Quebecor World Revenues Slide in Q2
Friday, August 10, 2007
Press release from the issuing companyMONTREAL, CANADA-- Quebecor World Inc. announces for the second quarter of 2007 a net loss from continuing operations of $21.1 million or a loss of $0.20 per share, compared to the second quarter 2006's net loss from continuing operations of $6.5 million or a loss of $0.11 per share. Second quarter 2007 results incorporate impairment of assets, restructuring and other charges (net of taxes) of $26.3 million or $0.20 per share compared to $27.0 million or $0.21 per share in 2006. Excluding impairment of assets, restructuring and other charges, adjusted earnings per share was nil compared to adjusted diluted earnings per share of $0.10 in the second quarter of 2006 and adjusted operating income was $33.9 million compared to $50.4 million during the second quarter last year. This shortfall reflects temporary inefficiencies and volume reductions caused by the retooling, restructuring, and press start-up activity as well as market conditions. The Company accelerated the retooling and restructuring programs, and these are scheduled to be completed prior to the 2007 fall busy season. Consolidated revenues for the quarter were $1.36 billion compared to $1.45 billion in the second quarter of 2006.
"In North America, we are achieving significant improved earnings in our business groups where the retooling and restructuring is essentially complete, such as our Book and Magazine Divisions", commented Wes Lucas, President and CEO, Quebecor World Inc. "In addition, results improved year-over-year in several business groups, such as Targeted Marketing, Premedia, and Retail. However, these improved performances were offset by those divisions that are in the middle of retooling and restructuring, such as the significant new press start-ups and plant closures in the Catalog and Directory Divisions, as well as the Canada Division. These elements contributed to a slight net increase in the North America adjusted EBITDA and adjusted EBIT margins in the quarter. In addition, we were pleased with our Latin America division where we achieved sales growth adjusted for foreign exchange of more than 8% and a three-fold increase in EBIT."
"However, as expected, the acceleration of our re-tooling efforts and the challenging market conditions in some segments, especially in Europe, negatively impacted our financial results," added Mr. Lucas. "In Europe, to meet the difficult European market conditions, we successfully started-up what is considered to be Europe's most advanced gravure printing facility with state-of-the-art technology and low cost automation in Charleroi, Belgium."
In the second quarter, restructuring activities included the closure of the Phoenix, AZ facility, the announcement of the shutdown of one of the Vancouver, B.C. facilities and the installation of four new or relocated presses across the platform. These important undertakings and the ongoing start-ups of earlier press installations and accompanying technology created certain temporary inefficiencies. Mr. Lucas added, "We believe these measures should provide significant advantages for our customers and create additional value for our shareholders in the medium and long term."
In the second quarter, Quebecor World generated adjusted EBITDA of $114.0 million compared to $130.6 million in the second quarter of 2006.
Actions on 5-Point Transformation Plan
Customer Value: Quebecor World continues to develop and expand its service offering to create greater customer value. This full-service offering enables customers to maximize the impact of their marketing and advertising campaigns. In the second quarter Quebecor World expanded its co-mailing capability and announced plans to expand service in the important northeast corridor in the U.S. This new co-mail capacity will allow more customers to reduce postal costs without impacting production cycles. Before print, Quebecor World enhanced its Premedia capabilities through its acquisition of Colorscope, a high quality interactive and print imaging services provider with locations on the U.S. west coast and relationships in Asia. The Company also received the Partners in Progress Award from Sears Holding Corp, an award earned annually by less than one percent of Sears' 40,000 suppliers. These are just a few of the many examples of Quebecor World's commitment to delivering greater customer value before and after print. Management is on track with its Customer Value initiative to generate $300 million run rate in new annualized revenue by year-end 2008.
Best People: Quebecor World's Best People initiative is focused on building high performance teams to ensure the Company has the best people in place to create maximum shareholder value. The Company made significant progress in development programs and training in the second quarter.
Great Execution: Quebecor World's Great Execution initiative includes multiple elements focused on reducing costs and improving efficiencies across the Company. One area of this initiative is our Continuous Improvement Program in our North American platform. The second wave, consisting of 47 continuous improvement projects, was launched during the second quarter. Twenty of those projects have been completed and the rest are nearing completion. This is in addition to the first wave of 41 projects launched in the fourth quarter of 2006. To date, the Company has 88 projects completed or launched, with more than 150 people trained in continuous improvement across the North American platform. These projects focus on high impact improvement areas with low capital requirements and high returns. These projects and others that will be launched in the third and fourth quarters are expected to generate an annualized run rate of $30 million by the end of 2007. As a result, management is confident that the Company will achieve its $100 million run rate in annualized savings by year-end 2008.
Retooling Program: In the second quarter, Quebecor World completed the installation of four new or relocated presses in its North American platform. Additionally, Quebecor World's three-year retooling program is being accelerated in order to be completed before its customers' busy season in the fall of 2007 which creates extra costs and inefficiencies. To maximize the benefits of the retooling, the Company is also continuing with its restructuring initiatives that in the second quarter involved completing the closure of a facility in Phoenix, AZ and the announcement of a phased shutdown of one of the Company's facilities in Vancouver, B.C. In order to reduce costs and increase efficiencies in the first half of 2007, the restructuring initiatives eliminated 892 positions, of which 765 positions were eliminated as of June 30, 2007 and 127 are expected to be eliminated. However, the Company estimated that 387 new jobs would be needed in other facilities, for a net reduction totalling 505 positions.
Balance Sheet: Quebecor World is committed to strengthening its balance sheet in a responsible manner. During the quarter, the Company redeemed all of its 6% Convertible Senior Subordinated Notes due on October 1, 2007 for a redemption price of 100.6% of the outstanding principal amount of the Notes, plus the accrued and unpaid interest. Management continues to explore both strategic and tactical actions to improve the balance sheet. On August 3, 2007 the Company initiated a tender offer to repurchase up to $159 million of outstanding Senior Notes and a consent solicitation which are outlined in a separate press release. The tender offer was launched with a view to providing the Company with greater financial flexibility.
North American revenues for the second quarter of 2007 were $1.05 billion, down 8.6 % from $1.15 billion in 2006. Excluding the impact of lower paper sales and changes in currency, revenues declined by 2.3% . Results improved in businesses that were recently retooled and restructured, such as in the Book and Magazine Divisions. However, this was offset by FX impact in Canada and significant retooling and restructuring activities in Catalog, Directory, and Canada Divisions. North American revenues benefited from the initial ramp up of the Yellow Book contract, a multiyear contract totalling $900 million in sales. Year-over-year, the North American workforce was reduced by approximately 1,500 employees, or 6.7% .
European revenues for the second quarter of 2007 were $248.8 million, down 1.2% from $251.9 million in 2006. Volume decreased in the second quarter of 2007, mainly in France, due to the sale of the Lille facility in the first quarter, and inefficiencies due to press start-ups and equipment transfers. Operating income was down significantly in the second quarter as a result of the retooling and European market conditions. Year-over-year, the European workforce was reduced by 346 employees or approximately 8.5% .
Latin America's revenues for the second quarter of 2007 were $63.4 million, up 22.4% from $51.8 million in 2006. Volume increased for the second quarter of 2007, due to strong customer sales in Peru, Colombia, and Mexico. Price, including the effect of work mix and currency, had relatively little impact on revenues during the quarter. Overall, these factors and cost reductions contributed to the significant three-fold increase in EBIT during the second quarter of 2007 compared to last year.
For the first six months of 2007, Quebecor World reported a net loss from continuing operations of $59.2 million or a loss of $0.54 per share, compared to 2006's net loss from continuing operations of $0.2 million or a loss of $0.14 per share for the same period. The results for the first six months of 2007 incorporate impairment of assets, restructuring, and other charges (net of taxes) of $49.4 million or $0.37 per share compared to $43.9 million or $0.33 per share in 2006. Excluding impairment of assets, restructuring, and other charges, adjusted diluted loss per share was $0.17 for the first six months of 2007 compared to adjusted diluted earnings per share of $0.19 in the same period of 2006. On the same basis, adjusted operating income in the first six months of 2007 was $45.1 million compared to $100.0 million in 2006. This shortfall reflects lower revenues from plant closures and restructuring programs scheduled to be completed before the fall 2007's busy season, as well as the effect of the poor European market conditions, which offset the increased profits in divisions where the retooling has already been completed, such as the Book and Magazines Divisions. Consolidated revenues for the first half of 2007 were $2.75 billion compared to $2.92 billion in the same period of 2006.
The Board of Directors of Quebecor World Inc. declared today a dividend of CA$0.3845 per share on Series 3 Preferred Shares and CA$0.43125 on Series 5 Preferred Shares. The dividends are payable on September 1st, 2007 to shareholders of record at the close of business on August 21st, 2007.
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