Quebecor World Announces Q2 Loss of $62 Million: Restructuring To Save $36 Million
Press release from the issuing company
MONTREAL--July 24, 2003-- Quebecor World Inc. announced that for the second quarter 2003, the Company recorded a loss of $62 million or $0.51 per share after impairment of assets, restructuring and other charges of $82 million. This compares to earnings of $64 million or $0.40 per share in the second quarter of last year. Before this charge Quebecor World recorded a loss of $0.07 per share. Consolidated revenues for the quarter were essentially flat compared to same period last year at $1.5 billion.
The impairment of assets, restructuring and other charges is mainly related to workforce reductions and the write down of certain idle and under-performing assets. In the quarter, the Company also incurred specific charges of $49 million.
"These challenging economic times demand rigorous financial management at every level of our operations. The measures we are announcing today demonstrate our new management's firm resolve to deal with the current competitive environment while setting a clear course for the future," said Jean Neveu, President and CEO, Quebecor World Inc. "The restructuring charges we are taking in this quarter are in addition to those the Company announced in the 4th quarter of 2002. Although those initiatives had resulted in certain savings, management determined they were insufficient and that additional measures are required to reduce costs in all areas and across all our geographies. These reductions will further lower our cost base, improve efficiencies and make us better positioned to take advantage of an eventual economic recovery."
Impairment of assets, restructuring and other charges of $82 million, includes $26 million of new restructuring initiatives that will result in the elimination of approximately 1,000 employee positions. Once completed, these new measures will represent an annualized, pre-tax cost savings of $36 million, of which more than one-half will be realized in 2003. The charge also includes an additional $8 million related to previous years' initiatives, including the non-cash portion, mostly related to lease payments and facility closures costs. The balance of the current charge, or $48 million, is largely related to the write down of idle and under-performing assets across the Company's global network.
"As part of our rigorous attention to cost control, we have recently completed an extensive, detailed review of our global asset base," added Mr. Neveu. "During the last several years our strategy has focussed on positioning assets into larger more specialized facilities resulting in greater efficiencies. During the quarter, we reviewed the status of our assets and identified idle and obsolete equipment across the platform that became permanently idle as a result of prior restructuring and difficult economic conditions. This write down will be accomplished without reducing our overall capacity."
Specific charges in the quarter of $49 million include a $15 million adjustment related to rapid growth and systems issues in our North American Logistics business, a $15 million provision for doubtful accounts and $19 million of various adjustments of less than $2.5 million such as, the write down of other assets, inventories and other items.
"While we continue to partner with the largest and most profitable publishers and retailers in the industry, we believe it is prudent at this time to increase our provision for doubtful accounts with many companies facing difficulties as they battle the current economic climate," said Mr. Neveu.
Quebecor World's logistics business is the industry leader. It has the best on-time delivery record in the industry at 97 percent and is the largest shipper of product by volume into the U.S. Postal System. In just three short years it has gone from shipping 1.7 billion tons of printed product annually to an expected 4.5 billion tons in 2003. The rapid expansion of this business, now under new management, strained certain systems that have now been improved.
The charges in the quarter do not impact on Quebecor World's ability to generate strong free cash flow. In the second quarter 2003, the Company generated $72 million of free cash flow compared to $40 million of free cash flow in the same quarter last year.
In North America, revenue for the quarter was level at $1.2 billion. Operating income, before impairment of assets, restructuring and other charges, was $45 million compared to $124 million for the same quarter in 2002. These results include specific charges of $39 million as described previously. The decrease in operating income is the result of reduced advertising spending, the continuing competitive pricing environment and other charges. Ongoing cost reduction and operational consolidation will benefit margins going forward. Despite the challenging market we continue to renew agreements with our major customers and are gaining new business with leading publishers and retailers as evidenced by several recent announcements.
In Europe revenues for the quarter increased to $268 million primarily due to currency translation. Operating income, before impairment of assets, restructuring and other charges, was $3.4 million compared to $8.2 in the same quarter of 2002. These results include specific charges of $2.1 million as described previously. The European print market continues to suffer from overcapacity affecting both volume and pricing. Our businesses in the UK, Belgium and Austria performed well during the quarter but difficult market conditions in France, Spain and the Nordic countries had a negative impact on overall results. During the quarter, Yvan Lesniak was appointed Managing Director of Operations for France. Mr. Lesniak's leadership and extensive experience in the printing industry will be significant factors in restoring profitability to our French platform.
Our Latin American business is also being impacted by excess print capacity in the region and a difficult economic environment. Revenue for the quarter was stable compared to the same period last year but the operating loss, before impairment of assets, restructuring and other charges, was $3.5 million compared to operating income of $2.7 million in the second quarter of 2002. These results include specific charges of $4.4 million as described previously. This business has expanded rapidly during the last several years and we expect recent cost reductions will help to improve margins and operating income as we move forward.
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