Half Yearly Report

9 November 2010

Yell Group plc financial report for the six months ended 30 September 2010

Strong cash and EBITDA performance despite continuing economic pressures on revenue. Internet growth and customer retention improvement continue.

·; Revenue down 8.9% in the first half to £895.7 million; down 11.2% at constant exchange rates. Revenue down 12.1% in the second quarter on an organic basis at constant exchange rates

·; Online revenue of £226.2 million; up 10.4% at constant exchange rates to 25.3% of total revenue (2009 - 20.4%)

·; Adjusted EBITDA down 10.6% to £265.4 million; down 12.2% at constant exchange rates

·; Operating cash flow of £306.1 million. Cash conversion 115.3% (2009 - 134.7%)

·; Free cash flow before payments of exceptionals was £160.5 million (2009 - £243.9 million)

·; Adjusted diluted earnings per share 2.7 pence, down 63.5% primarily due to the increase in issued shares

John Condron, Chief Executive Officer, said:

"Our revenues are directly related to the confidence small businesses feel, and small businesses continue to see little evidence of economic recovery, hence their reluctance to invest in marketing. As their confidence returns, the opportunity in our market remains substantial. In the meantime, the actions we are taking to deliver effective marketing solutions across all media continue to produce very high value for money for customers and are driving increased customer retention, internet growth and a widening and strengthening of our internet position."

John Davis, Chief Financial Officer, said:

"Despite the economic pressure on revenue, we delivered half year adjusted EBITDA of £265 million with strong operating cash flow of £306 million. We are taking further action to improve our efficiency and are confident that we will meet expectations for full year EBITDA. Our strong free cash flow performance means we are comfortably supporting our interest payments and allowed us to reduce net debt to below £2.9 billion."

Enquiries

Yell - Investors Yell - Media

Rob Hall Jon Salmon

Tel +44 (0)118 358 2838 Tel +44 (0)118 358 2656

Mobile +44 (0)7793 957848 Mobile +44 (0)7801 977340

Citigate Dewe Rogerson

Anthony Carlisle

Tel +44 (0)20 7638 9571

Mobile +44 (0)7973 611888

This news release contains forward-looking statements. These statements appear in a number of places in this news release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, revenue, financial condition, liquidity, prospects, growth, strategies, new products, the level of new directory launches and the markets in which we operate. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward-looking statements as a result of various factors. Readers are advised to read pages 18 through 29 in Yell Group plc's annual report for the financial year ended 31 March 2010. We undertake no obligation publicly to update or revise any forward-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 (unaudited)

See end notes on page 8.  End notes 'c' through 'g' provide an explanation of non-statutory figures along with references to where they are reconciled to statutory figures.

Group results

Overview

Organic revenue(b) for the quarter declined 12.1% at constant exchange rates. Year to date revenue declined 11.2% at constant exchange rates. Year to date adjusted EBITDA(b)(c) at constant exchange rates was down 12.2% with cost management partially offsetting the declining revenue and enabling us to maintain the margin at a similar level to last year.

Our online revenue at £226.2 million continued to grow, up 10.4% at constant exchange rates for the six months. Internet revenue accounted for 25.3% of our total revenues compared with 20.4% in the same period last year. Continued internet growth is supported by the improvements we continue to make both to the end-user experience and to our customer offerings across our fixed internet and mobile channels. 

While the retention of print advertisers is improving across the Group, the current economic environment means new customer acquisition is insufficient to prevent total customer numbers reducing, which is the primary driver of the Group's revenue decline.

Cash conversion(b) (e) was 115.3% reflecting the release of working capital from the reduction in revenue coupled with good cash management. Operating cash flow (b) (d) was down 25.3% at constant exchange rates, reflecting lower EBITDA and increased capital expenditure. 

Our free cash flow(f), after all interest and tax payments and before payments of previously accrued exceptional items, decreased 34.2% to £160.5 million, maintaining our net debt multiple at 4.9 times adjusted EBITDA when calculated at consistent exchange rates. We continue to benefit from low tax payments, primarily due to tax allowable goodwill amortisation in the US. We also benefit from lower interest payments, due to lower net debt and the unwinding of interest rate hedges. Covenant headroom was 29% at 30 September 2010.

Group financial outlook

Small business confidence remains low and we now expect the third quarter revenue, which is largely sold, to be around 12% down organically at constant currency. This does not reflect a now estimated €30 million net movement of revenues from Latin American directories previously delivered in the third quarter that will now publish in the fourth quarter due to directory publication delays in Chile caused by last year's earthquakes.

Reflecting the economic environment, we do not expect the fourth quarter organic growth to show an improvement on our third quarter guidance.

The improving print retention rates and our continued internet momentum across the Group support our confidence that we are well placed to benefit when business confidence returns. Until that time, our revenue will remain under economic pressure as SMEs remain cautious about their future.

We continue to review our cost base and expect to benefit from additional efficiency improvements in both this financial year and next. This means we still believe we can meet expectations for full year adjusted EBITDA.

Yell UK operating performance

Six months ended 30 September (unaudited)

See end notes on page 8.

Overall UK revenue was down 13.7% in the half year and adjusted EBITDA was down 20.8%. Good cost management enabled us to limit the full effect of the revenue decline on adjusted EBITDA.

Internet revenue grew 3.0% and now represents 34.1% of total UK revenues, up from 28.6% one year ago. The revenue growth is primarily driven by an increase in average spend. 

Reflecting our deliberate focus on acquiring more valuable traffic, unique internet users in September were down 10.9% on prior year but up 9.8% on June 2010. The quality of this traffic is demonstrated by a significant increase in clicks to our customers' websites. The unique user figure excludes mobile internet usage which has also increased significantly in the last year.

Printed directories revenue declined 21.0%, primarily reflecting the 16.7% reduction in unique advertisers. The acquisition of new print advertisers was not enough to offset churn, despite the two percentage point improvement in retention. Overall printed directories' revenue per unique advertiser was down reflecting cautious advertiser behaviour and the migration of spend to our online products.

Yellowbook operating performance

Six months ended 30 September (unaudited)

See end notes on page 8.

Overall US revenue was down 11.9% in the half year and EBITDA was down 13.9%. Good cost management has enabled us to maintain the margin at a similar level to last year.

Internet revenues now represent 20.8% of total US revenues up from 16.3% last year with future revenue growth expected on the foundation of continuing strong growth in unique visitors. Unique visitors increased 117.0% from September 2009 to September 2010, while revenue per average searchable advertiser increased 18.3% as customers increasingly invested in our online products.

Printed directories revenue declined 16.7%, primarily reflecting the decrease in average spend and the reduction in unique advertisers, despite the four percentage point retention rate increase that highlights the value our customers see in our products.

Yell Publicidad operating performance

Six months ended 30 September (unaudited)

See end notes to the above table on page 8.

Overall revenue for the Yell Publicidad group was down 2.6%, benefiting from strengthening foreign currency exchange rates in Latin America and €5.0 million from publishing printed directories in Chile that were delayed due to the earthquakes. Before these items revenue was down 6.7%. Overall EBITDA was up 16.0% (15.1% at constant exchange rates), primarily due to good cost management with the margin nearly five percentage points higher than last year.

Internet revenue in Spain was up 25.3% and in Latin America was also up 25.3% at constant exchange rates. Internet revenue in the Yell Publicidad group was €47.4 million, of which €34.7 million was in Spain and the remainder in Latin America.

Economic pressures have severely affected the Spanish market where revenue was 11.0% down organically, largely due to the reduction in print advertisers and yield. The negative effect on print revenues was partially offset by the growth in internet revenues.

Revenue from Latin America at €46.6 million increased 42.5%, including the benefit from rescheduled deliveries delayed from last year and €4.5 million from foreign exchange movements. The organic increase in revenue was 15.3% at constant exchange rates.

Group statutory disclosures

The principal risks and uncertainties that could affect our business activities or financial results include strategic risks faced by our industry; operational risks faced by our businesses; debt and financing risks faced in funding our operations and the financial reporting and related risks faced in reporting our results. The nature of these risks have not materially changed from those detailed on pages 18-29 of Yell Group plc's Annual Report for the financial year ended 31 March 2010. However, the length of the economic downturn could affect our future assessment of debt and financing risks and estimates related to the value of our businesses. There are no related party transactions in the six months ended 30 September 2010 except compensation for key management. Key management compensation for the financial year ended 31 March 2010 is detailed in note 27 to Yell Group plc's Annual Report. A copy of Yell Group plc's Annual Report is available on our website www.yellgroup.com. 

End notes for pages 3 through 7.

(a) Change at constant currency states the change in the current period compared with the previous period as if the current period results were translated at the same exchange rates as those used to translate the results for the previous period.

(b) Revenue, adjusted EBITDA, operating cash flow and cash conversion are the key financial measures that we use to assess growth in the business and operational efficiencies.

(c) A reconciliation from operating profit to adjusted EBITDA is presented in note 3 to the financial information on page 16. Adjustments to EBITDA and profit after tax are explained in notes 5 and 6 to the financial information on pages 18 and 19. Adjustments to earnings per share are explained in note 5 to the financial information on page 18.

(d) Cash generated from operations before payments of exceptional costs, less capital expenditure. A reconciliation to cash generated from operations as presented in the statement of cash flows is presented in note 9 on page 21.

(e) Operating cash flow as a percentage of adjusted EBITDA. A reconciliation to cash generated from operations as presented in the cash flow statement is presented in note 9 on page 21.

(f) Free cash flow before exceptionals is defined as (pre-exceptional) operating cash flow of £306.1 million (2009 - £399.8 million) less net interest of £131.8 million (2009 - £149.0 million) and tax payments of £13.8 million (2009 - £6.9 million).

(g) Adjusted profit after tax and adjusted diluted earnings per share are stated before exceptional items, amortisation of acquired intangibles and fair valuation charges for hedges not qualifying for hedge accounting, all net of related tax. A reconciliation to the related statutory figures is presented in note 5 to the financial information on page 18. The adjusted diluted earnings per share for the six months ended 30 September 2009 have been restated to reflect an adjustment to outstanding shares arising from the discount in the firm placing and the placing and open offer of shares on 30 November 2009 as though the adjustment was effective on 1 April 2009.

(h) The 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.

(i) Retention in the UK and Spain is based on the proportion of prior year unique advertisers who have renewed their advertising. In the US it is based on unique directory advertisers.

(j) Unique live internet advertisers is a count of all internet customers with a live contract at period end. To better represent our internet product offerings, we no longer exclude non searchable product types in the UK. We have not restated the prior year as the difference is not material, however, the prior year comparative figure for the UK would have been 214,000. The US and Spain prior year internet customers would not have changed.

(k) The number of unique users who have visited Yell.com or PaginasAmarillas.es once or more often in the indicated month. Unique users are measured according to independently established industry standard measures.

(l) UK, US and Spain internet LTM revenue per average searchable advertiser is calculated by dividing the recognised revenue in the last twelve months by the average number of searchable advertisers in that period. The twelve month average numbers of searchable advertisers are as follows:

Yell.com 30 September 2010 - 201,000; 30 September 2009 - 215,000.

Yellowbook.com 30 September 2010 - 355,000; 30 September 2009 - 377,000.

PaginasAmarillas.es 30 September 2010 - 157,000; 30 September 2009 - 125,000.

Had we restated UK internet advertisers to the new basis, LTM Revenue per Average Internet Advertiser would have been £787 for the prior year period.

(m) The number of total live advertisers is a count of all unique advertisers at the date of the period end with a live advertisement, regardless of product. Total live advertisers cannot be used to calculate average revenue per advertiser, as the basis of measurement differs for each product and should not be aligned with revenue recognised in the current period.

(n) The number of individuals who have visited the Yellowbook.com network at least once in the month shown. Our data provider, Comscore, counts individuals visiting all Yellowbook affiliated websites that display Yellowbook.com data.  

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED INCOME STATEMENT

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

See notes to the financial information for additional details.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

See notes to the financial information for additional details.

YELL GROUP PLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

See notes to the financial information for additional details.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 (a) Cumulative foreign currency gains attributable to equity shareholders at 30 September 2010 are £320.3 million (30 September 2009 - £283.4 million gain; 31 March 2010 - £353.1 million gain).

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 the sale of advertising in, and publishing of, its print and online directory products and services in the United Kingdom, the United States, Spain and certain countries in Latin America.

This unaudited condensed set of financial statements for the six months ended 30 September 2010 has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs") as set out in our annual report for the year ended 31 March 2010 and in accordance with the Listing Rules of the Financial Services Authority.

The financial information contained herein has been prepared on a going concern basis. It does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

The financial information herein should be read in conjunction with Yell Group plc's Annual Report published in June 2010, which includes the audited consolidated financial statements of Yell Group plc and its subsidiaries for the year ended 31 March 2010 and the principal risks and uncertainties that could affect our business activities or financial results. These risks and uncertainties include strategic risks faced by our industry; operational risks faced by our businesses; debt and financing risks faced in funding our operations and the financial reporting and related risks faced in reporting our results. The nature of these risks have not materially changed from those detailed on pages 18-29 of Yell Group plc's Annual Report for the financial year ended 31 March 2010. While revenue has declined in the six months ended 30 September 2010 more than expected, this has been mitigated through continuing efficiency improvements. However, the length of the economic downturn could affect our future assessment of debt and financing risks and estimates related to the value of our businesses. Also see discussions in note 15 on debt covenants and note 10 on goodwill impairment sensitivities.

Statutory financial statements for the year ended 31 March 2010 were approved by the Board of Directors on 8 June 2010 and delivered to the Registrar of Companies. The audit opinion on the statutory accounts for the year ended 31 March 2010 was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006. A copy of Yell Group plc's Annual Report is available on our website www.yellgroup.com.

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 benefits, acquisitions and taxation.

Taxes on income in interim periods are determined by accruing tax based on the expected tax rate that would be applicable to total annual earnings and combining any separately recognised adjustments for prior year settlements.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION

1. Basis of preparation and consolidation (continued)

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 financial statements for the year ending 31 March 2011 are not expected to be materially affected by implementation of new standards, amendments to standards or interpretations. 

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued)

2. Revenue

 (a) Change at constant currency states the change in current period compared with the previous period as if the current period results were translated at the same exchange rates as those used to translate the results for the previous period.

(b) Segments are determined by management reports used by the Chief Operating Decision Makers, the executive directors, which are based upon the location of responsible management.

3. Adjusted EBITDA and operating profit

 (a) Adjusted EBITDA is a key income statement measure used by the Chief Operating Decision Makers, the executive directors, to assess growth and operational efficiencies in the business.

(b) Change at constant currency states the change in current period compared with the previous period as if the current period results were translated at the same exchange rates as those used to translate the results for the previous period.

(c) Segments are determined by management reports used by the Chief Operating Decision Makers, the executive directors, which are based upon the location of responsible management.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued)

3. Adjusted EBITDA and operating profit (continued)

(a) Adjusted EBITDA is a key income statement measure used by Chief Operating Decision Makers, the executive directors, to assess growth and operational efficiencies in the business.

(b) Segments are determined by management reports used by the Chief Operating Decision Makers, the executive directors, which are based upon the location of responsible management. Details of exceptional items are set out in note 6.

(c) Exchange impact is the difference between the results reported at constant exchange rates and the results reported using current period exchange rates. Constant exchange rate states current period results at the same exchange rates as those used to translate the results for the previous period.

We do not allocate interest or taxation charges by product or geographic segment.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued)

4. Taxation

The tax charge for the period is different from the standard rate of corporation tax in the United Kingdom of 28% (2009 - 28%). The differences are explained below:

The tax on the Group's profit before tax is analysed as follows:

Taxation (charged) credited directly to equity is as follows:

(a) Tax credits on actuarial losses have been reclassified for the prior year between current and deferred tax in both the Income Statement and the Consolidated Statement of Comprehensive Income to be consistent with the current year.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued)

5. 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.

(a) Details of exceptional items are set out in note 6.

(b) Other items include amortisation of acquired intangibles and the fair valuation charge for the time value of interest rate caps taken directly to the Income Statement.

(c) The basic and diluted earnings per share reflect the firm placing of 785.9 million shares and the placing and open offer of 785.9 million shares on 30 November 2009. The basic earnings per share and adjusted diluted earnings per share for the six months ended 30 September 2009 have been restated to reflect an adjustment to outstanding shares arising from the discount in the firm placing and the placing and open offer of shares on 30 November 2009 as though the adjustment was effective on 1 April 2009. The balance of the equity raising was taken into account from 30 November 2009 and does not affect the figures presented for the six months ended 30 September 2009.

YELL GROUP PLC AND SUBSIDIARIES

UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued)

6. Exceptional items

Exceptional items are transactions which, by virtue of their incidence, size or a combination of both, are disclosed separately. Exceptional items comprise the following.

(a) Costs of consolidating office sites.

(b) Deferred tax impact of the tax rate changes comprises a £0.3 million tax charge to the UK and a £0.2 million tax credit related to Chile (see note 13).

7. Capital expenditure

Proceeds on the sale of property, plant and equipment were £nil in the six months ended 30 September 2010 and 2009. Capital expenditure committed at 30 September 2010 was £14.3 million (2009 - £8.2 million).

8. Acquisitions and disposals

Six months ended 30 September 2010

In the six months to 30 September 2010, the Yell Group paid £1.2 million for a new media company in the UK with recorded net assets of £0.3 million and £10.2 million for in-fill acquisitions in the US. Total costs were allocated to the acquired assets and liabilities as follows: