23rd May 2006 07:03
Yell Group plc23 May 2006 Yell Group plc financial results for the year ended 31 March 2006 Strong growth across all businesses. Successful integration of TransWestern • Group revenue up 26.1% to £1,621.3 million • Group adjusted EBITDA up 28.0% to £502.9 million • Adjusted profit after tax up 26.1% to £233.6 million • Group operating cash conversion of 88.9% compared to 88.4% last year • Adjusted diluted earnings per share up 25.2% to 32.8 pence • Proposed final dividend up 21.4% to 10.2 pence per share Statutory results (unaudited) 2005 2006 Change £m £m• Revenue 1,285.3 1,621.3 26.1%• Operating profit 327.7 449.9 37.3%• Profit after tax 162.5 212.3 30.6%• Cash generated from operations 357.8 411.5 15.0%• Diluted earnings per share (pence) 22.9 29.7 29.7% Notes: • Unadjusted EBITDA was up 41.2% to £503.5 million. • Results previously reported for the year ended 31 March 2005 werereported under UK GAAP. All figures reported here are reported underInternational Financial Reporting Standards as adopted by the European Union ("IFRS"). A detailed reconciliation between UK GAAP and IFRS can be obtained inthe IFRS conversion statements published on our website on 13 June 2005.Updates to the published IFRS conversion statements are set out on page 13. John Condron, Chief Executive Officer, said: "Yell has delivered another excellent performance, exceeding expectations.Yellow Book in the US has achieved significant organic growth including anincreasing contribution from Yellowbook.com. The integration of TransWestern iscomplete and we expect an uplift in its performance to begin to flow throughnext financial year. The UK's growth has been driven by Yell.com's outstandingperformance. "We continue to present to the Competition Commission evidence of the realcompetition for all forms of classified advertising in the UK, includingdirectories, and to show that the strength of our performance derives frominvestment and excellence of execution and not from the weakness of competition. "We believe our proposed acquisition of TPI, announced since the year end, willcreate significant value for shareholders as we transfer our tried and testedskills into the fast-growing economy in Spain, working with the TPI people whomwe have long known and respected to refocus on the core print and onlineproducts." John Davis, Chief Financial Officer, said: "These results benefit from our past investment, achieving balanced growth fromrevenue, profits and cash generation. Our focus on investment will continue aswe drive revenue growth in our businesses. "We converted 88.9% of adjusted EBITDA to operating cash, ahead of expectations.Net debt now stands at 3.8 times EBITDA, down from 4.2 at the time of theTransWestern acquisition, demonstrating our ability to rapidly reduce ourleverage. "We are proposing a final dividend of 10.2 pence per share, an increase of21.4%, reflecting our confidence in the future." 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 YELL GROUP PLC SUMMARY FINANCIAL RESULTS Year Change at ended 31 March constant exchangeUnaudited 2005 (a) 2006 Change rate (b) £m £mRevenue (c) 1,285.3 1,621.3 26.1% 23.1%Adjusted EBITDA (c) (d) 393.0 502.9 28.0% 25.3% Operating cash flow (c) (e) 347.4 447.0 28.7% 26.3%Cash conversion (c) (f) 88.4% 88.9%Free cash flow (g) 230.1 253.3 10.1% Adjusted profit after tax (d) 185.3 233.6 26.1%Adjusted diluted earnings per share (pence) (d) 26.2p 32.8p 25.2% (a) Results previously reported for the year ended 31 March 2005 werereported under UK GAAP. Figures above are reported under InternationalFinancial Reporting Standards. A detailed explanation of these changes can beobtained in the IFRS conversion statements published on our website on 13 June2005. Updates to the published IFRS conversion statements are described on page13 of this release. (b) Change at constant exchange rate states the change in current yearresults compared with the previous year as if the current year results weretranslated at the same exchange rate as that used to translate the results forthe previous year. (c) Revenue, EBITDA, operating cash flow and cash conversion are the keyfinancial measures that we use to assess the growth in the business andoperational efficiencies. (d) Adjusted EBITDA for the year ended 31 March 2006 is stated beforeexceptional costs of £4.4 million arising from the TransWestern acquisition, andan exceptional credit of £5.0 million from releasing a provision for IPO costs.Adjusted profit after tax used to calculate adjusted earnings per share isstated before these exceptional items, a charge of £7.8 million from acceleratedamortisation of finance fees related to the bank debt refinanced on 15 July 2005 and £29.5 million amortisation on intangible assets acquired in the year,offset by related tax of £15.4 million. Adjusted EBITDA for the year ended 31March 2005 is stated before exceptional costs of £36.5 million which was thetotal cost of litigation brought against our US operations. Adjusted profitafter tax and adjusted diluted earnings per share for the year ended 31 March2005 are stated before these exceptional costs, offset by related tax of £13.7million. (e) Cash generated from operations before payments of exceptional costsand pension deficit repair, less capital expenditure. (f) Operating cash flow as a percentage of adjusted EBITDA. (g) Cash generated from operations less payments for net interest, incometax and capital expenditure. REVIEW OF OPERATING PERFORMANCE Revenue Group revenue increased 26.1% to £1,621.3 million, or 23.1% at a constantexchange rate, from £1,285.3 million for last year. In the US, TransWestern,which was acquired on 15 July 2005, contributed revenue of £162.7 million.Excluding all acquisitions, Group revenue increased by 10.0%, at a constantexchange rate. UK operations UK revenue increased 5.2% to £698.9 million. This growth was driven by a 64.6%increase in revenue by Yell.com to £59.6 million. Revenue from printed directories grew 1.2% to £619.4 million. The total numberof unique print advertisers in the year dropped 3.3% to 462,000 reflectingincreased competition. Retention was the same as last year at 75%. The 4.7%growth in yield (average revenue per unique advertiser) to £1,341 resulted fromservice quality improvements reducing the credit notes we issue to advertisers,and higher spend as advertisers increased their programmes. The effect ofRPI-6% was to reduce Yellow Pages rate card prices by an average of 2.9%. Yell.com's revenue growth of 64.6% to £59.6 million was driven by growth incustomer numbers and yield. Average searchable advertisers grew 29.5% to174,000 at the end of the year. Yield (recognised revenue per averagesearchable advertiser) grew 28.1%, as usage increased, with a 52.4% growth insearches compared with last year. The Yellow Pages rate card reductions have once again been set at RPI-6% for thenext financial year. Overall we expect the UK business to achieve revenuegrowth of 3%, with Yell.com providing this growth. US operations Total US revenue grew 48.6% to £922.4 million, or 42.4% at a constant exchangerate. The effective exchange rate was approximately $1.77: £1.00 against $1.85:£1.00 last year. Excluding the new advertisers from TransWestern, Yellow Book increased uniqueadvertisers by 7.5% to 489,000 and average revenue per unique advertiser by 8.7%to $2,693. Retention was down from 71% to 70%. Organic revenue growth contributed 15.1% to the total revenue growth of 42.4%and is made up of same market growth, launches and internet revenue growth. • On a like for like basis, same market growth was 8.6% and contributed 8.3% to organic growth. • Launches contributed 5.9% to organic growth. • Yellowbook.com grew 46.8% to $32.6 million, contributing 0.9% to organic growth. Total internet revenue, including Worldpages.com (part of TransWestern), was $42.2 million. Looking forward to the next financial year, we expect to achieve organic growthof 10%, driven by same market growth, as the benefits of the integration ofTransWestern flow through, and by internet growth. Revenue from acquired books publishing for the first time contributed 27.3% tothe total revenue growth. This included £162.7 million from TransWestern whichperformed in line with expectations, providing 24.9% of overall revenue growth.A further 2.4% of the overall revenue growth came from in-fill acquisitions, thelargest of which was Clarke Directory Publications in California. In the year,we invested $121.2 million on these in-fill acquisitions, adding revenue in theperiod since the dates of acquisition of $27.3 million. Adjusted EBITDA Group adjusted EBITDA increased by 28.0% to £502.9 million, or 25.3% at aconstant exchange rate. The Group adjusted EBITDA margin increased 0.4percentage points to 31.0%, reflecting the strong performances of Yell.com andthe US business. Adjusted EBITDA for the year ended 31 March 2006 is statedbefore a net exceptional credit of £0.6 million comprising costs of £4.4 millionrelating to the TransWestern acquisition, and a credit of £5.0 million fromreleasing a provision for IPO costs in the UK. UK adjusted EBITDA rose 5.3% to £244.5 million, reflecting the growth momentumof Yell.com, partially offset by our continued investment across the UK businessto support revenue growth. Adjusted EBITDA rose £7.5 million to £16.6 millionfor Yell.com and £2.0 million to £219.8 million for printed directories. Theoverall UK adjusted EBITDA margin was 35.0%, up slightly from 34.9% last year. As investment in the highly competitive environment in which we operatecontinues during the next financial year, we expect a decline in the printeddirectories' margins. However, we expect Yell.com's adjusted EBITDA margin tooffset this decline. In the US, we grew adjusted EBITDA by 60.7% to £258.4 million, a 54.1% increaseat a constant exchange rate. Apart from the contribution from TransWestern,this reflected the strong organic revenue growth, the continued transferral ofbest practice from the UK and within the US itself, and operational leverage.The US adjusted EBITDA margin increased from 25.9% to 28.0%. We plan to continue investing in the US business. The investments planned forTransWestern will, as anticipated, slightly slow down margin growth during 2007.We expect US adjusted EBITDA margins to increase by 1 percentage point duringthe next financial year. Cash flow and net debt The Group converted 88.9% of adjusted EBITDA to cash, well ahead of guidance,compared with 88.4% last year. Group operating cash flow increased 28.7% to£447.0 million, or 26.3% at a constant exchange rate. This is before thepension deficit repair payment of £64.8 million in the third quarter. Year ended Year ended 31 March 31 MarchUnaudited 2005 2006 £m £m Cash generated from operations 357.8 411.5 Cash payments of exceptional items 13.6 3.6Pension deficit repair payment - 64.8Purchase of property, plant and equipment (24.0) (32.9)Operating cash flow 347.4 447.0 Adjusted EBITDA 393.0 502.9 Cash conversion 88.4% 88.9% Cash generated from operations was £411.5 million (2005 - £357.8 million). Freecash flow was £253.3 million (2005 - £230.1 million) after taking into accountnet interest and tax payments of £125.3 million (2005 - £103.7 million) and thepurchase of property, plant and equipment for £32.9 million (2005 - £24.0million). Net debt, at £1,994.0 million, was 3.8 times adjusted EBITDA on a pro formabasis (as if TransWestern and Clarke had been part of the Group for the entireperiod) for the last 12 months. The movement in net debt for the year ended 31March 2006 arose as follows: Net debtUnaudited £m At 31 March 2005 1,106.1Free cash flow (253.3)Acquisitions, net of cash acquired 968.2Purchase of own shares 9.7Proceeds of shares issued (2.4)Dividends paid to shareholders 94.5Net finance costs increasing debt 29.5Currency movements 41.7At 31 March 2006 1,994.0 NET RESULTS After tax results and exceptional items Profit after tax for the financial year ended 31 March 2006 was £212.3 million,compared with a profit after tax for last year of £162.5 million. The effectivetax rate in the year ended 31 March 2006 was 33.1% as expected, compared with30.7% last year. Adjusted profit after tax for the financial year of £233.6 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 £29.5 million (£18.3 million net of tax credit). Earnings per share and dividend per share Diluted earnings per share increased 25.2% to 32.8 pence before exceptionalitems and amortisation. We are now adding back amortisation net of tax inaccordance with current best practice. On this basis, last year's adjusteddiluted earnings per share for the full year were 26.2 pence, compared with 27.0pence when adding back gross amortisation. Basic earnings per share before exceptional items and amortisation were 33.1pence, as compared with 26.4 pence last year before exceptional items. A final dividend of 10.2 pence per share has been proposed bringing the totaldividend for the year to 15.3 pence per share. This represents an increase of21.4% over last year. The ex-dividend date will be 26 July 2006 and the dividendwill be paid on 25 August 2006 to shareholders registered on 28 July 2006. The AGM will be held on 20 July 2006. UK REGULATION The Competition Commission has again extended its timetable for theinvestigation of the Classified Directories Advertising Services. We expect thenext publication, the Notification of Provisional Findings, to be published inJune 2006. The Commission has not extended the date that it expects to publishits final report, which is September 2006. We have provided the Commission with evidence of the increasing and diversifyingcompetition in the market including the impact that we expect the entry of BTand the growth of internet usage to have in the future. We believe that we havedemonstrated the excellent value we give advertisers, reducing prices since 2001far beyond that required by regulation and improving our customer service froman already high base. We believe that the body of evidence we have providedsupports the view that regulation is no longer required. We will continue to contribute fully to the process. All published information relating to the investigation can be found on theCommission's website at www.competition-commission.org.uk. KEY OPERATIONAL INFORMATION Unaudited Year ended 31 March 2005 2006 ChangeUK printed directoriesUnique advertisers (thousands) (a) 478 462 (3.3%)Directories published (editions) 111 113Unique advertiser retention rate (%) (b) 75 75Revenue per unique advertiser (£) 1,281 1,341 4.7% US printed directories (Yellow Book)Unique advertisers (thousands) (a) (c) 455 489 7.5%Directories published (editions) 565 599Unique advertiser retention rate (%) (c) 71 70Revenue per unique advertiser ($) 2,477 2,693 8.7% US printed directories (TransWestern)Unique advertisers (thousands) (a) (c) 133Directories published (editions) 236Unique advertiser retention rate (%) (c) 69Revenue per unique advertiser ($) 2,086 UK InternetYell.com searchable advertisers at 31 March (thousands)(d) 141 174 23.4%Yell.com searches for March (millions) 21 32 52.4%Yell.com revenue per average searchable 295 378 28.1%advertiser (£)(e) US internetYellowbook.com advertisements online at 31 March (thousands)(f) 562 1,415 151.8%Yellowbook.com unique visitors for March (millions) (g) 1.3 2.4 84.6% (a) Number of unique advertisers in printed directories that wererecognised for revenue purposes and have been billed. Unique advertisers arecounted once only, regardless of the number of advertisements they purchase orthe number of directories in which they advertise. (b) The proportion of unique advertisers that have renewed theiradvertising from the preceding publication. (c) As a result of the progress in the United States towardsintegrating our customer databases, we have been able to make improvements inthe ways in which we capture, record and analyse customer information. This hasled to a significant overall elimination of duplicate records of uniqueadvertisers. We have not adjusted the previously reported figure for the yearended 31 March 2005 for any duplicated records in that period. There remainssome overlap in reporting unique advertisers between Yellow Book and acquiredbusinesses that we expect to be removed. These improvements to our systems havenot affected the reporting of our financial results. Retention in the US isbased on unique directory advertisers. (d) Unique customers with a live contract at month end. Thesefigures refer to searchable advertisers only, i.e. advertisers for whom userscan search on Yell.com. They exclude advertisers who purchase only productssuch as banners and domain names. (e) Yell.com revenue per average searchable advertiser is calculatedby dividing the recognised revenue for Yell.com in the year by the averagenumber of Yell.com searchable advertisers (2006 - 158,000; 2005 - 122,000) inthe year. (f) Represents all paid for searchable advertisements appearing onthe Yellowbook.com website. Includes advertisements appearing on Worldpages.com,acquired with TransWestern. (g) The number of individuals who have visited Yellowbook.com atleast once in the month shown. Includes visitors to Worldpages.com, acquiredwith TransWestern. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED INCOME STATEMENT Year ended 31 March 2005 2006 Notes £m £m Revenue 2 1,285.3 1,621.3 Cost of sales (592.3) (751.4) Gross profit 693.0 869.9 Distribution costs (38.3) (49.5) Administrative expenses (327.0) (370.5) Operating profit 3 327.7 449.9 Finance costs (94.6) (134.9) Finance income 1.3 2.4 Net finance costs (93.3) (132.5) Profit before taxation 4 234.4 317.4 Taxation 5 (71.9) (105.1) Profit for the financial year 4 162.5 212.3 (in pence) (in pence) Basic earnings per share 6 23.2 30.1 Diluted earnings per share 6 22.9 29.7 £m £m Declared and paid interim ordinary dividend of 5.1 7 29.4 35.6pence per share (2005 - 4.2 pence) Proposed final ordinary dividend of 58.9 78.510.2 pence per share (2005 - 8.4 pence) See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended 31 March 2005 2006 £m £m Profit for the year 162.5 212.3 Exchange differences on translation of foreign (13.5) 47.8 operations Actuarial losses on defined benefit pension (32.3) (3.5) schemes Change in fair value of financial instruments used - 10.8 as hedges Tax effect of net losses (gains) not recognised in 9.7 (2.9) the income statement Tax benefit on intrinsic value of stock options 3.3 8.1 Net (losses) gains not recognised (32.8) 60.3 in the income statement Total recognised income for the year 129.7 272.6 Adoption of IAS32/39 - Initial recognition of financial instruments used as hedges - (2.9) Adoption of IAS32/39 - Tax effect of initial recognition of financial instruments used as hedges - 1.0 Total (losses) gains recognised in equity (32.8) 58.4 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED CONSOLIDATED CASH FLOW STATEMENT Year ended Notes 31 March 2005 2006 £m £m Net cash inflow from operating activities Cash generated from operations 357.8 411.5 Interest paid (73.5) (103.9) Interest received 1.3 2.4 Net income tax paid (31.5) (23.8) Net cash inflow from operating 254.1 286.2 activities Cash flows from investing activities Purchase of property, plant and 8 (24.0) (32.9) equipment (P, P &E) Purchase of subsidiary 9 (31.8) (968.2) undertakings, less cash acquired Net cash used in investing activities (55.8) (1,001.1) Cash flows from financing activities Proceeds from issuance of ordinary shares 3.4 2.4 Purchase of own shares (6.6) (9.7) Net new borrowings on revolving credit facility - 242.7 Acquisition of new loans - 1,440.8 Repayment of borrowings (85.0) (885.0) Financing fees paid - (14.0) Dividends paid to company's shareholders 7 (71.3) (94.5) Net cash (used in) provided by financing activities (159.5) 682.7 Net increase (decrease) in cash and cash equivalents 38.8 (32.2) Cash and cash equivalents at beginning of the year 18.7 55.5 Exchange (losses) gains on cash and cash equivalents (2.0) 5.2 Cash and cash equivalents at end of the year 55.5 28.5 Cash generated from operations Profit for the year 162.5 212.3 Adjustments for: Tax 71.9 105.1 Finance income (1.3) (2.4) Finance cost 94.6 134.9 Depreciation of P,P & E and 23.0 24.1 amortisation of software costs Amortisation of other intangible assets - 29.5 Goodwill adjustment arising from previously unrecognised tax benefits acquired 5.8 - Changes in working capital: Inventories and directories in development (23.0) (21.3) Trade and other receivables (38.4) (51.4) Trade and other payables 54.0 33.7 Pension deficit repair - (64.8) Share based payments and other 8.7 11.8 Cash generated from operations 357.8 411.5 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEET At At 31 March 31 March Notes 2005 2006 £m £m Non current assets Goodwill 1,692.0 2,486.0 Other intangible assets 14.7 200.3 Property, plant and equipment 39.4 53.8 Deferred tax assets 10 115.0 139.6 Other assets 2.0 5.0 Total non current assets 1,863.1 2,884.7 Current assets Inventories 7.5 6.7 Directories in development 165.1 226.0 Trade and other receivables 11 451.2 586.3 Cash and cash equivalents 12 55.5 28.5 Total current assets 679.3 847.5 Current liabilities Loans and other borrowings 12 (91.3) (291.5) UK Corporation and foreign income tax payable (28.8) (57.9) Trade and other payables 13 (258.1) (374.7) Total current liabilities (378.2) (724.1) Net current assets 301.1 123.4 Non-current liabilities Loans and other borrowings 12 (1,070.3) (1,731.0) Deferred tax liabilities 14 (68.5) (130.8) Retirement benefit obligations 15 (100.3) (39.9) Net assets 925.1 1,106.4 Capital and reserves Called up share capital 16 7.0 7.1 Share premium account 16 1,191.0 1,207.3 Accumulated deficit 16 (272.9) (108.0) Equity shareholders' funds 925.1 1,106.4 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION 1. Basis of preparation and consolidation The principal activity of Yell Group plc and its subsidiaries is publishingclassified advertising directories in the United Kingdom and the United States. This unaudited financial information for the year to 31 March 2006 has beenprepared in accordance with IFRS as adopted by the European Union ("IFRS")accounting policies as set out in our conversion statements for the year ended31 March 2005. The amounts presented for the year ended 31 March 2005 and at 31 March 2005 havebeen restated from the amounts previously presented under UK GAAP. Details canbe obtained from the IFRS conversion statements published on 13 June 2005 on ourwebsite. Subsequent to publishing the IFRS conversion statements we have improved ouranalysis of deferred taxes and other items, which has given rise to adjustmentsto amounts presented on the face of the balance sheet at 31 March 2005. Theseadjustments have increased our other intangible assets by £0.7 million andreduced our property, plant and equipment by £0.7 million, decreased tradereceivables by £0.1 million, and increased our deferred tax assets by £22.4million, deferred tax liabilities by £21.7 million, retirement benefitobligations by £0.6 million, the equity shareholders' funds by £0.1 million andcorporation tax payable by £0.6m, and decreased trade payables by £0.7 million.These changes are presentational in nature and do not affect the previouslyreported results or cash flows. We also changed our methodology for calculatingadjusted earnings per share ("EPS") to what we consider to be current bestpractice. We now add back amortisation net of tax, as opposed to adding it backgross. The adjusted EPS for the year ended 31 March 2005 was 26.2 pence underthe new methodology, compared to 27.0 pence presented in the IFRS conversionstatements. The information contained herein does not constitute statutory financialstatements within the meaning of section 240 of the Companies Act 1985. In the opinion of management, the financial information included herein includesall adjustments necessary for a fair presentation of the consolidated results,financial position and cash flows for each period presented. This financial information should be read in conjunction with Yell's 2006 annualreport which will be published in June 2006, and will include the auditedconsolidated financial statements of Yell Group Plc and its subsidiaries for theyear ended 31 March 2006. The preparation of the consolidated financial information requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial information and the reported amounts of income and expenditureduring the period. Actual results could differ from those estimates. Estimatesare used principally when accounting for doubtful debts, depreciation,retirement benefit obligations and the related employee pension costs,acquisition accounting and taxes. 2. Revenue Year ended 31 March Change 2005 2006 % £m £m UK printed directories 612.1 619.4 1.2% Other products and services 52.3 79.5 Total UK revenue 664.4 698.9 5.2% US revenue: US revenue at constant exchange rate (a) 620.9 883.9 42.4% Exchange impact (a) - 38.5 Total US revenue 620.9 922.4 48.6% Group revenue 1,285.3 1,621.3 26.1% (a) Constant exchange rate states current year results at the sameexchange rate as that used to translate the results for the previous year.Exchange impact is the difference between the results reported at a constantexchange rate and the actual results using current year exchange rates. See Note 9 for an analysis of the effect of acquisitions in the year on ourresults. 3. Operating profit and EBITDA information Adjusted EBITDA (a) Year Change ended 31 March 2005 2006 % £m £m UK printed directories 217.8 219.8 0.9% Other products and services 14.4 24.7 Total UK operations 232.2 244.5 5.3% US operations: US operations at constant exchange rate (b) 160.8 247.8 54.1% Exchange impact (b) - 10.6 Total US operations 160.8 258.4 60.7% Group adjusted EBITDA 393.0 502.9 28.0% (a) EBITDA is one of the key financial measures that we use toassess the growth in the business and operational efficiencies. (b) Constant exchange rate states current year results at the sameexchange rate as that used to translate the results for the previous year.Exchange impact is the difference between the results reported at a constantexchange rate and the actual results using current year exchange rates. Reconciliation of group operating profit to EBITDA Year Change ended 31 March 2005 2006 % £m £m UK operationsOperating profit 220.5 238.3Depreciation and amortisation ofnon-current assets 11.7 11.2 UK operations EBITDA 232.2 249.5 7.5%Exceptional items - (5.0)UK operations adjusted EBITDA 232.2 244.5 5.3%UK operations adjusted EBITDA margin 34.9% 35.0% US operationsOperating profit 107.2 211.6Depreciation and amortisation ofnon-current assets 17.1 42.4 US operations EBITDA 124.3 254.0 104.3%Exceptional items 36.5 4.4Exchange impact (a) - (10.6)US operations adjusted EBITDA at 160.8 247.8 54.1%constant exchange rate (a)Exchange impact (a) - 10.6US operations adjusted EBITDA 160.8 258.4 60.7%US operations adjusted EBITDA margin 25.9% 28.0% GroupOperating profit 327.7 449.9Depreciation and amortisation ofnon-current assets 28.8 53.6 Group EBITDA 356.5 503.5 41.2%Exceptional items 36.5 (0.6)Exchange impact (a) - (10.6)Group adjusted EBITDA at constant 393.0 492.3 25.3%exchange rate (a)Exchange impact (a) - 10.6Group adjusted EBITDA 393.0 502.9 28.0% Group adjusted EBITDA margin 30.6% 31.0% (a) Constant exchange rate states current year results at the same exchangerate as that used to translate the results for the previous year. Exchangeimpact is the difference between the results reported at a constant exchangerate and the actual results reported using current year exchange rates. We do not allocate interest or taxation charges by product or geographicsegment. 4. Results before and after exceptional items Year ended 31 March 2005 2006 Ordinary Exceptional Total Ordinary Exceptional Total items items items items £m £m £m £m £m £mGross profit 693.0 - 693.0 869.9 - 869.9Distribution costs (38.3) - (38.3) (49.5) - (49.5)Administrative expenses (290.5) (36.5) (327.0) (371.1) 0.6 (370.5) Operating profit 364.2 (36.5) 327.7 449.3 0.6 449.9Net finance costs (93.3) - (93.3) (124.7) (7.8) (132.5)Profit (loss) beforetaxation 270.9 (36.5) 234.4 324.6 (7.2) 317.4 Taxation (85.6) 13.7 (71.9) (109.3) 4.2 (105.1)Profit (loss) for theyear 185.3 (22.8) 162.5 215.3 (3.0) 212.3 The exceptional items for the year ended 31 March 2006 include restructuring andother costs of £4.4 million arising from the TransWestern acquisition, and acredit of £5.0 million from releasing a provision for IPO costs in the UK.Exceptional finance costs for the year ended 31 March 2006 relate to theaccelerated amortisation of deferred financing fees on our senior bank debt,which was redeemed at the date of the TransWestern acquisition. Exceptionaladministrative costs in the year ended 31 March 2005 are costs relating tolitigation brought against our US operations (see note 17). 5. Taxation The tax charge is based on the estimated effective tax rate for the year. Theeffective tax rate for the year is different from the standard rate ofcorporation tax in the United Kingdom (30%) as explained below: Year ended 31 March 2005 2006 £m £mProfit before tax multiplied by the standard rate of corporationtax in the United Kingdom (30%) 70.3 95.2 Effects of:Higher tax rates in US 1.3 10.5Disallowed items 0.8 0.4Adjustment from prior year 0.4 (1.4)Other (0.9) 0.4Tax charge on profit before tax 71.9 105.1 Current tax 44.0 50.6Deferred tax 27.9 54.5Net charge on profit before tax 71.9 105.1 6. Earnings per share The calculation of basic and diluted earnings per share is based on the profitfor the relevant financial period and on the weighted average share capitalduring the period. Actual Exceptional items, Amortisation, net of tax a net of tax b AdjustedYear ended 31 March 2006Group profit after tax (£m) 212.3 3.0 18.3 233.6Weighted average number of issued ordinary shares 705 705(millions)Basic earnings per share (pence) 30.1 33.1Effect of share options (pence) (0.4) (0.3)Diluted earnings per share (pence) 29.7 32.8 Year ended 31 March 2005Group profit after tax (£m) 162.5 22.8 - 185.3Weighted average number of issued ordinary shares 701 701(millions)Basic earnings per share (pence) 23.2 26.4Effect of share options (pence) (0.3) (0.2)Diluted earnings per share (pence) 22.9 26.2 a Exceptional items are explained in note 4. b Amortisation of £29.5 million in 2006 arose from acquisitions inthe period and is added back net of £11.2 million for tax. A goodwill charge of£5.8 million in 2005 arose from the recognition of tax net operating losses fromacquisitions in the United States and had nil effect on adjusted earnings pershare because the tax benefit was of equal amount. 7. Interim and final dividend per share Dividends paid in the year were as follows: Year ended 31 March 2005 2006 £m £mFinal dividend of 6.0 pence and 8.4 pence per share for 2004 and2005, respectively 41.9 58.9 Interim dividend of 4.2 pence and 5.1 pence per share for 2005 and2006, respectively 29.4 35.6 Dividends paid 71.3 94.5 The proposed final dividend for the 2006 financial year of 10.2 pence per sharewill be paid on 25 August 2006 to shareholders registered at the close ofbusiness on 28 July 2006. 8. Capital Expenditure Capital expenditure on property, plant and equipment in the year to 31 March2006 and 2005 was £32.9 million and £24.0 million, respectively. Proceeds onthe sale of property, plant and equipment were £nil in the same periods. Capital expenditure committed at 31 March 2006 and 2005 was £nil. 9. Acquisitions In the year to 31 March 2006, the Yell Group acquired a number of directoriesbusinesses in the US for consideration totalling $1,716.5 million (£978.3million). The purchases were accounted for as acquisitions. The largestacquisition was that of TransWestern Publishing on 15 July 2005 for a purchaseprice of $1,573.8 million (£897.6 million) plus expenses of $21.5 million (£12.3million). The purchase price of TransWestern was allocated to the acquiredassets and liabilities as follows: Debt and other Acquiree's Fair value liabilities Provisional carrying amount adjustments extinguished fair value £m £m £m £m Non current assetsIntangible assets 84.9 111.8 - 196.7Property, plant and equipment 2.7 (0.1) - 2.6Deferred tax assets 31.8 0.2 - 32.0Total non current assets 119.4 111.9 - 231.3Current assetsDirectories in development 26.2 - - 26.2Trade and other receivables 53.6 (0.6) - 53.0Cash and cash equivalents 1.1 - - 1.1Total current assets 80.9 (0.6) - 80.3Current 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) 94.0 417.6 228.7Goodwill 681.2Total cost 909.9 The results of TransWestern reduced the group profit before tax by £19.1 millionin the period from the date of acquisition to 31 March 2006. In the sameperiod, the results of TransWestern increased the group adjusted profit beforetax, amortisation and exceptional costs by £12.5 million (loss of £19.1 millionwith £27.2 million and £4.4 million added back for amortisation and exceptionalcosts, respectively). The consolidated financial information of the Yell Groupconsolidates the financial results of TransWestern for the 260 days ended 31March 2006. The unaudited condensed pro forma financial information for the YellGroup, estimated as if TransWestern was purchased on 1 April 2004, for the yearended 31 March 2005 and 2006 is as follows: Year endedProforma 31 March 2005 2006 £m £m Group revenue 1,482.4 1,680.9 Profit for the year 154.7 222.5 On 3 January 2006, we acquired the assets of Clarke Directory Publications(Clarke) for a purchase price of $72.0 million (£40.8 million). The purchaseprice of Clarke was allocated to the acquired assets and liabilities as follows: Acquiree's Fair value Provisional carrying amount adjustments fair value £m £m £m Non current assetsIntangible assets - 11.6 11.6Property, plant and equipment 0.9 0.1 1.0Total non current assets 0.9 11.7 12.6Current assetsDirectories in development 0.7 0.3 1.0Trade and other receivables 3.5 - 3.5Total current assets 4.2 0.3 4.5Current liabilitiesTrade and other payables (0.7) - (0.7)Total current liabilities (0.7) - (0.7)Identifiable net assets 4.4 12.0 16.4Goodwill 24.4Total cost 40.8 We also made other acquisitions in the year that are not considered material forseparate presentation. We paid cash of $49.2 million (£27.6 million). Thepurchase price of these acquisitions was allocated to the acquired assets andliabilities as follows: Acquiree's Fair value Provisional carrying amount adjustments fair value £m £m £m Non current assetsIntangible assets - 4.9 4.9Property, plant and equipment - 0.1 0.1Total non current assets - 5.0 5.0Current assetsDirectories in development 0.3 0.1 0.4Trade and other receivables 1.3 - 1.3Cash 0.2 - 0.2Total current assets 1.8 0.1 1.9Current liabilitiesTrade and other payables (0.9) - (0.9)Total current liabilities (0.9) - (0.9)Identifiable net assets 0.9 5.1 6.0Goodwill 21.6Total cost 27.6 The reconciliation of the cost of acquisitions to the cash paid for acquisitionsin the year is as follows: Year ended 31 March 2005 £mTotal cost of acquisitions 978.3Cash paid for acquisitions in prior year 0.2Costs accrued at 31 March 2006 (9.0)Cash paid 969.5Less cash acquired (1.3)Net cash outflow in year 968.2 10. Deferred tax assets The elements of deferred tax assets recognised in the accounts were as follows: At At 31 March 31 March 2005 2006 £m £mTax effect of timing differences due to:Retirement benefit obligations 30.1 26.6Bad debt provisions 25.2 38.3Recognised tax net operating losses 20.9 20.5Depreciation 9.2 6.9Share options 6.4 15.9Accrued expenses and other allowances 12.6 20.4Other 10.6 11.0Recognised deferred tax assets 115.0 139.6 Tax losses of £56.0 million are available to use against taxable income arisingin the US in future years. The benefits available in respect of tax netoperating losses arising from US operations expire between 2010 and 2023 if notused. 11. Trade and other receivables At At 31 March 31 March 2005 2006 £m £mTrade receivables (a) 429.2 555.5Other receivables 8.1 19.0Accrued income (a) 4.7 1.4Prepayments 9.2 10.4Total trade and other receivables 451.2 586.3 (a) The Group's trade receivables and accrued income are stated afterdeducting a provision of £157.8 million at 31 March 2006 (2005 - £112.8million). 12. Loans and other borrowings and net debt At At 31 March 2005 31 March (a) 2006 (a) £m £mAmounts falling due within one yearSenior credit facilities 90.0 48.7Revolving loan under senior credit facilities - 242.2Net obligations under finance leases 1.3 0.6Total amounts falling due within one year 91.3 291.5Amounts falling due after more than one year Senior credit facilities 761.0 1,392.0Senior notes:Senior sterling notes 159.8 161.8Senior dollar notes 67.4 74.4Senior discount dollar notes 82.1 102.8Total amounts falling due after more than one year 1,070.3 1,731.0 Net loans and other borrowings 1,161.6 2,022.5Cash and cash equivalents (55.5) (28.5)Net debt at end of period 1,106.1 1,994.0 (a) Balances are shown net of deferred financing fees of £10.8 million at31 March 2006 and £14.0 million at 31 March 2005. 13. Trade and other payables At At 31 March 31 March 2005 2006 £m £mTrade payables 22.9 32.9Other taxation and social security 17.4 17.3Accruals and other payables 126.3 163.3Deferred income 91.5 161.2Total trade and other payables falling due within one year 258.1 374.7 14. Deferred tax liabilities The elements of deferred tax liabilities recognised in the accounts were asfollows: At At 31 March 31 March 2005 2006 £m £mThe effect of timing differences due to:Amortisation 41.3 76.1Directories in development 25.8 32.9Financial instruments - 3.3Other and deferred costs 1.4 18.5Recognised deferred tax liabilities 68.5 130.8 15. Retirement benefit obligations The £60.4 million decrease in retirement benefit obligations from £100.3 millionat 31 March 2005 to £39.9 million at 31 March 2006 is the net result of totalcharges of £19.2 million in the Income Statement and the actuarial loss of £3.5million within the Statement of Recognised Income and Expense, offset by annualcash contributions of £18.3 million and a deficit repair payment of £64.8million. The £3.5 million actuarial loss reflects a £30.3 million increase inliabilities arising from a decrease in real interest rates, as defined byreference to market rates to which the discount and inflation rate assumptionsare tied, net of £26.8 million of actuarial gains. 16. Changes in equity shareholders' funds Share Share Accumulated capital premium deficit Total £m £m £m £m Balance at 31 March 2005 7.0 1,191.0 (272.9) 925.1Profit on ordinary - - 212.3 212.3activities after taxationDividends - - (94.5) (94.5)Ordinary share issue 0.1 16.3 (10.4) 6.0Capital Accumulation Plan - - (0.9) (0.9) and other share schemes(a)Currency movements (b) - - 47.8 47.8Net gains not recognised in - - 10.6 10.6income statementBalance at 31 March 2006 7.1 1,207.3 (108.0) 1,106.4 (a) Purchase of shares and amortisation of the costs incurred in buyingshares held in an ESOP trust for employees. (b) Cumulative foreign currency losses at 31 March 2006 are £68.4 million(2005 - £116.2 million). 17. 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 USstates and the District of Columbia. In these actions, the plaintiffs allegedviolations of consumer protection legislation and placed reliance on findings ofthe New York Court in the now settled suit. On 26 August 2005, the court in NewJersey approved a comprehensive national settlement, with no admission ofliability. The Yell Group fully accrued for the estimated costs arising fromthis class action in the year ended 31 March 2005. 18. Post Balance Sheet Event On 28 April 2006, the Yell Group announced that it had entered into an agreementwith Telefonica S.A. ("Telefonica") to acquire its 59.905% stake in TelefonicaPublicidad e Informacion, S.A. ("TPI") by way of an all cash public tender offerfor the entire issued share capital of TPI. TPI is the leading publisher of print and online directories in Spain where itpublishes 182 directories and distributes over 36 million copies. TPI also hassignificant positions in a number of Latin American countries includingleadership positions in Peru and Chile. TPI is a substantial and complementaryextension to Yell's existing business, adding a third leg to our highlysuccessful operations in the UK and US. The acquisition will be financed using the proceeds from new shares placed on 28April 2006, which raised approximately £350 million, and by refinancing ourexisting debt. On 2 May 2006, we refinanced our existing senior debt andreplaced it with new senior debt. A portion of the proceeds of the new debt wasused to defease our obligations under the Senior Notes. These will be redeemedand fully repaid in June 2006. The new senior secured credit facilities of upto £4,650 million are fully underwritten by Citigroup Global Markets Limited,Deutsche Bank AG, Goldman Sachs International and HSBC Bank plc. In addition,these banks will provide Yell with a revolving credit facility of £400 million. The acquisition of TPI is conditional on Yell shareholder approval,authorisation of the public tender offer by the CNMV, Spain's market regulator,and customary regulatory approvals. Therefore, completion of the acquisitioncannot be assured; however, it is expected to complete in July 2006. 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 2006, Yell published 113 directories in the UnitedKingdom and 835 in the United States; in the United Kingdom, where it is aleading player in the classified advertising market, it served 462,000 uniqueadvertisers. In the United States, where it is the leading independentdirectories business, it served 622,000 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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