Quad/Graphics Inc (QUAD) 2005 Q2 法說會逐字稿

Welcome to the Quebecor World/Quebecor Incorporated second-quarter conference call. We will begin with the conference call of Quebecor World. I would like to now turn the call over to your moderator, the Executive Vice President, Corporate Affairs for Quebecor Inc., Mr. Luc 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 of 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. Again, this quarter, because we released the results of Quebecor World and Quebecor Inc. on the same day, we are holding a combined conference call. The process will be the following -- we will begin with the 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 Peladeau, President and Chief Executive Officer of Quebecor World and Quebecor, Inc., Claude Helie, Executive Vice President and Chief Financial Officer of Quebecor World, and Philippe Cloutier, Quebecor World's Director of Investor Relations.

Pierre Karl will now provide some introductory remarks and give us an overview of our market segments. Pierre Karl?

Thank you, Luc. I know that you don't like me to make sure that there were some mistakes I'll make then (indiscernible) the media conference for the second quarter and then the first semester of 2004.

So good afternoon, everyone, and thank you for joining us this afternoon. As was noted in our second-quarter press release, our results this quarter are based on continuing operations. Last quarter, we said that certain noncore assets are targeted for sale and outlined fully in our financial statements as discontinued operations. I will contain my comments to continuing operations.

With respect to the disposal of these noncore assets, we made progress this quarter with the sales of our George Rice facility in Los Angeles. Claude will make further comments on this process in a few minutes.

In the second quarter, Quebecor World earned $0.22 per share before restructuring, compared to $0.30 per share in the second quarter of last year. Year-to-date earnings per share on the same basis is $0.50 compared to $0.51.

Revenue in the quarter was 1.49 billion compared to 1.47 billion last year. For the first six months, consolidated revenues is 3 billion compared to 2.9 billion last year. Operating income before restructuring was 85 million compared to 105 in the second quarter of 2004. Year-to-date operating income is 175 million compared to 198 million in the first half of 2004.

Operating income in the quarter was negatively impacted by lower volume in our U.S. magazine business, the loss of a customer at our (indiscernible) UK facility and our French business. The results for the second quarter and the specific challenges I just mentioned are generally in line with the outlook we provided at the time of our first-quarter earnings release.

We are taking on those challenges by investing in new, more efficient technology. We are currently installing our new 64-pages presses in our Taunton, Mass. and our Versailles, Kentucky book facilities that will be operational by the end of September. In our magazine platform, new 48-pages presses will be online in Dallas, Texas and Merced, California, on September 30. In Jonesboro, Arkansas, the new 64-pages presses will be ready at the end of November. In Stillwater, Arkansas, a new 96-page will be online in January.

At the same time, we continue to reduce costs and we are aggressively going after additional volume. On the volume side, we're making progress on many fronts. Today, we're pleased to be able to announce the largest single directory contract in the history of the printing industry. Under this contract, we will print 100% of Yellow Book USA volume. That is a premier customer and contract. The value over the ten-year life of the contract is approximately 900 million. This new partnership is a demonstration of our commitment to invest in the latest technology for our customers and their faith in our ability to execute. It is also a demonstration of our capacity to deliver a creative, full-service offering that today's publisher and retailers are demanding.

Yellow Book operates in 46 states and the District of Columbia, which is why our multi-plan platform was a key element in this agreement, not only because of its size, but because of our ability to produce a uniform, top-quality product closer to the end-user.

I would like to thank our sales team and operation people for their diligent and creative work in putting together this agreement that will benefit both our companies.

This contract and one we signed recently with Dex Media will arguably make us the leading directory printer in North America.

To further increase volume in the U.S., we have introduced centralized estimating that is helping us better track our sales effort. As a result, we are recording on more work than ever before. As evidenced by the Yellow Book deal and others, our ability to produce products on a multi-plan platform at a consistent quality is a significant competitive advantage. Already successful with directory and retail customers, we are now convincing magazine and catalog publishers of its value. Our new press and accompanying technology will only increase these efforts.

The first new presses for our North American platform are being installed now into our magazine and catalog platforms. The bulk of them will come online next year and the year after, but the plan is on schedule. I will discuss our North American business in more detail in a minute, but first I want to turn to our European operations.

Obviously, our European platform is not producing as we would like. The principle reason is lack of investment and unproductive assets in France and elsewhere in our platform. In this quarter, we reported 16 million of impairment of long-lived assets. The bulk of this are in France. Europe is a key element of our global service offering. Not only is there a substantial market but we are the European printer for many of our North American-based customers and vice versa. Bauer, Hachette, and (indiscernible) are just three examples.

Last quarter, I said we were putting together a comprehensive investment plan to equip this platform with the right mix of technology. We are going ahead with the plan. It's involved the purchase of new equipment, the relocation of existing assets, and the streamlining of our overall European network. The location of the investment is based on where we can operate most effectively and realize the maximum return for our stakeholders. In order to ensure the success of this project, we are finalizing certain negotiations related to these initiatives and should be in a position to make a more detailed announcement later on.

Now, I will give you a brief rundown of our operation, beginning with North America. In the Magazine and Direct Mail segment, revenue in the magazine group was up in the quarter, but this was due to increase in paper sales. Volume was down 3% in the quarter. This is primarily due to the nonrenewal of two customers. While overall ad pages grew by 1.8% in the first six months of '05, there was continuing softness in the weekly magazine ad market, which negatively affected our facility that have a large mix of this work.

One of the bright spots is the celebrity magazine market. We are pleased to be printing OK! Magazine, which is launching its North American edition this week. We also received work for several new launches, including publication by Hearst, (indiscernible) and Morris Publications. We have renewed contract with Weener (ph) Media, Costco, DABA, The Weekly Reader, Dwell and RH Media. New presses are currently being installed in three of our magazine facilities and two of them will be running in the fourth quarter.

Year-to-date, our direct-mail business registered a 3% drop in volume, primarily because of consolidation in their banking and telecom industries. For example, BankOne was purchased by JP Morgan and Fleet, a large customer And our petty (ph) facility, was bought by Bank of America and AT&T by Cingular. This has resulted in fewer events and lower pricing.

I also want to make it clear that the sales of certain non-core facilities that we discussed last quarter does not include our direct plants. This continued to be one of our core businesses.

In our U.S. Retail group, increased volume and revenues in the quarter and year-to-date. Volume is up 8% which would help offset lower prices. In June, we start up presses in our newest retail facility in Pittsburgh, California. We now have four offset press lines up and running in this facility, which provide additional capacity in that important market.

Two significant developments in the quarter were the multi renewal of Albertson's and a multiyear extension of our relationship with CVS. Mergers and acquisitions in the catalog segment are having an impact on prices. Here as well, we're building momentum through our multi-plant offering. So far, we have successfully renewed 9 of our top 10 15 catalog accounts there were up for renewal. In the quarter, we were awarded additional volume from Federated and signed contracts or extensions with FAO Schwartz, Jeff and Mary's (ph) Maxim. A new 64-page press is being installed in our Jonesboro facility and will come online in the fourth quarter.

Revenues in our Book and Directory business were up 2% in the second quarter and 1% in the first six months, compared to last year. We were very busy in the book business with the latest edition of Harry Potter. Obviously, this is a significant event and helped fill a hole in the second quarter that is traditionally one of the slowest in the book business.

We continue to make strides in the educational book market. Another success story is how well our U.S. and Latin American book groups are working together. By positioning our Latin American facility as a low-cost alternative to China, we have been able to win a fair share of volume that was being produced in Asia.

In Canada, our result continues to be ahead of last year for the quarter and year-to-date. Volumes was flat in the quarter but increased for the first six months, primarily because of additional volume in the retail and catalog. Pricing is challenging but has been partially offset by volume increases and cost-containment initiatives.

In Europe, volume increased year-to-date in Belgium, Austria and Spain. In Finland, we recently completed the installation of a fourth (indiscernible) press and have received additional volume for our Russian magazine publishers. We have made significant strides in downsizing our core B (ph) facility and are refocusing it to compete in the Magazine and the Retail segment in the UK.

In Latin America revenue, volume, operating income and margins are all up for the quarter and year-to-date. Much of it is due to our book platform that I mentioned earlier. Volume was up 17% for the quarter and 16% year-to-date -- volume increase in most facilities and especially in Peru and Mexico, which we are working closely with our U.S. book group.

I will be back with some closing remarks, but first, Claude will provide a more detailed review of our financial results.

Thank you, Pierre Karl.

My remarks will also be limited to results from our continuing operations.

As Pierre Karl just mentioned, first-quarter revenues were 1.49 billion and 3 billion, year-to-date. This is an increase of 1% and 3% respectively. Including the favorable impact of currency, revenues decreased 1% for the quarter and increased 1% year-to-date. The operating margin before restructuring for the quarter was 5.7%, compared to 7.1% in the second quarter of last year. Year-to-date -- (technical difficulty) -- 5.7 compared to 6.7.

The second-quarter results include impairment of assets and restructuring charges of 31.8 million, or $0.22 per share, compared to 50.2 (ph) million, or $0.25 per share in the second quarter of last year. The non-cash component of 16 million primarily related to the impairment of assets -- (technical difficulty). The cash item of close to 16 million involved workforce reductions in the UK and North America. The 2005 restructuring initiatives will result in the reduction of 886 positions, of which 800 have already been completed.

SG&A expenses, excluding the impact of foreign exchange, were lower by 7 million in the quarter and 17 million for the first six months of 2005. SG&A as a percentage of sales was 6.6% in the second quarter, compared to 7% in the same quarter last year.

The reported tax rate before restructuring was 28.4% compared to 29% in 2004. The decrease was mainly due to lower profits before taxes in jurisdictions with higher tax rates. Year-to-date, the tax rate is 25.5.

Net income before restructuring for the quarter was 10 million, compared to 18 million in the second quarter of last year. EPS before restructuring was $0.22 compared to $0.30 in the same quarter of last year. On the same basis, EPS for the first six months is $0.50 compared to $0.51 last year.

If we look at the segmented results, in North America, revenues in the second quarter increased 24 million to 1.15 billion but were down 2%, excluding the increase in paper sales and favorable currency impact. Operating income for the quarter before restructuring was 85 million compared to 93 million and year-to-date, it was 166 million versus 175 million last year. The operating margin for the second quarter, before restructuring, was 7.4% compared to 8.3 last year. For the first six months, it stands at 7.2% compared to 7.8.

In Europe, revenues were 284 million for the quarter compared to 310 million last year. Year-to-date revenues were 616 million compared to 625 in the previous year. Before restructuring, operating income was negative for the quarter and 4 million year-to-date.

Latin America revenues in the second quarter increased 49% to 66 million. For the first six months of 2005, revenues were up 35% to 123 million. Operating income and margins increased to 3.5 million and 5.3 in the second quarter -- 5.3% I should say -- in the second quarter and 6.5 million and 5.3 year-to-date.

Our free cash flow from operations for the quarter was 117 million, an improvement of 46 million compared to the same period last year. This was achieved with capital expenditures of 41 million above last year, due to the implementation of our strategic capital investment plan. We still expect total capital expenditure for 2005 to be approximately 300 million.

Our debt-to-capitalization ratio was lower at the end of the second quarter at 43.257 compared to 45.55 at the end of the second quarter last year.

In May, we instituted a normal course issuer bid for a maximum of 7.3 million shares or 10% of the number of outstanding subordinated voting shares. As part of the NCIB, in the second quarter, the Company repurchased for cancellation 2.3 million shares at an average price of 23.85 for a net cash consideration of 55.7 million -- C$55.7. We said, in our first-quarter conference call, we undertook an option process to sell approximately a dozen noncore commercial facilities in North America. We received a number of offers for these facilities and entered into negotiations with the bidder who submitted the best offer. After extensive and detailed discussions, we were unable to conclude an agreement. George Rice, which was not part of these negotiations, was sold to a local Los Angeles printer during the second quarter. We are continuing the process for the remaining facilities with other parties.

Finally, the Board of Directors declared a dividend today of $0.14 per share, which is the same as the previous quarter.

I will be happy to answer your questions in a few moments, but first I will turn the call back over to Pierre Karl for his closing comments.

Thank you, Claude.

To conclude, I would like to repeat that our North American retooling plan is in progress and on schedule. (technical difficulty). There's a big boom here but that -- (technical difficulty).

We think it's the weather. We hope it's the weather.

It is a thunderstorm (LAUGHTER), a big thunderstorm, so we are -- we are maintaining our strict focus on cost and improving our operational efficiencies. We are also making progress in renewing and gaining market share, as evidenced by our two latest directory wins with Yellow Book and Dex Media. There are challenges, to be sure, some of which I have highlighted, but we are on the right track.

We will now take your questions.

Questions, please.

Thank you. (OPERATOR INSTRUCTIONS).

Okay, well, we are ready for the questions. Is it on your side, operator?

Our first question comes from Vince Valentini from T.D. Newcrest. Please proceed with your questions.

Thanks very much. I've got a question on the free cash flow and the share buyback. Your working capital was quite a good inflow in the quarter and in the first half of the year. Can you talk a bit about any timing issues there? Do you expect that to reverse in the second half?

Also, as part of that, I guess you need to make some more pension contributions to get up to 50 million for the year. Would you expect it just to get to 50, or would you expect to do any other special contributions?

The third part of this is how that relates to your share buybacks. I know you bought back 1.5 million shares in May but then slowed down a bit to 800,000 in June. Is that indicative more of a run-rate going forward that you expect to do, or do you expect to be as aggressive as we saw over the course of the two months?

Well, let me answer your last question first. We were more aggressive on the share buyback in the first few weeks; it had to do with prices. Our share had come off, so we supported the price of shares through a buyback, and we'll see how the shares perform going forward.

On working capital, we've made improvement in the second quarter and year-to-date, especially in inventory. On Accounts Receivable, we have had a concerted effort to bring our inventory down and also our Receivable down to improve our working capital and our cash flow. We will continue to do so, but you have to remember that the third and fourth quarter is a period where we have more business, so that will have -- that should have a slight impact on working capital, especially inventory.

Regarding the pension fund, we say, in our MD&A, that we have commitment for approximately $50 million, which should be what we would -- the amount of our contribution this year.

Okay, thanks.

Next question.

Jeffrey Fan with EUBS.

Good afternoon. It's Jeffrey Fan of UBS. A couple of questions, one on your headcount -- can you just elaborate a little on the timing of the 800 (indiscernible) during the quarter? Was it early, mid or late in the quarter?

Then the second part to the headcount question is what sort of incremental job reductions or position reductions do you expect in the second half? If I go through your MD&A, it looks like we're only looking for another 100 jobs or so in the second half. I just wanted to know whether that's the right number or whether there is a bigger reduction planned for the second half.

Then the second question is related to your Yellow Book contract. Can you just elaborate on when -- the timing of when the revenues should start to contribute to your results and also, what the margin impact is once that starts and whether there will be any investments required on your part in order to facilitate the start-up of this contract, given its size? Thanks.

I will answer the second part of the question and Claude will answer the first.

So on the Yellow Book, we print roughly about 35% of their volume right now, and we'll go to 100% starting in '07. So, we will put ourselves in a position to optimize the platform that we already have. That will be coupled with investment.

We would like to offer -- and this is something that will position our platform as really unique -- both capacity to produce long and short cut-off, which we believe is compelling to directory publishers because they can significantly improve their return on their margins by providing significant savings with their paper.

So in a nutshell, you know, that's -- the bulk of the work will come in '07 and give us time to position the manufacturing platform according to this huge (indiscernible) volume that we will need to print.

On the headcount front, we've announced that we had reduced our headcount in the first half by 800 and 86 to come. You'll remember that, in the first quarter, we did announce initiatives that would be (indiscernible) be effective in early in the second quarter, so that most of these headcount reductions have happened in the second quarter.

I'm sorry, which part -- like the early part of the second quarter?

That's right, the early part of the second quarter for the majority and then some towards the end of the quarter.

Just quickly back to the Yellow Book question, the ramp-up from 35% to 100% -- is that going to be kind of a gradual ramp-up through '06?

No, we have 35 until April, '07 -- 35%, and then we go to 100%.

Okay, I see. Okay, great. Thank you.

Megan Anderson with RBC Capital Markets.

Good afternoon. A couple of quick questions -- the first on is can you comment on whether the higher paper prices made a difference to your scrap sales and any EBITDA impact there? It has in the past. I don't think it did last quarter, so I'm just wondering about this quarter.

The second question relates also to the Yellow Pages contract. I'm just wondering if you could characterize the contract terms you've agreed to in 2007 and beyond? Because I would imagine, to get 100% of a large customer's business, there would have had to have been some sort of favorable deal there.

Just to make sure that there's no confusion, Megan, this is not Yellow Pages; it's Yellow Books, Because Yellow Pages -- (multiple speakers), as you probably know, are related to the Canadian operations, so it's really Yellow Book USA.

Obviously, you know, we will not comment about commercial terms that was discussed with our customers. I think what is important here is that all of the confidence that this large company that also have operations elsewhere, mainly in the UK. As you probably know, this is a subset area of the Yale (ph) Group, which is the most successful directory publisher. So it shows our commitment and our capacity to deliver with a first-class customer like this and once again, our capacity to deliver on a multi-platform basis. So, we've been, as you know and because we've been pushing on that, pursuing that strategy and we are very happy that we've been able to conclude so favorably a large contract like this one.

The impact of scrap paper this quarter as compared to last year is not very important on a year-to-year basis.

Not material, okay. Then just one final one on the Yellow Books -- I think the question was asked whether there would be additional CapEx associated -- you mentioned that there was some investment. Would you be able to quantify that investment, please?

We will review all of the manufacturing platform. At this stage, obviously we have a pretty good idea, but it's too early to make an announcement in terms of additional CapEx that we will go forward, but yes, it's true that it will require some. As usual, we will always be diligent in terms of making sure that we are putting the right equipment in the right place at the right price.

We've been seeing some new technology going on and once again, I think it's worth to focus that our capacity to deliver short cut-off would position us in an even better position with other customers that would like to require that kind of combination proposal.

Tim Casey with Nesbitt Burns.

Three questions -- you provided some information on the divestiture in L.A., and it looks like the plant was sold for less than 10% of book value. Is that an indicative price range for the remainder of the assets? If there's any sort of order of magnitude or direction you could provide for us on -- you know, relative to revenues or book value, that would be very helpful.

Second, Pierre Karl, could you talk about your patience level for staying in France? I know you indicated that Europe is a key market but obviously the problems in France have been going on for years now. I'm just wondering if you see any opportunity to get out of there and just move on.

Third, a couple of quarters ago, Pierre Karl, you had mentioned that you were looking at some acquisitions. I'm just wondering if you thoughts have changed there at all. Specifically, we keep hearing rumors about that you and Polestar are in discussions. I am wondering if you would comment on that. Thank you.

Let me answer the first question. No, the price that we did obtain for our L.A. operation is not indicative as to the value of our eight commercial operations that we're trying to sell. Our L.A. operations was losing money; we sold it to a local printer. To us, it was a deal that made sense, but it is not at all indicative of the value of the commercial group.

Could you give us any -- are you able to quantify the numbers at all, Claude?

Not at this time.

On the France situation, France is a significant part of our operation in France and I tried to explain what was the issue in my presentation, earlier presentation, by highlighting the fact that we lack investment for many years there. So you know, we are entertaining discussion at the Board level with an investment plan. Once again, we addressed it this morning, a comprehensive description of the different assets that we are adding there. We are obligation (sic) to go forward with some investment, and you know, in the few months to come, that we will be in position to give more details.

On the acquisition side, obviously, you know, we will not comment on any rumors. You know, we can say that, earlier, as we said, the Company, despite the magazine platform, which is weak, is in much better position. You know, we're waiting to see this equipment coming in. There's a specific timeframe in manufacturing businesses. Obviously, when you are ordering equipment that will be able to improve your margins, you cannot benefit the day after the announcement; you need to implement it and start running it. We are at the beginning phase of execution and we look forward to being able to enjoy the fruits of this investment that will come in '06 and the year to come.

Pierre Karl too, I guess what you're saying is under no circumstances can you see pulling out of France; you're committed to the market?

No. We should not consider the scenario viable.

Andrea Horan with Genuity Capital Markets.

I'm just wondering whether or not, in the restructuring charges that you've taken so far, have you made of all the necessary provisions for any opportunities you are going to have to reduce headcount as a result of the upgrade in the press facilities in your offset network?

What we -- the headcount that we provide for that we (indiscernible) in our statements are basically what we -- things that we announce that has been the communique -- we could not take general provision for eventual headcount that could happen in a year or two or three -- so that what we have, what we have in our restructuring is headcounts that have been announced that we knew about and that we have done or that are in the process of doing.

Thanks very much.

Andrew Mitchell with Scotia Capital.

A couple of questions on France and then just a couple of smaller items for Claude -- I apologize; I missed some of your opening remarks. I don't know if you already addressed this. But last quarter Q1 in the MD&A, you appeared to be more confident that the plant divestitures that you completed would pave the way for margin improvements in the proceeding quarters in France, which leaves me with a couple of questions. I understand you've outlined there was a lack of investment over a number of years that's impacting you in France. Can you talk about why that wasn't apparent in the first quarter and give us a sense whether there's anything else that lies behind the change in your tone in the second quarter MD&A?

Secondly, on France, can you give us a little more color on how much of the margin erosion that we're seeing here is potentially reversible on a better platform?

Then, just to give you the questions for Claude, Claude, can you just give me a sense for what an appropriate effective tax rate assumption would be for continuing operations for the year? You're talking about being, I think, at 25 and change thus far. I believe you were targeting about 30. Is there any chance we're going to be headed below 30 by year-end?

Then secondly, can you give me an apples-to-apples comparison for sales and EBIT in Europe for the second quarter, considering that -- the two-plant divestiture that you already went through? Is that already apples-to-apples? Can you just confirm that for me?

Where do we start? I will start with France. I'm not sure that I understand well what you said regarding the first-quarter performance of France. I think that we didn't experience favorable numbers, and the second quarter was not better. In fact, unfortunately, we've been facing social issues by trying to be more efficient, by changing shifts in certain of our facilities (indiscernible) we face a labor unrest and that creates some problems, in terms of producing our weekly magazine. So, we don't see any significant improvement in the near future to the exception of the investment plan that will be announced in the near future.

We believe that there is room a for profitable operation there with the proper equipment. Maybe what we can say here is that the good news -- while the bad news is that we lacked investment in the previous years, the good news is that we have a chance to go add the latest technology as we have been doing in our magazine platform in the U.S. with 64 and 72 pages. That also is able to run cross and long-grain. Maybe we don't want to go to much in details, but at this stage, you know, we are considering that, with the improper investment, we will be in the position to make this market profitable.

I guess if I can just quickly clarify, Pierre Karl, just in case there's anything else that comes out of it, in the first-quarter MD&A, the discussion essentially said you had anticipated a positive impact from divesting the two plant. In the second quarter, you're talking about assessing the situation in its entirety, which is, to me, quite a different position you're taking on the sustainability of the current situation.

Okay. I think you referred to the Dorsey divestiture.

That's right.

What we said was in the MD&A in the first quarter was that we were disposing of our Dorsey operation, which we get at the end of the quarter. With Dorsey had been losing money -- lost money in 2004, so we said going toward that should be -- would improve the situation.

The second operation that we sold was a small sheet-fed operation which also was marginally losing money. So that's why we indicated in our MD&A in the first quarter that, by doing these two disposals, it would improve the results going forward. We were not talking about the overall situation in France but just related to these two disposals.

I've been trying to explain what happened in the second quarter regarding our operations, so in a nutshell, if we were not to sell or to divest Dorsey, our result would be even worse.

Okay, thank you.

We're going to take two more questions.

Randal Rudniski with Credit Suisse First Boston.

Two very quick questions -- first of all, on the Yellow Book contract, the value of the contract -- can you confirm if that includes or excludes paper sales?

It excludes paper sales. It's paper supply.

I'm sorry, that includes paper -- (multiple speakers)?

No, excludes. Paper is supplied by the customer.

Terrific, thank you. Second of all, again I guess on France, can you give us a sense of the revenue and operating income change year-over-year in that region specifically?

I don't think that we're breaking down those numbers.

No, we don't but generally speaking, in our MD&A, we are saying that revenues are down; volume is down; prices is down on a year-to-year basis in France, so that -- and we said also that our results this quarter, France is losing money and the losses are greater than they were last year.

Okay, that's great. Thank you.

Katharine Dalton from Merrill Lynch.

I am just wondering if you have had any recent discussions with the rating agencies and what their current views are on your debt rating. Just in terms of the contract renewals that are coming up in the second half of the year, I'm just wondering if you can give us some idea of how that compares to last year. In terms of spot pricing right now in the market, have you seen any relief in terms of percentage declines there?

The pricing has continued to be, obviously in all the countries that we operate, a major issue. We've been seeing capacity getting volume, so it creates pressure on the downside in terms of pricing. Once again, we believe that our capacity to deliver with the appropriate equipment that is now going online will favor us in terms of bringing higher margins, because we will have operational costs lower. I don't think that there is any significant renewal to talk about in the last part of the second half.

I'm sorry, I didn't get your first part of the question.

Just if you've had any contact recently with the rating agencies to discuss the debt ratings.

Yes, we have. Maybe, Claude, you can comment and -- (multiple speakers).

Yes. In the last month, Pierre Karl and I met with the two rating agencies. As you know, we have regular meetings with the rating agencies, and we've met with them to explain the situation, what our plans were, what they were, so that has been done on a regular basis. So it's now up to the rating agencies to do whatever they need to do, but I think we've explained our case and I think we have a pretty good case to -- a pretty good story to tell.

Basically it turns around two numbers -- or two segments is that we have been seeing out coverage improve significantly for the last 24 months and our debt-to-EBITDA also has significantly improved, which I guess are the key ratios in every business. So to us, those numbers are favorable and should be rewarded accordingly.

Okay, thank you very much.

Thank you, ladies and gentlemen. We will now be moving on to the second part of this joint Quebecor World/Quebecor, Inc. conference call.

For those of you who have just joined us in progress, I would like to welcome you to the Quebecor conference call for the second quarter of 2005. My name is Luc Lavoie, Executive Vice President of 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 of Quebecor, Inc., Jacques Mallette, Executive Vice President and Chief Financial Officer of Quebecor and Quebecor Media, Pierre Francoeur, President and COO of Quebecor Media and President and CEO of Sun Media Corporation, and Robert Depatie, President and CEO of Videotron.

We will begin with the presentation of our second-quarter 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 supplementary disclosure and the MD&A from Quebecor Web site at www.Quebecor.com.

I should also mentioned that you will be able to listen to this conference call on tape until September 3 by dialing 1-877-293-8133 or 403-266-2079 and access code 287589. I repeat, dialing 1-877-293-8133 or 1-403-266-2079 and access code #287589. This information is also available on our Web site.

I now turn the floor over to Pierre Karl Peladeau.

Thank you, Luc; you made this one well. So good afternoon for those who have joined us or are joining our conference call.

Many of you have heard my comments on printing operations during the first part of the call, so as a result, I will introduce this portion by only saying that I'm pleased to report that Quebecor Media ongoing robust performance as well as lower consolidated operating, restructuring and financial expenses have largely allowed our company to withstand a difficult print market environment, which we announced earlier this year.

As usual, we will be focusing this part of the call on our newspaper, cable and telecom operations. Then most of the rest of our operations have already been subject to public disclosure.

I will now ask Jacques to present a review of our financial performance. Jacques?

Thank you, Pierre Karl.

On a consolidated basis, Quebecor, Inc. reported a net income of $56 million for the second quarter of '05, or $0.87 per basic share, compared to a net income of $7 million or $0.10 per basic share in the same quarter of 2004. Net income is improving year-over-year on lower depreciation, financial and restructuring expenses, as well as a $56 million gain on remeasurement of exchangeable debentures, which together more than offset the decrease in operating income of our printing operations.

For the six months ended June 30, the Company reported net income of $33 million, or $0.50 per share, in 2005 compared to $12 million, or $0.18 per share, in 2004. Again, lower depreciation and financial expenses and a gain on remeasurement of exchangeable debentures more than offset a lower operating income.

When excluding unusual items and discontinued operations, Quebecor's earnings per share increased 20% year-over-year during Q2 and 55% during the first six months of 2005.

Compared to the second quarter of last year, Quebecor, Inc.'s revenues were down 3% at $2.5 billion. Expressed in local currency, virtually all components of the family exhibited revenue growth but the appreciation of the Canadian dollar affecting the conversion of Quebecor World's U.S. revenues more than offset this improving performance.

For the six months ended June 30, revenues were down 1.5% in '05 and $5 million, again as a result of the appreciation of the Canadian dollar.

Consolidated operating income for the second quarter was down 11% year-over-year from $446 million to $396 million. As had been announced earlier this year by Quebecor World's management, operating income declined year-over-year and sequentially at our printing operations. This decrease was amplified by the appreciation of the Canadian dollar.

As for Quebecor Media, its operating income improved by $2 million year-over-year. For the six months ended June 30, the Company reported operating income of $754 million, down 6% from $806 million reported in 2004.

Focusing on our media operations, Quebecor Media reported a net income of $35 million in the second quarter of '05, principally on lower financial expenses compared to a net income of $17 million last year. For the six months ended June 30, Quebecor Media reported a net income of $48 million, up $36 million from the $12 million reported in 2004.

Revenues were up 9% in the quarter, growing from $615 million in '04 to $671 million this year with all segments exhibiting revenue growth. Revenues from our cable operations experienced notable growth of 14% as a result of the continued success of Digital TV and high-speed Internet services, as well as the impressive take-off of residential telephony services.

Our business telecommunications and our Internet portal segments also experienced solid growth of 34% and 55%, respectively. The contribution from the IT hosting service contract, Videotron Telecom signed with Quebecor World and the launch by Videotron at residential telephony services represent the main sources of the gains realized by Videotron Telecom.

As for our Internet portal segment, it continues to grow rapidly and attract more advertising and subscription revenues.

For the six months ended June 30, Quebecor Media's consolidated revenues were up 10% in '05 with revenues amounting to $1.3 billion. Again, all segments exhibited growth for the period. Quebecor Media's EBITDA the quarter increased to $194 million from $192 million in 2004. Two sectors negatively impacted by new product launches, namely our newspaper and broadcasting operations, partly offset the solid operating performance of our other segments. Indeed, our cable operations recorded EBITDA growth of 4%, while our business telecom and Internet portals operations exhibited growth of 72% and 144%, respectively.

For the six months ended June 30, Quebecor Media's consolidated operating income is up 7% year-over-year from $323 million to $345 million. Cash flow from operations, prior to changes in working capital, was virtually flat in the second quarter of '05 at 132 million. This cash flow was primarily used to fund $49 million of CapEx to pay a $5 million dividend to common shareholders and to increase the cash reserves available for debt repayment.

Indeed, shortly after quarter end, we fully paid down CF Cable's senior secured first priority Notes for a total cost of $99 million, and we repurchased US$140 million in principle of QMI's senior Notes and senior discount notes for a total cost of C$215 million, including premiums and the cost of unwinding hedging contracts. These debt repayments were funded from available cash and drawdowns on the revolving credit facilities. I can't tell you how pleased we are to begin chipping away at our high coupon debt.

I thank you for your attention. I will now let Pierre Francouer review QMI's operations.

Thank you, Jacques. Good afternoon, everyone.

Before reviewing some of Media's operations, I would like to draw your attention to some highlights from some of our other business units. The (indiscernible) BBM results have once more confirmed TVA's ratings dominance at TVA lined up 24 of the top 30 most watched television programs while maintaining a 30% prime-time viewership market share.

Also, shortly after quarter end, TVA announced that it had taken up and paid for 3.4 million Class B shares, which had been tendered under the terms of a substantial issuer bid announced in May for a total purchase price of 75.9 million. As a result of this share buyback, QMI's economic interest in TVA head increased from 40.1% to 45.2%.

In June, (indiscernible) prelaunched its new site (indiscernible).ca, a comprehensive real estate sale and purchase site for both agents and private individuals, and it has recently signed an agreement with one of the largest real estate brokers in the province to add (indiscernible) of his residential listings on the (indiscernible) site. There are already more than 11,000 listings from over 265 brokers and 2000 agents originating from all major real estate brokers in the province.

Also noteworthy has been Nuron's ongoing penetration of new and existing blue-chip clients, such as Renault, (indiscernible) and Loreal. In fact, Nuron posted a record $1 million net earnings for the second quarter.

As for Sun Media, revenues increased in the second quarter to $239.5 million from 233.2 million last year. The revenue growth was mostly due to a 4.6% increase in advertising revenues and a 4.5% increase in flier inserts revenue partially offset by declines in circulation, printing and other revenues.

Community newspaper revenues increased by 7.5% while our urban dailies recorded a 1.8% increase. Revenues from the 24 hours franchise more than doubled year-over-year. We are also proud to have once more increased our market share in ROP in advertising lineage for our urban leading newspapers in all seven of our competitive markets, as local advertising revenues increased 6.8% due to gains in categories such as automotive carriers and homes.

Circulation revenues in the quarter were 3.5% less than last year as we adopted aggressive circulation pricing and marketing strategies for our paid dailies to mitigate declines in circulations which were impacted by factors such as the hockey strike in many of our urban markets.

Our EBITDA declined slightly in this (indiscernible) quarter from 64.9 million last year to 61.7 million, as advertising marketshare gains across all our urban markets and robust double-digit EBITDA growth from our community newspaper operation. Worse than dailies, the net entirely offset the investments which we are carrying out across our platforms. including the launch of Vancouver 24 hours, daily circulation increases of 25,000 copies for each of our Montreal and Toronto free dailies, investment in bulk distribution to (indiscernible) our readership levels, partially in Montreal and Toronto, where the hockey strike and the departure of the Montreal Expos have caused some weakness, which we now expect to be reversed with the recent resolution of the NHL conflict, investment in our distribution network to facilitate the acquisition of TVA Publication, which now makes some media-to-market leader and distribution of magazine publications in the province of Québec and lastly, investment in our urban dailies Web site platform. As a result of those -- of these investments in our operations, our operating margin in the quarter was 25.8% compared to 27.8% in 2004.

Year-to-date revenues increased 4.3% to 452.1 million from the 433.4 million generated last year, while year-to-date EBITDA of 103.4 million is virtually flat with the 104.6 million recorded in 2004. Year-to-date, the EBITDA margin is 22.9% compared to 24.1% in 2004.

Our 24-hour free commuter dailies continue to have a significant impact in their respective markets. Total circulation is currently over 500,000 and now (indiscernible) markets to satisfy the increasing demand of our readers for these products. Our 24 hours publication is the largest circulation free daily newspaper in Montreal and Toronto, according to the latest CCAB results. The pickup rates are 98% in Toronto in Montreal, and 88% in Vancouver after only three months of operations.

The Toronto Sun has been experiencing some weakness as Toronto continues to be our most competitive market with the presenter paid (indiscernible) English dailies, three free English dailies and a number of other daily and weekly newspapers. As a result, we have implemented the following strategies to improve their performance -- one, we have made senior management changes; two, we have invested in content announcements and new marketing programs to strengthen circulation and readership; three, we have invested in bulk incenting programs to protect our readership, which continues to provide relevant audiences for our advertisers.

Also during the quarter, we launched our new customer service call center in Canada, Ontario near Ottawa. To date, we have consolidated to call centers from Winnipeg, Ottawa and Toronto. Next on our list are London, Edmonton and Calgary. Once completed, this project will save the Company 1 million annualized and provide enhanced customer service to our readers and subscribers.

On the business development front, in May, we acquired the Moranville Mirror and the Red Water Tribune, two Edmonton areas weekly community newspapers. This (indiscernible) will strengthen our presence in the greater Edmonton area and present synergies by tapping into our existing distribution networks and printing facilities.

In June, we acquired The Weekender in (indiscernible). The weekly community newspapers located in (indiscernible) northern Ontario. These newspapers are strategically located near our existing operations in the Campus Casing (ph) and Timmons areas and will allow for administrative production and distribution synergies.

We believe there are significant growth opportunities in developing our online media in concert with our professional print media. In order to capitalize on this market, we have rebranded and relaunched six Web sites for all of our free daily publications and for our urban dailies in Toronto, Ottawa and Edmonton. Our weekly traffic to these sites is growing rapidly and currently averages about 0.75 million unique visitors, generating 4.5 page views.

Despite ongoing investment in several new products, Sun Media continued to provide stable earnings at industry-leading margins.

I thank you for your attention and will now ask Robert to cover our cable industries.

Thank you, Pierre, and good afternoon, everyone. I am delighted to report another quarter of robust growth in all of our products as well as continued strong penetration of our recently launched residential telephony service.

During Q2, we continued to deliver industry-leading growth for our digital TV and high-speed data services in spite of a very competitive market environment. We recorded net additions of 26,000 digital TV subscribers and 18 high-speed Internet subscribers, compared to 14,000 digital TV subscribers and 14,000 high-speed Internet subscribers in Q2, 2004.

For the six-month period ended June 30, 2005, we added 47,000 new subscribers to our digital television service, virtually the same as the 48,000 added last year. You will recall that we had an unusual first quarter last year; we added a record number of digital TV subscribers because we tried to match aggressive competition for new customers. We have not matched these aggressive offers this year and are still continuing to record industry-leading growth. During the first half of 2005, we also recorded a 45,000 increase in the number of subscribers to our high-speed data servers, compared to 40,000 last year, bringing our high-speed data customer base to 548,000.

During Q2, we recorded a net loss of 12,000 subscribers to our cable television customer base, compared to a net loss of 9,000 in the same quarter in 2004. You will recall that this loss reflects the fact that most department leases in the province of Québec end June 30, leading to a higher level of disconnection in Q2 and reconnection in Q3. For the six-month period ended June 30, 2005, we realized a net loss of 9,000 subscribers compared to a net loss of 5,000 subscribers the prior year.

During the last 12 months, we've recorded a net gain of 24,000 basic subscribers, 92,000 digital TV subscribers and 101,000 high-speed data subscribers. These results have allowed us to maintain the highest percentage growth in digital TV and high-speed data subscribers amongst the other large cable companies in Canada on a reported last-12-month basis, as well as on a 24 and 36-month basis.

The allowance of our residential telephony service continued to attract a lot of customers. As you know, we launched on the Montreal South Shore on January 24, in Lavaou (ph) on March 29 and in Montreal, we (indiscernible) an area on May 25. We added 27,000 new subscribers during the quarter to bring the total to 42,000 at the end of Q2, 2005.

Our net average revenue per customer for the telephony service was greater than $30 per month during the second quarter. This is in spite of the fact that our bundling discounts are applied in reduction of the telephony service price.

We have also since launched a service in Québec City on July 11, 2005, making the service accessible to 32% of our footprint. We intend to progressively roll out the service to other areas until the end of the year, and we have been able to increase our weekly installation capacity to 3000-plus (indiscernible) moving season.

Revenue for Q2 amounted to $241 million, an increase of $29 million, or 13.5%, compared to Q2 2004. Revenue for the six-month period ended June 30, 2005 reached $473 million, an increase of $54 million, or 12.9%. The increase in revenue is due to the growth in our customer base, the increased penetration of value-added services, the price increases for cable television and the acquisition of the Jumbo Video stores.

Our total ARPU, net of programming credits, has increased 10.5% from $46.03 during Q2, 2004 to $50.86 and in Q2, 2005. Videotron recorded EBITDA of $95 million during Q2, compared to $91 million during the same quarter of 2004, representing a 4.2% increase. When excluding the one-time items and the costs associated with the issuing of 12,000 more digital TV subscribers in Q2 2005 than in Q2 2004, the year-over-year EBITDA increase would've been 11.6%. The year-over-year improvement would have been even greater if we excluded the modest and temporary drag caused by the launch of residential telephony service. EBITDA margin for Q2 was 39.4%.

For the six-month ended June 30, 2005, we recorded EBITDA of $187 million compared to $164 million in 2004, a 14.2% increase. We generated cash flow from operations before working capital changes of $156 million for the six-months ended June 30, 2005, representing an $11 million improvement over the same period in 2004.

Additions to fixed assets amounted to $71 million in 2005, compared to $61 million in 2004. This increase is mainly due to the $15 million invested for the allowance of our telephony service.

Also noteworthy -- during Q2, we signed a three-year extension to our existing labor agreements, which includes 2.5 salary increases for each of the three years. More importantly, however, the new agreement provides us with significantly increased soft-contracting (ph) flexibility for network modernization projects and new product launches. The Montreal and Québec City contracts now expire in December, 2009, while the other contracts expire in 2010 and 2011.

I thank you for your attention and will now let Pierre Karl conclude.

Thank you, Robert, and congratulations.

Our results for the second quarter are a reflection of the prevailing headwinds in the print media market and the continued progress being recorded by Québecor Media quarter after quarter. As has been the case for some time now, Videotron continues to rack up strong growth in its value-added services. Moreover, the telephony service penetration has been exceeding our expectation and the labor climate is excellent with a new three-year contract extension recently ratified by the principle unions.

Sun Media, TVA continued to deliver industry-leading metrics. Although investments in new product launches have temporarily hurt their bottom line, they will generate long-term growth and profitability. (indiscernible) Nuron continues to deliver strong growth as both have been developing their revenue base and profiting from the secular expansion of Internet-driven revenues.

For those of you who may have missed the first part of our conference call, we will have that, as announced earlier this year -- Quebecor world second-quarter results were weaker than those of Quebecor -- Q1, I'm sorry -- mostly due to weaknesses in our French and UK operations and our magazine and commercial groups in North America.

We're keeping the course we set in our investment program while focusing on ways to continue improving cost efficiency and market nimbleness (ph). Today's announcement of our 900 million multi-year directory printing contract with Yellow Book provides tangible evidence that our strategy is paying off.

We're also divesting non-strategic assets in France in North America in order to focus on market segments where we can take advantage of our core competencies and the synergies of our global platform.

We remain convinced that, at the end of our restructuring exercise, Quebecor World will be stronger, more cohesive and better equipped to prosper in any market environment.

We thank you very much for your attention, and we will go to the question period.

Questions, please.

(OPERATOR INSTRUCTIONS). Bob Becker with CIBC World Markets.

Just on the Videotron side, Robert, can you talk a bit about your potential on the high-speed data growth? You obviously had some great growth continuing and have some pretty high penetration numbers. Now, where you can possibly see penetration getting to in the next few years, just as we model it out?

Then also, on the telephony side, can you talk a bit about Québec City. Early on, I know, but just how that launch is going, if it's a strong as it's been in the other areas.

Lastly, just on pricing, I mean, you've obviously had some strong telephony growth. Is there any thought, at some point, to it being a little was aggressive on price, given that you seem to be having some great penetration across the board?

Okay, so the first question, as you know, we do not provide forecasts. If you look at a trend in the past 36 months, we always show consistent growth, so there's no indication currently that that slowed down -- that should slow down; that's number one.

Number two, Québec City has been as good as the others. Actually, we were very impressed. Our list impact on other product is greater even in Québec City.

In terms of pricing, well, as we've said many times, we are always looking at opportunities to see if we don't leave anything on the table, and that's what we are analyzing currently. But you've got to understand that our transaction, even if people were concerned about a $15.95 pricing on bundling, I mean, you see the average transaction minus a bundling impact, it's $30 currently, which is pretty good, actually. So our strategy has been working very well, because what we've done is we offered a la carte and people have taken opportunities to increase revenue by picking up our value-added services. So currently, we are satisfied with that but as I said many times, we will never leave money on the table.

Can you just remind us? You're expecting to finish your footprint by the end of the year. Is that correct? To launch -- (multiple speakers)?

Too early to tell. Our plan is to do that, but I can't so tell you really more on that. What we're going to do -- what we've got to keep in mind is the key is customer satisfaction. The reason we are not opening as fast is we want to make sure that we provide the best service, because it's part of our vision and mission. As you can see, with 32% of our footprint, we achieved 42,000 subscribers. (multiple speakers).

You can do about 3000 in a week at the moment, is that right?

Oh, we can do 3000-plus. Actually, I will tell you that we can do 4000.

Okay, great. Thank you very much.

I probably have said too much already!

(LAUGHTER).

Vince Valentini with T.D. Newcrest.

Thanks very much. Robert, can you continue on some of the positives from the telephony? Can you talk a little bit about churn reduction and what you have seen, give us any update, stats? Also, on the cable side, can you talk about CapEx for the second half of the year? Is 70 million a decent run-rate for the back half or will it go up as we start to see some of the Québec City network expansion flow into the numbers?

Yes. Well, in terms of churn, we remain among the lowest, so we haven't seen a negative impact. Actually, we do believe, and all the research really said it very clearly, that churn should go down and that's the case. Again, I want to reinforce the fact that we do have the lowest churn level in North America.

Secondly, in terms of CapEx, yes, it will go up to for two reasons. First, it's success-driven CapEx because of telephony; as we said as well many times, it's way over expectations, so we're going to see CapEx increasing in the second half and of course Québec City. But the main increase will come from telephony success-driven CapEx.

Okay. (indiscernible) is there any number you can give in terms of the reduction or the improvement you get from customers taking all three products versus two and versus one?

No, we don't provide these numbers, but it's over our expectations.

While we are here, I know this is the Media portion but the printing side is the area that seems most challenged out of Quebecor as a whole, so can I just ask one more question here? I think Pierre Karl is still there. You guys have not provided any warning for the third quarter the way that you provided a warning for the second quarter, but yet you still have a lot of the issues regarding the core B (ph) lost volume, the magazine contracts in the U.S. that have been lost and the problems in France that were well talked about earlier in the call. Given all those things, you have not seen fit to give any sort of warning for Q3. Does that suggest you see stability now and you've reduced your costs enough to offset those volume and pricing pressures, or is it just (indiscernible) you don't have much visibility?

Vince, you know what, I don't know what to say. You know, my bodyguard is not here anymore (LAUGHTER) (indiscernible) left the room. I do not know what to say. You know, if I want to say something that he would not like, I will be in a bad position with him. I mean, if there is no warning, there's no warning. I can't say anything else on that. So you probably, from there, since we had one at the earliest meeting, the (indiscernible) for the previous conference call and we are not making any today; it's business as usual.

Jeffrey Fan with UBS.

I have a couple of questions. One is -- and this is for Robert. Can you talk a little bit about -- a little bit more about the competitive landscape versus Bell? When I look at your results, the one thing that sort of alarmed me was the 38,000 analog sub loss in the quarter. Yes, we understand there are seasonal factors, so comparing to last year's, there should be a pickup quarter-to-quarter. But it looks like, this year, that the drop has been even larger. So can you talk about the competitive landscape versus Bell particularly in the quarter? I know they have been aggressive. Also they just announced the purchase of MAX TV. I'm wondering how that will impact you as you look forward.

Okay, in terms of competitive landscape, well, Bell is very aggressive. As I said in my speech, we don't intend to match and if you look at the last four years or last three years, it always varies between 9 to 12 to 14,000 disconnections; it's based on moving. We don't see that alarming. Actually, it is not, for us, alarming because if you look at digital, our contribution -- well, first we doubled in the quarter, and our contribution is way over than analog, so we're not concerned. As I said as well, Q3 reconnection is always good, so we don't see that trend changing.

In terms of MAX TV, well, they've been in the business many years and they always remain very small, so of course, we're going to look at them very seriously but currently, we are analyzing what that could do to our business, but we're not overly concerned about that -- but we are cautious.

Okay, great. Just one quick question on the telephony -- you mentioned that the EBITDA for Videotron would have been even greater without the drag from telephony in the quarter. Can you tell us what that EBITDA drug was in the quarter?

Well, look, it's really -- well, it's very small. Let's put it this way.

Single digits?

No, no.

Sorry, not in the single digits?

Yes, in the single digits. They are very, very low single --.

He doesn't want to give you the answer.

(Laughter).

Okay, that's great. Thanks.

Michael Pace with JP Morgan.

I'm wondering if you could give a little more detail on the flow of capital as it relates to taking out the CF cable bonds as it relates to tendering the QMI bonds. Did that capital come from the Videotron credit facilities solely? Was that a repayment of the subordinated parent intercompany loan? Finally, what are the restricted payment baskets at Videotron and then over on at Sun Media as well? Thank you.

In terms of flow of funds, well, you have to look at the combination of both transactions, both CF Cable and also the purchase or the tender offer that QMI made -- (technical difficulty). So it was funded mostly from cash that was sitting at QMI, also at Videotron. There was a $100 million dividend -- (technical difficulty) -- to QMI, which was mostly funded from drawings on the revolver. So, that provides you more or less the information on the flow of funds. In terms of baskets, we still have good baskets available at Videotron.

Just to be clear, though, is there still that $150 million subordinated intercompany loan between the parent and Videotron?

Yes.

Okay. Thank you.

Dave McFadgen with Sprott Securities.

Yes, a couple of questions -- when you look at the newspaper business, you know, you talked a lot about investing in the various newspapers. Could you characterize any of the costs in the quarter as sort of one-time and that, going into Q3 and beyond, those costs wouldn't be there? If so, could you quantify them?

Secondly, when you talked about repaying the debt, you recognized a swap loss or you canceled your swaps. What was the cost on that?

Then lastly, when you look at the ARPU on Videotron, how much of that increase would have been price increases versus just product mix?

Could you please repeat the first questioned regarding Sun Media? We did not understand well.

I'm sorry. When you look at the EBITDA in the quarter, it was down year-over-year, and you are investing in some of your new newspapers and like 24 and stuff. It seemed like some of the expenses would be what I would call one-time in nature, where they wouldn't be recurring. I was just wondering, if that is so, could you quantify it?

Well, if you look at Sun Media, obviously when you launch new product, most of the expenses are there to stay. It's just that you have money-losing products to start with, so that causes a drag on EBITDA. So, the expenses are there and the revenues are picking up quarter after quarter. So over time, you know, they will surpass the costs and we will generate a positive EBITDA out of these new products.

For example, the U.S. has seen the launch of 24 hours in Vancouver.

Okay, just so you talked about investing in your Web site and distribution (indiscernible). I was wondering if these are going to be ongoing costs, or if they are just kind of one-time in nature.

Most of them are recurring costs. In terms of the repayment of swaps, well, there's two components regarding the loss that we have on the tender offer for roughly 140 million U.S. First of all, while we did write off some financial costs that were capitalized when we did finance in the first place. Secondly, part of the loss relates to the premium that has been paid as part of the tender offer. Thirdly, the loss -- the remaining loss is due to the unwinding of the swaps. Obviously, you know, the swaps covered ten years of interest payments in addition to capital, so there was a loss that was realized on the unwinding of these swaps.

What would the loss be just on unwinding those swaps?

You can call us back. I don't have that detail in front of me.

Okay.

I can't give you that number in terms of the growth but let me just repeat the -- on a twelve-month basis, you know, because of our business is on a recurring basis and on top of that a very low churn, we had 92,000 new additions of digital on the twelve-month rolling. We had 100,000 Internet, and we had 24,000 basic. So, I could say that most of the growth comes from organic.

In terms of price increases, well, we had no price increases this year on digital -- sorry, on Internet, but we had a small one on cable and (indiscernible). So, it's coming from organic growth, not all of it but a good chunk of it.

Okay. Could you quantify -- I don't know if you can -- what impact, if any, the telephony had in that total ARPU?

Very small. Very small.

All right, thank you.

Next question will be the last question.

Tim Casey with Nesbitt Burns.

A couple of questions on the cable side -- one, could you talk a little bit about Videotron Telecom, or as-reported business to telecommunications, and how much of that business now is distinct third-party business? How much do you think the growth will be going forward? I guess what I'm asking, are you confident you can grow that business with third-party customers?

The other thing I was hoping you could comment on would be your exposure to MDUs, multi-dwelling units, and if you're seeing any intense competition from Bell in that particular segment.

Okay, VTR (ph), as we said in the speech, the growth is coming from our hosting service in telephony. Actually on that, on those two fields where we are planning to have growth as much as we're going to have it at Videotron and we signed a long-term contract with Quebecor World.

But in terms of commercial activity and Internet, our business is still growing -- not as fast of course as hosting but it is still growing. Without giving you all the strategy, you just have to keep in mind that we're launching telephony. One key product to be very strong in the commercial business is to offer a telephone service. We're going to be in a very good position in the very near future to offer that, so we see some potential.

In terms of the multi-dwelling, we are in good shape. We control a big chunk of the market. We have good agreements. We don't feel very -- we have a better product offering, to our -- as you know, our key strategy has always been better product, better features, better concept and more and exclusive content than our competition. So, our growth is coming because of that. So we don't see why we would be impacted because I know where your question is coming from on multi-dwelling.

How many of your subs would be MDU order of magnitude?

I can't give you a number. I'm going to have to call you back with the exact number. We will come back -- (technical difficulty).

Just to finalize on the previous question, the last one, the unwinding of the swaps is around $30 million.

Okay, all right. Thank you very much -- (multiple speakers).

(multiple speakers) -- conference call and we will talk to you at the next conference call for the third quarter. Luc?

Thank you very much. Bye-bye.

Ladies and gentlemen, thank you for participating in the Québecor conference call. On behalf of myself and the rest of my teleconference team, thank you.