Quad/Graphics Inc (QUAD) 2004 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Quebecor World, Inc., Quebecor Inc. and Quebecor Media Inc. 2004 fourth-quarter and year-end conference call. I would like to now turn the meeting over to Mr. Luc Lavoie, Executive Vice President of Corporate Affairs, Quebecor Media Inc. You may now precede, Mr. Lavoie.

Thank you very much. Good afternoon and welcome to the Quebecor World, Quebecor Inc. and Quebecor Media conference call for the fourth quarter and full year 2004. My name is Luc Lavoie and I am the Executive Vice President Corporate Affairs Quebecor Inc. and the moderator for today's call.

This call is being webcast and forward-looking statements are subject to Safe Harbor provisions. This quarter we decided to release the results of Quebecor World and Quebecor on the same day so you could get the picture of all operations at the same time and would not have to wait 24 or 48 hours between the results of Quebecor World and Quebecor Inc. and its media holdings. We have also decided to hold a combined conference call. The process will be the following. We will begin with a presentation of the results of Quebecor World followed by a question-and-answer session with analysts. This should last approximately 45 to 50 minutes. This will be followed by a presentation of the results of Quebecor Media and Quebecor Inc. and a question-and-answer session.

Joining me today from our offices in Montreal for the first part of this call are Pierre Karl Péladeau, President and Chief Executive Officer of Quebecor World and Quebecor Inc. Claude Helie, Executive Vice President and Chief Financial Officer of Quebecor World. Also with us is Jeremy Roberts (ph), Vice President Corporate Finance and Treasurer of Quebecor World; and Phillip Clucia (ph), Quebecor World's Director of Investor Relations. Pierre Karl will now provide some (indiscernible) and give us an overview of our market segments. Pierre Karl?

Thank you Luc. Good afternoon everyone and thank you for joining us this afternoon. Before I discuss our fourth-quarter results I would like to make a few comments on a related matter. At the beginning of our last conference call I announced that we had begun litigation against one of our competitors, RR Donnelly. Today I would like to update you on this matter and tell you that Quebecor World and RR Donnelly have withdrawn all litigation between them. The parties are pleased to say that they have been able to amicably resolve their differences. Under the terms of the agreement neither side will make any further comment.

Now I will turn to Quebecor World fourth-quarter and full year results. In general I am delighted with our fourth-quarter performance. We won't make the mistake of getting ahead of ourselves but these numbers give us reason to be optimistic about the future. They indicate that our action plan is working and that the decision that we have been taking to reduce cost and improve efficiency are delivering improved results.

The top line growth is being reflected in increased operating income and higher margins. While we have demonstrated significant quarterly and year-to-date improvement I would like to point out we achieved this result despite lingering efficiencies from earlier restructuring in our U.S. magazine platform and while we were moving equipment in our Scandinavian Brochure (ph) network.

I am particularly pleased that in the fourth-quarter we show revenue growth of 1 percent even when you discount the positive effect of currency and an additional week in the quarter when compared to the same period last year. This is a tribute to our sales force and demonstrates our platform and global service offering as the right fit for the world's leading publishers and retailers.

In the fourth quarter revenue 1.9 billion compared to 1.7 billion and for the full year revenue was a record 6.6 compared to 6.4 billion last year. Operating income before restructuring was 163 million in the quarter compared to 86 and the margin was 8.6 percent compared to 5 percent in the fourth quarter of 2003.

For the full year operating margins improved to 7.3 percent compared to 4.9 in 2003. Net income for the quarter before restructuring was 90 million or 60 cents per share and for the full year net income was 239 million or $1.51 per share. Claude will give you a more detailed breakdown of the numbers in a few moments but as I said at the outset, our strong fourth-quarter and full-year numbers demonstrate that the changes we embarked upon during the last 18 months have put us on the right course.

We have accomplished this by keeping a sharp eye on cost and improving operational and corporate efficiency. For the full year SG&A was 480 million compared to 551 million last year. As I said last quarter this had been realized through workforce reductions, the centralizing of corporate functions and support services, better supplier agreement and by more careful with every dollar we spend.

I believe we now have a leaner, more streamlined and more nimble corporate structure that can more quickly respond to our customer needs resulting in a better return for our shareholders. The other part of the equation is improving productivity in all our facilities. We are doing that by reviewing the performance of every breath in every facility and by establishing a set of operational criteria that are measurable and applicable across the board.

New technology will be introduced by way of three-year investment program announced in the second quarter of last year. The first phase of that new equipment will begin to be installed in the latter part of this year and will continue through '06 and '07. We have a plan in place for this new equipment but that plan has some preset conditions and built-in flexibility. It enabled us to make a final determination of location based upon facilities meeting conditions that will enable the Company to get the best return on its investment. In a nutshell this equipment will be installed based on our customers' needs and where it can be run the most efficiently.

Before I turn the call over to Claude, I would like to give you a brief overview of our market and operation in North America, Europe and Latin America. In North America 2004 was marred by continuing overcapacity and further price reductions. Price competition varies from group to group but we expect this trend to continue in 2005 meaning improvements will continue to be driven by reduced cost and improving operational efficiency.

One of the bright spots in 2004 was the year-over-year increase in U.S. magazine ad pages. Ad sales were also up in 11 of the 12 major advertising categories. This was a bit of a doubled sword for our magazine platform because of the closing of our FAM (ph) facility. The closure meant we were moving work and equipment during the spike in ad pages but we were able to manage this much better in the fourth quarter. The transfer is now generally complete and the effected facilities are performing better.

We also benefit from added value from some of our largest customers and we were awarded a number of new titles including Read from a Ship (ph) as well as some test issues on a new Time publication target at NASCAR fans which as many of you know is the fastest-growing spectator sport in the U.S. Our target publication group had success in the quarter with publisher launching niche and regional magazine publications.

Our logistic group co-mailing offering to magazine customers is adding an impact in helping us attract new customers. We have already sold out our first co-mailing machine and are rapidly receiving commitment for our second. The program is particularly targeted at short and medium run magazine publishers to help them reduce their postal cost.

The announcements of our investment in new offset presses has been very well received by existing and prospective catalog customers. Our new 64 page presses will help our catalog customer by improving quality, reducing distribution cost and cycle time. Volume was up in the fourth quarter and the full year although the volume increase was not quite enough to offset lower prices for the full year. While catalog revenue was up 8 percent in the fourth quarter it was down 2 percent for the year.

We had some wins in this sector in the fourth-quarter including renewal with Cornerstone brands, EKR (ph), Avon, JC Penney and Sharper Image. Significant retail customer renewals in the fourth quarter include Lowe's, Rite Aid, Walgreen and Home Depot. Our position in the Sunday magazine market remained strong and this segment experienced a 6 percent increase in ad pages in 2004.

In the past year our retail group has spent a lot of time focusing on press performance and productivity in both the gravure and offset platform. Volume and revenue increased in the fourth quarter and for the full year. Price competition in the sector is still fierce but our coast-to-coast network of 26 facilities offering short run and long run options can't be matched by anyone else in the industry.

Volume in our book business increased 8 percent in the fourth quarter because of stronger demand in the adult trade and educational sectors. For the year volume was up 2 percent. While the U.S. book market is experiencing increased competition from China and the Pacific Basin we are aggressively leveraging our extensive Latin American book platform to match this challenge.

Several large U.S. and international publishers have already visited our Latin American facilities and have been suitably impressed. I would also like to point out that much of this work is coming from other printers who can't provide this option. Therefore most of this is new work and work that was previously being done in Asia. The Latin America book initiative is not happening at the expense of our North American business.

In directory, volume was up from the previous year due to the increased work with independent publishers. Pricing lower in the quarter and the full year in both these segments. Our direct business saw volume increase 2 percent in the fourth quarter and was flat for the full year. Revenue was up due to a favorable product mix. New accounts include Kimberly-Clark, the American Medical Association, Giant Eagle, Best Buy and Allstate Insurance. Major market focus for 2005 will include financial institutions, direct marketing agencies, telecommunications and general direct marketing firms.

The spot commercial business continues to be very competitive. We had some success in cross-selling initiatives but overall we experienced a decrease in both volume and revenue in this business.

In Canada, pricing continues to be competitive than all sectors primarily due to excess capacity in the market. Volume increased 10 percent in the fourth quarter and 6 percent for the full year. Excluding the positive effect of currency, revenues were up 3 percent in the quarter and down 4 percent for the year. We gained some important new customers in the quarter including Clarity, (indiscernible), but also Future Shock (ph) and more recently, Staples Canada. Significant renewals include the Brick (ph), DC Comics, Radio Shack and Wal-Mart.

In Europe, volume increased by 2 percent in the fourth quarter and 4 percent for the full year. However, price erosion continued to have a negative impact in almost all countries. Our gravure business continued to perform well although it was impaired by somewhat in the fourth quarter by the transfer of two presses that resulted in the closure of our facility in Stockholm, Sweden. We're still the only (indiscernible) European gravure printer and the only one that can serve international customers as demonstrated by the renewal of our contract with IKEA to produce catalogs throughout Europe, our European platform.

Under this multiyear contract we will produce almost half of IKEA global requirement next year alone and we expect to print 60 million catalogs. We have improved the results in our Spanish book business in the second half of the year by introducing new and improved operating procedures. Our offset platform in France is still underperforming in part because of the lack of investment and the right equipment mix. This year we are ordering a new 64 page press in our Marika (ph) facility and we are making other changes that will help address the situation.

In the fourth quarter volume increased 6 percent and 9 percent for the full year in Latin America. While we produced positive margin for the full year in Latin America the fourth-quarter results were affected by the restructuring of our book facility in San Paulo. This facility has now been downsized to focus on contractual business and focused on what it does best which is short run (indiscernible) cover books.

Claude will now review our financial results.

First of all I would like to remind you that as we pointed out in our press release our fourth-quarter and full year results include the 53rd week in 2004. The estimated impact was an additional 91 million of revenue and 5 million of operating income. Still despite this additional week which was included in the fourth quarter, we registered topline growth compared to the same period last year. In the fourth quarter revenue was 1.9 billion and operating income before restructuring was 163 million. Most of this improvement came from our North American operations.

For the full year revenue increased 231 million to a record $6.6 billion. The revenue increase in the fourth quarter was due to increased volume from several of our larger customers particularly in the North American retail magazine and catalog segments. While volume was up for the full year it was not enough to offset the decrease in pricing.

Consolidated operating income before restructuring increased 89 percent to 163 million for the quarter compared to $86 million last year. For the full year operating income on the same basis increased 53 percent to 483 million compared to 316 million last year. This includes 19 million of specific charges in 2004 compared to 79 million last year.

The operating margin before restructuring for the quarter was 8.6 percent compared to 5 percent in the fourth quarter of '03 and the full year comparison is 7.3 percent in '04 compared to 4.5 percent last year.

On the same basis, net income for the quarter increased to 91 million while earnings per share were 60 cents per share compared to a loss of 38 million, or 36 cents per share in the same period last year. For 2004 net income was 239 million or $1.51 per share compared to 40 million or 3 cents per share last year. The fourth-quarter results include restructuring charges of 53 million or 34 cents per share. The cash component of the Q4 charge is 14 million and relates to workforce reduction including the consolidation of several smaller facilities. The noncash portion of 39 million write-down (technical difficulty) nonperforming assets. More than half of the impairment charge is related to our European operation and more specifically were offset (technical difficulty). For the full year Quebecor World incurred 122 million in restructuring charges. Initiatives will result in the net reduction of 1951 employee's positions. In 2005 we expect to record 17.8 million of restructuring charges related to the 2004 initiatives.

The workforce reductions have occurred in North America, Europe and Latin America. We now employ 35,000 people worldwide compared to 37,000 at the beginning of last year. The fourth-quarter results also include specific charges of 9 million for various items including lease provisions and workers compensation claims related to the downsizing and closure of facilities in the U.S. This compares to specific charges in the fourth quarter last year of 23 million.

SG&A expense in the quarter was down to 130 million and excluding the impact of foreign exchange and specific charges was down 16 million or 12 percent compared to last year. On the same basis SG&A for the full year was down 11 percent or $58 million. Financial expenses in the fourth quarter were 32 million compared to 80 million in the fourth quarter of 2003. Excluding 35 million incurred last year for refinancing and currency translation financial expenses were lower by 13 million in the fourth quarter of 2004.

On the same basis for the full year financial expenses are lower by $39 million. The reported tax rates for 2004 was 34.6 percent and 30.3 percent before restructuring. The rate is affected by higher profits in jurisdictions with higher overall tax rate and without corresponding reduction in jurisdictions where we incurred the losses.

Now looking at the segmented results in North America fourth-quarter revenues increased 106 million to 1.46 billion. For the full year revenues (technical difficulty) 70 million to 5.1 billion. Operating income before restructuring for the fourth quarter was 138 million compared to 71 million last year. For the full year operating income before restructuring was 434 million compared to 304 million in the previous year. The operating margin for the quarter was 9.5 percent compared to 5.2 last year and for the whole of the year margin improved to 8.5 percent as compared to 6 percent before restructuring.

In Europe revenues were 377 million for the quarter up 2 percent and the full year revenue increased 2 percent to 1.3 (ph) billion excluding the favorable impact of currency. Before restructuring operating income in Europe was 16.5 million compared to 18.1 million last year. For the full year operating income before restructuring was 50 million compared to 24 million last year.

In France operating income was positive in the fourth quarter and while it was negative for the full year it improved compared to the previous year. In general for the full year our operations outside of France improved as compared to 2003.

In Latin America revenues increased 17 percent to 56 million. For 2004 revenues were up 9 percent to $192 million. Our free cash flow from operations for the year was 319 million compared to 183 million in 2003. CapEx was below last year and on target because we did not have any significant lease buyback this year and some investment we have thought would occur in 2004 has been pushed forward to 2005. We maintain as we indicated last quarter that our CapEx for the next three years will be in the range of 250 to 350 million per year as a result of our strategic capital investment plan.

We were able to lower our debt to capitalization to 4357 (ph). Finally, the Board of Directors declared a dividend of 14 cents per share compared to 13 cents per share in the previous quarter. This is the first increase in our dividend since the fourth quarter of 2002. We believe the increase is appropriate as a reflection of our improved results and our ability to generate free cash flow. I will now turn the call over to Pierre Karl for the conclusion.

In conclusion I would like to highlight the completion of the two-year cycle of repositioning of the Company. Let me first thank Jean (indiscernible) who took over as interim CEO after the departure of the previous management team. As everybody knows Jean was part of the original team that created the largest and most profitable commercial global printer. It is by going back to the basic principles of good and simple management that we have been repositioning the Company to where it belongs. Tight control and close attention to efficiency, careful management of shareholders money and accounting and financial discipline -- these are the fundamental guidelines of the company.

We accomplished a lot in the last two years and we will continue to be guided by those principles. The significantly improved results we have been showing you today is the illustration that this philosophy is right. I am very proud to head a management team that understands deeply these issues and has also been to implement at Quebecor Media. I believe that we have now the best management team in the industry.

The next few years will be marked by the implementation of a significant amount of new technology and the many geographical areas we service. Our expectations are that we will improve our EBITDA numbers as a consequence. Secondly, with a stable management team that understands the game plan we are now in an appropriate position to entertain acquisitions. As you probably know, there are many opportunities available creating therefore a buyer's market.

Obviously we will continue to focus and put an emphasis on increasing the top line. Sales and service will always remain a top priority. In that regard we learned recently that in a benchmarking process carried out by one of the largest publishers, Quebecor World, came on top. The benchmarking that includes categories such as quality, and on time delivery involve five of the largest North America leading printers and Quebecor World was judged to be the best.

Finally I would like to thank our entire team for all of their hard work that has enabled us to produce these good results. Thank you all and we will now entertain questions through 4:45.

We are now going open to questions, please.

(OPERATOR INSTRUCTIONS) Megan Andersen, RBC Capital Markets.

Just on your comments at the end there regarding acquisitions I am wondering if you can add a bit more color to that in terms of any priorities in terms of geographic exposure or product exposure? That is my first question. Second, just in terms of the volume improvement in the quarter up significantly, I am just wondering there again if you can talk about the outlook beyond this quarter whether we can expect a volume picture like the one that we saw here in the quarter in say Q1, Q2?

The third and final question relating to the charges in the quarter, there were some more job cuts -- some of the charges coming in Q4 and some coming in Q1. Can you identify what you expect these cost savings to be from those cuts?

I will answer the first part of your question and (indiscernible) will do the second and third. Acquisitions as I mentioned, there is many availability who will do what we consider being the appropriate thing. As you know, we have been opportunistic in the past and we will remain. This is a trademark by Quebecor. We will continue to grow in the business that we are in.

But would you prefer North America? IS that where you're looking?

We're not going to be specific on this.

The second part of your question related to volume. As we said in our communiqué and our MD&A we should have increased volume in Q4 and a number of the sector be it catalog, retail and magazine so the volume was very strong in Q4. I think your question also related what did we anticipate for the coming quarters? As you know we try not to give guidance as such, so time will tell but I think we are -- 2004 was a good year. We finished strong so we hope we will keep the momentum.

The third part of your question on restructuring what savings do we expect related to the Q4 restructuring. We expect savings in the range of $15 million for the Q4 restructuring. Restructuring we have two things. We have a reduction in force and we also have impairment of assets. The cash portion of the restructuring is $14 million and the savings related is about the same, about $15 million.

Okay. Back to the volume question I realize you hope that good things continue but I guess what I'm asking was there anything unusual about the fourth quarter? And often it is the biggest one whether it is seasonal volumes or what have you do. Were those all pretty normal conditions that there is no reason why we wouldn't expect it to continue through 2005?

There was nothing unusual. I think what we can say is we have made a better utilization of our network of our capacity so that what we sold we did not turn away, we produced.

Thanks very much.

Carl Bayard, Desjardins Securities.

Regarding scrap, scrap was a significant chunk of change for you guys this year, 51 million. How sustainable is that going forward? If you could comment on that? A couple of other questions regarding Effingham, are the issues entirely sorted out by now going forward? If you could also update us on Corby, the order that you lost there -- the progress you are making in England? Thanks.

I will cover Effingham and Corby and (indiscernible) will cover the first part of the question.

On scrap that is actually scrap paper that is included in there as we mentioned in R&D and D&A. We had 17 million for the fourth quarter and 65 million year-to-date. As you know the price of scrap has -- the scrap paper has been coming down this year but we also included in there -- we have paper gains and rebates which makes up for the decrease in the price of scrap paper.

All right but my understanding is paper gains -- part of that is you are more efficient in terms of the paper usage if your saying to a client you are going to be using so many tons and you end up using a lot less or somewhat less, won't the client come back to you later on and say listen, you should be consuming less paper -- we should be benefiting as well.

It depends about the arrangement that we have with the customer. If we have an allocation of 6 percentage, if we do better than that, we keep it. If we do worse, it is our cost. So for us it is important to be as efficient as possible.

So the allocations aren't subject to change then?

Not substantially.

So going forward you would say assuming that prices for scrap remain the same as they are right now, they look pretty strong, you would assume this is sustainable going forward?

As I say we have rebate in that which is related to our procurement efforts so if we continue to be aggressive on the procurement side we should do as well as we have done in the past.

Okay, and regarding Effingham and Corby?

Effingham, the plant is not operating any more. In fact we sold the building.

I know but regarding the equipment you had to transfer and the issues you guys had -- it has impacted your last couple of quarters. Is it pretty much over now?

Absolutely. This is behind us. The equipment is moved elsewhere would be equipment that will be relocated in some of our Latin American platform. In fact, I thought that could be of interest. I didn't put enough emphasis on the fact that we have the capacity to move some equipment in Latin America and service our customers on the American side. Last week we were in New York visiting our largest publisher. As you know that are located there. With Guy (indiscernible) and Kevin Clarke, Guy is responsible for Latin America and Kevin is setting our book business. We receive a very positive reaction from the new structure we recently created.

New York City now sits some of our colleagues that came from Latin America and these are the central points and sort of a unit (technical difficulty) between the customer and New York doing the invoicing, logistics and all of the other production issues and related to the different facilities that we are working with. They are really experienced people there and the reaction that we have been receiving is very positive because they have the capacity to work on the same time zone with the same language and the same standard which is a quite compelling proposal when we compare our proposal to Chinese solution.

We look forward to put some new equipment there and to fulfill our expectation there. Once again, not to the detriment of our business in North America but to complement our offer and this is really what worldwide and global publishers are looking for; the Pearson and the McRoyal (ph) of this world are in big demand for this.

Let me talk about Cory now. We were not able to fix some work there so we now are negotiating a reduction of headcount as Claude talked to you earlier that will be taken in the first and second quarter. But we are looking to transfer some of the equipment that we got there and give us the appropriate conditions that will enable or incentivize us to put more modern equipment and to reposition this facility where it was strongly servicing the Sunday supplement market to a more target end consumer magazine platform.

Vince Valentini with TD Newcrest.

In the segmented results the plugged number I guess for corporate is 9.6 million of positive EBITDA for Q4. Can you talk about that? Is that to do with the waste paper that was asked on the last question or is there any other item in there?

I am not sure what you referred to when you talk about a plug, Vince. Basically if you look at unallocated last year we had specific charges to where included in unallocated and this year what we have done is we have charged them back to the various divisions, various segments so that accounts for the difference but I would saying on the consolidated basis it does not make a difference. It's just a question of allocation between the various segments and what we call unallocated.

Andrea Horan with Westwind Capital Markets.

You made very good margin improvement obviously throughout the year especially in Q1, Q2 and Q4 but Q3 kind of splits and yet it is the main explanation for the margin improvement is the headcount reduction and the focus on cost and I'm not sure I understand what happened in Q3.

Andrea, we had the chance to explain that on our third-quarter conference call that the closure of the Effingham facility coupled with some significant pickup in advertising and circulation was highly detrimental to our industrial plan and our manufacturing capabilities. Let's be honest we were hurt by this strongly by being forced to move work all over the place from one plant to the other; incurred freight cost and many other things that was very unfavorable to that.

As I mentioned, this is behind us. We have been able to move the machines for instance in Lincoln (ph), the facility is now doing well and all of the other things that were moved also for instance our Covington facility was the largest Vogue edition ever and that was not easy with inexperienced people there. The biggest job, the toughest job being the first one you do. That was costly but obviously we were not looking for that to have that kind of unfavorable environment which was a strong pickup. Once again this is behind us and we look forward to be as efficient as we used to be and to continue to work toward more efficiency.

Bob Bek with CIBC World Markets.

Just back to the question on outlook, I am assuming that volumes stay reasonably robust here. Obviously you've shown some strong operating leverage with your efficiency gains and the margin pick up. Try to get a sense as to just how much of that can continue given the Q4 strength for a margin pickup for '05 and how much will we need to wait on some of this CapEx spending for further efficiencies? I'm trying to get a handle on a target margin that you can get back to now that you have come back from the brink and showing some strong margin growth.

As we mentioned earlier, we have reduced our headcount by 2000 people this year. In 2004 we had a substantial reduction in tools. We have improved our efficiency. We are selling more effectively. All of that has to pass down to the operating margin.

Jeffrey Fan with UBS.

Just one quick one. As a result of the extra week you mentioned that you had 90 million positive impact on your revenue yet the operating income impact was only I think you mentioned 5 million. Can you just explain why the operating income was only 5 when the revenue was 91? Just wondering why there was a disproportionate contribution to your operating income?

I would say that the last week of December would not be the most efficient week so that would account why you would not get the same proportion at 8.5 percent operating income that we had for the fourth quarter.

Tim Casey, Nesbitt Burns.

One, on acquisitions when I looked at your balance sheet with -- if we add in the securitized debt, the leverage ratios would suggest that while you may be able to be opportunistic now on acquisitions you can't be too aggressive. I was hoping to get your thoughts on your comfort level with additional leverage?

The second item I was hoping to -- Claude, if you could just refresh our memory on what the deferred charges are that go through the cash-flow statement? There are about $27 million a year in your supplemental disclosure that you sent out to the analyst, you've kind of directed us to take that off EBITDA because it is non-cash but it is obviously not carried in D&A. I'm just wondering what those deferred charges relate to and why they wouldn't be netted against the various operating segments as presented? Thanks.

I would prefer not to be too specific on acquisitions obviously as you can easily imagined certainly not the right thing to do. But as I mention and I think that you are well aware the actual landscapes and then therefore you can do your own calculation.

Your second question related to amortization of deferred charges that is related to incentives that were negotiated with customers over the years and that are being amortized for the duration of the contracts.

Randall Rudniski with Credit Suisse First Boston.

First of all, regarding the workforce positions, 2200 positions reduced and 2004. Is the 567 new positions that were created through the realignment of equipment etc. have those positions been filled by year-end or are those positions going to be added -- in other words is the workforce going to increase next year?

The net is 1951. As I think we gave the detail on our communiqué we have reduced 2200. We have -- I'm going from memory -- 300 to go and then we will be hiring, have hired and will be hiring about 500 for a net of close to 1000. Of the 500 some have been rehired and others will be done in the coming quarter in Q1 of 2005.

I wanted to ask you if you could explain or reiterate the explanation for the 9.6 million of operating income in the other segment because it was 9.6 million of operating income versus -3.5 million last year. Like there weren't any real estate gains or anything?

No, we had specific charges last year which we left in unallocated -- on the column that we call unallocated and in this year what we have done is the specific charge were chargeback to the various sector be it the Latin America, Europe or North America so that explains the difference from one year to the other.

We will now take the last question.

Katharine Dalton with Merrill Lynch.

I'm just wondering if you can break out what the organic growth would be if you exclude any paper prices from your revenue line? I wanted to clarify the North American organic growth? I mean if you exclude the FX and the 91 million for the extra week, it looks to me like revenues have declined somewhat. I just wanted to clarify that. And finally, I just wanted to get your perspective, there was a drop in magazine ad pages in January and I'm just wondering if you experienced that and if you think that was just a temporary weakness and whether or not you expect demand to pick up from there?

The paper sales for the quarter and year-to-date were flat so we say we had organic growth of 1 percent excluding the 53rd week and the impact of foreign exchange -- (technical difficulty) Canadian into U.S. dollars. That is the case and I think the third part of your question was the fact that advertising pages in January were down by 4/10 of 1 percent if I remember compared to the fairly substantial increase that we had in 2004, and especially in Q4. The impact is hard to say. With -- also with seasonal factor January versus the fall. Pierre Karl, would you like to add anything in that regard?

In terms of the ad pages?

Ad pages being down slightly in January versus increases in the previous months.

We're not sure that we have the same numbers. I think that what we have is mostly being flat.

You were referring to ad pages --? Ma'am are you there?

Hello?

You were referring to advertising pages in general that were down in January?

That's right. Yes.

I gave you the answer and I was asking if Pierre Karl had anything else to comment but I think that is our answer.

I was looking at the North American organic revenue growth. Is the 91 million you said that was for the extra week mostly allocated to the North American revenues if you take that out in the FX, it looks like North America revenues declined in the quarter. I'm just wondering if that was correct?

The 91 million would be North America and a good part of Europe.

How much of that was North America versus Europe, the 91 million?

I don't have that number readily. I'd have to get back to you.

Thank you.

Thank you very much ladies and gentlemen. We will be now moving onto the second part of this joint Quebecor, World Quebecor, Inc. conference call. For those of you have just joined us in progress I would like to welcome you to the Quebecor conference call for the fourth quarter of 2004. My name is Luc Lavoie, Executive Vice President Corporate Affairs and I am acting as your moderator today.

Joining me in Montreal for the Quebecor Inc. Quebecor Media portion are Pierre Karl Peladeau, President and Chief Executive Officer; Jacques Mallette, Executive Vice President and Chief Financial Officer; Serge Gouin, President and CEO of Quebecor Media; Pierre Francoeur, President and CEO of Sun Media Corp. and Robert Depatie, President and CEO of Videotron.

We will begin with a presentation of our fourth-quarter, year-end results followed by a question-and-answer session. I would remind you that you can download the financial statements of Quebecor as well as the supplemental (technical difficulty) Quebecor's Website at www.quebecor.com. I should also mention that you will be able to listen to this conference call until February 22 by dialing 416-695-5275 or 888-509-0082. I repeat 416-695-5275 or 888-509-0082. This information is also available on our Website.

I now turn the floor over to Jacques Mallette, who will present a brief review of our financial performance. Jacques?

Good afternoon, everyone. The Company has reported robust financial results for Q4 and for the full year '04. As was mentioned earlier on this call, operating results of our printing operations exhibited good momentum in Q4 as industry conditions appear to have stabilized. Our media operations maintained their pace and capped the year with another strong quarter.

On a consolidated basis Quebecor Inc. reported net income of $112 million for the full year 2004 or $1.74 per basic share compared to net income of $66 million or $1.03 per basic share in 2003. The year-over-year increase is mostly due to the improving operating performance of the Company's subsidiaries, lower depreciation and financial expenses and a gain recorded on the reevaluation of the exchangeable debentures partly offset by higher restructuring charges and income taxes.

Also noteworthy is the nonrecurring $154 million gain that was recorded in 2003 on the repurchase of the redeemable preferred shares of Videotron Telecom.

For the last quarter 2004, consolidated net income was $59 million (ph) down from $68 million (ph) in the same quarter last year. In spite of the Company's improving operating performance, lower depreciation and financial expenses the year-over-year comparison is unfavorable due to the large gain realized in 2003 on the redemption of the Videotron Telecom preferred shares.

Quebecor Inc.'s 2004 revenues decreased slightly from $11.2 billion to $11 billion mostly as a result of the depreciation of the U.S. dollar which negatively impacted the conversion of our U.S. dollar revenues into Canadian dollars. For the last quarter of 2004 consolidated revenues were up 2 percent at $3 billion in spite of the U.S. dollars lower value year-over-year.

For the last quarter of 2004 consolidated operating income jumped 24 percent to $509 million while it increased 15 percent for the year to $1.8 billion. This growth is the result of both Quebecor World and Quebecor Media's improving performance. These results are particularly impressive when considering the negative impact of the conversion of Quebecor World U.S. dollar operating income into Canadian dollars.

Focusing on our media operations, Quebecor Media reported net income of $49 million for Q4 and $88 billion for the year representing 103 percent and 76 percent year-over-year increases when excluding the nonrecurring gains recorded in December 2003 on the redemption of the Videotron Telecom preferred shares.

Revenues were up 7 percent in 2004 growing from $2.3 billion to $2.5 billion. All segments exhibited strong revenue growth with the highest percentage contribution being recorded by the leisure and entertainment segment with 18 percent growth and the cable segment with 8 percent growth. For the fourth quarter revenues were up 11 percent with all segments recording year-over-year growth of 10 percent or more.

Quebecor Media's EBITDA for the year increased 14 percent to $697 million from $612 million in 2003 with virtually all segments reporting favorable year-over-year comparisons. Our cable segment with 24 percent growth and our leisure and entertainment and business telecommunications segments each (technical difficulty) more than 50 percent were amongst the greatest contributors. Sun Media's performance should also be highlighted as its EBITDA grew from $225 million in 2003 to $228 million in 2004 despite the lag caused by losses incurred by our three commuter dailies.

For the fourth quarter of 2004, Quebecor Media's operating income also grew by 14 percent to $104 million from $180 million in 2003 driven in large part by 17 percent growth in our cable segments. We have of course also been keeping our eye on the free cash flow ball. Free cash flow from operations prior to changes in working capital increased from $377 (ph) million in 2003 to $460 million in 2004. This cash flow along with cash on hand and cash generated from working capital was primarily used to pay down $80 million of debt, prepay swap obligations for an amount of $198 million, fund $185 million of CapEx, pay a $20 million dividend to common shareholders and fund some acquisitions namely Toronto 1, Jumbo Video Stores, Ant Farm, Archambault Group (ph), and Netgraphe and TVA.

Finally, last November we refinanced Videotron's long-term bank debt with proceeds from the issuance of $315 million senior notes maturing in 2014. These notes met very strong (technical difficulty) market reception and were issued at an effective interest rate of 6.15 percent. We concurrently amended the terms of Videotron's revolving credit facility increasing it from $100 million to $450 million and extending its maturity to 2009. The new terms have also significantly expanded Videotron's ability to make distributions to QMI and we intend to cap this new capacity when we refinance QMI's notes which as you know will become callable in July 2006.

We will now turn the floor over to Serge Gouin, President and CEO of Quebecor Media.

Thank you and good afternoon everyone. Before Pierre and Robert review our newspaper and cable operations, I would like to review some of our other noteworthy highlights of the recent past. Certainly the most prominent has been a launch in January of our residential telephone service. I will not spend much time on this as we have already held a conference call on the subject, but I will add that we are very proud to have been the first large Canadian cable operator in the marketplace and I'm very confident that this new service will be both a commercial and financial success.

In December TVA and Sun Media successfully completed the acquisition of Toronto 1 after obtaining the approval to do so from the CRTC. As I mentioned to you on our last call, this acquisition allows QMI to secure a strategic position in Canada's largest advertising market, a position we intend to build upon in the future.

In November Videotron Telecom signed a multi-year contract with Quebecor World for the provision of IT managed services. The contract covers services for hosting server based applications as well as services related to computer operations and technical and network support. This contract has allowed Videotron Telecom to make a significant step in the development of this new business segment. It improved its profitability while generating savings for Quebecor World.

Also in November we announced a launch of a French-based music publishing and distribution joint venture with Warner Music France. The goal of this new venture will be to increase the profile and penetration in Europe under contract with Archambault and to identify and develop new French talents in Europe. Finally I am pleased to confirm the appointment of Jean-Francois Duceau (ph) to the newly created position of Vice-President, Advertising Convergence. Jean-Francois is a seasoned consumer products marketing executive. His mandate will be to ensure that we are leveraging our entire platform and allowing advertisers to capitalize on the full benefits of the wide variety of advertising opportunities offered by Quebecor Media.

I thank you for your attention and I now invite Pierre Francoeur to review our newspaper publishing operations.

Thank you Serge. And good afternoon ladies and gentlemen. Sun Media recorded a strong performance for the fourth quarter as we translated advertising market share gains and frugal cost management into higher year-over-year revenues and operating profit. In spite of the launch of several new products we have been able to maintain the industry's best margins.

EBITDA increased 6.5 million or 9.9 percent in the quarter from 65.7 million in 2003 to 72.2 million in 2004. This growth was principally due to an extra week in the fourth quarter 2004 versus our fourth quarter of 2003 and increased contribution from our acquisition due to its results having been recorded for the entire quarter of 2004 versus only two months of 2003 and due to the operating synergies which have since been generated and a 600,000 year-over-year EBITDA improvement at our Montreal and Toronto commuter dailies which had been launched in November 2003.

Operating margin for the quarter remained steady year-over-year at 29.2 percent. These margins are impressive when considering that we have launched several new products during the last year. Strong national sales in the quarter combined with disciplined cost control underpinned this performance.

Revenues for the quarter of 247.2 million were 22 million or 9.8 percent higher than the 225.2 million earned last year. Compared to the same quarter last year, advertising revenues were up 10.4 percent. Circulation revenues were up 7.2 percent and order revenues were up 10.3 percent.

Advertising revenue growth for the quarter was mainly due to increasing revenues from the annex acquisition and 24 Hours startups and to a 5 percent (indiscernible) increase and a 4 percent yield improvement in our urban daily newspaper advertising.

Circulation revenue gains for the quarter were due to targeted price increases primarily impacting our Ontario urban newspapers and our Western community newspapers in order to offset the increased distribution cost resulting from higher fuel prices. The growth in order revenues is mainly due to increases in our inserts and commercial printing revenues.

Our free commuter dailies in Toronto and Montreal continue to perform as planned. They continue to attract new readers and advertisers as evidenced by their high pick up rates and ongoing growth in advertising revenues.

For the year 2004, EBITDA of 228 million was 3 million or 1.3 percent more than last year. If we exclude our free commuter dailies, EBITDA would have increased 4.5 percent. Year-to-date revenues of 888 million were 42 million or 5 percent higher than last year reflecting the impact of the launch of new products and the Annex acquisition. As previously mentioned, 2004 represented 53 weeks of business compared to 52 weeks for 2003.

During 2004 we continued to extract market share from our competitors for ROP advertising line and our urban daily newspaper's network as we gain market share in 5 of 7 competitive urban newspaper markets. As mentioned earlier by sales in December 2004 we participated with TVA in the acquisition of Toronto 1. We acquired a 25 percent interest in exchange of cash proceeds of 2.8 million and our 29.9 percent interest in CP-24. This led to our recognizing an 8 million gain from the disposition of CP-24.

As always we continue to focus on reducing and controlling costs. Some examples of plans under way are consolidation of processes in production, call centers and administration which is expected to yield savings of 1 million and will be beginning in 2005. Emmplementation of direct-to-plate technology in our community operation and new production circulation software to automate processes and reduce overhead with expected savings of 3.4 million annually once completed.

Implementation of new press room and distribution equipment to improve the efficiency of our operations once completed will save 1.2 million annually. On the revenue side in December we launched 24 Hours (indiscernible) rental to control distribution weekly publications for the rental market in the city of Toronto. This product will enhance and complement the 24 Hours brand as well as provide for new revenue streams for the Company.

Finally I have some updates with respect to human resources. Firstly, we have recently signed a three-year renewal with the (indiscernible) unit at the London Free Press. Secondly, Ken Manley (ph), former Vice President corporate controller has been appointed to Vice President and Chief Financial Officer for the Company in recognition of his financial and operational contribution to the organization.

Thirdly, (indiscernible), a former executive at the Globe and Mail and (indiscernible) has joined our management team as Senior Vice President of sales and will be overseeing our national sales force. Finally Steve Angelles (ph) has been appointed publisher of 24 Hours in Toronto and (indiscernible) replacing Bob Harris (ph). Bob who is still Vice President of New Business Development will continue to be responsible for our free dailies franchise but he will now be spending more time on developing new business for Sun Media. I believe that these announcements will make Sun Media more competitive and position the Company for growth in the years to come.

Thank you Pierre. Congratulation on Sun Media's performance. I will now ask Robert to review Videotron's performance.

Good afternoon everyone. I know that we have disclosed our subscriber numbers a few weeks ago but I'm very proud of our achievement in 2004 and do want to spend a brief moment on the highlights.

During Q4 we recorded a net gain of 11,000 subscribers through our cable television customer base compared to a net gain of 10,000 in the same quarter in 2003. This capped an outstanding year in which we added 28,000 basic subscribers compared to a net loss of 7000 subscribers the prior year. This was our best performance over the past five years.

During Q4 we also added 25,000 subscribers to our digital television service and 26,000 to our high-speed data service bringing our year end total to 334,000 and 503,000 subscribers respectively for an impressive year-over-year net additions of 93,0000 and 96,000. In fact, for the second year in a row, we have recorded by a wide margin higher percentage growth in digital TV and high-speed data subscribers on the reported last twelve-month basis than any other large cable company in Canada.

As I have mentioned on previous calls, we have been putting a strong focus on customer service and satisfaction. We are the only Company offering true one-stop shopping with cross-trained CSRs and installation technician. We are the only Company offering a wide area of personalized (indiscernible) options such as VOD, free reruns of all of the top television series, weather on demand, speed on demand and many others. Response from our customers has been outstanding. Our average monthly churn rate during Q4 was 9/10 of a percent for cable television customers and 1.1 percent for high-speed data customers. Our churn rate for bunglers has been more than 30 percent lower than for our single product customers. These churn rates have to be among the lowest in the industry.

These great subscriber metrics have translated into a solid financial performance. Operating revenues amounted to $231 million in Q4, an increase of $22 million or 10.5 percent compared to Q4, 2003. Operating revenues for the year reached $872 million, an increase of 67 million or 8.3 percent year-over-year. The increase in revenue is due to the growth in our customer base, the higher penetration of our digital TV and high-speed data services. The price increases and the acquisition of the Jumbo Video stores.

When excluding the accounting impact in 2004 of the deferral of installation revenues, our total ARPU net of programming credits has increased 7.9 percent from $44.83 during Q4 2003 to $47.93 in Q4, 2004. Videotron recorded EBITDA of $88 million during Q4 compared to $75 million during the same quarter of 2003 representing a 16.9 percent increase.

For the year we recorded EBITDA of $341 million compared to $275 million in 2003 a 24 percent increase. If we were capitalizing customer equipment and subsidies as some of our Canadian peers do, our EBITDA for the year would have been $378 million.

Our EBITDA margin has improved from 34.2 percent in 2003 to 39.1 percent in 2004 mainly as a result of the increased penetration of our high-speed data service, our ongoing cost containment measures and price increases. We generated cash flow from operations before working capital changes of $292 million during 2004 representing a $71 million or 32 percent improvement over 2003.

Additions to fixed assets amounted to $123 million in 2004 compared to 90 million in 2003. The increase was mostly due the investment in network capacity to support the growth of our Internet subscriber base and to increase the speed of our high-speed Internet service bringing the download speeds from 3.1 MB per second at the beginning of the year to 5.1 at the end of the year. Implementation of these improvements ensure that we maintain our leadership position as the fastest period.

For 2005 we expect CapEx to be 40 to $60 million higher reflecting the increased spending allowed for our residential telephony service as well as the allowance of our modernization program in the Québec City region. As you know we have officially launched our residential telephony offer on the South Shore of Montreal on January 24, 2005. We are now offering a triple play; video, data and voice. Initial market response has been excellent and customer are demonstrating a very strong interest for our products.

Before you ask, we announced our service a few weeks ago on the Montreal South Shore with installation capacity of 1000 per week. We have since increased this capacity to 1500 per week and remain fully booked. We expect to be gradually rolling out the service across our territory during the rest of the year and as we do so we will be increasing our installation capacity.

We have received a number of questions regarding our pricing strategy and I thought it would make sense to address this issue once more. Our strategy has been the result of careful analysis of our consumer surveys and focus groups, our local market environment, the impact of bundling on customer loyalty, our market penetration objectives and our capital and operating cost structure. We're very pleased with the market's reaction. We believe our strategy will prove to be beneficial to our customers and our shareholders.

I thank you for your attention and we will now turn the floor over to Pierre Karl.

Thank you very much, Robert. Congratulations to you and congratulations to Pierre and Serge. You have all been doing a tremendous job. Quebecor Media has just completed an exceptional year in 2004 with revenue growth of 7 percent and EBITDA growth of 14 percent. Each of our business segments contributed to this improvement.

Videotron's performance was particularly remarkable as EBITDA growth of 24 percent and its best basic cable subscriber performance in 5 years allowed it to record its best financial performance since its integration in the Quebecor Media family. Videotron is in growth mode and it just shifted into overdrive with the recent launch of its residential telephony service.

Sun Media remains the industry leader in 2004. In a very competitive market it delivered a solid fourth-quarter performance with both revenue and EBITDA increasing by 10 percent. TVA maintained its market dominance Québec television broadcasting and its partnership with Sun Media entered the English Canada television market with the Toronto 1 acquisition. Quenou (ph) meanwhile is ever more part of debating (ph) in Quebecor Media conversion strategy as its Internet showcase. All the other Quebecor Media components are also strongly delivering on the strategy we have been building and implementing for the last four years.

One thing I am the most proud of as I said earlier is the fact that the Company has been able to create one of the strongest and more stable management teams in the media and telecom industry in Canada. We would never have been able to accomplish so much in so short a time with acquired assets that were characterized in many ways by complacency (ph) without a strong top tier but also a highly capable second-tier of management throughout the Company.

I believe we're now at the point where we can highlight the completion of a larger cycle for Quebecor. For the last four years we have successfully dealt with several significant issues and concerns both inside and outside the Company. We have largely completed the assets repositioning of the Company from a highly cyclical and eroding business and as you can imagine, I am referring to our involvement in the pulp paper industry. We were opportunistic enough to seize upon the availability of a stable, growth oriented, modern and technological noncommodity asset platform with a well-diversified and model based business plan.

This repositioning through the transformational acquisition of Videotron created one of the strongest media and telecom companies in Canada which is well-positioned for the future growth both internally and through acquisitions when such opportunities present themselves.

While we can never say we are immune to cyclical fluctuation in the economy, our current grouping of assets is much less risky profile than was the case in the past. Coupled with Quebecor World which after the World Color (ph) acquisition began the largest commercial printer in the world, we have the capacity to rely upon two strong companies which provide us with much confidence in our future growth prospects.

We were certainly not satisfied with Quebecor World's performance after 9-11. It was the parent company responsibility to push for more accountability from management and react. The outcome of all of this is that we now have a much better team performing under discipline and accountability that presents us with a very interesting future. Quebecor is now better positioned than ever to enjoy and benefit from the hard work that our management teams have accomplished in the last few years.

I would like to thank you very much and welcome questions.

We're open to questions now.

(OPERATOR INSTRUCTIONS) Carl Bayard, Desjardins Securities.

Just a couple of questions for Pierre. First off I was wondering there has been rumors that you guys are looking at home delivery of the Toronto Sun given the newsstand sales weakness. Is that something you're looking at closely? And also when you were going through your cost savings expected -- I got the numbers but I missed the allocation. I know one was computers but if you could cycle back on that.

So there is a rumor about home delivery. You know for sure the Toronto Sun is one of the -- I think it is the only one in Canada that has a major newspaper not having home delivery network. It is something that we are contemplating but no decision has been made so far. To your second part of your question it was about --?

When you say 1 million cost savings expected from --?

Okay the 1 million and was for consolidation of processes and production call centers and administration. The other one was direct-to-plate technology we will realize savings of 3.4 million annually.

Right. Direct-to-plate. And then there was something 1.2?

The third one was implementation of new pressroom and distribution equipment improving the (indiscernible) of our operations 1.2 million.

Maybe one question for Pierre Karl with regard to Corby, if I could circle to Quebecor World -- are you ruling out any possible new business for Corby? Was that my understanding of your answer earlier?

I'm sorry. Am I ruling out --?

Yes, I mean you mentioned that you were planning on transferring equipment and so on when you originally lost the contract you said you guys were looking at trying to get new business to fill the associated newspapers business. Are you ruling that out now?

I can go details and I would like to do this pretty short. When we took over Entre Print (ph) in '94, we inherited a contract that was previously signed by the management with ANL. We built the facility and we started running it. Those machines are two KBA's 96 with double folders which are gravure folders. Given that the (technical difficulty) we have been forced to have the capacity and then therefore we took the older machines to be able to fulfill this. Where we are today is that obviously this capacity is not required anymore so then therefore the machines which are totally depreciated will be decommissioned.

For the 96 pages that we installed 10 years ago we have some projects that we are working on right now. It is too early to have final disclosure on this while but we are looking forward to reposition the facility given that we are out of the Sunday magazine supplement. There is nothing more available there. SO then therefore we would like to go further in consumer and trade publications. This will require an investment in the future but we want this to take place in an appropriate and favorable environment in terms of labor agreement.

David McFadgen, is Sprott Securities.

A couple of questions. The first one would be for Pierre. When you talked about 5 percent lineage increase for the dailies in the fourth quarter was that adjusted for the extra week or did that include it?

It was with the 53rd week included. In terms of revenues for the 53rd week it was roughly 14 million in the last quarter, the 53rd week. If you are extracting this component the net increases 3.5 percent.

Glenn Campbell with Merrill Lynch.

Thanks very much. There was a spectacular turnaround in Videotron Telecom's EBITDA performance and I wondered if you could give us a little bit more color on that?

I know that number is with me but the big difference is the contract that they got from Quebecor World. I think we mentioned the outsourcing -- I mentioned it in my presentation the outsourcing of servers as a significant contract. I don't know if we disclose the size of the contract but it is a very significant one for the Company and it was profitable for Videotron Telecom and at the same time generated significant savings for Quebecor World. It was a win-win for the two companies.

At a good price.

As well, there were cost savings activities that took place at the beginning of the year -- its Robert speaking. And new contracts as well that we signed recently that generate new revenues as well.

This being said we had some one-time positive revenues in the fourth quarter related to some pay equity issues that are being resolved at much lower costs and capitalization in the fourth quarter for the telephony project once we finalize our detailed analysis. But definitely the situation is improving and we have year-over-year improvements at Videotron Telecom.

Vince Valentini, TD Newcrest.

I have another question but can you quantify those one-timers at VTL and the equity? My real question is on the Sun side. Since the circulation increased at the Toronto Sun in November from 50 cents up to 75, can you give us any characterization on what circulation has done? If there has been any negative impact?

Also, looking at the loss for the free commuter papers, you didn't disclose Q4 and I'm not sure I caught it in your verbal comments here but looking at the annual loss of 7.1 million backing out the loss recorded would suggest that you actually had a profit of 600,000 in the fourth quarter. So can you confirm if that is right?

Maybe I will just start with the pay equity -- it is approximately (technical difficulty) million impact -- favorable.

On the circulation side for Toronto it is too early to divulge any numbers because as you know we are waiting for each period to be audited by ABC. For sure it is not an easy time with no hockey going on and Toronto is a hockey city -- it has been (indiscernible) us a bit. But we are working to be much more aggressive on the bulk strategy and on promotion too. As you could see, we were very strong with promotion with Medallion (indiscernible) for the Legends of Hockey. It certainly was very popular in Toronto.

On the free commuter side it was a 600,000 profit positive variance versus last year. So we came through -- I would say we reduced the losses.

Jeffrey Fan with UBS.

A quick question on the CapEx for your telephony, Robert, you mentioned 40 to 50 million. Is that all for telephony or how much of that is related to telephony?

We haven't given the number precisely. 40 to 60 includes modernization of the Québec City which will take place this year and over two years. We are still sticking on our plan which is $80 million of fixed CapEx and 260 (ph) over the four-year period based on our plan. And it is $250 (ph) cost of -- variable cost of acquisition based on a four-year plan as well. So the 40 and 60 includes telephony and Québec modernization.

Would you be able to qualitatively talk about how much is (technical difficulty) in telephony for this year for out the 80 million or for this year, whichever you are comfortable discussing versus what is more variable capital spend?

I'm not very comfortable discussing these details. If you allow me please it is just part of our rules. Are you okay?

Is everybody happy?

Certainly not.

That was the last question for our conference call. So I thank you everybody and we will see you next quarter. Goodbye.

This concludes today's conference call. We thank you for your participation and ask that you please disconnect your lines.