7th Feb 2006 07:00
Yell Group plc07 February 2006 Yell Group plc financial results for the nine months ended 31 December 2005 Continued strong growth. Firmly on track to meet full year expectations • Group revenue up 23.7% to £1,111.0 million• Group adjusted EBITDA up 25.5% to £350.0 million• Adjusted profit after tax up 25.5% to £160.9 million• Group operating cash conversion of 97.2% up from 93.7% last year• Adjusted diluted earnings per share up 24.9% to 22.6 pence (see notes below) John Condron, Chief Executive Officer, said: "Yell has again delivered a strong set of results. Our revenue growth wasdriven particularly by the excellent performance of Yell.com in the UK and thecontinued strong organic growth from Yellow Book, augmented by our TransWesternacquisition. Integration is going smoothly and rapidly and we look forward toTransWestern reaching its full potential in due course. "In the UK, we continue to contribute fully to the investigation into theClassified Directories Advertising Services by the Competition Commission. Weare giving the Commission evidence of the increasing competition in the marketand the excellent value we give advertisers in terms of price and service. Weare providing our forecasts of future trends to help them focus on the futureimpact that competition will have on our marketplace. All of this will supportour view that regulation is no longer required." John Davis, Chief Financial Officer, said: "We grew profits strongly, particularly in the US, while continuing to invest inall our businesses which is fundamental to our future growth. We will continueto invest heavily in TransWestern's integration during the next year. Yellcontinues to deliver excellent cash generation, converting 97.2 per cent ofEBITDA to cash. With these good results, we are confident that we are firmly ontrack to meet year end expectations." Notes: • Unadjusted EBITDA was up 31.8% to £350.6 million; unadjusted profit after tax was up 22.5% to £147.3 million; and unadjusted diluted earnings per share were up 21.1% to 20.7 pence. • The adjusted earnings figures above exclude exceptional items, net of tax, and amortisation of acquired intangible assets, net of tax. Adjusted EBITDA is calculated on page 15; exceptional items are detailed on page 16 and the adjustments to profit after tax and earnings per share are detailed on page 16 and 17. Cash conversion is calculated on page 5. • Results previously reported for the nine months ended 31 December 2004 were reported under UK GAAP. All figures reported here are reported under International Financial Reporting Standards ("IFRS"). A detailed reconciliation between UK GAAP and IFRS can be obtained in the IFRS conversion statements published on our website on 13 June 2005. Updates to the published IFRS conversion statements are set out on page 13. Enquiries Yell - Investors Jill SherrattTel +44 (0)118 950 6984Mobile +44 (0)7764 879808 Yell - Media Jon SalmonTel +44 (0)118 950 6656Mobile +44 (0)7801 977340 Citigate Dewe Rogerson Anthony CarlisleTel +44 (0)20 7638 9571Mobile +44 (0)7973 611888 This news release contains forward-looking statements. These statements appearin a number of places in this news release and include statements regarding ourintentions, beliefs or current expectations concerning, among other things, ourresults of operations, revenue, financial condition, liquidity, prospects,growth, strategies, new products, the level of new directory launches and themarkets in which we operate. Readers are cautioned that any suchforward-looking statements are not guarantees of future performance and involverisks and uncertainties, and that actual results may differ materially fromthose in the forward-looking statements as a result of various factors. Youshould read the section entitled "Risk Factors" in Yell Finance B.V.'s 31 March2005 annual report on Form 20-F filed with the US Securities and ExchangeCommission (the "SEC") on 13 June 2005, for a discussion of some of thesefactors. We undertake no obligation publicly to update or revise anyforward-looking statements, except as may be required by law. A copy of this release can be accessed at: www.yellgroup.com/announcements Our subsidiary, Yell Finance B.V., will furnish its results for the three and nine months ended 31 December 2005 to the SEC on Form 6-K on 7 February 2006. A copy of the submission can also be accessed on the Yell Group website. YELL GROUP PLC SUMMARY FINANCIAL RESULTS Nine months Change at ended 31 December constant exchange Unaudited 2004 (a) 2005 Change rate (b) £m £m Revenue (c) 897.9 1,111.0 23.7% 21.9%Adjusted EBITDA (c) (d) 278.8 350.0 25.5% 23.8% Operating cash flow (c) (e) 261.2 340.1 30.2% 28.6%Cash conversion (c) (f) 93.7% 97.2%Free cash flow (g) 173.9 193.4 Adjusted profit after tax (d) 128.2 160.9 25.5%Adjusted diluted earnings per share (pence) (d) 18.1p 22.6p 24.9% (a) Results previously reported for the nine months ended 31 December 2004 were reported under UK GAAP. Figures above are reported under International Financial Reporting Standards. A detailed explanation of these changes can be obtained in the IFRS conversion statements published on our website on 13 June 2005. Updates to the published IFRS conversion statements are described on page 13 of this release. (b) Change at constant exchange rate states the change in current period results compared with the same period in the previous year as if the current period results were translated at the same exchange rate as that used to translate the results for the same period in the previous year. (c) Revenue, EBITDA, operating cash flow and cash conversion are the key financial measures that we use to assess the growth in the business and operational efficiencies. (d) Adjusted EBITDA for the nine months ended 31 December 2005 is stated before exceptional costs of £4.4 million arising from the TransWestern acquisition, and an exceptional credit of £5.0 million from releasing a provision for IPO costs. Adjusted profit after tax used to calculate adjusted earnings per share is stated before these exceptional items (£2.2 million credit net of tax) and an additional charge of £5.2 million net of tax credit from accelerated amortisation of finance fees related to the bank debt refinanced on 15 July 2005, and also before £10.6 million amortisation net of tax on intangible assets acquired in the period. Adjusted EBITDA for the nine months ended 31 December 2004 is stated before exceptional costs of £12.8 million (£8.0 million net of tax credit) which was the total cost of litigation brought against our US operations. Adjusted profit after tax and adjusted diluted earnings per share for the nine months ended 31 December 2004 are stated before these exceptional costs. (e) Cash generated from operations before payments of exceptional costs, less capital expenditure. (f) Operating cash flow as a percentage of adjusted EBITDA. (g) Cash generated from operations after net interest and tax payments and capital expenditure. REVIEW OF OPERATING PERFORMANCE Revenue Group revenue increased 23.7% to £1,111.0 million, or 21.9% at a constantexchange rate, from £897.9 million for the same period last year. Excluding therevenue of £92.1 million from the TransWestern acquisition completed on 15 July2005, Group revenue increased 13.5%. UK operations UK revenue increased 5.6% to £492.6 million. This growth was driven by a 62.4%increase in revenue by Yell.com to £41.9 million. Revenue from printeddirectories grew 1.7% to £436.1 million. The effect of RPI-6% was to reduceYellow Pages rate card prices by an average of 2.9%. The total number of unique print advertisers in the first nine months dropped4.0% to 340,000 reflecting increased competition. Retention remained the sameas last year at 75%. The 6.0% growth in yield (average revenue per uniqueadvertiser) to £1,282 resulted from higher spending and the slightly higherretention of higher value advertisers. Yell.com's revenue growth of 62.4% to £41.9 million was driven by growth incustomer numbers and yield on the back of increased usage. Searchableadvertisers grew 25.6% at the end of the period to 167,000 and yield (recognisedrevenue per average searchable advertiser) grew 24.2%. The introduction ofhigher prices reflected increased value for advertisers through increased usage. Searches were up 40% on the same period last year. US operations Total US revenue grew 43.4% to £618.4 million, or 39.5% at a constant exchangerate. The average exchange rate was approximately $1.80: £1.00 against $1.83:£1.00 in the same period last year. Excluding the new advertisers from TransWestern, Yellow Book increased uniqueadvertisers by 7.8% to 373,000 and average revenue per unique advertiser by10.5% to $2,525. Retention was flat at 71%. Organic revenue growth contributed 17.0% to the total revenue growth of 39.5%and is made up of same market growth, launches and internet revenue growth. • On a like for like basis, same market growth was 9.3% and contributed 9.0% to organic growth. This was stronger than we expect it to be in the final quarter, which includes some lower growth directories. • Launches contributed 7.0% to organic growth. Just under 20% of full year launch revenue is outstanding. • Yellowbook.com grew 51% to $23.2 million, contributing 1.0% to organic growth. Total internet revenue, including Worldpages.com (part of TransWestern), was $29.2 million. Looking forward, we are confident that we will meet the organic growth consensusfor the full year. Revenue from acquired books publishing for the first time contributed 23.1% tothe total revenue growth. This included £92.1 million from TransWestern whichperformed in line with expectations, providing 20.5% of overall revenue growth.At the year end, we expect it will have contributed about $280 million torevenue for the eight and a half months it will have been part of the Group. A further 2.6% of the overall revenue growth came from in-fill acquisitions.Year to date, and including Clarke Directory Publications acquired in January,we have invested $106 million on in-fill acquisitions adding annualised revenueof $35 million. We expect the in-fill acquisitions to contribute $24 million inthe current year. Revenue growth was slightly offset by 0.6% as a result of reschedulingdirectories into later months. Adjusted EBITDA Group adjusted EBITDA increased by 25.5% to £350.0 million, or 23.8% at aconstant exchange rate. The Group adjusted EBITDA margin increased 0.4percentage points to 31.5%, reflecting the strong performances of Yell.com andthe US business. Adjusted EBITDA for the nine months ended 31 December 2005 isstated before exceptional costs of £4.4 million relating to the TransWesternacquisition, and an exceptional credit of £5.0 million from releasing aprovision for IPO costs in the UK. UK adjusted EBITDA rose 6.3% to £176.5 million, reflecting the sustainedprogress of Yell.com, partially offset by our continued investment to supportthe revenue growth of the printed directories. Yell.com more than doubled itsadjusted EBITDA to £15.9 million from £6.8 million in the same period last year. The overall UK adjusted EBITDA margin was 35.8%, compared with 35.6% in thesame period last year, reflecting strong performance in Yell.com. Printeddirectories' EBITDA margins declined to 35.5% from 36.2% compared with the sameperiod last year, reflecting the investment required to grow revenue under theregulatory price cap. In the US, strong revenue growth and operational leverage, as well as theTransWestern acquisition, resulted in 53.9% growth in adjusted EBITDA to £173.5million, a 49.6% increase at a constant exchange rate. The US adjusted EBITDAmargin increased from 26.1% to 28.1%. Cash flow and net debt The Group converted 97.2% of adjusted EBITDA to cash, as compared to 93.7% lastyear. Group operating cash flow increased 30.2% to £340.1million, or 28.6% at aconstant exchange rate. We now expect year end cash conversion to be betterthan previously expected at between 80% and 85%. This is before the pensiondeficit repair payment of £64.8 million in the third quarter. Nine months Nine months ended ended 31 December 31 December 2004 2005 £m £m Cash generated from operations 263.2 290.7Cash payments of exceptional items 13.6 3.0Pension deficit repair payment - 64.8Purchase of tangible fixed assets, net of sale (15.6) (18.4)proceeds Operating cash flow 261.2 340.1Adjusted EBITDA 278.8 350.0 Cash conversion 93.7% 97.2% Cash generated from operations was £290.7 million (2004 - £263.2 million). Freecash flow was £193.4 million (2004 - £173.9 million) after taking into account£78.9 million of net interest and tax payments (2004 - £73.7 million) and £18.4million for the purchase of tangible fixed assets (2004 - £15.6 million). Net debt, at £2,021.2 million, was 4.1 times adjusted EBITDA on a pro formabasis (as if TransWestern had been part of the Group for the entire period) forthe last 12 months. The movement in net debt for the nine months ended 31December 2005 arose as follows: Net debt £m At 31 March 2005 1,106.1Free cash flow (193.4)Purchase of subsidiary undertakings 920.5Purchase of own shares 9.7Proceeds of shares issued (0.2)Dividends paid to shareholders 94.5Net finance costs increasing debt 23.8Currency movements 60.2At 31 December 2005 2,021.2 NET RESULTS After tax results and exceptional items Profit after tax for the financial period ended 31 December 2005 was £147.3million, compared with a profit after tax for the financial period last year of£120.2 million. The effective tax rate in the nine month period ended 31December 2005 was 33.2%, compared with 30.7% last year. Adjusted profit after tax for the financial period of £160.9 million is statedbefore exceptional items net of tax and amortisation net of tax. Exceptionalitems include costs of £4.4 million (£2.8 million net of tax credit) arisingfrom the TransWestern acquisition, a credit of £5.0 million from releasing aprovision for IPO costs in the UK, and an additional charge of £7.8 million(£5.2 million net of tax credit) from the accelerated amortisation of financefees related to bank debt refinancing. Amortisation of acquired intangibleassets is £17.2 million (£10.6 million net of tax). Earnings per share Diluted earnings per share were 22.6 pence before exceptional items andamortisation; an increase of 24.9% from last year. We are now adding backamortisation net of tax in accordance with current best practice. On thisbasis, last year's adjusted diluted earnings per share for the nine months were18.1 pence and for the full year were 26.2 pence, compared to 18.7 pence and27.0 pence, respectively, when adding back gross amortisation. Basic earnings per share before exceptional items and amortisation were 22.8pence, as compared to 18.3 pence last year before exceptional items. UK REGULATION Following the publication of the Notification of Emerging Thinking on 24 January2006, we continue to contribute fully to the investigation of "ClassifiedDirectories Advertising Services" by the Competition Commission. We will continue to provide the Commission with evidence of the increasing anddiversifying competition in the market including the impact that we expect theentry of BT and the growth of internet usage to have in the future. We aredemonstrating the excellent value we give advertisers in terms of value formoney and service, bringing to the Commission's notice the reduction in pricessince 2001 far beyond that required by regulation. We believe that the body ofevidence we have provided and will continue to provide supports the view thatregulation is no longer required. The next publication, as set out in the Commission's timetable, is theNotification of Provisional Findings which is expected to be published in April2006. The Commission currently expects to publish its final report at the endof the summer of 2006. All published information relating to the investigation can be found on theCommission's website at www.competition-commission.org.uk. KEY OPERATIONAL INFORMATION Unaudited Nine months ended 31 December 2004 2005 ChangeUK printed directoriesUnique advertisers (thousands) (a) 354 340 (4.0)%Directory editions published 74 76Unique advertiser retention rate (%) (b) 75 75Revenue per unique advertiser (£) 1,210 1,282 6.0% US printed directories (Yellow Book)Unique advertisers (thousands) (a) (c) 346 373 7.8%Directory editions published 401 419Unique advertiser retention rate (%) (c) 71 71Revenue per unique advertiser ($) 2,285 2,525 10.5% US printed directories (TransWestern)Unique advertisers (thousands) (a) (c) 80Directory editions published 128Unique advertiser retention rate (%) (c) 69Revenue per unique advertiser ($) 2,037 Other UK products and servicesYell.com searchable advertisers at 31 December (thousands)(d) 133 167 25.6%Yell.com searches for December (millions) 15 21 40.0%Yell.com revenue per average searchable 219 272 24.2% advertiser (£)(e) US internetYellowbook.com advertisements online at 31 December (thousands) 543 1,051 93.6%(f)Yellowbook.com unique visitors for December (millions) (g) 2.6 (a) Number of unique advertisers in printed directories that were recognised for revenue purposes and have been billed. Unique advertisers are counted once only, regardless of the number of advertisements they purchase or the number of directories in which they advertise. (b) The proportion of unique advertisers that have renewed their advertising from the preceding publication. (c) As a result of the progress in the United States towards integrating our customer databases, we have been able to make improvements in the ways in which we capture, record and analyse customer information. This has led to a significant overall elimination of duplicate records of unique advertisers. We have not adjusted the previously reported figure for the nine months ended 31 December 2004 for any duplicated records in that period. There remains some overlap in reporting unique advertisers between Yellow Book and acquired businesses that we expect to be removed. These improvements to our systems have not affected the reporting of our financial results. Retention in the US is based on unique directory advertisers. (d) Unique customers with a live contract at month end. These figures refer to searchable advertisers only, i.e. advertisers for whom users can search on Yell.com. They exclude advertisers who purchase only products such as banners and domain names. (e) Yell.com revenue per average searchable advertiser is calculated by dividing the recognised revenue for Yell.com in the nine month period by the average number of Yell.com searchable advertisers (2004 - 118,000; 2005 - 154,000) in that period. (f) Represents all paid for searchable advertisements appearing on the Yellowbook.com website. Includes advertisements appearing on Worldpages.com, acquired with TransWestern. (g) The number of individuals who have visited Yellowbook.com at least once in the month shown. Includes visitors to Worldpages.com, acquired with TransWestern. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED CONSOLIDATED INCOME STATEMENT Nine months ended 31 December Notes 2004 2005 £m £m Revenue 2 897.9 1,111.0 Cost of sales (410.6) (512.0) Gross profit 487.3 599.0 Distribution costs (26.1) (33.2) Administrative expenses (216.7) (249.8) Operating profit 3 244.5 316.0 Finance costs (71.8) (97.1) Finance income 0.8 1.7 Net finance costs (71.0) (95.4) Profit before taxation 4 173.5 220.6 Taxation 5 (53.3) (73.3) Profit for the financial period 4 120.2 147.3 (in pence) (in pence) Basic earnings per share 7 17.2 20.9 Diluted earnings per share 7 17.1 20.7 £m £m Declared and paid interim ordinary dividend of 5.1 6 29.4 35.6pence per share (2004 - 4.2 pence) See notes to the financial information for additional details. UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Nine months ended 31 December 2004 2005 £m £m Profit for the financial period 120.2 147.3 Exchange differences on translation of foreign (21.2) 54.9 operations Changes in retirement benefit obligations - (22.0) Change in recorded value of financial instruments - 3.6 used as hedges (a) Tax effect of net losses not recognised - 5.5 in the income statement Tax benefit arising on unexercised stock options 1.3 0.7 Net gains not recognised (19.9) 42.7 in the income statement Total recognised income for the period 100.3 190.0 (a) The amount presented for 2005 includes £2.9 million loss on the initial recognition of financial instruments used as hedges, in accordance with IAS 32 and IAS 39. See notes to the financial information for additional details. UNAUDITED CONSOLIDATED CASH FLOW STATEMENT Nine months ended Notes 31 December 2004 2005 £m £mNet cash inflow from operating activities Cash generated from operations 263.2 290.7 Interest paid (50.2) (66.4) Interest received 0.8 1.7 Net income tax paid (24.3) (14.2) Net cash inflow from operating activities 189.5 211.8 Cash flows from investing activities Purchase of tangible fixed assets 8 (15.6) (18.4) Purchase of subsidiary undertakings 9 - (920.5) Net cash used in investing activities (15.6) (938.9) Cash flows from financing activities Purchase of own shares (6.6) (9.7) Net new borrowings on revolving credit facility - 268.8 Acquisition of new loans - 1,440.6 Repayment of borrowings (45.0) (883.9) Financing fees paid - (13.3) Dividends paid to company's shareholders 6 (71.3) (94.5) Net cash (used in) provided by financing activities (121.5) 708.2 Net increase (decrease) in cash and cash equivalents 52.4 (18.9)Cash and cash equivalents at beginning of the period 18.7 55.5Exchange (losses) gains on cash and cash equivalents (2.2) 1.9 Cash and cash equivalents at end of the period 68.9 38.5 Cash generated from operationsProfit for the period 120.2 147.3Adjustments for: Tax 53.3 73.3 Finance income (0.8) (1.7) Finance cost 71.8 97.1 Depreciation of tangible fixed assets and 17.1 17.4amortisation of software costs Amortisation of other intangible assets - 17.2 Goodwill adjustment arising from previouslyunrecognised tax benefits acquired 4.4 -Changes in working capital: Inventories and directories in development (40.2) (29.2) Trade and other receivables 18.2 2.2 Trade and other payables 12.6 26.0Pension deficit repair - (64.8)Share based payments and other 6.6 5.9 Cash generated from operations 263.2 290.7 See notes to the financial information for additional details. UNAUDITED CONSOLIDATED BALANCE SHEET At At 31 March 31 December Notes 2005 2005 £m £m Non current assets Goodwill 1,692.0 2,473.0 Other intangible assets 14.0 200.0 Property, plant and equipment 40.1 40.9 Deferred tax assets 10 97.1 128.8 Other assets 2.0 5.3 Total non current assets 1,845.2 2,848.0 Current assets Inventories 7.5 13.5 Directories in development 165.1 230.2 Trade and other receivables 11 451.3 531.3 Cash and cash equivalents 12 55.5 38.5 Total current assets 679.4 813.5 Current liabilities Loans and other borrowings 12 (91.3) (269.4) Corporation tax (28.2) (61.2) Trade and other payables 13 (258.8) (368.4) Total current liabilities (378.3) (699.0) Net current assets 301.1 114.5 Total assets less current liabilities 2,146.3 2,962.5 Non-current liabilities Loans and other borrowings 12 (1,070.3) (1,790.3) Deferred tax liabilities 14 (51.3) (93.8) Retirement benefit obligations 15 (99.7) (55.8) Net assets 925.0 1,022.6 Capital and reserves Called up share capital 16 7.0 7.1 Share premium account 16 1,191.0 1,205.1 Foreign currency reserve 16 (116.2) (61.3) Profit and loss account deficit 16 (156.8) (128.3) Equity shareholders' funds 925.0 1,022.6 See notes to the financial information for additional details. UNAUDITED NOTES TO THE FINANCIAL INFORMATION 1. Basis of preparation and consolidation The principal activity of Yell Group plc and its subsidiaries is publishing classified advertising directories in the United Kingdom and the United States. This unaudited financial information for the nine months to 31 December 2005 has been prepared in accordance with the Group's International Financial Reporting Standards ("IFRS") accounting policies as set out in our conversion statements for the periods ended 31 March 2005. These accounting policies are the policies we expect to apply in our financial statements for the year ended 31 March 2006, which will be prepared in accordance with IFRS as endorsed by the European Union. In preparing the financial information we used our best knowledge of the expected standards and interpretations, facts and circumstances and accounting policies that will be applicable at 31 March 2006. These may change before 31 March 2006. The expected standards and interpretations are subject to ongoing review by the European Union, and the International Accounting Standards Board may issue amended or additional standards or interpretations. Therefore, until we prepare our first full IFRS financial statements, the possibility cannot be excluded that the accompanying financial information may have to be adjusted. The amounts presented for the nine months ended 31 December 2004 and at 31 March 2005 have been restated from the amounts previously presented under UK GAAP. Details can be obtained from the IFRS conversion statements published on 13 June 2005 on our website. Subsequent to publishing the IFRS conversion statements we have improved our analysis of deferred taxes and other items, which has given rise to adjustments to amounts presented on the face of the balance sheet at 31 March 2005. These adjustments have increased our deferred tax assets and deferred tax liabilities by £4.5 million and increased the share premium account and profit and loss deficit by £0.3 million These changes are presentational in nature and do not affect the previously reported results or cash flows. We also changed our methodology for calculating adjusted earnings per share ("EPS") to what we consider to be current best practice. We now add back amortisation net of tax, as opposed to adding it back gross. The adjusted EPS published for the nine month period ended 31 December 2004 and for the year ended 31 March 2005 would have been 18.1 pence and 26.2 pence, respectively, under the new methodology. The information contained herein does not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. In the opinion of management, the financial information included herein includes all adjustments necessary for a fair presentation of the consolidated results, financial position and cash flows for each period presented. The consolidated results for interim periods are not necessarily indicative of results for the full year. This financial information should be read in conjunction with Yell's 2005 annual report published in June 2005, which includes the audited consolidated financial statements of Yell Group Plc and its subsidiaries for the year ended 31 March 2005. The preparation of the consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of income and expenditure during the period. Actual results could differ from those estimates. Estimates are used principally when accounting for doubtful debts, depreciation, retirement benefit obligations and the related employee pension costs, acquisition accounting and taxes. 2. Revenue Nine months ended 31 December Change 2004 2005 % £m £m UK printed directories 428.8 436.1 1.7% Other products and services 37.8 56.5 49.5% Total UK revenue 466.6 492.6 5.6% US revenue: US revenue at constant exchange rate (a) 431.3 601.9 39.5% Exchange impact (a) - 16.5 Total US revenue 431.3 618.4 43.4% Group revenue 897.9 1,111.0 23.7% (a) Constant exchange rate states current period results at the same exchange rate as that used to translate the results for the same period in the previous year. Exchange impact is the difference between the results reported at a constant exchange rate and the actual results using current period exchange rates. See Note 9 for an analysis of the effect of acquisitions in the year on ourresults. 3. Operating profit and EBITDA information EBITDA by segment Nine months Change ended 31 December 2004 2005 % £m £m UK printed directories 155.2 155.0 (0.1)% Other products and services 10.9 21.5 97.2% Total UK operations 166.1 176.5 6.3% US operations: US operations at constant exchange rate (a) 112.7 168.6 49.6% Exchange impact (a) - 4.9 Total US operations 112.7 173.5 53.9% Group adjusted EBITDA 278.8 350.0 25.5% Reconciliation of group operating profit to EBITDA (a) Nine months Change ended 31 December 2004 2005 % £m £mUK operationsOperating profit 157.3 173.2Depreciation and amortisation ofnon-current assets 8.8 8.3 UK operations EBITDA 166.1 181.5 9.3%Exceptional items - (5.0) UK operations adjusted EBITDA 166.1 176.5 6.3% UK operations adjusted EBITDA margin 35.6% 35.8% US operationsOperating profit 87.2 142.8Depreciation and amortisation ofnon-current assets 12.7 26.3 US operations EBITDA 99.9 169.1 69.3%Exceptional items 12.8 4.4Exchange impact (b) - (4.9) US operations adjusted EBITDA at 112.7 168.6 49.6%constant exchange rate (b)Exchange impact (b) - 4.9 US operations adjusted EBITDA 112.7 173.5 53.9% US operations adjusted EBITDA margin 26.1% 28.1% GroupOperating profit 244.5 316.0Depreciation and amortisation ofnon-current assets 21.5 34.6 Group EBITDA 266.0 350.6 31.8%Exceptional items 12.8 (0.6)Exchange impact (b) - (4.9) Group adjusted EBITDA at constant 278.8 345.1 23.8%exchange rate (b)Exchange impact (b) - 4.9 Group adjusted EBITDA 278.8 350.0 25.5% Group adjusted EBITDA margin 31.1% 31.5% (a) EBITDA is one of the key financial measures that we use to assess the growth in the business and operational efficiencies. (b) Constant exchange rate states current period results at the same exchange rate as that used to translate the results for the same period in the previous year. Exchange impact is the difference between the results reported at a constant exchange rate and the actual results reported using current period exchange rates. We do not allocate interest or taxation charges by product or geographicsegment. 4. Results before and after exceptional items Nine months ended 31 December 2004 2005 Ordinary Exceptional Total Ordinary Exceptional Total items items items items £m £m £m £m £m £m Gross profit 487.3 - 487.3 599.0 - 599.0Distribution costs (26.1) - (26.1) (33.2) - (33.2)Administrative expenses (203.9) (12.8) (216.7) (250.4) 0.6 (249.8) Operating profit 257.3 (12.8) 244.5 315.4 0.6 316.0Net finance costs (71.0) - (71.0) (87.6) (7.8) (95.4) Profit (loss) beforetaxation 186.3 (12.8) 173.5 227.8 (7.2) 220.6Taxation (58.1) 4.8 (53.3) (77.5) 4.2 (73.3) Profit (loss) for theperiod 128.2 (8.0) 120.2 150.3 (3.0) 147.3 The exceptional items for the nine months ended 31 December 2005 includerestructuring and other costs of £4.4 million arising from the TransWesternacquisition, and a credit of £5.0 million from releasing a provision for IPOcosts in the UK. Exceptional finance costs for the nine months ended 31December 2005 relate to the accelerated amortisation of deferred financing feeson our senior bank debt, which was redeemed at the date of the TransWesternacquisition. Exceptional administrative costs in the nine months ended 31December 2004 are costs relating to litigation brought against our US operations(see note 18). 5. Taxation The tax charge is based on the estimated effective tax rate for the year. Theeffective tax rate for the nine month period is different from the standard rateof corporation tax in the United Kingdom (30%) as explained below: Nine months ended 31 December 2004 2005 £m £mProfit before exceptional items and taxation multiplied by thestandard rate of corporation tax in the United Kingdom (30%) 55.9 68.3Effects of:Higher tax rates in US 5.0 8.7Previously unrecognised US tax losses recognised in period (4.4) -Other 1.6 0.5 Tax charge on ordinary profit before tax 58.1 77.5Net tax benefit on exceptional items (note 4) (4.8) (4.2) Net charge on profit before tax 53.3 73.3 UK Corporation tax 31.3 38.8Overseas income tax 22.0 34.5 Net charge on profit before tax 53.3 73.3 6. Dividends paid The final dividend for the 2005 financial year of 8.4 pence per share (2004 - 6.0 pence per share) was paid on 19 August 2005 and amounted to £58.9 million (2004 financial year - £41.9 million).The interim dividend for the 2006 financial year of 5.1 pence per share (2005 financial year- 4.2 pence per share) was paid on 16 December 2005 and amounted to £35.6 million (2004 - £29.4 million). 7. Earnings per share The calculation of basic and diluted earnings per share is based on the profit for the relevant financial period and on the weighted average share capital during the period. Actual Exceptional items, Amortisation, net of tax a net of tax b AdjustedNine months ended 31 December 2005Group profit after tax (£m) 147.3 3.0 10.6 160.9Weighted average number of issued ordinary shares 704.7 704.7(millions) Basic earnings per share (pence) 20.9 22.8Effect of share options (pence) (0.2) (0.2) Diluted earnings per share (pence) 20.7 22.6 Nine months ended 31 December 2004Group profit after tax (£m) 120.2 8.0 - 128.2Weighted average number of issued ordinary shares 700.0 700.0(millions) Basic earnings per share (pence) 17.2 18.3Effect of share options (pence) (0.1) (0.2) Diluted earnings per share (pence) 17.1 18.1 a Exceptional items are explained in note 4. b Amortisation of £17.2 million in 2005 arose from acquisitions in the period and is added back net of £6.6 million for tax. A goodwill charge of £4.4 million in 2004 arose from the recognition of tax net operating losses from acquisitions in the United States and had nil effect on adjusted earnings per share because the tax benefit was of equal amount. 8. Capital Expenditure Capital expenditure on tangible fixed assets in the nine months to 31 December 2005 and 2004 was £18.4 million and £15.6 million, respectively. Proceeds on the sale of tangible fixed assets were £nil million in the same periods. Capital expenditure committed at 31 December 2005 and 2004 was £12.9 million and £10.2 million, respectively, in respect of computers and office equipment. 9. Acquisitions In the nine months to 31 December 2005, the Yell Group acquired a number of directories businesses in the US for consideration totalling $1,629.3 million (£920.5 million). The purchases were accounted for as acquisitions. The largest acquisition was that of TransWestern Publishing on 15 July 2005 for a purchase price of $1,573.8 million (£897.6 million) plus expenses of $21.5 million (£12.3 million). The purchase price of TransWestern was allocated to the acquired assets and liabilities as follows: Debt and other Acquiree's Fair value liabilities Provisional carrying amount adjustments extinguished fair value £m £m £m £mFixed assetsIntangible assets 84.9 111.8 - 196.7Property, plant and equipment 2.7 (0.1) - 2.6Deferred tax assets 31.8 0.2 - 32.0 Total fixed assets 119.4 111.9 - 231.3 Current assetsDirectories in development 26.2 - - 26.2Trade and other receivables 53.6 (0.6) - 53.0Cash and cash equivalents 1.1 - - 1.1 Total current assets 80.9 (0.6) - 80.3 Current liabilitiesLoans and other borrowings (3.6) - 3.6 -Corporation Tax (0.7) - - (0.7)Trade and other payables (88.6) - 27.7 (60.9) Total current liabilities (92.9) - 31.3 (61.6) Total assets less current liabilities 107.4 111.3 31.3 250.0Non-current liabilitiesLoans and other borrowings (386.3) - 386.3 -Deferred tax liabilities (4.0) (17.3) - (21.3) Identifiable net (liabilities) assets (282.9) 94.0 417.6 228.7 Goodwill 681.2 Total cost 909.9 The results of TransWestern reduced the group profit before tax by £14.4 million in the period from the date of acquisition to 31 December 2005. In the same period, the results of TransWestern increased the group adjusted profit before tax by £6.4 million (reflecting adjustments of £16.4 million and £4.4 million for amortisation and exceptional costs, respectively). The consolidated financial information of the Yell Group includes a consolidation of the financial results of TransWestern for the 170 days ended 31 December 2005. The unaudited condensed pro forma financial information for the Yell Group, estimated as if TransWestern was purchased on 1 April 2004, for the nine months ended 31 December 2004 and 2005 is as follows: Nine months endedProforma 31 December 2004 2005 £m £m Group revenue 1,042.2 1,170.6Profit for the period 112.4 157.5 We also made other acquisitions in the nine months that are not considered material for presentation in the above pro forma table. We paid cash of $34.0 million (£19.2 million) to acquire net assets with a fair value totalling $2.2 million (£1.3 million) giving rise to additional goodwill of $24.3 million (£13.7 million) and other intangible assets of $7.5 million (£4.2 million). These acquisitions have contributed revenue of £11.3 million in the period from the dates of acquisition to 31 December 2005. Nine months ended 31 December 2005 £m Total cost of acquisitions 929.1Costs accrued at 31 December 2005 (7.5) Cash paid 921.6Less cash acquired (1.1) Net cash outflow in period 920.5 10. Deferred tax assets The elements of deferred tax assets recognised in the accounts were as follows: At At 31 March 31 December 2005 2005 £m £mTax effect of timing differences due to:Retirement benefit obligations 29.9 31.7Bad debt provisions 25.1 31.8Net operating losses 20.9 16.5Acquired tax benefits - 10.2Depreciation 9.2 7.2Unrealised benefit on unexercised stock options 6.5 10.5Accrued expenses and other items 5.5 20.9 Recognised deferred tax assets 97.1 128.8 11. Trade and other receivables At At 31 March 31 December 2005 2005 £m £m Trade receivables 429.3 491.5Other receivables 8.1 14.3Accrued income 4.7 1.3Prepayments 9.2 24.2 Total trade and other receivables 451.3 531.3 12. Loans and other borrowings and net debt At At 31 March 2005 31 December (a) 2005 (a) £m £mAmounts falling due within one yearSenior credit facilities 90.0 268.8Net obligations under finance leases 1.3 0.6Total amounts falling due within one year 91.3 269.4 Amounts falling due after more than one year Senior credit facilities 761.0 1,453.7Senior notes:Senior sterling notes 159.8 161.3Senior dollar notes 67.4 74.9Senior discount dollar notes 82.1 100.4 Total amounts falling due after more than one year 1,070.3 1,790.3 Net loans and other borrowings 1,161.6 2,059.7Cash and cash equivalents (55.5) (38.5) Net debt at end of period 1,106.1 2,021.2 (a) Balances are shown net of deferred financing fees of £12.5 million at 31 December 2005 and £14.0 million at 31 March 2005. 13. Trade and other payables At At 31 March 31 December 2005 2005 £m £m Trade payables 22.9 15.1Other taxation and social security 23.1 34.1Other liabilities 4.3 14.4Accruals 117.0 128.9Deferred income 91.5 175.9 Total trade and other payables falling due within one year 258.8 368.4 14. Deferred tax liabilities The elements of deferred tax liabilities recognised in the accounts were as follows: At At 31 March 31 December 2005 2005 £m £mThe effect of timing differences due to:Amortisation 25.5 37.8Directories in development 25.8 39.0Acquired intangible assets - 15.9Other - 1.1Recognised deferred tax liabilities 51.3 93.8 15. Retirement benefit obligations The £43.9 million decrease in retirement benefit obligations from £99.7 million at the year end to £55.8 million at 31 December 2005 is the net result of total charges of £13.3 million in the Income Statement and the estimated deficit increase of £22.0 million within the Statement of Recognised Income and Expense, offset by total cash contributions of £14.4 million and deficit repair of £64.8 million. The £22.0 million estimated increase in deficit reflects a £34.0 million increase in liabilities arising from a change in the reference market rate, to which the discount rate is tied, relative to inflation, net of £12.0 million actuarial gains, and takes into account changes in asset values by reference to relevant market indices. 16. Changes in equity shareholders' funds Share Share Foreign Profit currency and loss capital premium reserve account Total £m £m £m £m £m Balance at 31 March 2005 7.0 1,191.0 (116.2) (156.8) 925.0Profit on ordinary - - - 147.3 147.3activities after taxationDividends - - - (94.5) (94.5)Ordinary share issue 0.1 14.1 - (10.0) 4.2Capital Accumulation Plan - - - (2.1) (2.1) and other share schemes (a)Currency movements - - 54.9 - 54.9Net losses not recognised in - - - (12.2) (12.2)income statement Balance at 31 December 2005 7.1 1,205.1 (61.3) (128.3) 1,022.6 (a) Purchase of shares and amortisation of the costs incurred in buying shares held in an ESOP trust for employees. 17. United States Generally Accepted Accounting Principles Our consolidated financial information is prepared in accordance with the Group's accounting policies under International Financial Reporting Standards ("IFRS") as set out in our conversion statements for the periods ended 31 March 2005, which differ in certain respects from those applicable in the United States ("US GAAP"). Differences result primarily from acquisition accounting. Under IFRS, acquisitions before 1 April 2004, our IFRS conversion date, are accounted for on a frozen GAAP basis, under which other intangible assets have not been recorded. Recording these other intangible assets would have affected the accounting for directories in development, goodwill and other intangibles and taxation. Under IFRS, tax benefits cannot be taken into consideration when measuring the fair value of intangibles acquired since 1 April 2004, whereas US GAAP fair value measurements do include these tax benefits. A further difference arises from the amortisation of other intangible assets since the date of acquisition under US GAAP, compared to the requirement under IFRS to amortise intangibles from the later of 1 April 2004 and the date of acquisition. Other differences between IFRS and US GAAP arise from differences in the timing of recognition of certain costs associated with directories in development, interest that is fixed by derivative financial instruments, and deferred tax assets associated with net operating losses in the United States. Differences in accounting for pensions arise from the use of different actuarial methods and from a difference in the timing and method of recognising actuarial gains and losses. Dividends are recorded, under IFRS, in the period in which they are approved by the board of directors or shareholders. Under US GAAP, dividends are recorded in the period in which they are declared. The following information summarises estimated adjustments, gross of their tax effect, which reconcile profit for the financial period and shareholders' funds from that reported under IFRS to that which would have been recorded had US GAAP been applied. Net profit Nine months ended 31 December 2004 2005 £m £m Profit for the financial period under IFRS 120.2 147.3 Adjustment for: Directories in development -Deferred costs (19.5) (16.9) -Acquisition accounting (4.0) (11.3) Pensions (3.6) (5.8) Other intangible assets (54.4) (44.7) Derivative financial instruments 3.4 0.2 Deferred taxation 40.4 26.1 Other (0.7) (1.5) Profit for the financial period adjusted for US GAAP 81.8 93.4 Equity shareholders' funds At At 31 March 31 December 2005 2005 £m £m Equity shareholders' funds under IFRS 925.0 1, 022.6 Adjustment for: Directories in progress (115.6) (152.6) Pensions 94.9 89.1 Additional minimum pension liability (59.0) (59.0) Goodwill (542.9) (455.0) Other intangible assets 671.9 693.2 Derivative financial instruments 2.9 - Deferred taxation (164.0) (283.3) Other 1.7 - Equity shareholders' funds adjusted forUS GAAP 814.9 855.0 18. Litigation The lawsuit filed by Verizon was settled in October 2004. In subsequent months, Yellow Book USA was served with complaints filed as class actions in five US states and the District of Columbia. In these actions, the plaintiffs alleged violations of consumer protection legislation and placed reliance on findings of the New York Court in the now settled suit. On 26 August 2005, the court in New Jersey approved a comprehensive national settlement, with no admission of liability. The Yell Group fully accrued for the estimated costs in the last quarter of the year ended 31 March 2005 arising from this class action. NOTES TO EDITORS Yell Group Yell is an international directories business operating in the classifiedadvertising market through printed, online and telephone-based media. In the year ended 31 March 2005, Yell published 111 directories in the UnitedKingdom and 565 in the United States; in the United Kingdom, where it is aleading player in the classified advertising market, it served 478,000 uniqueadvertisers. In the United States, where it is the leading independentdirectories business, it served 455,000 unique advertisers. Yell's brands in the United Kingdom are Yellow Pages, Business Pages, Yell.comand Yellow Pages 118 24 7, and in the United States are Yellow Book andYellowbook.com, all of which are trademarks. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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