By Gail Kailing April 30, 2003 -- Valassis (NYSE: VCI) Livonia, MI, the leading company in marketing services and Connective Media(TM), announced results for the first quarter ended March 31, 2003 in line with its published guidance. The company reported quarterly revenues of $205 million, up slightly from the first quarter of 2002. First-quarter net earnings were $26.0 million, or $0.50 in earnings per share (EPS), within the company's first-quarter EPS range of $0.48 to $0.54. Financial Highlights (in millions, except per share data)   March 31 2003 March 31 2002 % Change Total Revenues $205.0 $203.8 +0.6% Earnings from Operations $43.3 $53.7 -19.4% Net Earnings $26.0 $32.6 -20.1% Cash and Cash Equivalents $67.9 $97.1   Net EPS, diluted $0.50 $0.60 -16.5% Summary "Global uncertainty hasn't affected customers in many of Valassis' segments," said Mr. Alan F. Schultz, Chairman, President and CEO. "We're happy with the overall level of sales activity." * Co-op FSIs (free standing inserts) have shown three consecutive quarters of growth, even with pre-Easter promotions moving from first quarter in 2002 to second quarter in 2003. * NewsAmerica is both market share leader and price leader. Contracts are slow in negotiation and win/loss ratio is strong indicating that Valassis is now price competitive and the pricing environment has intensified. * Have added more than 110 new clients in the Cluster Targeted segment showing a new uptick in sampling activity. * While Prevision is slow to generate new business, there is a strong potential for future revenue. * The merger of NCH is going well, and has met, or exceeded all expectations. The clients are also positive about the acquisition. * Consumer attitudes toward coupons are improving: in 2002, 72% said they saved money with coupons, up from 54% in 2001. And 84% of primary shoppers use coupons. Redemption for health and beauty aid coupons are up 16%. * Six integrated solutions have been sold to five clients, proving the power of enhancing the depth and breadth of client relationships. * The Insync project is linking all IT and databases to streamline order processing and customer analytics. * Valassis will begin to export its product portfolio in 2004. * Two new presses have been installed in North Carolina, and a third is due in three weeks. The new presses have exceeded performance and cost standards. * Receivables/payables are unusually high because NCH is a coupon-clearing house, collecting and paying money for redeemed coupons. Outlook The FSI pricing environment is more intense and contracts (which are up to 27 months long) are taking longer to complete. Company executives "feel great about growth in all segments." New customers are coming to Valassis. The direct mail database business has lots of growth potential. VRMS has potential to deliver retail revenue improvements. And in the long term there is international potential. Valassis has the broadest product portfolio in the marketing service industry and continues to influence consumer purchasing in the home. "We're excited about the future!" Q&A Summary * Unit volume was up 6% in the first quarter. Also expect to see strong growth in the Second Quarter, with a slow down in the later half of the year. Had a good second half in 2002 so the year over year will be tougher. The balance between pricing pressure and revenue growth has been tough. In a normal environment, the company would probably have seen growth in both revenue and profit. * Custom Co-ops used to be national but they are seeing smaller distribution, regional rather than national. Custom Co-ops are spread pretty evenly through out the year. It's difficult to quantify the number of drops/dates now. Custom Co-ops also have a slightly higher unit cost, not the same operating efficiencies so the margins will be down a little. * NCH contributed a little over $10 million for 1-½ months. Will do about $60 million this year, with about a $0.07 positive impact on earnings. NCH seasonality reflects the seasonality of FSIs though lag about 2 months. FSIs are now 80% of the NCH business. Close to $2 billion flows through NCH as a coupon-clearing house. * VRMS contributed a little over $3 million, high single digit growth year over year. * Paper costs declined slightly from fourth quarter 2002. There has been talk of price increases in the second half of the year, but Valassis hasn't seen any yet. * The competitive environment with NewsAmerica has intensified. They have the market share advantage, though Valassis is competing aggressively with them on price. NewsAmerica has acknowledged that Valassis is taking market share, though they have not yet backed off their market share goals and objectives. Prices are stable now, and the only real change in the pricing environment will happen when the market share leader (NewsAmerica) establishes a floor price and is willing to walk away from business to hold that price. When they do that, it's a watershed event. * It appears that over 70% of 2004 business is wrapped up under contract. Keep in mind that 85% of FSI business is covered by corporate contract. Valassis is still projecting 47% for 2004. Market share dropped from 48% last year to about 41.4% this year. Some has been recovered, but it hasn't been easy. * Valassis is winning between 55%-60% of contracts in negotiation now. Haven't lost any major customers during the quarter. * Negotiation season starts in February - April, peaks in June - August, and tapers off in August - October. * "Spot business" is pretty strong, but not as strong as the CPG environment. * Competing - substitutable - products are coming under pressure too. Valassis has seen other vehicles getting more creating in pricing - more "freebies" and discounting for promotional dollars. * Cash flow for the year is still projected at $105 - $115 million for the year after the NCH acquisition. No assumptions have changed. * Canada and Promotion Launch generated $2 - $2.5 million for the quarter, and has been moved into the International numbers. * Have done more customer segmentation for the Cluster Targeted market. Valassis has identified customer segments where its products would be most appealing and targeted them. The best category has been specialty retail, showing substantial growth. It's not a sampling program as such, but using bags for advertising - though some specialty retailers have put mini-product catalogs into bags. Both product sampling (16-17% growth) and solo inserts (22% growth) contributed to an overall growth of 21%. * The merger with NCH is in its "First 100 Day Plan" where the biggest areas of opportunity are being identified. The plan is to offer customers a closed loop, integrated solution with the NCH information systems back end support. * VRMS net loss is down to about $750K in the first quarter and moving toward profitability. In the second half of the year the VRMS business should break even. The Shopper Connection product provides a customized program designed to convey the message/image the retailers are looking for. * Capital expenditures will remain about $18-$19 million for the year, it fluctuates with purchase timing. * Day Sales Outstanding (DSO) should remain in the 40-45 day range, though it's not known how NCH will impact that yet. * The "other income" line includes miscellaneous income, interest income, and income from the sale of equipment. As new presses are added, the decommissioned presses are sold off. It's difficult to say how many presses are really needed since the new presses are very efficient. ------------------------------------------------------------------------