Quad/Graphics Inc (QUAD) 2003 Q3 法說會逐字稿

Good afternoon ladies and gentlemen, welcome to the Quebecor World third quarter results conference call. I would now like to turn the meeting over to Mr. Claude Hèlie, Executive Vice President and Chief Financial Officer of Quebecor World. You may now proceed, Mr. Hèlie.

Claude Hèlie: Thank you. Good afternoon and welcome to the Quebecor World conference call for the third quarter of 2003. Joining me today from our offices in Montreal are Jean Neveu, the Chief Executive Officer of the company; Dave Boles, Chief Operating Officer of our North American operations; and Jeremy Roberts, our Vice President of Investor Relations' and Treasury.

The conference call will follow the usual structure. Jean will provide introductory remarks; I will follow with a review of our financial results. Dave Boles will review North American markets, Jean will come back to review our international markets, and then we will open up the call for questions.

I would like to remind everyone that this call is being web cast, and that any forward-looking comments are subject to the safe harbor provisions and applicable laws. At this points I will ask Jean to provide introductory remarks. Jean.

Claude, thank you. To begin, I would like to say that the fact that our third quarter results are lower than last year is no surprise for us. We have been saying for some time now this is an extremely difficult economic environment for printers. Advertising spending continued to be weak. There is a significant over capex in this industry, which has resulted in lower prices.

This is the case in all of our markets, North America, Europe, and also Latin America. However, we're expecting a better performance in September. This September was a strong month and we were somewhat disappointed relative to our earlier expectation.

Our recent management focus has been two fold, to rigorously look at our cost structure in all areas of our business, and to secure an increased volume. Last quarter we had offered an important set of [inaudible] reflecting the fact that cost reduction and cost containment is an ongoing process at Quebecor World, and is a crucial component to delivering improved margins.

On the other front we're renewing contracts and winning new business, and David Boles will provide more detail later in this call. Although this is still a work in process, I believe we are making gains that will bring improved results as we move forward.

As to our numbers for this quarter, revenues were Can$1.59b compared to Can$1.62b in the third quarter last year. Our volume of impressions was up but overall revenues dropped because of lower prices. Earnings per share were 38 cents compared to 64 cents last year. The consolidated operating margin was 7.9%. I want to stress that this is not acceptable, even in today's difficult environment. We are determined to do better.

To summarize I'll just say that it is tough out there, and the competition is fierce. There is no magic pill quick fix, but we believe we are taking the right steps to deal with the current climate, and charting the proper course for the future. Claude Hèlie will now review the segmented results of operation and provide some additional details on our financial results. Claude.

Claude Hèlie: Thanks. As Jean mentioned, our results continue to be affected by weak market conditions. U.S. consumer magazine advertising pages during the third quarter were down close to 4% from last year. U.S. commercial print shipments declined on a dollar basis by a disappointing 6% in August, and year-to-date they're down by close to 2%. Capacity utilization, as measured by the U.S. Federal Reserve Board, was 76.5% in September, which is the lowest level we have seen since March of 2002.

In this context, our focus continues to be on aggressively reducing costs and protecting sales volume. During the third quarter, consolidated revenues decreased by 2% or Can$27m, to Can$1.6b. Adjusting for a currency impact of Can$56m and lower paper sales, revenues were down closer to 4%.

Operating income was Can$125m or Can$120m before a Can$5m net reversal of earlier restructuring charges.

All of my comments will exclude the impact of restructuring impairment and other charges.

On this basis, the operating margin was 7.5%, down from last year 10.4%, but a significant improvement over the previous quarter of 6.1%. These are all before specific charges and restructuring charges. We expect this trend to continue through the fourth quarter as well.

In North America, revenues were down Can$42m or 3% from Can$1.3b to Can$1.28b. Operating income was Can$110m for a margin of 8.6%. Nearly half of the decrease in sales was attributable to continued pressures in the book market. The other half is due to lower pricing in our long run segments, magazines, catalogs and retail inserts.

On a positive note, we are seeing signs of improvement in our direct sales, and a weakness in commercial printing has abated somewhat in recent weeks. Dave will provide more color on North American markets in a moment.

In Europe, revenues increased by 8%, Can$268m, helped by the strengthening euro, kroner [ph], and pound sterling. Operating income in Europe was Can$7.5m.

In France, which represents close to half of our European platform, we have made progress, and the division posted positive earnings in the month of September. While in Latin America revenues were Can$40m and operating income was Can$800,000.

Now if I turn to the cost containment initiatives, in the third quarter MDNA or discussion of results that was released over the wire this morning, we provided you with a significant level of detail concerning our cost reduction program.

In particular, I should highlight the progress made in terms of streamlining our workforce and cutting overhead expenses. Since 2001 more than 5,000 positions have been eliminated worldwide, nearly 1,200 of which were removed in the first nine months of this year.

The impact on costs can be partially seen by looking at the reduction in SG&A expense. S&GA declined by Can$13.9m this quarter. Can$8.1m of this decrease was due to restructuring initiatives implemented this year, including reduction in forces and the consolidation of corporate functions, as well as the relocation of certain sales offices in compliance. The remainder is related to one-time items in quarter three of last year.

Year-to-date S&GA is down Can$22.6m if we exclude foreign exchange impact and a Can$15m provision for bad debt that we recorded in the second quarter of this year. This is despite the pressures created by escalating pension expense and health costs, which are pushing S&GA expense in the opposite direction.

The company generated free cash flow of Can$14m during the quarter. Funds from operations were Can$60m, including an investment in working capital of approximately Can$100m. Capital expenditures were Can$36m, in line with last year.

You'll recall that our capex number in previous quarters this year was inflated due to the repurchase of equipment under operating leases. Financial expenses were a little less than Can$46m during the third quarter, the same as the second quarter of this year. The debt to capitalization ratio was also stable at 47%.

Now I'll turn it over to Dave to review the operations and market in North America.

Merci Claude. Good afternoon, everyone. I'd like to spend a couple of minutes reviewing the performance of our major North American business groups this quarter, to give you a sense of the landscape. I'll then make a few comments on the pricing environment, and add to Claude's comments on cost reduction by briefly touching on what I call our 'save and sell' strategy, to improve profitability.

I'll start with our magazine/catalog group in the United States. As Claude stated earlier, magazine ad pages were down almost 4% in the quarter. However, some specific categories are doing well, such as travel, teen and women's magazines.

Our overall volume and revenue in the magazine/catalog segment is really a mixed bag, and down slightly this quarter, consisting of significant erosion in the magazine offset market, and this is largely offset by growth in our catalog market, which is showing year-over-year growth, albeit at lower prices.

However, our strategy of partnering with the largest publishers is paying off, because they're the ones who are launching new publications at specific demographics, like the teen market. Customers launching new titles include Condinat [ph], Viacom, Dennis Publishing and Bower. Over on the catalog side, catalogers are cautiously optimistic about the Christmas season, but we are seeing increases in volume, but on a case-by-case basis. In the third quarter we received renewals and new work from Viking, Office Depot, Avon, Williams Sonoma and Ethan Allen.

Over to our retail business, volume was up in our retail group, but significant price erosion has hurt revenues and margins. Our offset Grevier [ph] combination, that allows for national and regional advertising campaigns is still the choice of customers in this industry, but there is a lot of competition on price. I am pleased to report significant wins with customers such as Wal-Mart, Home Depot and J.C. Penney, reflecting increased market share.

Moving over to our commercial direct group, as Claude mentioned, this is one group that is showing some positive results this quarter, which could be an indication of some recovery in the industry. This market, the spot market, tends to lead both downturns and recoveries. Order activity in direct mail is picking up for the fourth quarter and into 2004.

Over to book and directory, our book impressions were down in the third quarter and there is also negative price pressure in this sector. Publishers are still reducing inventory, which is impacting the size of print orders. State and local government budget constraints are affecting orders for school textbooks.

Moving into Canada, our Canadian operations, we have shown increased revenue as a result of the currency translation to U.S. dollars. However, this market is similar to the U.S. and the pricing is very competitive. During the quarter we were pleased to report the renewal of a major Canadian customer, Canada Wide Magazines, which is the largest independent magazine publisher in Canada.

I'd like to make some comments about some specific plant issues, what I call plant fixes. This is another factor in our lower year-over-year results, a few isolated problem areas. But I would categorize this as good news, because they have been identified, they are fixable, and we are putting plans in places to make the repairs. I'd like to give you an update on two that I've previously mentioned.

The first is one of our book facilities in Kingsport Tennessee. This is a book facility that is now making money again, because we took a systematic approach to putting it back on track.

We did a number of things. We outsourced inefficient processes; we decommissioned older, less productive equipment, some of which was 30 years old. As a result, we have reduced our workforce producing roughly the same volume.

Finally, through better management, planning and scheduling, we significantly reduced waste. This has resulted in dramatic improvements in schedule, fidelity, quality, account attainment, and finally, customer satisfaction.

The second example I'll give you is our new offset retail plant at Riverside California. This offset retail plant is where we've experienced start up problems. Again, by focusing management resources and taking a systematic approach, we're getting the plant on track and on time.

The last press is now in and running. As a matter of fact, in October we're going to increase our month-over-month volume by 30%. We've set two production records in the last 72 hours, and we've gained 75 hours in schedule. So we're very much on track there. We've reorganized our manning requirements; we have the right people in place to run the facility 24/7.

Moving over into what I call our Sell and Save Strategy. As I've said before, we can't simply save our way back to double-digit margins; we have to couple cost cuts with volume increases at reasonable prices. While we all acknowledge this is a price competitive environment, I want to emphasize our business is a good mix of long term and short term contracts. This isn't new; it's always been this way.

The long-term contracts allow us to plan, and in some cases make significant capital investments, while the shorter term, or spot market, fill in gaps, maximizing asset utilization at spot prices. High when times are good, not so high when they aren't. Right now in North America, our overall mix of long-term versus short-term, a year or less is right around 50/50. Those contracts that are long-term have staggered renewal dates.

Finishing on the cost side, a few comments. On the saving side we are now making progress on reducing costs. We continue to implement best practices across our platform. We are evaluating further consolidation opportunities to reduce costs in maximizing efficiencies.

Our smart procurement initiatives are yielding results by reducing the number of suppliers in our overall cost of procurement. And several of my senior managers have now been in their new positions for two quarters. They've had the time to assess their business groups and put in place new plans that will not only reduce costs going forward, but also improve productivity and customer service.

I'd like to turn the meeting back over to Jean for a brief review of our operations in both Europe and Latin America.

In Europe, [inaudible] markets are suffering from overcapacity and weak pricing. Most of our facilities are reporting strong volume but weak prices. We have recently begun to face increasing price pressure from Poland and the Czech Republic, although at lower prices we have been able to secure greater volume with some existing customers and to receive new magazine work in the UK.

Facilities at the UK, Austria and Belgium are performing very well. The book business in Spain is experiencing reduced volume and the export business has been affected by the increase in the value of the Euro. In Finland and Sweden, prices are lower, but we are encouraged by strong loading numbers for the fourth quarter.

We are continuing with cost savings initiatives through workforce reduction and supplier consolidations. Our operation in France generated a loss of EUR1.6m during the quarter, although as Claude has just mentioned, that we made some profit in September and a breakeven in August. This is quite an improvement from the last quarter and as Claude mentioned, we made money in France [inaudible].

Pricing continued to be lower especially in offset, but we're having volume because of a more aggressive sales approach and a new competition arrangement with our sales force. One example is a three-year contract for a Point View magazine print.

We are continuing to reduce our headcount through a previously announced restoring incentive and more efficient technology.

In Latin America, pricing and overcapacity are factors in many of the countries in which we operate. Volume for the quarter improved over last year, but it was negated by lower prices. Overcapacity, [inaudible] pressure in certain countries and currency devaluation all had a negative impact on prices.

Operating income was down in Brazil, Peru and Mexico , while (inaudible) showes a a modest increase. [Inaudible] facilitation in Argentina, Mexico and Brazil are suffering because of government delays in approving new school textbooks. Our directory businesses in Recife, Brazil and in Peru have been affected by government decisions that no longer make black and white directories mandatory. This has reduced volume.

Results at our Mexico facility are improving because of better efficiencies as a result of fewer but better trained employees.

In closing, I really believe that our focus on reducing costs, at all [inaudible] increasing international volume will lead to better results. We are making progress on both fronts as you can see from our reduced account and lower exiting numbers. We are renewing work with existing customers and getting our fair share of new contracts.

I would now like to open the line for questions from our participants.

(Operator’s instructions) The first question is from Meagan Anderson, from RBC Capital Markets. Please go ahead.

Hi, good afternoon. I have just a couple of questions. I'm wondering if you can talk about whether you're seeing new competition in North America in some of some of your classic print categories? And by that I mean are others desperately looking to fill some capacity, and perhaps looking to do so with volumes they would not have traditionally done so?

The second question is on your pension expense. I noticed in your release that you've mentioned there's a minimum requirement this year of Can$23m, but that you expect to make contributions of Can$64. Can you tell us where you are year-to-date on that?

I'll take the first question. I think the competitive landscape has the same cast of characters out there. Certainly, certain segments are much more fragmented than others, such as in the commercial print market, where there are dozens of competitors.

But when you get to our other segments, our retail segment, magazine catalog segment, it's the competitive activities amongst the top four or five leaders in each of those segments. So, the level of competition certainly has intensified, but the players haven't.

OK, regarding your second question for pension expense, the bulk of the contribution will be done in the fourth quarter, the Can$64m that we referred to in our MD&A.

OK. And where would that show up in your financials? Would that be in the other category?

It's going to show up on our cash flow as a cash disbursement. But the funding of the pension and the pension expenses are not necessarily the same numbers.

OK, so could you give us an idea what the expense would be then, or what the incremental change would be?

We are contributing to our pension to the tune of Can$64m this year. The expenses, which are calculated in a different manner, actually have been recorded on a month-to-month basis. So there should be no up tick in the expense in the fourth quarter.

OK, and one final one if I may. In terms of just the North American landscape again, are you seeing any players get to the point of maybe bankruptcy, where they just can't go on? The growth, with the incumbent players will be picked up from those scraps at all? Or, would that make a difference to you at all?

I think, cases of insolvency to this point have been with small players. You hear rumors about signs of distress among certain competitors. So it happens. It's only speculation.

OK, thank you.

Thank you. The next question is from Adam Shine [ph], from National Bank Financial. Please go ahead.

Thanks a lot. Claude, just starting with you, in regards to your comments on operating margin around 7.5% in the quarter, you suggest that the trend should continue into Q4. I know you don't like giving guidance, but that sounded like some guidance. So, is that the sort of level we should anticipate in the Q4 period?

No, I said that the--

Overall, the trend?

No, I said that the third quarter margins improved from the second quarter.

OK, and that sort of improving trend should continue into the Q4?

That's what I'm saying.

OK, and in regards to France, you obviously achieved some profitability in September to close out the quarter. Should we expect to see Q4 entirely profitable? And then lastly, if you could just update us potentially on the Cap Ex for '03 and '04? Thanks.

Well, in the fourth quarter, as we mentioned we made some money in the month of August. We had a breakeven, a slight profit, in the month of--sorry. We made money in September, a slight profit in the month of August.

We know that in the fourth quarter the workload is quite good. We are quite busy in France. We have pricing pressures there, as everywhere else. We have reduced our costs, so things are looking up.

OK, and in regards to anything you can articulate on Cap Ex, to close out this year, and the level for '04?

Well Cap Ex basically, as you know, we've got year-to-date Capx of Can$205m, as compared to Can$140m last year after nine months. Remember that we have about Can$80m of operating leases that we took in, in the first and second quarters.

So, Cap Ex will probably go up by 15% to 20% from the Can$205m, and we'll probably end the year there. And I would say that next year, without giving any guidance, it would be generally in that ballpark, maybe slightly higher.

OK. Great, thank you very much.

Thank you. The next question is from Jeff Fan, from UBS. Please go ahead.

Claude, can you just repeat that Cap Ex number once again, before I go onto my question?

Can$205m, so far. Yeah. After 9 months, we've got Can$205m. Last year, we had Can$140. So, I'm saying that at the end of the year, we'll probably be at 15% to 20% higher than where we are at now, as of September 30th, and next year, it would be in generally the same ballpark, maybe slightly higher.

OK, that's perfect. I have actually just one question. It's regarding the possibility of further restructuring and staff reduction going forward. It looks like within your MD&A that you're going to cut another 70 heads in Q4. Through the quarter, you've made some cuts on SG&A and year-to-date as well. But the volume is increasing. However, the pricing seems to be getting worse.

So, will we need to do more restructuring? Will we see more staff reductions in order to offset the price decline, going forward?

We've reported 1,000 employees in the second quarter, or a little less than 1,000. We reported 1,000, but the number was 970 to be exact. We took out about 200 employees in the third quarter.

We will continue, as we mentioned before, continue to take out, well, not only employees, but reduce our costs across the platform. We're doing this to try to maintain our margin, because of pricing pressure. So, we will continue to do that. A lot of it will be charged to our results as we go along.

This year, we do not expect substantial restructuring charges. But in the coming months, we will be reviewing our platform to see if we need to do any consolidation of facilities. At that time, we'll cross that bridge when we come to it. But, that won't be this year. That will be next year.

On your comment regarding margins improving sequentially into Q4, what kind of assumptions are you making on both pricing and volume? Can you just give us some color there?

Well, all we're saying is that we know that we have had price pressure. We're reducing our costs and we are improving in certain areas, as Dave mentioned, in certain specific plans that have had our results.

Since the beginning of the year, we have resolved a lot of these problems. So sequentially, that brings improvement to the results. That's why we made that statement. And I hope like hell we're right in the fourth quarter.

OK, thank you very much.

Thank you. The next question is from Vince Valentini, from TD Newcrest. Please go ahead.

On the visibility issue, to what extent is the pricing decline that you're seeing right now, spot-pricing that just keeps getting worse, and you can't really predict where it's going to bottom out? Versus, contract pricing where you had to renew at lower levels, but at least you can look forward and have some comfort as to where prices are going to be in the future on those contracts?

David?

Well, as I said, there's about a 50/50 split right now. I mean, spot pricing has been consistently unfavorable this year. I don't see it being particularly a dynamic or moving figure, at this point. I suppose there's a reasonable amount of stability there.

The contract decisions that we are making, for longer-term, as I've said on previous calls, there are a lot of factors that go into those decisions. That's all the way from the quality of the customer, the opportunities for growth, the opportunities for value added. A lot of factors.

You mentioned earlier that this is somewhat of a watershed year for contracts. Can you, not on this call but in earlier presentations, can you quantify that in any way? Like, how many contracts this year, vs. relative to what you expect next year? Are there 20% or 30% more this year than next year, coming up for renewal?

I would say, from '02 to '03, yes. It was a watershed year and I would say there were significantly more than what would normally be the case. But as I've said, price erosion is nothing new in this industry. And, I would expect the impact of that on a go forward basis, is going to mitigate, somewhat.

That's from '02 to '03. So, if you go from '03, looking into '04, would you then come back down from that watershed year? Or, would you still be a similarly high level of contract renewals next year?

Not similar.

Claude Hèlie: It would be a lesser amount in '04 compared to the second half of 2002 and the first half of 2003.

OK, and I'm just going to throw this out here, and hopefully you can help me, because it's certainly something that I find very perplexing. You say market conditions and pricing are extremely weak. You're certainly characterizing that as industry issues, and nothing specific to yourselves.

I know you're cutting costs like made, but if I look at Donnelly, they've actually increased their margin year-over-year for the past four quarters in a row, which seems very inconsistent with the pricing dynamic that you're seeing.

Even if they had a worse cost structure to start with, I just don't see how they could be improving their margins if price is so bad for everybody out there. Is there anything you see that reconciles those numbers, that maybe you can help me with?

Probably one of the reasons is that Donnelly was much lower than us margin wise for years and years.

Claude Hèlie: They started from a lower base, so it's easier to increase from a lower base. We were, if you go back to our margins, double digits last year and the year before. We had fairly high margins.

So we've been impacted on that. We also have to look at our geography, where we're in Latin America, we're in Europe, North America, and then we had things that are specific to certain operations, and then there's the pricing. So all in all, that has been our result.

OK, thanks.

Thank you. The next question is from Tim Casey from Nesbitt Burns; please go ahead.

Thanks. A question for Dave. Dave I'm wondering, just structurally within the industry, to get a better pricing environment I guess the market has got to get better, which you have limited control over. Capacity has to get out rather quickly, and that seems unlikely unless there's a spate of insolvencies. We had a situation where yourselves and Donnelly, on an order magnitude basis, are roughly the same size.

So I guess, like a lot of people on the call, I'm trying to get some insight from you as to what's going to turn this pricing environment around. Is it a matter of just waiting out the cycle? Or is there something that's got to give here? It seems to be affecting not only yourselves, but also a lot of people out there. Taking into account Vince's comments on Donnelly as well.

I think, as we've discussed in the past, I guess there're two pricing dynamics going on. There's the transactional pricing, the dynamic which tends to be far more volatile than longer-term types of contracts. Longer-term types of contracts need to be supported with investment in both working capital, and in some cases plant equipment. So obviously we have to think those through very carefully.

I would say that an economic recovery is going to have a nearer term and more dramatic impact on the transactional spot pricing, because that has been more volatile. I think that will come along with the economic recovery.

With respect to longer-term contracts, it really hasn't been my experience where I have seen dramatic or significant increases in pricing in this market. It goes down to the example that I used in the year 2000, which I think every printer would say was a watershed year in every respect.

But if you were to compare unit pricing in 2000 to pricing from 1990, you would have seen pricing that would have been far and away less. So this is like nothing new. The thing is, for us, and I think our company has more opportunity than others, is we have an opportunity to, in my view, dramatically lower our cost base in many, many ways. This arises from the fact that we're a fragmented company that's come together very quickly, largely through acquisition, and I think that we have opportunities that others don't.

So I think that will allow us to take advantage of the long term secure positions with blue chip customers, and find a way to make money at prevailing market levels.

Your comments combined with Claude's, certainly imply that you're setting up for another fairly larger restructuring in the first half of next year.

There's many ways to skin a cat with costs.

Thank you.

Thank you. The next question is from Andrew Mitchell from Scotia Capital. Please go ahead.

Just a couple of questions. First just following up on Tim's question, the exact same thought here. What I was wondering was can you, just following up on what you said about the 1990's, taking into account that capacity utilization was better during that period, in my recollection. Can you talk about what turned that environment? What were the leading signals that got you into better shape, where you got back into the 1%-2% price deflation on the long-term contracts?

Capacity utilization, first of all I don't think that's been our problem this year. I think we've largely held position in production units. There are certain exceptions in certain segments. So that certainly hasn't been the issue with us.

I think our ability in the past to grow earnings, even in the 1990's with pricing going down on a year-over-year basis reflects our track record as a company, of being able to reduce costs and act as the consolidator in our industry. We're going to get better at it with each year on a go forward basis.

OK, so there's nothing you can point to that's going to make you feel better about going on the bargaining table as a lead indicator, in terms of long term contracts?

I don't really understand the question.

Well I'm just saying, as you're looking out on your radar screen, I'm not getting a clear indication as to what you're looking at that's going to make you feel that you're getting behind the price deflation problem. We're talking about the fact that it's been bad before, it gets better. But what kind of analysis do you guys run so that you can get some lead indicators on that?

We won't enter into long-term contracts with anybody unless we are confident we can make money.

OK, just stepping past that. You were talking about the direct mail and commercial markets in better condition. Can you just give us a little more insight into where you're seeing the strength? Is it geographic? What are the types of customers we're seeing the up tick in demand? How permanent do you think that improving trend is? Is that something that you expect to continue into next year, with the election coming on, etc.?

It's a little bit of a mixed bag. There are certain segments of the commercial market that are not doing better on a year-over-year basis. The short run sheet fed hasn't really shown any signs of improvement. Over on the web side of the commercial market, yes, there has been a pretty significant year-over-year pickup in that area.

Then when you move over into the direct marketing side, we're seeing certain Fortune 500 types of companies now reinvigorate their promotional activities with new types of campaigns, and we're seeing more of that. So we see that as a leading indicator that things could be stabilizing a little bit.

Thanks.

Thank you. The next question is from Douglas Arthur from Morgan Stanley. Please go ahead.

Actually it's from Craig Huber. Back on this price issue once again, can you be a little more specific about how much your pricing is down year-over-year? I'm curious, is there any specific area in the U.S. where pricing is down, say more than 8% year-over-year?

Overall, no. But there are isolated contracts where yes, it is more than 8%. But on an overall basis it's not even close to that.

Then on the direct mail side, I've always kind of thought that that was one the industry segments where the margins tend to be the highest. Can you just go a little more in depth about the pricing pressure you may be feeling there?

The issue there has been one of activity as opposed to acute pricing pressure. People simply are not promoting themselves with games and other sorts of promotional programs. It's hard to make money no matter what the price margins might be. That is really more of a case of activity, and it's a highly niched market, a highly specialized market, and those that can do it are relied upon to do something that is relatively unique that not too many people can do.

Would it be safe to say that price in the U.S., across all your various segments, is kind of down in the 5% range, plus or minus a point or two?

No, I really can't give any guidance on that. Overall it hasn't been close to 5%.

OK, very good. Thank you.

The last question is from Randal Rudniski from Credit Suisse First Boston. Please go ahead.

Thanks, I have two questions. First of all, maybe for David. The plant problems that you referred to earlier are these issues completely behind you now, and how significant were they?

They were very significant, and what we are on is a very steady path, trend, a very positive trend. What's not behind us is further improvement. So the trends that we're seeing are real, they're positive, they're permanent, and they're a work in progress that's going to improve.

So there's going to be a great deal of focus, just as we have overall, programs across the entire platform with respect to cost containment. There's what I call the old 80/20 rule where 80% of your operating problems might be in 20% of your facilities, and a high degree of operational focus will yield a nice return for management effort.

OK. The second question pertains to the dividend policy. So maybe for Claude or Jean. Can you tell us what you think about the dividend and the policy right now? The payout ratio in terms of earnings is well above where it's been historically. Can you give us some kind of guidance there?

Claude Hèlie: Well we've maintained our dividend, we've announced a 13 cent dividend for this quarter, we've been at 13 cents for the last three or four quarters. Naturally the payout ratio increases as our earnings decrease.

At this particular time our board has approved the 13 cents, and that's where we're at, at this particular time. We're in the process of doing our business plan for next year, we'll see what next year has in reserve for us, and at that time we will advise.

That's terrific. Thank you.

Thank you. I would now like to turn the meeting back over to Mr. Hèlie.

Claude Hèlie: Okay. I think we've covered all the questions. Thank you everyone for your participation, and we'd like to apologize, because I gather we had a couple of other conference calls at the same time, so we had a conflict. But again our apologies and thank you for participating. We'll talk to you in the next quarter results in early February. Thank you.