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Quebecor World Announces Q2 Loss

Friday, August 11, 2006

Press release from the issuing company

Montréal, Canada – Quebecor World Inc. announces for the second quarter 2006 a net loss from continuing operations of $6.5 million or $0.11 per share compared to net income of $9.5 million or breakeven diluted earnings per share in the second quarter of last year. These results incorporate impairment of assets, restructuring and other charges of $31.4 million or $0.21 per share compared with $31.8 million or $0.22 per share in 2005. Excluding impairment of assets, restructuring and other charges diluted earnings per share were $0.10 compared to $0.22 in the second quarter of 2005. On the same basis, operating income in the second quarter was $50 million compared to $84 million during the same period last year. Consolidated revenues for the quarter were $1.45 billion compared to $1.49 billion in the second quarter of 2005. “Quebecor World’s second quarter and year-to-date results are disappointing for a Company of our leadership position and underlying strengths. Therefore, today I am announcing a five-point transformation plan that will improve our performance going forward, said Wes Lucas, President and CEO Quebecor World. “I am pleased that our retooling program to date is creating a stronger, more efficient manufacturing platform, however we need to do more. The five-point program with specific focussed actions will drive greater performance and shareholder value.” Quebecor World’s transformation plan focuses on these five key areas: 1. Customer value Build the capability to create the highest value for Quebecor World’s customers -- by providing differentiated, superior-value products and services to be the customers’ complete print solution partner. 2. People Develop our people to be the best that they can be, through a comprehensive people development program consisting of training, new processes, and tools to build high-performance teams. 3. Execution Implement a continuous improvement program to build superior execution capabilities producing efficient, dependable, and high quality results. Institute low-capital, high-return projects to begin a new cycle of high cash flow generation. 4. Retooling program Complete the Company’s retooling program which involves deploying state-of-the-art technology in fewer but larger facilities by running wider, faster, more energy-efficient next-generation technology, with a focus on maximizing return on capital. 5. Balance sheet Take the appropriate financing actions to improve our financial flexibility and reduce interest costs by strengthening the balance sheet. "We have talented, dedicated people who are committed to our customers and our Company but we need to optimize the use of their skills. We are doing many of the right things, but we need to do more. The measures I am implementing will build on our strengths. The full extent of this transformation program will be realized overtime, but I am serving notice we will begin immediately to take actions to start the transformation process.” said Mr. Lucas. “This is what our customers and our people expect, and what our shareholders deserve.” Second quarter restructuring initiatives In the second quarter, Quebecor World continued its restructuring initiatives to improve efficiencies by reducing its workforce and plants, relocating assets into larger more strategically located facilities and idling or decommissioning older and less efficient equipment. The Company recorded impairment of long-lived assets and restructuring charges of $31.4 million which included a cash portion of $28.0 million. Of the total charge $12.6 million was related to North America and $18.7 million to European operations. In the second quarter the Company announced the closure of its book facility in Kingsport, TN, and of its magazine facilities in Red Bank, OH, Brookfield WI, and its facility in Strasbourg, France. Volume from these facilities is being relocated to other plants in Quebecor World’s manufacturing platform. The 2006 restructuring initiatives reduced 1,700 employee positions in total, of which 661 positions have been eliminated as of June 30, 2006. The restructuring efforts will improve efficiencies by reducing costs and by relocating selected assets to create fewer, larger, lower cost, and more modern facilities. New Presses Installed In the second quarter, Quebecor World initiated start-ups on three new wide-web 64-page offset presses, two in its U.S. magazine platform and one in its U.S. book platform. Three more presses have already started-up in the third quarter. To date in 2006, seven new presses have been installed in the U.S. platform and several more will start-up by the end of the year including three presses in Europe. While this new equipment has resulted in some inefficiencies accompanying a start-up that negatively impacted year-to-date results, the start-up curves are according to plan. North America Volumes in North America were lower compared to the second quarter and the first half of last year. Volumes for the quarter and year-to-date increased in the catalog and directory groups, were flat in the retail sector and lower in magazine, direct, and in Canada. Quebecor World was also negatively impacted by lower volume resulting from earlier contract losses that has not yet been replaced by our new already reported contract wins. Prices were lower as a result of several new and renewed contracts at lower prices. Lower prices and volumes combined with temporary inefficiencies related to press start-ups as well as higher energy costs were the principle contributing factors to lower results in the second quarter of 2006 compared to the same period last year. Operating income and margins in the U.S. decreased in the second quarter and year-to-date compared to the same period last year. In Canada, revenues increased in the second quarter and were flat year-to-date compared to 2005. The increase in revenue is primarily attributed to the appreciation of the Canadian dollar. Volume was lower in the second quarter due to decreased retail volume and the sale or closure of three facilities compared to the second quarter last year. Europe In Europe, volume was lower in the second quarter and year-to-date due to reductions in the United Kingdom and France. UK operations are impacted by the previously announced loss of a large customer and challenging market conditions. In France, lower volume is related to the closure of a facility in the second quarter, the disposal of certain facilities in 2005, and challenging conditions in the catalog and retail markets. Latin America In Latin America, volumes and operating income were lower in the second quarter and year-to-date largely due to the slowdown of Peru’s economy during the election period. However, the Company continues to be successful by positioning its Latin American platform as a low cost alternative to North American publishers who are shifting work to Asia. Liquidity and Financing Activities Year-to-date the Company generated $31.3 million free cash flow compared to $37.9 million the prior year. At June 30, 2006 the Company had unused capacity of $750 million on its $1 billion unsecured committed revolving credit facility and was in compliance with all of its financial covenants. On July 31, 2006 the Company successfully amended and extended its European Euro 153 million securitization program by an additional three years (to mature on May 29, 2009) providing additional financial flexibility. Year-to-Date 2006 For the first six months of 2006, revenues were $2.9 billion, down 4% from $3.0 billion in 2005. Operating income before impairment of assets, restructuring and other charges for the first half of 2006 was $100 million compared to $173 million in 2005. Impairment of assets restructuring and other charges for the first six months of 2006 were $54 million compared to $65 million last year. Loss per share was $0.14 compared to diluted earnings per share of $0.04 in the first six months of 2005. Excluding impairment of assets, restructuring and other charges, diluted earnings per share were $0.19 compared to $0.49 for the same period last year. Dividend The Board of Directors declared a dividend of $0.10 per share on Multiple Voting Shares and Subordinate Voting Shares. The Board also declared a dividend of CDN$0.3845 per share on Series 3 Preferred Shares and CDN$0.43125 on Series 5 Preferred Shares. The dividends are payable on September 1st, 2006 to shareholders of record at the close of business August 21st, 2006.

 

 

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