Quebecor World Releases Fourth Quarter and 2006 Results
* Revenue of $1.62 billion in fourth quarter
* Diluted earnings per share before IAROC and goodwill impairment charges of $0.28 in fourth quarter 2006 compared to $0.21 in fourth quarter 2005
* Retooling initiatives accelerated to be completed by third quarter of 2007
* Important financings concluded in fourth quarter
Montréal, Canada – Quebecor World Inc. announces for the fourth quarter 2006 net income from continuing operations of $11.6 million or $0.03 diluted earnings per share compared to a net loss from continuing operations of $205 million or a loss per share of $1.64 in the fourth quarter of last year. Fourth quarter 2006 results incorporate impairment of assets, restructuring and other charges of $46.2 million or $0.25 per share compared with $11.9 million or $0.08 per share in 2005. Excluding impairment of assets, restructuring and other charges and goodwill impairment charges, diluted earnings per share were $0.28 compared to $0.21 in the fourth quarter of 2005. On the same basis, operating income in the fourth quarter was $74.2 million compared to $87.3 million during the fourth quarter last year reflecting the higher depreciation expense. Consolidated revenues for the quarter were $1.62 billion compared to $1.66 billion in the fourth quarter of 2005.
“In the fourth quarter we began to show improvements on several levels. Our year-over-year quarterly adjusted EBITDA improved $2.3 million, and our adjusted EBITDA margins improved to 10.5%. We have a long way to go and many challenges ahead, specifically in the first half of 2007,” said Wes Lucas, President and CEO, Quebecor World Inc. “We believe our focus on the fundamentals of our business through our five-point transformation plan will, over time, lead to sustainable improved performance. We have renewed and extended agreements with important customers, firmly launched the first wave of our continuous improvement program at facilities across our platform, made important leadership changes, accelerated the completion of our three-year retooling program and concluded important financing initiatives. We will however continue to face significant challenges and our results in the first half of 2007 will be negatively affected as we accelerate and focus on the completion of our retooling program.”
Actions on 5-Point Transformation Plan
Customer Value: Quebecor World continues to find new ways to deliver greater customer value by offering complete high value solutions, by combining new services before and after printing, with a top-quality product. As an example, in February 2007, the Company renewed a significant multi-year contract with Williams-Sonoma to continue to provide an integrated print solution for a majority of its catalogs. In March, the Company renewed a long-term agreement to be the exclusive supplier for Harlequin paperback books. Quebecor World’s full-service solution for Harlequin ensures they receive a consistent, top-quality product on-time to meet their precise onsale and subscriber distribution schedule.
Best People: To improve the Company’s execution capability and to increase value for customers and shareholders the Company recently made several leadership moves to improve its performance. These initiatives included the addition of proven operation, sales, and marketing executives as well as the reassignment of other key managers to focus on specific projects to enhance customer and shareholder value. In addition, the Company continues to make progress in implementing its comprehensive people development program through training, improved processes, and building new capabilities.
Great Execution: In the fourth quarter, the Company launched a Continuous Improvement Program across its North American platform. The first wave of more than 40 projects is focusing on high impact improvement areas with low capital requirements and high returns. The second wave of training is taking place in the first and second quarters of 2007 and will result in a new set of projects to maximize cash flow and shareholder value. With the current and planned continuous improvement projects the Company is making progress towards its target of $100 million in annualized cost savings, run rate by the end of 2008.
Retooling Program: The Company’s three-year retooling program is being accelerated in order to be completed before its customers’ busy season starts in the third quarter of 2007. In order to finalize the retooling program before the 2007 busy season, Quebecor World is starting up 6 new presses in the first half of 2007 compared to 4 new presses during the same period last year. This includes two new 4.3 meter gravure presses in Charleroi, Belgium that are starting up in the first quarter. During the first half of 2007, the Company will also re-locate/install 14 web presses as compared to 7 in 2006, or double the number of presses compared to the same period last year. In North America, the new and relocated equipment will mainly impact the catalog, book and directory platforms. For example, the Company recently announced a reorganization of its U.S. catalog platform to create greater customer value and to improve efficiency. The Catalog transformation plan includes important investments in new press and bindery technology as well as the relocation of existing assets to Quebecor World’s facilities in Jonesboro, AR, Merced, CA and Corinth, MS. Central to the plan is the transformation of the Corinth plant into a dual-process, premier rotogravure and offset catalog facility. These and other retooling initiatives should be completed on time for the busy third and fourth quarters of 2007.
Balance Sheet: Quebecor World is committed to strengthening its balance sheet in a responsible manner. In 2006, the Company initiated a number of financing activities with the view to improving its financial flexibility. In particular, the Company issued $850 million of Senior unsecured notes of which $400 million were issued in December, which helped to significantly increase liquidity. At year-end the Company had more than $900 million undrawn capacity on its $1 billion unsecured revolving credit facility. Quebecor World continues to explore strategic and tactical actions to further improve its balance sheet.
“We made the strategic decision to accelerate and concentrate the final steps of our retooling plan into the first half of this year, so that we are finished before our customers’ busy season in the second half of 2007,” said Mr. Lucas. “We anticipate that these actions which include the accelerated installation of new presses and accompanying technology and the relocation of assets from discontinued facilities will create inefficiencies that will have a negative impact on our EBITDA in the first and second quarters. It should ensure that we are well positioned for the second half of 2007 and 2008.”
Fourth Quarter Restructuring Initiatives
In the fourth quarter, the Company recorded impairment of assets restructuring and other charges of $46.2 million, which are composed of cash items related to workforce reductions at facilities in Europe and North America and the impairment of long-lived assets. This included the approval of the closure of one facility in the United States and one facility in Canada as well as employee severances in Lille, France. The cash costs of these initiatives were estimated at $26.8 million of which $19.3 were recorded in the fourth quarter. The Company also recorded $1.8 million related to previous workforce reduction initiatives. The balance of the restructuring charge is related to the impairment of long-lived assets in North America.
Retail revenues for the fourth quarter of 2006 were $247.1 million, up 4.5% from $236.4 million in 2005. On a full year basis, revenues were $873.2 million in 2006, up 2.7% compared to $850.3 million in 2005. The increase in revenues for the quarter and the year is attributable to new customer contracts, more value added to retailers’ marketing solutions, and higher volumes. The volume growth was from new customers such as Brooks-Eckerd and existing customers including Wal-Mart, CVS and Kohl's.
In our Catalog group revenues for the fourth quarter of 2006 increased by 1.7% to $189.0 million, compared with $185.9 million in 2005. On a full year basis, revenues were $680.0 million in 2006, up 2.1% from $666.2 million in 2005. The increase in revenues for the full year was mainly attributable to volume growth due to the addition of new customers, such as Bass Pro Shops and Brookstone. Sales with several current key customers also increased in 2006 partially reflecting the Company’s enhanced offering of a complete marketing solution to enhance the impact of branded goods companies’ products and to increase in-store traffic for retail customers.
Direct revenues for the fourth quarter of 2006 increased by 8.9% to $98.9 million compared to $90.9 million in the same quarter in 2005. On a year-to-date basis, revenues were $367.9 million in 2006, up 4.8% from $351.0 million in 2005. Revenue increased in the fourth quarter due to attractive growth in this important market and as the result of new volumes and customer relationships especially in the financial sector.
Book & Directory revenues for the fourth quarter of 2006 were $159.2 million, down 12.0% from $180.9 million in 2005. For the year, revenues were $675.2 million in 2006, down 6.2% from $719.6 million in 2005. The decrease in fourth quarter revenues was due primarily to reduced book manufacturing capacity related to temporary inefficiencies resulting from the retooling plan, a plant closure, and the transfer of certain book production to Latin America. While the Company did not yet receive the benefits in 2006 from its restructuring efforts in the Book Group, permanent staffing levels were reduced significantly across the Book Group from the restructuring.
In Canada revenues for the fourth quarter of 2006 were $243.7 million compared to $261.1 million in 2005. On a year-to-date basis, revenues were $893.3 million in 2006, compared to $912.2 million in 2005. The decrease in revenues for the quarter and the year are largely attributed to the impact of foreign exchange on the Canadian print market. Volume was lower in the fourth quarter, mostly due to decreased volume in Catalog and the sale of a facility in Quebec earlier in the year.
Logistics revenues for the fourth quarter of 2006 were $90.0 million compared to $92.8 million in 2005. On a year-to-date basis, revenues were $335.0 million in 2006, up 4.3% from $321.2 million in 2005. On a year-to-date basis, the revenue increase is due to increased value based on the Company’s integrated end-to-end solution in providing value-added services, such as the services offered at the new Co-Mailing facility in Bolingbrook, Illinois. This new facility continued to produce increased revenues, volume and margin over prior year, supporting the strong growth. With postal rates accounting for a significant portion of our customer’s total cost of catalogs and magazines, the co-mailing services offered by the Company provides a significant value to Quebecor World’s customers by reducing their overall delivery costs.
Premedia revenues for the fourth quarter of 2006 were $14.0 million compared to $15.2 million in 2005. On a year-to-date basis, revenues were $55.6 million in 2006, down 4.6% from $58.3 million in 2005. The decrease in revenues for the fourth quarter was mostly attributable to a significant work mix change for a key customer that was partly offset by an increase in Book-page volume. For all of North America, revenues for the fourth quarter 2006 were $1.28 billion compared to $1.32 billion in 2005. On a year-to-date basis, revenues were $4.82 billion in 2006 compared to $4.88 billion in 2005.
European revenues for the fourth quarter of 2006 were $267.3 million, down 3.4% from $276.7 million in 2005. For the full year, revenues were $1,025.4 million down 11.8% from $1,162.9 million in 2005. Excluding the impact of currency translation and paper sales, revenues were down 9.6% for the fourth quarter and 11.1% for 2006 compared to the same periods last year.
The revenue decrease in the fourth quarter and year-to-date was due to reduced volumes mainly in France and in the United Kingdom. The implementation of the European retooling plan that began early in 2006 has continued to impact volume as a result of plant closures, press shutdowns, movement of customers within the Company’s network and temporary press start-up inefficiencies. Furthermore results in France were negatively impacted in the fourth quarter by work disruptions at the Company’s Lille facility. In the first quarter of 2007, the Company completed the sale of this facility to a group led by local management. The facility will operate in areas that are non-core to Quebecor World. France’s magazine volume was also impacted by the implementation of a new tax on magazine distribution.
In Latin America revenues for the fourth quarter were $68.8 million, up 6.5% from $64.5 million in 2005. On a year-to-date basis, revenues were $239.3 million in 2006, down 1.0% from $241.7 million in 2005. Excluding the impact of foreign
currency and paper sales, revenues for the fourth quarter of 2006 were up 2.4% compared to last year. For the full-year 2006, on the same basis, revenues remained essentially flat. Prices increased in the fourth quarter and year-to-date compared to 2005 as a result of a favorable impact of export sales. Overall volume decreased for the quarter on account of a change in product mix.
Full year 2006
For the full year 2006, revenues were $6.09 billion, down 3.1% from $6.28 billion in 2005. Operating income before impairment of assets, restructuring and other charges and before goodwill impairment charge was $241.5 million in 2006 compared to $357.5 million in 2005. Impairment of assets, restructuring and other charges for 2006 were $111.3 million compared to $94.2 million last year. For the full year 2006, loss per share from continuing operations was $0.03 compared to loss per share of $1.43 in 2005. Excluding impairment of assets, restructuring and other charges and impairment of goodwill, diluted earnings per share from continuing operations were $0.64 compared to $0.98 for the same period last year.
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