Quebecor World Reports Q4: Price Declines Cause $54 Million Loss
Press release from the issuing company
MONTREAL--Feb. 6, 2004-- Quebecor World Inc. announced that for the fourth quarter 2003 the Company recorded a net loss of $54 million or $0.48 per share, after impairment of assets, restructuring and other charges, certain specific charges and others relating to finance and tax. This compares to net income of $71 million or $0.44 per diluted share in the fourth quarter of 2002. Operating income, before the impairment of assets, restructuring and other charges was $90 million in the fourth quarter, compared to $160 million in the fourth quarter of 2002. Consolidated revenues for the quarter increased 2% to $1.74 billion compared to $1.70 billion the same quarter last year.
"Our decreased operating income for the quarter is the result of significant price declines in our industry. This is in spite of the fact that we increased volumes in most of our business groups. As a result, we have taken additional measures in the quarter to address the current difficult industry and market environments," said Jean Neveu, President and CEO Quebecor World Inc.
In the fourth quarter Quebecor World incurred a $22 million charge for the impairment of assets, restructuring and other charges. The bulk of this charge is applied to a new reduction-in-force initiative of 878 employee positions. In total, the 2003 restructuring initiatives will involve the elimination of 2,272 employee positions, 1,769 as of December 31, 2003 and 503 by the end of the first quarter 2004. The reductions are taking place in all regions where the Company operates. These initiatives are expected to produce annualized cost savings in excess of $90 million.
Also in the fourth quarter the Company took specific charges of $23 million of which, $13.9 million was related to North America, $3.4 million to Europe and the balance to Latin America and other provisions. Most of the charge, or $18.2 million, was included in selling, general and administrative expenses. Of the $13.9 million related to North America, there was $6.3 million for lease provisions and a $5.0 million provision for doubtful accounts.
For the full-year 2003, excluding specific charges and the effect of currency translation, SG&A decreased by $32 million or 6%. This is due to workforce reductions and other cost containment initiatives and was realized despite increases in medical and pension benefits.
To reduce interest expense going forward Quebecor World refinanced a portion of its long-term debt in the fourth quarter to take advantage of lower interest rates. This transaction is expected to lower interest expense by approximately $12 million per year. In completing the transaction the Company incurred a charge to financial expenses of $30 million.
"We firmly believe these measures are necessary to maintain and enhance our competitive position," said Mr. Neveu. "These initiatives will lower our cost base, reduce financial expense and improve efficiencies across our global platform."
In 2003 the reported income tax expense of $39 million includes the impact of two specific tax charges of $46 million in the fourth quarter and $53 million for the full-year. These charges are related to an adjustment of the average tax rate applied on cumulative temporary differences within states in the U.S. and the revised expectations of tax asset recoveries and liabilities from prior years.
For the-full year 2003, after impairment of assets restructuring and other charges, certain specific charges and others related to tax and finance Quebecor World reported a net loss of $31 million or $0.50 per share. This compares to net income of $279 million or $1.76 per diluted share for the full-year 2002. Operating income before impairment of assets, restructuring and other charges was $330 million compared to $563 million in 2002 and on the same basis, operating margin was 5.2% compared to 9.0% last year.
For the full-year 2003, Quebecor World generated $183 million of free cash flow compared to $320 million in 2002. "One of the strengths of Quebecor World is its ability to generative free cash flow. Through a disciplined management of working capital the Company produced significant free cash flow despite the tough environment and reduced operating income," added Mr. Neveu.
Before impairment of assets, restructuring and other charges, certain specific charges and others relating to finance and tax, Quebecor World earned $0.27 per share in the fourth quarter of 2003 and $1.01 per share for the full-year.
The following table is a summary of previously discussed specific items and their impact on 2003 earnings per share on a full year basis.
In North America revenue for the quarter was $1.35 billion compared to $1.37 billion in the 4th quarter of 2002. For the full-year, revenue was $5.06 billion compared to $5.09 billion in 2002. In the quarter revenue was lower in all business segments with the exception of commercial/direct that registered an increase. Before impairment of assets, restructuring and other charges operating margin was 5.4% for the quarter and 6.1% for the full-year. Some business groups including retail and commercial, registered year over year increases in volume and revenue but not enough to offset lower prices. The magazine business continues to be hampered by sluggish ad spending while catalog volume increased. Our logistics business which primarily serves magazine and catalog customers, increased revenues 31% in 2003 to $245 million. Our directory business is also coping with pricing pressures and the book segment was adversely affected throughout the year by a weak market and significant price competition as publishers reduced inventories.
In Europe, revenues increased by 18% in the fourth quarter to $340 million and 15% for the full-year to $1.15 billion. The increase was due to favourable currency translation and acquisitions. Our French operations registered negative margins for the year but the trend improved in the later half of 2003. As the result of earlier cost containment initiatives and operational efficiencies, we recorded positive results in the fourth quarter. Revenue for the quarter increased 19% to $155 million and operating income increased to $7 million. All European countries are experiencing price pressure and overcapacity. In our operations outside of France, facilities in Austria, the U.K and Belgium performed well. Plants in Sweden, Finland and Spain were more adversely affected by pricing. Europe, as a whole, posted margins in the fourth quarter that were accretive to the consolidated margin.
In Latin America fierce competition and currency devaluations adversely affected results. Volumes increased in the quarter and for the full-year but lower prices resulted in a 3% decrease in revenues to $177 million in 2003 compared to $184 million in 2002. In an effort to improve margins, management introduced cost containment and restructuring initiatives that resulted in the reduction of its workforce by 18% or 548 employee positions compared to December 2002.
Management Discussion and Analysis
Please refer to the MD&A for the reconciliation to Canadian generally accepted accounting principles of certain figures used to explain these results. The MD&A can be found on the Company's website at www.quebecorworld.com and through the SEDAR and SEC filings.
The Board of Directors declared a dividend of $0.13 per share on Multiple Voting Shares and Subordinate Voting Shares. The Board also declared a dividend of CDN$0.3845 per share on Series 3 Preferred Shares, CDN$0.4219 per share on Series 4 Preferred Shares and CDN$0.43125 on Series 5 Preferred Shares. The dividends are payable on March 1st, 2004 to shareholders of record at the close of business February 13, 2004.
Quebecor World Inc. also announced today that it has filed its quarterly report for the quarter ended December 31, 2003 with the Securities and Exchange Commission. The report contains certifications from Jean Neveu, President and Chief Executive Officer and Claude Helie, Executive Vice President and Chief Financial Officer, that the periodic report fully complies with the Securities. Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. These certifications are in accordance with the requirements of the Sarbanes-Oxley Act.
Financial statements are available on the Company's website and through the SEDAR and SEC filings.
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