Quebecor Reports Q3 Results: Quebecor World Revenues Up 2.3%
Press release from the issuing company
MONTREAL--Oct. 28, 2004-- In the quarter ended September 30, 2004, Quebecor Inc. posted revenues of $2.71 billion, compared with $2.73 billion in the same quarter of 2003, a $21.8 million decrease. A $48.1 million increase in Quebecor Media Inc.'s revenues only partially offset the unfavourable impact of the translation of Quebecor World Inc.'s revenues into Canadian dollars.
Quebecor's quarterly operating income increased by $15.3 million (3.7%) from the same period last year to $427.7 million.
At Quebecor World, operating income fell by $21.3 million (7.7%) to $256.8 million as a result of the unfavourable impact of conversion into Canadian dollars and a $6.5 million increase in specific charges.
At Quebecor Media, operating income grew by $35.2 million (26.2%) to $169.7 million. All segments of Quebecor Media contributed to the improvement in profitability, led by the Cable segment with a $24.0 million (36.5%) leap in operating income.
"Quebecor Media had another strong quarter," said Pierre Karl Peladeau, President and Chief Executive Officer of Quebecor Inc. "All its subsidiaries without exception improved their operating income, particularly Videotron ltee, which continues to recruit new customers and increase its operating margins. Meanwhile, Quebecor World reported higher volumes in most of its business segments but the subsidiary is still being hit by pricing pressures resulting from overcapacity in the industry. Given the situation, Quebecor World has continued to trim operating costs and downsize operations. At the same time, it is investing in new presses that will make it the technological leader in the North American printing industry," concluded Pierre Karl Peladeau.
Quebecor generated net income of $41.0 million in the third quarter of 2004 ($0.63 per basic share), compared with $16.7 million ($0.26 per basic share) in the same quarter of 2003. The improvement was due to the increase in operating income, a $32.3 million decrease in financial expenses, a $15.0 million gain on the re-measurement of the book value of its floating rate debentures, Series 2001, and lower amortization charges. These factors offset the $25.5 million unfavourable variance in the reserve for restructuring of operations, impairment of assets and other special charges.
Financial expenses were reduced from $146.4 million to $114.1 million as a result of the impact of the refinancing of Quebecor World's long-term debt in the fourth quarter of 2003, combined with lower average long-term debt at that subsidiary. As well, the proportion of Quebecor World's debt consisting of floating rate debt denominated in U.S. dollars increased, lowering the interest rates paid by the subsidiary. The conversion into Canadian dollar increased the impact of the above-noted favourable explanations. A $7.0 million gain in Quebecor Media on the value of a financial instrument that was no longer effective and a $1.2 million foreign exchange gain on the unhedged portion of the long-term debt (compared with a foreign exchange loss of $2.3 million in the same period of 2003) also contributed to the decrease in financial expenses.
In the first nine months of 2004, Quebecor's revenues totalled $8.00 billion, compared with $8.28 billion in the same period of 2003. The decrease was due primarily to the unfavourable impact of the conversion of Quebecor World's revenues into Canadian dollars. Operating income amounted to $1.25 billion, compared with $1.12 billion in 2003. The increase resulted from the improvement in profitability at both Quebecor World and Quebecor Media. Net income was $52.8 million ($0.82 per basic share), compared with a net loss of $1.1 million ($0.02 per basic share) in the same period of 2003. The improvement was generated by essentially the same factors as those noted above in the discussion of the quarterly results, with the exception of a $10.4 million positive variance in the reserve for restructuring, impairment of assets and other special charges in the first three quarters of 2004.
On October 28, 2004, the Company's Board of Directors declared a quarterly dividend of $0.04 per share on Class A Multiple Voting Shares and Class B Subordinate Voting Shares, payable on December 10, 2004, to shareholders of record at the close of business on November 15, 2004.
Quebecor Media Inc.
Quebecor Media posted revenues of $589.9 million in the third quarter of 2004, a $48.1 million (8.9%) increase. Operating income climbed $35.2 million (26.2%) to $169.7 million. In the Cable segment, operating income soared by $24.0 million (36.5%). Increases in operating income were also recorded in the Leisure and Entertainment ($5.7 million), Business Telecommunications ($1.8 million), Broadcasting ($1.2 million), Internet/Portals ($0.7 million), Newspapers ($0.6 million) and Web Integration/Technology ($0.2 million) segments.
For the year to date, Quebecor Media's revenues total $1.77 billion, an increase of $95.4 million (5.7%). Operating income totals $493.0 million, a $61.1 million (14.1%) increase.
The Cable segment's quarterly revenues amounted to $221.3 million, a $19.0 million (9.4%) increase powered by the illico digital cable television service and Internet access services, whose revenues grew by $13.2 million (64.7%), excluding other related revenues, and $9.6 million (20.5%) respectively in comparison with the third quarter of 2003. Between September 30, 2003 and 2004, the customer base for the two services increased by 94,000 and 97,000 respectively, for growth rates of 44.1% and 25.6%. Videotron added 21,000 cable television customers during the quarter (including 1,000 customers for analog service), the best quarterly performance for cable television in four years. The 29,000 increase in customers for cable Internet access services was the largest in three years. The Cable segment's operating income jumped by $24.0 million (36.5%), driven by customer growth and higher operating margins for the segment's feature services. Free cash flow from operations was $57.5 million in the third quarter of 2004, compared with $14.4 million in the same period of 2003.
On July 29, 2004, Videotron and Videotron Telecom Ltd. announced plans to launch a Voice over IP (VoIP) residential telephone service in Quebec in the first half of 2005. On September 2, 2004, Videotron announced that download speeds on its High-Speed and Extreme High-Speed Internet services would be increased by 25% and more than 40% respectively.
On a year-to-date basis, the Cable segment's revenues rose $44.6 million (7.5%) to $640.4 million. Operating income totalled $253.5 million, a $53.2 million (26.6%) increase. The segment's operating margin for all operations increased to 39.6%, compared with 33.6% in the same period of 2003.
The Newspapers segment reported revenues of $207.5 million in the third quarter of 2004, an $8.0 million (4.0%) increase. Advertising and circulation revenues rose 4.4% and 1.5% respectively, while distribution and printing revenues both grew 5.6%. Revenues increased 2.7% at the metropolitan dailies. The community newspapers posted a 9.6% increase, mainly because of the acquisition of Annex Publishing & Printing in the fourth quarter of 2003. Operating income was up $0.6 million (1.2%) to $51.0 million, despite a $1.8 million negative variance from the operating losses at the free dailies 24 heures Montreal Metropolitain in Montreal and 24 Hours in Toronto. However, the results of the two new free dailies showed continued improvement in the third quarter of 2004 in comparison with the second quarter, with an 11.0% increase in revenues and a 21.2% decrease in operating losses from the previous quarter. Sun Media Corporation generated free cash flow from operations in the amount of $44.3 million during the quarter, compared with $56.7 million in the same period of 2003.
For the first nine months of 2004, the revenues of the Newspapers segment increased by $20.2 million (3.3%) to $640.9 million. Year-to-date operating income decreased $3.5 million (2.2%) to $155.6 million, mainly because of the losses incurred by the free dailies, partially offset by the impact of the acquisition of Annex Publishing & Printing and the performance of the other publications.
In the Broadcasting segment, revenues rose by $4.1 million (6.1%) to $71.3 million in the third quarter of 2004. Revenues from broadcasting operations were up $2.3 million, revenues from distribution operations nearly doubled to $3.6 million, and publishing revenues were stable. The segment's operating income increased $1.2 million (10.3%) to $12.9 million.
For the first three quarters of 2004, the Broadcasting segment's revenues totalled $251.6 million, a $7.7 million (3.2%) increase. Operating income rose $2.1 million (4.0%) to $55.0 million.
On August 20, 2004, TVA Group and Sun Media Corporation announced that they had entered into a definitive agreement with CHUM Limited to acquire the new Toronto television station Toronto 1, which CHUM is buying from Craig Media Inc. The purchase price is $46.0 million, of which $34.5 million will be payable in cash by TVA Group upon closing, giving TVA Group a 75.0% interest in Toronto 1; $3.5 million will be payable by Sun Media Corporation, which will also transfer its 29.9% interest in the Toronto all-news channel CablePulse 24 to CHUM.
In the first nine months of 2004, Quebecor Media made net debt repayments totalling $187.4 million, including mandatory payments of $37.5 million and $2.6 million by Videotron and Sun Media Corporation respectively. As well, voluntary net repayments of bank credit facilities in the amount of $97.0 million, $25.8 million and $24.4 million were made by Quebecor Media, Sun Media Corporation and TVA Group respectively. The positive impact of exchange rate fluctuations on the value of the debt denominated in foreign currency, which was partially offset by the effect of the amortization of discounts, also contributed to debt reduction.
Quebecor World Inc.
Revenues were up US$36.2 million (2.3%) to US$1.63 billion, essentially due to the favourable impact of the fluctuation of currencies other than the U.S. dollar. Excluding this factor, revenues were stable in the third quarter of 2004 compared with the same period of 2003. Volumes were generally higher than last year.
Operating income slipped US3.7 million (1.9%) to US$195.7 million. Quebecor World recorded specific charges in the amount of US$6.0 million, including provisions for leases, depreciation of assets, favourable settlement of disputes and compensation for employees following plant closures or downsizings, particularly in North America. Excluding these specific charges, operating income would have remained essentially unchanged from the third quarter of 2003. Gross operating margins declined slightly to 19.2%, compared with 19.9% in the same period of last year. Quebecor World used US$0.1 million in free cash flow from operations during the quarter, whereas it generated US$14.0 million in free cash flow from operations in the third quarter of 2003.
Quebecor World recognized a net reserve for restructuring, impairment of assets and other special charges of $16.7 million during the third quarter of 2004, mostly related to initiatives undertaken in the first nine months of 2004, whereas it reversed charges of $6.7 million in the same quarter of 2003. Quebecor World proceeded with restructuring initiatives and approved the closure of a facility in Stockholm, Sweden, the consolidation of a small facility in North America and work-force reduction across the organization. The total cost of the initiatives undertaken during the third quarter of 2004 was estimated at $22.7 million, of which $9.0 million, mostly related to work-force reduction, was recorded during the quarter, and $13.7 million remains to be accounted over the remainder of 2004 and in 2005, when the liabilities will have been accrued. The initiatives affected 282 employees in total; however, Quebecor World estimated that 29 new jobs would be created in other facilities.
Stated in Canadian dollars, Quebecor World's revenues were $2.14 billion in the third quarter of 2004, a decrease of $62.5 million, essentially due to the impact of currency conversion. Operating income declined by $21.3 million to $256.8 million, for the same reason.
Quebecor World's year-to-date revenues are US$4.73 billion, a US$77.5 million (1.7%) increase over 2003. Operating income is US$569.8 million, compared with US$479.3 million in the same period of 2003, a US$90.5 million (18.9%) increase. In 2003, the year-to-date results were affected by the recognition of specific charges totalling US$56.0 million, compared with US$10.0 million in 2004.
In Canadian dollars, Quebecor World's revenues for the first three quarters of 2004 were $6.28 billion, a decrease of $371.1 million caused by the conversion of its results into Canadian dollars. Operating income was up $71.3 million to $757.0 million.
WhatTheyThink is the global printing industry's leading independent media organization with both print and digital offerings, including WhatTheyThink.com, PrintingNews.com and WhatTheyThink magazine versioned with a Printing News and Wide-Format & Signage edition. Our mission is to provide cogent news and analysis about trends, technologies, operations, and events in all the markets that comprise today’s printing and sign industries including commercial, in-plant, mailing, finishing, sign, display, textile, industrial, finishing, labels, packaging, marketing technology, software and workflow.