Quebecor Q2 Results: French Law Holding Up Complete Restructuring
Press release from the issuing company
----Our French operations have historically been profitable and as such French law precludes restructuring.
MONTREAL--July 29, 2002--Quebecor World Inc. today announced that net income for the first 6 months of 2002 increased 4% to $110 million compared to the same period in 2001. For the second quarter 2002 diluted earnings per share were $0.40 compared to $0.41 in the same quarter last year. Despite the continued weakness of the global advertising market, diluted earnings for the first six months of 2002 is $0.68, equal to the corresponding period in 2001. This year's results incorporate the new accounting rules relating to the non-amortization of goodwill.
Consolidated revenues for the second quarter were down slightly at $1.47 billion compared to $1.50 billion during the same period in 2001. Six months year to date revenues were $2.9 billion compared to $3.1 billion for the corresponding period in 2001. Consolidated revenues are down 2% for the 2nd quarter and 5% for the 6-month period compared to the previous year. The slightly lower revenue line is the net effect of continuing lower demand for print advertising and promotion and price pressures due to excess capacity, offset by significant new account gains and the acquisition of the Retail Printing Company in the US and the printing and binding assets of Hachette in Europe. However, the company's decision to restructure its operations during this slow period has resulted in fewer but larger and more specialized plants that are now delivering efficiencies. This coupled with strict cost containment and lower financial expense have allowed the company to improve net income in spite of the difficult market conditions.
"Our second quarter and year to date initiatives appear to be the right recipe for our business at this time. The steps we have taken to strengthen our business are permanent improvements and this will enhance our ability to capture the upside benefits when the market improves" said Charles G. Cavell, President and CEO of Quebecor World Inc.
Quebecor World as the world's largest commercial printer is able to achieve efficiencies from its economies of scale. During the quarter, the company has entered into a long-term agreement with Sears, Roebuck and Co. to integrate their paper requirements into the Quebecor World global procurement system. Marc Reisch, President and CEO of Quebecor World North America stated "We are very pleased that a company as large as Sears has recognized that our size, geographic scope and inventory management systems position us to enhance their entire supply chain."
Our European operations, excluding France, performed well and margins year-to-date were broadly comparable to our leading margins in North America. Europe, excluding France, also increased revenues and achieved operating income similar to last year. Complex social legislation in France including the 35-hour work week that resulted in increased labour costs, is inhibiting our ability to redress this situation as quickly as we did in the North and Latin American platforms in the context of difficult market conditions. Our French operations have historically been profitable and as such French law precludes restructuring. However with some facilities now reporting negative earnings, the Company is developing an action plan that is expected to result in further cost containment measures in France, including the regrouping of certain production facilities and discontinuing the operation of certain non-competitive technologies.
In Latin America revenues increased 18% and are up 27% for the six months ending June 30, 2002 over the corresponding prior year periods. Quebecor World continues to build its position as the leading printer in the region and is the only one offering an extensive multi-country manufacturing platform. This strategy is attracting local and international customers who are looking for an established, dependable supplier to help them expand their business in the region.
Free cash flow from operations was $40 million for the second quarter of 2002 and $287 million for the trailing 12 months ended June 30, 2002. On a year-to-date basis, financial expenses were $87.7 million, a 17% improvement compared with the same period last year due to reduced bank borrowings and lower rates of interest on long-term debt and securitization. This improvement reflects management's efforts to strengthen the Company's financial condition through tight management of working capital and capital spending requirements. This strategy has resulted in lower financial expense which has contributedto earnings per share. The Company intends to continue this strategy in the short-term.
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