Quad/Graphics Inc (QUAD) 2006 Q3 法說會逐字稿

Welcome to the Quebecor World conference call. I would like to introduce your chairperson, Tony Ross. Please go ahead sir.

Thank you. Good afternoon and welcome to the Quebecor World conference call for the third quarter 2006. My name is Tony Ross and I'm the Director of Corporate Communications for Quebecor World. This call is being web cast and forward-looking statements are subject to safe harbor provisions.

We'll begin with a presentation of the results of Quebecor World, followed by a question and answer session with analysts. This call should last approximately 45 minutes. To accommodate many common investors, directly following the Quebecor World conference call will be the Quebecor Inc. and Quebecor Media conference calls, starting at approximately 4;50.

Joining me today from our offices in Montreal for Quebecor World are Wes Lucas, our President and Chief Executive Officer; Jacques Mallette, our Executive Vice President and Chief Financial Officer; and Roland Ribotti, our Senior Director of Investor Relations.

Wes Lucas will now provide some introductory remarks and give us an overview of our business performance. Wes?

Good afternoon everyone. Thanks for joining us and thank you for your support of Quebecor World and our transformation plan to create significant value for our customers and our shareholders. In a few minutes Jacques will give you a detailed breakdown of our financial results for the third quarter 2006, then we will be pleased to take your questions.

First I'll start with an update on our five point transformation plan, and then a summary of each of our businesses in the third quarter. A key area in this quarter's call is determined on how our five point transformation plan will help improve our business. By describing the plan in detail, the benefits from each initiative, the financial targets we have set, and our current progress in each area.

Just to state the obvious, as I said in our press release, our financial performance this quarter and year-to-date was unacceptable. On almost every measurement in terms of cash flow, net income, earnings per share and most other net results.

2006 is characterized as a transition year during which we are retooling our network, restructuring our operations, and starting to turn around our business. However, this does not change the fact that these results are unacceptable and not what our shareholders deserve. This is the reason for our five point transformation plan and why we are moving quickly and decisively to put it into action. Please take confidence in the fact that there are thousands of dedicated people working hard every day to turn around our company. We are focused and driven. We have clear targets, and we know how to succeed. And we're already making good progress. The plan focuses on five key initiatives; one, customer value; two, best people; three, great execution; four, retooling; and five, strengthening the balance sheet.

This is on top of our ongoing cost containment and restructuring activities during the last couple of years, where we are seeing positive benefits, as planned. Last quarter I summarized the transformation plan. This quarter we will set initial targets, both financially and qualitatively in each of these areas.

First is customer value, you always start with the customer. Our initial target is $300 million of annualized revenue benefits from customer value initiatives run rate by the end of 2008. We are creating the highest value for our customers by being their complete print solution partner, delivering differentiated, innovative and superior value marketing products and services.

To be clear, delivering the superior quality of product on time, every time is the foundation of our business. However, our strategy is to create even more value by presenting a comprehensive before and after print solution. The solutions before print include such things as providing marketing campaign services, creative for ads, data optimization, content management and a complete premedia solution.

A recent example is in our $1 billion contract for 100% of the directory volume of Yellow Pages Group, which includes substantial high value added services before and after our print processes. Before print our proprietary AdMagic software solution prepares directory advertisements and pagation for YPG. Equally compelling are our after print solutions, such as comprehensive mail list optimization, co-mail, co-palletization, real time tracking, and a complete array of logistic solutions to reduce cycle time, lower postal and freight costs, and improve our delivery times for our customers.

Another example of services before and after print is in the YPG contract for after print, where we are providing print fulfillment and logistical support services, and we are looking at other opportunities to increase these offerings significantly for YPG and a complete logistic solution.

A key focus of our customer value initiative is to increase and extend partnerships with our existing customers, to provide them with a more complete marketing and advertising solution. We have much opportunity with this current customer base.

The second initiative is best people. Make no mistake, we have great people today. However, in the spirit of continuous improvement, we strive to be the very best that we can be every day. That is what our people initiative is all about. This is a key part of our transformation, supported by the fact that all high performance companies that I've been privileged to be part of, and others that have consistently improved shareholder value, make people development and organizational capability building a top priority. This isn't fluff, it's a robust, fact based program not to make people feel good, but to deliver results to our customers and shareholders.

One of our key deliverables is around our best people initiative in 2007, is to insure that we have the most sought after people in the marketplace, and that they choose to stay at Quebecor World due to the personal and professional growth opportunities, and a compensation system directly linked to our shareholders' value increase.

As an example, we are now force ranking our people in every division into the top 20%, the middle 60% and the bottom 20% tiers. For the top 20% we will insure that they have good retention programs in place, and everyone is in the right job to optimize their capabilities and their own personal and professional growth.

For the bottom 20% we will put together development plans to help them improve their performance so either that they get out of this bottom tier, or we help them to exit the organization.

For the middle 60% we will have an individual program tailored to their individual specific development needs. We will continue to build their skills through an appropriate training, and insure that we all meet those clear goals and objectives to help build shareholder value.

The third initiative is great execution. Our initial target is a minimum $100 million of annualized cost savings and productivity improvements, run rate by the end of 2008. This $100 million will come from our continuous improvement programs, which include Six Sigma, 5S, Lean Manufacturing and others. Our commitment is to build a continuous improvement capability across our company that is fact based, and focused on low capital solutions to improve performance and maximize our cash flow.

We are identifying low capital, high return improvement projects that will immediately contribute to increasing shareholder value. One example of a project is in our Covington, Tennessee catalog plant. Today this is a good facility, but there are opportunities to improve. We have an opportunity to reduce make ready and running waste, to improve our color consistency, and to increase our press speed.

Our team, under the leadership of David Blair, has determined that we can reduce waste on press by 25% and increase speed by 15%. The benefits should be impressive. And even more impressive is the fact that they can be transferred to other facilities in the platform.

This project is just one of the many in the first wave of projects that are in the 2007 black belt and green pelt program. We think of this as the class of 2007. We will then add the class of 2008 projects, the class of 2009 projects, and so on, to build a lasting continuous sustainable benefit platform.

This is essential, because we all know our costs, such as labor, energy and materials, will continue to rise and we will continue to face a challenging market. A strong and rigorous continuous improvement program is an important and effective strategy to grow our margins, grow our cash flow, and grow our earnings per share. The projects will focus on all aspects of our business, operations, purchasing, supply chain, and also the administrative functions.

Another example of the benefits of continuous improvement and our great execution initiative is the results that they will have on safety. For instance, we have achieved significant progress already on our commitment to keeping our people safe and our environment safe. A financial benefit is also that we reduce our costs by lowering our workman's compensation expenses.

Our safety performance has improved significantly. For instance in North America we have 21 locations that have gone one full year or more without a lost time accident. And when we do have an accident, sad to say though, but we have significantly less severe ones, which is good news, and we've achieved a 43% reduction in the severity of our accidents in 2006. Congratulations to everyone in these facilities. Keep up the good work and keep working toward the goal of zero accidents. At Quebecor World safety is more than just a priority, it's a fundamental shared value for us all.

The fourth initiative is retooling. To date we are on schedule to complete our three year program. It is being optimized to be completed by year end in 2007. I'm pleased to report that this is earlier than planned. This year nine new presses have been installed in the U.S. platform, and two presses in Europe. The presses in the U.S. are in the book, magazine and catalog platforms.

The start ups, press closures and transfer of volume to other facilities has created some temporary inefficiencies, as reported. However we are shortening these learning curves. For instance the second wave of presses is reaching run rates 30% faster than the first wave. Overall we are on target to meet our performance objectives and cost savings.

The fifth initiative is our balance sheet. A strong balance sheet is necessary to provide us with the flexibility to create shareholder value based on growth in the higher margin, less capital intensive areas. We are committed to strengthening our balance sheet by returning to a strong free cash flow position.

This quarter we announced the suspension of the dividend on subordinate and multiple voting shares. The board approved the measure in light of the company's current investment program in North America and Europe. The dividend payment will be reviewed periodically and also after the completion of our retooling program. While you can appreciate the sensitivity around detailing other actions we are taking to strengthen our balance sheet, I will simply say that working on both strategic and tactical actions to insure that we have strong balance sheet to maximize our shareholder value.

Now I'll give you an overview on our business performance before Jacques reviews our financial performance for the quarter and year-to-date. I would like to reiterate what I said last quarter, that our businesses need to contribute to shareholder value based on earnings, cash flow and return on capital employed, all our businesses. However, this is not happening at the moment. The reality is that our performance is very uneven across our business groups and across our geographies. Some businesses are doing very well, and we will build on those. Others are significantly underperforming, and we will improve those.

In North America our retail business increased sales and volumes in the third quarter versus last year, and they continue to aggressively market a higher customer value multichannel marketing approach to the nation's leading retailers. Wins include Staples and Circuit City. These companies represent best in class in the retail industry, and we have demonstrated to them how our print solutions can create higher customer value.

In catalog, sales and volumes increased year-to-date, but were off slightly in the quarter. In fact, our volume increase year-to-date is higher than the industry average, which means we're increasing our market share here. This is a result of several good wins. We have announced these in previous quarters, and include such great marketing companies as Williams Sonoma, Cabela's, and Bass Pro. Williams Sonoma is a good example, and is now using our multiple plant strategy to produce a consistent high quality catalog, reducing cycle time and delivering reduced costs. We recently completed a successful press start up for them on the west coast.

Our magazine business has been challenged this year by several factors, especially restructuring initiatives and our retooling efforts that have created temporary inefficiency, given that the magazine is one of the areas with the most extensive retooling. Over the last 12 months we have installed nine new 96, 64 and 48 page presses into this platform, serving both magazine and catalog customers. We have one more press to come in the first quarter of next year.

While we are seeing productivity improvements, this is clearly one area of our business where 2006 is a major transition year. Wins in the quarter include multiyear agreements with such high quality magazine publishers as VW Magazine [Ann] Stapleton, and Us Weekly.

In our direct mail business, sales increased 4.9% year-to-date. We have a solid direct mail platform; we are leveraging it as one of our key components of our customer value offering. With the no-call directive in the U.S., direct mail has become one of the most effective customer touch vehicles. Direct mail is a highly effective targeted marketing tool by itself, and even more valuable when combined with catalogs, retail inserts and digital in a multichannel approach. In the quarter we renewed and extended partnerships with world class targeted marketing companies such as American Express, Vonage, Y&R Brands, and CE Communications.

In directory, sales and volumes increased in the quarter and year-to-date as our directory business continues to be a strong performer. I already mentioned the successful $1 billion contract with YPG. In this sector we continued to renew and gain new volume from independent regional directory publishers in both the United States and Canada.

In our book business, sales and volumes were lower due to inefficiencies related to restructuring. Like our magazine platform, our book platform has undergone significant retooling and restructuring activity during the last 18 months. This has caused some disruptions but, for the most part, they are now behind us.

As a growth area, we are steadily improving our operational capabilities in Latin America. These facilities will offer a low-cost alternative to Asia.

In Canada, sales were down slightly in the quarter and essentially flat year-to-date. Volumes were lower due to strength of the Canadian dollar, which has hurt U.S. sales, and the sale of a facility that operated in the third quarter last year.

In the quarter, we expanded work with existing customers and introduced some new customers. Examples of new customers joining the Quebecor family are fine companies such as Telos and Weaver Publications.

Our logistics business continues to perform well and is an important differentiator for many of our magazine and catalog customers, because of our industry-leading logistics solution. A key strength is our leading co-mail capability, which is particularly attractive for short run publications. We have recently decided to increase our co-mail offering by a 50% increase because of added demand.

Our new co-mail machine will be installed in the Bolingbrook, Illinois facility in the first quarter of next year. This improvement to our co-mail platform will provide greater flexibility and increased capability to allow more publishers to take advantage of our extensive co-mail capabilities.

Our goal is to continue to provide the fastest and most flexible co-mail solution in the industry and to help our customers improve their deliveries and reduce their postal costs.

The logistics group has increased our overall sales 4% in the quarter and 7% year-to-date. Fueling this growth are new and renewed customers including Amos Press, Standard Chase, Discovery Media and Newtrack Media.

In Europe, we had many good businesses, but overall results were pulled down by two poor performers, U.K. and France. In Europe, sales and volumes were lower in the quarter, directly due to the sale of several French facilities compared to the third quarter last year and due to lower volume in the U.K. The U.K. is being hit by inefficiencies as we are fundamentally changing the platform into a high quality, short run magazine facility.

In France, we are in the midst of a significant restructuring. Last year, we disposed of certain facilities, and this year, we down sized our Corbeil facility in the first quarter, we closed our facility in Strasbourg in the second quarter and we recently announced we will close our Lille facility in the second quarter of 2007.

Our Gravure investment in our Charleroi, Belgium facility is on schedule and our first 4.3 meter Gravure press will be running in the first quarter of next year and the second one in the third quarter.

In the quarter, we won and renewed work with such fine companies as Marie Claire, Sports Media Strategy, Prisma and Telecable.

In Latin America, sales and volumes increased in the quarter but were still lower year-to-date. This is primarily due to the negative impact of the economic slowdown in Peru earlier this year, which is related to the presidential elections there. Operations in Argentina and Brazil are ahead of last year, while those in Chile and Columbia are essentially flat.

New and renewed agreements in the quarter include Rand McNally, Caribbean Publishers Harcourt, Book of Hope and McGraw Hill. I will be back with some closing remarks, but first Jacques will give you a more detailed review of our financials results. Jacques?

Thank you, Wes. I will now comment on our financial performance in the third quarter compared to last year. As for the previous quarter's comments, focus only on continuing operations. Revenue in the third quarter was $1.55 billion, down 2% from the third quarter of '05. The reduction comes from decreases in volume, especially in the United Kingdom and France, continued pricing pressure, especially in the magazine, catalog and retail sectors in North America, as well as lower paper sales, with the latter having almost no impact on operating income. These reductions were partially compensated by favorable foreign exchange on sales performed outside the U.S.

The gross margin for the quarter was 16.2% compared to 17.3% in the third quarter of last year. For the third quarter of '06, our EBITDA before restructuring and impairment charges was $150.6 million compared to $178.7 million in 2005. The reduction in sales, as well as slight increases in G&A and securitization fees, were only partially compensated by a labor cost reduction of 6%.

The third quarter results include total impairment of assets and restructuring charges of $11.6 million or $0.08 per share, compared to $17.2 million or $0.12 per share, in the third quarter of 2005. These amounts include no non-cash charges in the current quarter and $7.7 million last year.

The third quarter of '06 charges mainly relate to headcount reductions in Europe and, to a lesser extent, North America. The 2006 restructuring initiatives will result in the reduction of more than 1,900 positions, of which 1,200 are already completed. The remaining 700 positions will be eliminated by year-end and fully benefit our results in 2007. However, it is important to note that approximately 300 new jobs would be created in other facilities.

Results were also affected by certain expected startup related operational inefficiencies, due to our retooling programs. For example, we had to remove certain presses to enable new equipment to be installed, especially in the magazine and book platforms. Some volumes were transferred or temporarily lost as we proceeded with the closure of several facilities.

Some additional labor and freight costs were also incurred as we transitioned to a new platform. We are, however, pleased to report that our new presses that have been installed are now operating close to expected levels.

SG&A expenses were $98.5 million this quarter, a 3.2% increase compared with Q3 of '05. Excluding a $2.6 million unfavorable currency translation impact, SG&A would have been essentially flat.

Income tax expense was $2.7 million in the quarter, compared to $18.2 million last year. The decrease was mainly due to losses incurred in higher tax jurisdictions.

In the third quarter, net income from continuing operations, before restructuring and goodwill impairment, was $29.5 million, compared to $46.9 million in the same quarter of last year. On the same basis, EPS was $0.17 compared to $0.28 in the third quarter last year.

Free cash outflow was $40.5 million in the quarter, compared to $76.9 million in the third quarter of last year. Year-to-date, the free cash outflow improved to $9.2 million in 2006, versus $39 million in '05. The difference came mainly from improved operating cash flows and higher proceeds from business disposals.

Concerning our investing activities, in the quarter, we have invested $82.6 million, compared to $88.5 million in 2005, mainly as part of our retooling programs, both in North America and Europe. For the full year, we still expect CapEx to be no more than $375 million.

For 2007, we expect lower levels than 2006 and should return to long-term average CapEx spending starting in 2008. The above CapEx guidance may vary depending on the amount of lease financing activity. We expect to buy back approximately $75 million of leases in '07, and are currently working on a new lease program to compensate for this cash outflow.

With regard to our financing activities and liquidity position, you know, in our $1 billion credit facility maturing in January '09, as at quarter-end, we had over $700 million of liquidity. I'm also pleased to report that we have extended the availability of our U.S. securitization program for a three-year period through to August 28th, 2009. We have adapted the size of the program to take into account seasonal peak drawings and in some of our North American non-core printing facilities in the second half of '05.

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

Thank you, Jacques. I am confident of our restructuring initiatives and our five-point transformation plan will turn around our company. I am encouraged by our progress to date and by the enthusiasm I have seen from our people across our fine company.

Today, we have outlined our initial targets and we will provide you, as we have seen these examples in the future, that we are truly gaining traction. I look forward, on a regular basis, to sharing with you the results of these and other projects in our five-point plan and our ongoing transformation of our business.

Thank you and we will now take your questions.

[OPERATOR INSTRUCTIONS] One moment there, please. They're just queuing up for the questions.

Thank you. Tim Casey, from BMO, your question please?

Thanks, two items. One, Jacques, you mentioned -- you confirmed that you expect to spend somewhere around $150 million in CapEx in the fourth quarter. I'm just trying to reconcile that with the seasonal peak in volumes. Is there a cash flow impact that is delayed in that you've already had the presses installed but does not yet flow through the cash flow statement? Or, will you be taking, you know, some of the plants down in the fourth quarter, due to the press fits?

And second, a question for Wes. You know, you've mentioned a couple times that you're looking at strategic options. Can you describe your commitment to remaining in France and in the European operation as a whole? Thanks.

All right, this is Jacques. You know, regarding the CapEx for the fourth quarter, they are, of course, all related to projects already underway. The CapEx, based on accounting rules, are based on, you know, spending. They mostly relate to our retooling program and, again, when we purchased these pieces of equipment, we negotiated payment terms for each of the presses. And, we're just following the payment schedule.

So, some of these presses are effectively already installed and we'll have further payments in the fourth quarter. And some other payments are for presses that will be installed in the future, or are being installed, you know, in December.

Tim, this is Wes, and to the question also that, in terms of the fourth quarter, we're going to be running flat out. We're fully booked and we're going to run our business very well in the fourth quarter to serve our customers.

So, we'll have to -- we're planning those well in terms of press shutdowns and press startups. In terms of say, strategic options to improve our balance sheet, we're committed to improving our balance sheet; no doubt about that.

However, when you think about strategic options, we need to do the right things in terms of every one of our businesses needs to be able to stand on their own, in terms of return on capital employed.

Now, we don't -- it's sensitive around what our plans are and so, therefore, we're not sharing -- you know, can't be able to divulge those at this time. But if you look at each one of our opportunities for improvement, France has a significant opportunity to improve our business, regardless of what happens in the future.

As we look at France, we're moving the volumes from our French operations into Charleroi, the new premier facility. And this will significantly improve our cost structure as you saw in the announcement today. We are closing many of the plants and the facilities there down to improve the overall structure.

So, in that sense, we're improving France, regardless of what happens in the future. But every plant, every business, must be able to have a positive return on capital employed to create shareholder value. Next question?

Okay, the next question is from Philip Olsen, UBS. Go ahead, please.

Yes, thanks. It's actually a follow up a little bit on the balance sheet. Now that you've started to disclose your three financial covenants in your various debt instruments, can you give us an update, based on your calculations, where you are under each of those covenants?

You know, the way we look at it, you're starting to get fairly tight in terms of the amount of headroom you have under those covenants. And, I understand the sensitive nature of some of the options you may be looking at, but I think the market, at least from the debt perspective, is probably looking for a little bit more detail as to the type and timing for some of these initiatives to restore financial flexibility. Thanks.

All right, well, this is Jacques. Again, we have some disclosure of our covenants, you know, in the -- that has come with the filing of some of our agreements. We don't provide the specific data from a quarter to another, I think you can read through the MD&A that we don't forecast any event, and that we have, you know, sufficient funds for our operations. So that's a standard comment that we do with every MD&A report.

Thank you. The next question is from Eric Mencke from UBS Securities; go ahead please.

Thanks very much. Just first on the five point plan, in relation to your $300 million in annualized revenue benefit and 100% of annualized cost savings by 2008, how much of this would be incremental when compared to what's already been announced by the company? And then secondly, just to fall back on the CapEx, I just wanted to know what would be a fair run rate to use after '07 for maintenance CapEx? And is 325 still a realistic number for '07?

In regard to our initial targets for our five point plan, these are incremental to the retooling efforts and the other programs that we have currently in place. So they're in addition to. And the reason why we've kicked off our five point transformation plan is to specifically address the challenges in the future and to ensure that we have earnings and cash flow and EBITDA improvement, and so therefore that's the reason for the $300 million in the revenue benefit from customer value, and the $100 million from execution, based on Six Sigma and other projects.

In terms of capital ex, Jacques, it's about historical average of 250 to 260 is what we're looking at.

250 to 275 would be our average if you were to look at the last years, so we expect to be back around that level by 2008.

Thank you. The next question is from Andrea Horan from Genuity Capital Markets; go ahead please.

Just with regard to the cost savings, have you articulated what you think the savings are from the retooling process that you've gone through? And the second question I had is with regard to the pricing environment. As you're realizing these savings, to what extent do you think you're going to be able to retain them for the company, or for shareholders, as opposed to passing them on to your customers, given the -- what I understand is continued environment of pricing pressure.

Thank you Andrea. In terms of the benefit from our cost program, the $100 million will be specific cost improvements that we will list out project by project, and we have a robust Six Sigma program that we're initiating. So I'm very confident about the Six Sigma program. The issue is how does this build upon the other programs that we've had? The retooling program that we've had for the last several years, also our other projects and restructuring initiatives, they're clicking in and they're delivering the cost benefits that they've had from initial announcements.

In terms of pricing, and as an offset, that's the reason for these programs. We want to build an engine of growth, an internal engine that will improve our performance regardless of the external environment. This is very important, because as you just stated, if you don't put in these programs to insure that we have significant earnings improvement internally, they can get eaten up by external issues such as inflation, cost escalation, and any type of pricing environments.

Therefore, in one way you could say we're positioning ourselves to be highly competitive for the future. The pricing environment -- we're also focusing on the customer value initiative, and that will counteract price declines in the future. As I said, we're really focusing on adding more value to our current customer base, and when you do that you create a much more sticky environment where we believe that adding more value to our customers will defer a focus on price. It will be a focus on value as we work with our customers. Because when we create more value for our customer, it's a positive accretive event as opposed to more of a commodity pricing structure.

So we're optimistic about the results of these programs.

Thank you. The next question is from Carl Bayard from Desjardins Securities; go ahead please.

Thank you. Wes, I was just wondering -- on the revenue side, that $300 million, you said it's exclusive of stuff that's been announced today. But I was just wondering, does that exclude as well some of the business that you lost? Like I'm thinking the AT&T directories in California. So is that -- like if you knock off 100 for that, would that be more like 400 instead of 300?

Well one reason why we're giving a target for each one of these initiatives is that we want to be able to follow them up each quarter, and so that you can see our progress. So that we are a company that makes commitments and delivers on those commitments, we make our numbers.

And so therefore that's why we laid out the $300 million. The $300 million will be new revenue benefits from these specific projects. Now we're not going to go back and go through a theoretical exercise to say net this versus that. These are specific deliverable projects with customers, they are high value added and should be better margin, better quality of earnings and sales than the current ones, based on a complete solution. Hopefully that answers the direction of your question.

If I may add again, if you look at the directory business, we've made significant gains in the last year in terms of new contracts. Yes, we lost some business but we had significant gains. And as a result we expect our market share will increase significantly as we start the Yellow Book contract next year.

The next question is from Andrew Mitchell of Scotia Capital; go ahead please.

Thanks, good evening. I have a couple of questions. I'm just wondering, on the retooling efforts first off, when do you think you're going to see a turning point with those efforts in terms of the restructuring efficiency savings rising above the startup inefficiencies from the new presses on a quarterly basis? And then secondly, on the restructuring program again, just wanted to see if you can just revisit your view on the capacity neutral nature of the restructuring program. It appears you're experiencing deepening volume erosion across your North American business, spreading from Europe. Can you give us a sense, it sounds like you're banking on market share gains. I'm really looking to try and understand better how you're looking at asset utilization versus just gaining efficiency from the retooling program. I have a couple more, maybe I'll just leave it there with those two, and then we'll move to the next couple.

Thank you Andrew. Regarding the retooling efficiency, we'll have full impact in 2008, as we stated before. We'll be finished with the retooling in 2007 and as you stated, we have the inefficiency, which has created -- eaten up many of the programs. So it's really going to come in 2008.

In terms of restructuring, we're still targeting a capacity neutral program, and yes, you're correct that it's a moving target in terms of that. And therefore that's why we are focusing always on the capacity neutral program, because we do not want to have a bet on market share gains. We are kicking off the customer value initiative to focus on value, not focus on share gain in terms of volume. We're focusing on value, which is a key thrust for us. Did you have another question Andrew?

A couple of follow ups on those, and then I'll give you the last two. So follow ups on those, just in terms of the turning point, Wes, do you think we're going to start to see that turning point in terms of the efficiency savings starting to rise above the inefficiency drag from starting up new presses midway through 2007? And then on your second answer, just on the capacity neutral side, are you actually looking at potentially starting to take out capacity considering there's volume erosion, in order to make sure you've got asset utilization?

And then the last two are just the Yellow Pages contract, really trying to reconcile -- obviously Quebecor World got more volume out of the contract, you view it as a win. At the same time there's a 15% to 20% price reduction built into that contract. You've indicated you're providing more value to the customer, so I'm trying to understand how it's a win net net on the bottom line to you.

And then finally, Andrea was asking about your internal target on the $100 million in savings. What I'd love to hear is what do you think the net impact is going to be to you after you back out the cost increases, etc.

Man, Andrew, that was a long question. So Andrew why don't we do -- you're going to probably have a lot of questions. Maybe you could go through with Roland and we can fulfill a good summary on all those, because I think you probably have a long list.

But very quickly on the restructuring, looking at mid 2007 for us to be able to get through the efficiencies. I'm very pleased with the improvement in our startup curve on putting in new presses. And I'm very impressed that we have a team that goes around from press startup to press startup, and David Blair's team has done some great work, where we've seen about a 30% improvement from one press startup to the next press startup.

So, these inefficiencies that we're seeing are going to be reduced as we go through the program, as we're getting better and better at the new presses. And, the next presses, when they start up, they're getting the efficiencies and the value and the benefits that were posted.

And regarding to YPG and all those other details, I mean, you can do that offline with Roland. But I want to be respectful of other people on the call. Maybe we could go to the next person, the next question.

Thank you, Andrew.

The next question is from Chris Li, with Merrill Lynch. Go ahead, please.

Good afternoon. The revenues in Europe were down about 14%, year-over-year, excluding foreign exchange impact. Can you tell us what would be the organic decline if you exclude the impact of plant sales and other closures, and plant closures during the quarter?

Yes. In terms of Europe, again, you have to understand, we're in transition. We lost major contracts last year that are still impacting us. We went also through some plant closures, especially in France, which are reducing our sales to some extent. And you have to come up with the right explanations, we would have to go country-by-country. So, it's different, depending on each individual country.

And, when you look at organic growth, one good thing about Europe is we have a good differentiation market-by-market. And what that means for someone in our business, serving marketing and advertising companies, that each market, you have a different language, different brands, and different areas. So, that provides a rich environment to serve these customers.

So, the thing about organic growth, on one side, we do find good organic growth in good pockets. On the publishing and magazine, it's challenged by the Internet. So, it really goes down to our customer mix, country-by-country. But it's directionally -- overall it's been a little bit tough in a few areas, such as France and the U.K.

Next question?

Thank you. The next question is from Adam Shine, from National Bank Financial. Go ahead, please.

Thanks a lot. Wes, you've got about five more presses to be installed in the U.S. in '07 and, I think, three in Europe. I think you alluded to one press going into Charleroi in Q3 '07. What would be the timing roughly of these other installations? Would they mostly be skewed to the fist half of next year?

Yes. The opportunity for us is, after we get through the busy season, which we really characterize as in the fall, leading up to the holidays, we then will move quickly towards installing the presses as the volume starts to slope down a little bit as we look, December, January.

So, we want to be able to get in all the -- as much work as we can before the next busy season. And, that's why we have a commitment to get this work done and get them started up in 2007, so we can quickly get past the retooling phase and move to the five-point transformation phase, which is really optimizing this wonderful new network that we'll have installed.

Next question?

And the next question is from Randal Rudniski, from Credit Suisse. Go ahead, please.

Thanks, two quick questions. First of all, in Europe, Jacques, how long will the contract loss that you referred to continue to negatively affect revenues? When will you cycle past that?

This is coming to an end because of the timing of the contract losses last year. Again, you know, the other major explanation is some reduced sales that are as a result of some plant shutdowns.

Thank you. There are no more questions in the queue.

Very good. Well, we're going to get back to work in serving our customers and delivering value to our shareholders. We thank you all very much for your support to Quebecor World. Thanks for your attention, and we're going to get back to serving all our customers, shareholders, and we look forward to our next conference call.

Now, we have some conferences coming up then we look forward to meeting and hearing from you then. All the best.