Quebecor Reports Lower Sales and Loss of $38 million
Press release from the issuing company
May 9 - Quebecor World Inc. announces for the first quarter 2007 a net loss from continuing operations of $38.1 million or a loss of $0.34 per share, compared to the first quarter 2006's net income from continuing operations of $6.3 million or a loss of $0.04 per share. First quarter 2007 results incorporate impairment of assets, restructuring and other charges (net of taxes) of $23.1 million or $0.17 per share compared to $16.9 million or $0.13 per share in 2006. Excluding impairment of assets, restructuring and other charges, adjusted loss per share was $0.17 compared to adjusted diluted earnings per share of $0.09 in the first quarter of 2006. On the same basis, adjusted operating income in the first quarter was $11.2 million compared to $49.6 million during the first quarter last year.
This shortfall reflects the negative variance of more than $17 million of non-recurring specific charges such as the loss on the sale of the facility in Lille, France. The rest of the variance is due to lower revenues as well as temporary inefficiencies related to the acceleration of the retooling and restructuring programs. Consolidated revenues for the quarter were $1.39 billion compared to $1.47 billion in the first quarter of 2006.
"As we stated in our fourth quarter earnings release, our first quarter results were negatively impacted by the acceleration of our retooling and restructuring initiatives in the first half of 2007 as we complete our retooling program earlier than planned, and finalize it in time for our customers' busy season," commented Wes Lucas. President and CEO, Quebecor World Inc. "In the first quarter we completed the closure or sale of six facilities and installed or relocated eight presses in North America and Europe. This large undertaking created temporary inefficiencies, but we fully expect that this pain will deliver significant gains for our customers and shareholders in the near future and long term."
In the first quarter, Quebecor World generated adjusted EBITDA of $92.0 million compared to $128.5 million in the first quarter of 2006. First quarter 2007 adjusted EBITDA results were impacted by specific charges, including an $11.0 million loss on the disposal of the Lille, France facility, and the fact that first quarter 2006 results benefited from a $6.3 million VAT refund.
"We are seeing improved results in our divisions where the retooling is essentially completed such as our U.S. book and magazine divisions", added Mr. Lucas. "In addition results increased in several businesses such as logistics, direct marketing and retail. This improved performance was more than offset by major retooling and challenging market conditions in Europe,, as well as plant closures and retooling in Canada and our U.S. catalog division."
Actions on 5-Point Transformation Plan
Customer Value: In the quarter Quebecor World renewed a long-term agreement with Hachette Filipacchi Media U.S. Hachette has entrusted Quebecor World to supply virtually 100% of its magazine print solutions and distribution needs. Quebecor World creates significant value for Hachette by implementing a world class solution across their entire print supply chain, through reduced cycle time, co-mail technology, mail list services and an outstanding delivery performance. Also in the quarter, Quebecor World signed a new agreement to increase its services to Primedia Publishing. These and other customer wins and renewals demonstrate the different ways Quebecor World is creating greater customer value by offering complete solutions by combining more value before and after printing.
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. Recently the Company strengthened its leadership team by naming Kevin Akeroyd as President of the Targeted Direct Marketing Division. Mr. Akeroyd has extensive experience in marketing and advertising and will play a key role in leading the Direct Group as one of the key elements in providing our customers with a multi-channel marketing solution.
Great Execution: Quebecor World's 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 first wave of 41 projects is well developed. The benefits from Wave I projects are estimated at $10 million. The Second Wave totaling 46 more projects is scheduled to be launched in the second quarter of 2007. These projects focus on high impact improvement areas with low capital requirements and high returns. Given our initial progress, the Company expects to reach its target of $100 million in annualized cost savings and productivity improvements, run rate by the end of 2008.
Retooling Program: In the first quarter of 2007, the Company completed the installation or relocation of eight presses in its North American and European platforms. This is compared to only 2 during the same period last year. Quebecor World's three-year retooling program is being accelerated in order to be completed before its customers' busy season in the later part of 2007 creating significant extra costs and inefficiencies. The Company completed the start-up of the tenth and final press as part of its U.S. Magazine retooling plan. To maximize the benefits of the retooling the Company is also continuing with its restructuring initiatives that in the first quarter involved the closure or disposal of six facilities: Lincoln NE, Phoenix AZ, Washington DC, L'Eclaireur QC, Elk Grove IL and Lille, France. This is compared to the sale of 3 facilities in the first quarter of 2006. The first quarter restructuring initiatives eliminated 733 positions, of which 344 positions have been eliminated as of March 31, 2007 and 389 are expected to be eliminated. However, the Company estimated that 374 new jobs would be needed in the retooling initiative, for a net reduction totalling 359 positions.
Balance Sheet: Quebecor World is committed to strengthening its balance sheet in a responsible manner. At the end of the first quarter the Company had more than $900 million in undrawn credit availability from its $1 billion unsecured revolving credit facility. To diversify its financing base, in the first quarter the Company executed a sale-leaseback of two of its Canadian facilities for a total consideration of CA$40 million. In addition, both strategic and tactical actions are being explored to improve the balance sheet.
North American revenues for the first quarter of 2007 were $1.08 billion, down 6.2% from $1.15 billion in 2006. Volume in North America decreased during the first quarter of 2007 mainly due to the restructuring initiatives resulting from the 5 plant closures and press installations. The Canadian Group continued to be affected by less favourable foreign exchange contracts on sales to its U.S. customers. In North America results improved in businesses that were recently retooled and restructured offset by FX impact in Canada and significant retooling and restructuring activities in our U.S. catalog division which included the closure of our Elk Grove, IL facility and major retooling in our Corinth, MS facility to increase customer value. Year-over-year, the North American workforce was reduced by 2,051 employees, or approximately 8.7%. In the first quarter of 2007, the Company completed the closure of 5 facilities.
European revenues for the first quarter of 2007 were $253.3 million, down 3.3% from $262.1 million in 2006. Volume decreased in the first quarter of 2007, mainly in France. The decrease in France is mainly a result of inefficiencies due to press start-ups, transfers and restructuring activites. Volume in France was also negatively impacted by the disposal of the Lille facility. The volume shortfall was slightly offset by higher volume in Austria in the first quarter of 2007 due essentially to productivity gains stemming from Quebecor World's retooling initiative. Operating income was down significantly in the first quarter as a result of the retooling and European market conditions.
Latin America's revenues for the first quarter of 2007 were $63.9 million, up 11.2% from $57.5 million in 2006. Volume increased for the first quarter of 2007 on account of strong customer sales in Peru and Colombia. Price, including the effect of work mix and currency, had a slight favourable impact on revenues during the quarter. Overall, these factors contributed to the increased operating income during the first quarter of 2007 compared to last year in addition to cost reductions realized during the same period.
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 June 1st, 2007 to shareholders of record at the close of business on May 22nd, 2007. These dividends are designated to be eligible dividends, as provided under subsection 89(14) of the Income Tax Act (Canada) and its provincial counterpart.
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