By Jan Stoddard April 29, 2003 - Quebecor World Inc. (NYSE, TSX: IQW) Montreal, Quebec, announced that for the first quarter 2003, net income was $25 million or $0.12 per diluted share. This compares with $46 million or $0.28 per diluted share in the same quarter last year. Consolidated revenues for the quarter increased $72 million or 5 per cent to $1.5 billion. This was primarily the result of currency translation and the acquisition of the European printing assets of Hachette Filipacchi Media. Operating margin was 5.1 per cent as compared to 7.3 per cent in the same quarter last year. This reflects continuing negative price pressures, higher energy prices, the negative impact of Quebecor World's under-performing French operations, and lower margins in Scandinavia and Spain. A quarterly earnings call and web cast was conducted by Quebecor World's brand-new management team (all with less than 3 months tenure in their current positions): Jean Neveu, President and CEO; Claude Helie, Exec VP and CFO; and, David Boles, COO, Quebecor World North America. While the new management team made a strong pitch to analysts, rumblings are underfoot in the industry regarding the stability of the world's largest printer. A recent report noted that the AFL-CIO issued a call to Quebecor World to make its directors more independent, saying the firm is too much under media parent Quebecor and its CEO Pierre-Karl Peladeau's thumb. (Quebecor holds a 75% board control). Though Brian Mulroney, former Canadian Prime Minister and chair of the parent, expresses continued faith in Peladeau's handling of the print subsidiary, leaders of 7,000 QW employees in GCIU union fear job security is jeopardized. "Current management turmoil, recent profit warnings, and a declining stock underline the need for strong independent oversight to counterbalance insider influence," says AFL-CIO's Richard Trumka. Call Topics: * Chairman Comments * Financial Comments * North American Market Update * Q&A Chairman Comments Jean Neveu, President and CEO, opened by stating that Quebecor World is protecting its top line with a stronger customer base and top publisher status in the industry. First quarter results are in line with previously issued guidance from mid-March 2003. Quebecor World is facing challenges in all markets in all geographies. A drop in customer spending combined with excess capacity has had negative impact on prices. However, Quebecor World has strong management, is making money, has a solid balance sheet, and has positive cash flow. As a signal of confidence, Quebecor World today announced a Substantial Issuer Bid to purchase and cancel up to 10,000,000 of its Subordinate Voting Shares. "In recent weeks, Quebecor World's stock price has experienced a substantial decrease to the point where we believe it is significantly undervalued…we believe the market has over-reacted." Financial Reporting Mr. Claude Helie, Exec VP and CFO, noted that taking away the 2002 Hachette Filipacchi revenue and impact of Canadian currency (approximately $48 million), there was a $7 million revenue increase to the bottom line. Energy prices, employee costs, the Mexico DF facility (negative impact of $0.01) and loss of efficiency in the North American Book Group resulted in a $250 million negative cash flow. Other geographic highlights: * North America revenues increased $27 million to $1.23 billion and operating income was $83 million compared to $108 million in the first quarter of 2002. Most of the revenue increase occurred in the Retail Group with other business units reporting revenues that were flat or slightly below the same period last year. Mr. Helie noted the favorable movement of Canadian dollar on revenue which otherwise was essentially flat. * In Europe, revenues for the first quarter increased to $258 million from $212 million, mostly as a result of the Hachette acquisition completed last March. * Latin America experienced both a reduction in revenue (from $47 to $45 million) and operating income. Margins were also affected by pricing pressures and currency translation. The regional economy continues to be weak; especially in Brazil. Exports back in the U.S. were used to compensate against the decline. North American Market Update David Boles, COO, Quebecor World North America, reiterated the Quebecor World strategy for managing business in challenging conditions: 1. Continue long-term relationships with blue chip market leaders, 2. Use a diversity of platforms (for cross-selling) to keep clients, 3. Scale for supply chain efficiencies including aggressively managing the cost side and smart procurement, and; 4. Optimize through business best practices. In essence, "Sell and save our way to profitability." Business Unit Reporting: * The total commercial remains flat. There has been a 7% increase in impressions for Retail & Sunday magazine, although EBIT was impacted by energy costs. * Magazine and Catalog experienced a 1.5% revenue reduction. * With the decrease in the total number of books being sold, Quebecor World has experienced 1-2% erosion in their business. Consumer trade, reference and business-to-business books have witnessed significant weakness. Adult hardcover, paperback, and mass-market books are down double digits. In addition to volume erosion, high value-added products are very impacted as publishers cut back on high-end reference, elaborate bibles, and coffee table books. College textbooks benefited from lowered prices. * Commercial Direct is the segment most susceptible to advertising climate and the economy. Characterized by non-contract work, this segment was impacted by a "wait and see" among print buyers due to both the anticipation and duration of the war in Iraq. Although down 1.3% in sales, it is anticipated that Commercial will quickly recover when the economy and the country recovers. * Revenues for Directory were up 1%. * Customer notes: * Over 35-85% of the largest customers are under multi-year contracts. * A number of retail insert customers extended contracts including: Staples, Rite-Ad, Best Buy, Good Guys, Party City, Famous Footwear, Sears Canadian Flyer. * All major catalog work for 2003 was retained by Avon, Viking, Office Depot, and United Stationers. * Other long contracts exist with PrimeMedia, CondeNast, Advo, and Hearst. * The top ten customers total over $1 billion revenue and 25% of U.S. sales volume. Many customers are using multiple groups/platforms (one-stop-shop concept) such as Sears (in 6 groups), AOL (8), and Advanced Publications (6). Q& A 1. Quebecor World is not issuing any future guidance to investors at this time other than demonstrating confidence through the stock buy-back program. 2. The turnaround to profitability for France will come in the next couple of quarters based on the continuing restructuring plan and more emphasis on cost reductions. 3. SG&A expenses as percentage of revenue are down from last year (8.9% to 8.5%) as a result of the positive effect of currency and the Hachette Filipacchi acquisition. There should be additional decreases in coming quarters noting however that they are in line to aggressively pursue sales and; if they need to lower prices Quebecor World will do so. 4. There is no timetable from the Board for an appointment of a permanent CEO. 5. The effort to combine commercial direct with magazine /catalog work has resulted in two primary market synergies 1) direct marketing working with catalogs, and 2) commercial receiving the greatest beneficial of cross-selling. The intent is to keep the plants focused, "In 70% of our plants when you walk in the front door, you will know what business that plant is in." 6. Energy costs had a Q1 impact of $8 million (pretax) with a February spike of $10/unit. Gas is now down but impacts are unknown for the balance of this year. 7. When questioned about capacity reductions in U.S. competitors, Mr. Boles again pointed out that he was actually seeing an increase in capacity utilization. He also pointed to the installation of the new wide web gravure press in Franklin, KY. and the Greenfield plant in Riverside County as indicators that Quebecor World is adding capacity. (As far as other announcements in the market, it remains to be seen if this is incremental or substitutive capacity.) Mr. Boles did note that printers are sitting pretty tight with little equipment purchasing, which is bad news for printing press manufacturers. There have no been changes in the European management team. 8. The $185 million Capital Expenditure of last year is estimated at $60-$80 million for this year as there are a number of leases coming up that will be re-purchased & re-leasing. 9. The strength in other component s (premedia, logistics) is a result of cross-selling by product. 10. Customers are still "pausing." Quebecor World advised analysts to not assume more than seasonal increases. The top line is pretty much identified for balance of the year including seasonal spikes toward the latter half of the year. 11. When questioned regarding credit agency moves (citing the recent move by DBRS to place Quebecor World under review with negative implications), executives noted that the current rating with DBRS is BBB+, BBB flat with indicative outlook with Standard & Poors and BAA2 stable output with Moody's. After talking to the ratings agency for confidence, Quebecor World should be in good shape. 12. There is a $1 billion credit facility outstanding with $700-800 million available at a cost of LIBOR based less than 100 basis points. 13. Quebecor World does not anticipate major restructuring (e.g., structural change to short-run currently happening in the industry). Moves this year will be tactical and focused on re-organization. 14. While pricing pressures are currently acute, Quebecor World's experience is that this is the normal course. Companies find ways to get cost out of business, and they are very confident that with 100 plants in North America, there are other opportunities yet to implement. In terms of revenue strategy and contract pricing, their customers are the consolidators of their own businesses. "As they grow, we grow by leveraging scale." 15. Securitized receivables should be tracking about the same as last year. 16. Quebecor World is not currently looking at any small, niche acquisitions of smaller printers to deploy free cash flow. This is based on the assumption that smaller printers are suffering more than large operations. However, "If it makes sense, …if it is good for the business …never say no."