Magazine/Catalog unit. Direct Mail will continue to report separately. The company is strategically committed to Direct Mail. (Note: The reporting consolidation will match the lowest growth group with the highest growth group and may shield the results of the Commercial group.) 2. There has been significant progress in the restructuring in France. Two losing facilities turned around in Q4. These facilities are gravure plants that are poorly structured for capacity, have high labor costs, and an inefficient workforce. A single plant caused a multimillion-dollar loss in December when all the product had to be reprinted elsewhere as a labor action stopped any shipping. 3. In France, 40% of gravure business is contract and 20% of offset is contract. 4. Long-term contracts reflect lower prices, but have negotiated increased volumes. A corporate strategy is that if prices are reduced, costs must be reduced equally, thus no real erosion in margins. 5. Priorities for Michel Desbiens as new Chief Executive Officer are to continue to reinforce sales and reduce costs. The company will not walk away from acquisitions, but will be more focused and selective in those acquisitions. 6. The “melt down” in Commercial has been resolved and “the fix is in.” Commercial is “spot” business; the company needs more short run, repeat business in the Magazine & Catalog group. Now that Commercial is under Mag/Cat, the intent is to produce all special products for the customer base. “One stop shop” to stabilize the businesses. 7. The integration of Commercial with Mag/Cat will result in top and bottom line improvement, stabilized volume and stabilized staffing, expect dramatic improvements. 8. As the world’s largest printer, Quebecor World is also one of the largest paper buyers in the world. A new strategy is in planning to pull more savings out in procurement and the supply chain. 9. Capital expenditures are expected to remain low (about 3% of revenue), since the company is on solid ground technically. According to Charlie Cavell, no other company has the industrial platform that Quebecor World has in place. The company has a majority of the wide web placements, both rotogravure and offset, direct to plate is in place. Quebecor World has invested regularly in new technology, and they carefully follow technical evolution. The company doesn’t expect to adopt any new technology in the immediate future. There may be more expansion of the rotogravure network because Quebecor World has customers for that technology. Lease buyback is where the funds will likely go. 10. Acquisitions will be carefully studied. Any target must meet Quebecor World’s high hurdles of profitability. 11. The facility in Mexico has been a huge start up, and yet capacity has tripled. The Mexico City directory was a major manufacturing undertaking, and Quebecor World met the customer’s expectations but were certainly not as efficient as could be. They didn’t make any money on the first version. 12. There are 145 million diluted shares outstanding. 13. Quebecor World has worked with employees to evolve the medical benefits program into a co-pay environment. 14. As the industry is taking capacity out of production, the back half of next year should see some improvement as demand begins to outstrip capacity. Quebecor World has been able to improve the cost base even in a “head wind.” 15. The company is projecting French operations to be profitable in 03. 16. While competitors such as Donnelley have been very positive on their contract wins, no one has shown growth in revenue except Quebecor World, despite pricing pressure. Good-bye, Charlie Charlie Cavell’s parting words - Looked on Quebecor World as his “baby” and was very emotionally involved in the business. Because it is difficult to disconnect emotionally, he has to disconnect physically. - Charlie will provide support on projects as requested by Michel Desbiens, and will protect his history of customer intimacy. - Charlie will stay abreast of technology and contribute to the decision-making process if asked. - “This management change is a demonstration of good succession process.” Gail Kailing