8th Nov 2005 07:01
Yell Group plc08 November 2005 8 November 2005 news release news release news release news release news release Yell Group plc financial results for the six months ended 30 September 2005 A strong first half. Well on track to meet full year expectations • Group revenue up 17.6% to £711.1 million • Group adjusted EBITDA up 15.8% to £232.9 million • Adjusted profit after tax up 14.5% to £109.3 million • Group operating cash conversion of 91.3% up from 84.8% last year • Adjusted diluted earnings per share up 14.9% to 15.4 pence • Interim dividend per share up 21% to 5.1 pence (see notes below)John Condron, Chief Executive Officer, said: "These are good results, demonstrating the quality of our execution across theGroup. Yell.com's excellent performance drove continued growth in the UK. Inthe US strong organic revenue growth of 19.4% drove an outstanding performancewhich was boosted by the acquisition of TransWestern. "We continue to contribute fully to the investigation into the classifieddirectories advertising services by the Competition Commission in the UK. In theUS, the integration of TransWestern, particularly in the sales organisation, isprogressing rapidly." John Davis, Chief Financial Officer, said: "We maintained our EBITDA growth momentum at the same time as we continued toinvest for future revenue growth on both sides of the Atlantic. We expect tocontinue this investment during the remainder of the year, particularly as weintegrate TransWestern. "We are well on track to meet full year expectations. We have decided toeliminate the actuarially calculated pension deficit of £64.8 million by payinga special contribution to the pension plan within the next three months, and weare announcing a 21% increase in the interim dividend per share." Notes: • Unadjusted EBITDA was up 25.0% to £235.5 million; unadjusted profit before tax was up 18.2% to £103.4 million; and unadjusted diluted earnings per share were up 17.9% to 14.5 pence. • The adjustments to the earnings figures above exclude exceptional items, net of tax, and amortisation of 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 18. Cash conversion is calculated on page 5. • Results previously reported for the six months ended 30 September 2004 were reported under UK GAAP. All figures reported here are reported under International Financial Reporting Standards. 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 six months ended 30 September 2005 to the SEC on Form 6-K on 8 November 2005. A copy of the submission can also be accessed on the Yell Group website. YELL GROUP PLC SUMMARY FINANCIAL RESULTS Six months Change at ended 30 September constant exchangeUnaudited 2004 (a) 2005 Change rate (b) £m £mRevenue (c) 604.6 711.1 17.6% 17.4%Adjusted EBITDA (c) (d) 201.2 232.9 15.8% 15.6%Operating cash flow (c) (e) 170.6 212.7 24.7% 24.4% Adjusted diluted earnings per share (pence) (d) 13.4p 15.4p 14.9% Cash conversion (c) (f) 84.8% 91.3% Adjusted profit after tax 95.5 109.3 14.5% (a) Results previously reported for the six months ended 30 September 2004were reported under UK GAAP. Figures reported here are reported underInternational Financial Reporting Standards. A detailed explanation of thesechanges can be obtained in the IFRS conversion statements published on ourwebsite on 13 June 2005. Updates to the published IFRS conversion statementsare described on page 13 of this release. (b) Change at constant exchange rate states the change in current periodresults compared to the same period in the previous year as if the currentperiod results were translated at the same exchange rate as that used totranslate the results for the same period in the 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 six months ended 30 September 2005 is statedbefore exceptional costs of £2.4 million arising from the TransWesternacquisition, and an exceptional credit of £5.0 million from releasing aprovision for IPO costs. Adjusted diluted earnings per share are stated beforethese exceptional items (£3.5 million credit net of tax) and an additionalcharge of £5.2 million net of tax credit from accelerated amortisation offinance fees related to the bank debt refinanced on 15 July 2005 and before £4.2million amortisation net of tax on intangible assets acquired in the period.Adjusted EBITDA for the six months ended 30 September 2004 is stated beforeexceptional costs of £12.8 million (£8.0 million net of tax credit) which wasthe total cost of litigation brought against our US operations. Adjusteddiluted earnings per share for the six months ended 30 September 2004 are statedbefore 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. REVIEW OF OPERATING PERFORMANCE Revenue Group revenue increased 17.6% to £711.1 million, or 17.4% at a constant exchangerate, from £604.6 million for the same period last year. Group revenue wouldhave increased 11.0% without the £40.0 million of revenue contributed byTransWestern, which was acquired on 15 July 2005. UK operations UK revenue increased 5.0% to £341.2 million. This was driven by 56.7% growthfrom Yell.com to £25.7 million and a strong performance, particularly in thefirst quarter, from printed directories, with growth of 1.7% to £305.9 million.The effect of RPI-6% was to reduce Yellow Pages rate card prices by an averageof 2.9%. The total number of unique print advertisers dropped 3.9% to 244,000 reflectingincreased competition and the decline in retention to 74% from 75% for the sameperiod last year. This decline was offset by a 6.2% growth in average revenueper unique advertiser to £1,256. This growth resulted from both the slightlyhigher retention of higher value advertisers and new customers spending more. Yell.com's revenue growth rate accelerated to 56.7%. Recognised revenue peraverage searchable advertiser increased 17.1% following the introduction ofhigher prices to reflect increased value for advertisers. Searchableadvertisers at the end of the period were 31.4% higher than last year at159,000. We expect at least 3% UK revenue growth for the current year. US operations Total US revenue grew 32.3% to £369.9 million, or 31.9% at a constant exchangerate. This included £40.0 million from the acquisition of TransWestern whichwe completed on 15 July 2005. Excluding the new advertisers from TransWestern, Yellow Book increased uniqueadvertisers by 7.1% to 255,000 and average revenue per unique advertiser by10.0% to $2,346. Retention was slightly lower at 71% from 72% for the sameperiod last year. Organic revenue growth was 19.4%. Same-market growth was 9.7%, contributing9.0% to the organic growth. The particularly extensive new launch programme of22 directories also contributed 10.4%. Revenue growth was offset by a 2.3% decrease in revenue, primarily arising fromrescheduling publications to later periods of the current year as we continue torebalance production. The TransWestern acquisition added 14.1% to US revenue growth, with othersmaller acquisitions adding a further 0.7%. We are making excellent progress in the early stages of integrating TransWesterninto Yellow Book. However, the TransWestern revenue in the period from 15 Julyto 30 September 2005 was almost entirely the result of sales made prior to theacquisition by the Yell Group, and these results do not yet reflect the expectedfuture benefit of integration with the Yellow Book sales organisation. We are confident that full year organic growth in US revenue will be at least inline with expectations of 12%. Adjusted EBITDA Group adjusted EBITDA increased by 15.8% to £232.9 million, or 15.6% at aconstant exchange rate. The Group adjusted EBITDA margin decreased 0.5percentage points to 32.8%, reflecting the expected decline in the UK printeddirectories margin. Adjusted EBITDA for the six months ended 30 September 2005is stated before exceptional costs of £2.4 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 3.4% to £132.4 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 £10.9 million from £4.8 million in the same period last year.The overall UK adjusted EBITDA margin was 38.8%, compared with 39.4% in thesame period last year, reflecting continued investment in the increasinglycompetitive market and the reduction of Yellow Pages rate card prices. Webelieve the EBITDA margin at the year end will be in line with expectations. In the US, strong revenue growth and operational leverage resulted in 37.5%growth in adjusted EBITDA to £100.5 million, a 36.9% increase at a constantexchange rate. The US adjusted EBITDA margin increased from 26.1% to 27.2%.This growth was slightly lower than in the first quarter due to the phasing ofinvestment in advertising and promotion. While we plan further investment inthe US operations we still expect an annual increase of around 200 basis pointsin EBITDA margin for the full year. Pension deficit The tri-annual actuarial valuation of the Yell Pension Plan has been agreed as adeficit of £64.8 million at 5 April 2005. We intend to make a payment of £64.8million to the Plan in order to repair this deficit within the next threemonths. We intend in the future to increase our annual contributions so as tosustain a fully funded position on an actuarially determined basis. In the USwe have a 401 (k) plan where benefits paid out are determined by contributionsmade by the employee. A deficit of £101.2 million is presented at 30 September 2005 using theassumptions required by IAS 19, which are more conservative than those used inactuarial valuations like the one mentioned above. Cash flow and net debt The Group converted 91.3% of adjusted EBITDA to cash, as compared to 84.8% lastyear. Group operating cash flow increased 24.7% to £212.7 million, or 24.4% ata constant exchange rate. We expect year end cash conversion to be around 75%as a result of the planned investment in working capital to bring TransWestern'spayment terms in line with Yellow Book's. This does not take into account thepension deficit repair described above. Six months Six months ended ended 30 September 30 September 2004 2005 £m £m Cash generated from operations 170.3 219.5 Cash payments of exceptional items 9.0 3.0Purchase of tangible fixed assets, net of sale (8.7) (9.8)proceedsOperating cash flow 170.6 212.7 Adjusted EBITDA 201.2 232.9 Cash conversion 84.8% 91.3% We expect our net tax payments for the full year to be around 40% of our taxexpense. Net tax payments will be unusually low because of tax benefitsacquired with TransWestern, the continued use of tax losses in the US and theplanned pension deficit repair. We also received tax refunds in the period foramounts that we overpaid in previous years. Free cash flow (cash generated from operations (£219.5 million) less netinterest and tax payments (£44.0 million) and less the purchase of fixed assets(£9.8 million)) generated during the six months was £165.7 million. Net debt at £1,952.1 million, which was up £846.0 million from 31 March 2005,represented a multiple of 4.2 times adjusted EBITDA on a pro forma basis(as ifTransWestern had been part of the Group for the entire period) for the last 12months. On 15 July 2005 we successfully syndicated a new £2 billion credit facility tofund the acquisition of TransWestern and to refinance the entire £876.7 millionof bank debt that existed at that date. Our senior notes remain unaffected.The movement in net debt for the six months ended 30 September 2005 arose asfollows: Net debt £m At 31 March 2005 1,106.1Free cash flow (165.7)Purchase of subsidiary undertakings 910.0Dividends paid to shareholders 58.9Net finance costs increasing debt 20.2Currency movements 22.6At 30 September 2005 1,952.1 Based on the enlarged group's strong cash generation, and including the pensiondeficit repair, we expect our net debt to be just over four times our pro formaEBITDA by 31 March 2006. NET RESULTS After tax results and exceptional items Profit after tax for the financial period ended 30 September 2005 was £103.4million, compared with a profit after tax for the financial period last year of£87.5 million. The effective tax rate in the six month period ended 30September 2005 was 33.7%. Adjusted profit after tax for the financial period of £109.3 million is statedbefore exceptional items net of tax and amortisation net of tax. Exceptionalitems include costs of £2.4 million (£1.5 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 £6.9 million (£4.2 million net of tax). Earnings and dividend per share Diluted earnings per share were 15.4 pence before exceptional items andamortisation; an increase of 14.9% from last year. We are adding backamortisation net of tax in accordance with current best practice. As a resultof this, last year's adjusted diluted earnings per share for the half year are13.4 pence and for the full year are 26.2 pence, compared to 13.9 pence and 27.0pence, respectively, when adding back gross amortisation. Basic earnings per share before exceptional items and amortisation were 15.5pence, as compared to 13.6 pence last year before exceptional items. The Board has declared a 21% increase in the interim dividend to 5.1 pence pershare, and this is expected to account for one third of the full year dividend. The ex-dividend date will be 16 November 2005 and the interim dividend will bepaid on 16 December 2005 to shareholders registered on 18 November 2005. UK REGULATION We have contributed fully to the investigation of "classified directoriesadvertising services" by the Competition Commission. The Competition Commission issued a revised timetable on 25 October 2005,lengthening the process by approximately six to eight weeks. The nextpublication, the Notification of Emerging Thinking, is now expected in January2006 and the publication of the final report is expected in August 2006. The Statement of Issues was published in August 2005 setting out the issues theCommission is considering in the Investigation. This statement, the revisedtimetable, the initial submissions from all parties and other relatedinformation can be found on the Commission's website atwww.competition-commission.org.uk. KEY OPERATIONAL INFORMATION Unaudited Six months ended 30 September 2004 2005 ChangeUK printed directoriesUnique advertisers (thousands) (a) 254 244 (3.9%)Directory editions published 55 57Unique advertiser retention rate (%) (b) 75 74Revenue per unique advertiser (£) 1,183 1,256 6.2% US printed directories (Yellow Book)Unique advertisers (thousands) (a) (c) 238 255 7.1%Directory editions published 259 271Unique advertiser retention rate (%) (c) 72 71Revenue per unique advertiser ($) 2,133 2,346 10.0% US printed directories (TransWestern)Unique advertisers (thousands) (a) (c) - 39Directory editions published - 58Unique advertiser retention rate (%) (c) - 70Revenue per unique advertiser ($) - 1,827 Other UK products and servicesYell.com searchable advertisers at 30 September (thousands)(d) 121 159 31.4%Yell.com searches for September (millions) 16 25 56.3%Yell.com revenue per average searchable 146 171 17.1% advertiser (£)(e) (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 sixmonths ended 30 September 2004 for any duplicated records in that period. Thereremains some overlap in reporting unique advertisers between Yellow Book andacquired businesses that we expect to be removed. These improvements to oursystems have not affected the reporting of our financial results. Retention inthe US is based 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 six month period by theaverage number of Yell.com searchable advertisers (2004 - 112,000; 2005 -150,000) in that period. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED INCOME STATEMENT Six months end 30 September 2004 2005 Notes £m £m Revenue 2 604.6 711.1 Cost of sales (271.6) (324.4) Gross profit 333.0 386.7 Distribution costs (17.7) (21.8) Administrative expenses 4 (141.3) (147.9) Operating profit 3 174.0 217.0 Finance costs (48.3) (62.4) Finance income 0.6 1.3 Net finance costs 4 (47.7) (61.1) Profit on ordinary activities before 126.3 155.9 taxation Taxation 5 (38.8) (52.5) Profit for the financial period 4 87.5 103.4 (in pence) (in pence) Basic earnings per share 7 12.5 14.7 Diluted earnings per share 7 12.3 14.5 (£m) (£m) Declared interim ordinary dividend of 29.5 35.9 5.1 pence per share (2004 - 4.2 pence) See notes to the financial information for additional details. UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months ended 30 September 2004 2005 £m £m Profit for the financial period 87.5 103.4 Exchange differences on translation of foreign 7.8 operations 35.0 Initial recognition of financial instruments used - as hedges (2.9) Changes in retirement benefit obligations - (5.0) Change in recorded value of financial instruments - used as hedges 4.7 Tax effect of net losses not recognised - in the income statement 1.6 Tax benefit (reversing) arising on unexercised (0.9) stock options 1.0 Net gains not recognised 6.9 in the income statement 34.4 Total recognised income for the period 94.4 137.8 See notes to the financial information for additional details. UNAUDITED CONSOLIDATED CASH FLOW STATEMENT Six months ended 30 September 2004 2005 £m £m Net cash inflow from operating activities Cash generated from operations 170.3 219.5 Interest paid (38.9) (46.2) Interest received 0.5 1.3 Net income tax (paid) refunded (14.8) 0.9 Net cash inflow from operating 117.1 175.5 activities Cash flows from investing activities Purchase of tangible fixed assets 8 (8.7) (9.8) Purchase of subsidiary 9 - (910.0) undertakings Net cash used in investing activities (8.7) (919.8) Cash flows from financing activities Proceeds from issuance of ordinary shares 1.2 0.2 Purchase of own shares - (0.2) Acquisition of new loans - 1,676.0 Repayment of borrowings (45.0) (883.9) Financing fees paid - (13.3) Dividends paid to company's shareholders (41.8) (58.9) Net cash (used in) provided by financing activities (85.6) 719.9 Net increase (decrease) in cash and cash equivalents 22.8 (24.4) Cash and cash equivalents at beginning of the period 18.7 55.5 Exchange gains on cash and cash equivalents 0.5 4.0 Cash and cash equivalents at end of the period 42.0 35.1 Cash generated from operations Profit for the period 87.5 103.4 Adjustments for: Tax 38.8 52.5 Depreciation of tangible fixed assets and 11.5 11.6 amortisation of software costs Amortisation of other intangible assets - 6.9 Goodwill adjustment arising from previously unrecognised tax benefits acquired 2.9 - Interest income (0.5) (1.3) Interest expense 48.2 54.6 Total exceptional items - 5.2 Changes in working capital: Inventories and directories in development (27.1) (19.5) Trade and other receivables (2.9) 8.9 Trade and other payables 9.3 (4.6) Other 2.6 1.8 Cash generated from operations 170.3 219.5 See notes to the financial information for additional details. UNAUDITED CONSOLIDATED BALANCE SHEET At At 31 March 30 September Notes 2005 2005 £m £m Non current assets Goodwill 1,706.0 2,424.7 Other intangible assets - 201.6 Property, plant and equipment 40.1 39.2 Deferred tax assets 10 97.1 123.7 Other assets 2.0 6.8 Total non current assets 1,845.2 2,796.0 Current assets Inventories 7.5 9.1 Directories in development 165.1 216.4 Trade and other receivables 11 451.3 516.2 Cash and cash equivalents 55.5 35.1 Total current assets 679.4 776.8 Current liabilities Loans and other borrowings 12 (91.3) (235.7) Corporation tax (28.2) (60.3) Trade and other payables 13 (258.8) (328.1) Total current liabilities (378.3) (624.1) Net current assets 301.1 152.7 Total assets less current liabilities 2,146.3 2,948.7 Non-current liabilities Loans and other borrowings 12 (1,070.3) (1,751.5) Deferred tax liabilities 14 (51.3) (86.6) Retirement benefit obligations 15 (99.7) (101.2) Net assets 925.0 1,009.4 Capital and reserves Called up share capital 16 7.0 7.1 Share premium account 16 1,191.0 1,202.3 Foreign currency reserve 16 (116.2) (81.2) Profit and loss account deficit 16 (156.8) (118.8) Equity shareholders' funds 925.0 1,009.4 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 publishingclassified advertising directories in the United Kingdom and the United States. This unaudited financial information for the six months to 30 September 2005 hasbeen prepared in accordance with the Group's International Financial ReportingStandards ("IFRS") accounting policies as set out in our conversion statementsfor the periods ended 31 March 2005. These accounting policies are the policieswe expect to apply in our financial statements for the year ended 31 March 2006,which will be prepared in accordance with IFRS. In preparing the financial information we used our best knowledge of theexpected standards and interpretations, facts and circumstances and accountingpolicies that will be applicable at 31 March 2006. These may change before 31March 2006. The expected standards and interpretations are subject to ongoingreview by the European Union, and the International Accounting Standards Boardmay issue amended or additional standards or interpretations. Therefore, untilwe prepare our first full IFRS financial statements, the possibility cannot beexcluded that the accompanying financial information may have to be adjusted. The amounts presented for the six months ended 30 September 2004 and at 30September 2004 and 31 March 2005 have been restated from the amounts previouslypresented under UK GAAP. Details can be obtained from the IFRS conversionstatements published on 13 June 2005 on our website. 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 deferred tax assets and deferred tax liabilitiesby £4.5 million and increased the share premium account and profit and lossdeficit by £0.3 million. 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 published for the six month period ended 30 September2004 and for the year ended 31 March 2005 would have been 13.4 pence and 26.2pence, respectively, under the new methodology. All changes are presentationalin nature and do not affect the previously reported results or cash flows. 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. The consolidated results for interim periods are not necessarily indicative ofresults for the full year. This financial information should be read inconjunction with Yell's 2005 annual report published in June 2005, whichincludes the audited consolidated financial statements of Yell Group Plc and itssubsidiaries for the year ended 31 March 2005. 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 Six months ended 30 September Change 2004 2005 % £m £m UK printed directories 300.9 305.9 1.7% Other products and services 24.1 35.3 46.5% Total UK revenue 325.0 341.2 5.0% US printed directories: US printed directories at constant exchange rate (a) 279.6 368.9 31.9% Exchange impact (a) - 1.0 Total US revenue 279.6 369.9 32.3% Group revenue 604.6 711.1 17.6% (a) Constant exchange rate states current period results at the sameexchange rate as that used to translate the results for the same period in theprevious year. Exchange impact is the difference between the results reportedat a constant exchange rate and the actual results using current period exchangerates. 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 Six months Change ended 30 September 2004 2005 % £m £m UK printed directories 121.1 117.2 (3.2%) Other products and services 7.0 15.2 117.1% Total UK operations 128.1 132.4 3.4% US operations: US printed directories at constant exchange rate (a) 73.1 100.1 36.9% Exchange impact (a) - 0.4 Total US operations 73.1 100.5 37.5% Group adjusted EBITDA 201.2 232.9 15.8% Reconciliation of group operating profit to EBITDA (a) Six months ended 30 September Change 2004 2005 % £m £mUK operationsOperating profit 122.2 131.8Depreciation and amortisation of fixedassets 5.9 5.6UK operations EBITDA 128.1 137.4 7.3%Exceptional items - (5.0)UK operations adjusted EBITDA 128.1 132.4 3.4%UK operations adjusted EBITDA margin 39.4% 38.8% US operationsOperating profit 51.8 85.2Depreciation and amortisation of fixedassets 8.5 12.9US operations EBITDA 60.3 98.1 62.7%Exceptional items 12.8 2.4Exchange impact (b) - (0.4)US operations adjusted EBITDA at 73.1 100.1 36.9%constant exchange rate (b)Exchange impact (b) - 0.4US operations adjusted EBITDA 73.1 100.5 37.5%US operations adjusted EBITDA margin 26.1% 27.2% GroupOperating profit 174.0 217.0Depreciation and amortisation of fixedassets 14.4 18.5Group EBITDA 188.4 235.5 25.0%Exceptional items 12.8 (2.6)Exchange impact (b) - (0.4)Group adjusted EBITDA at constant 201.2 232.5 15.6%exchange rate (b)Exchange impact (b) - 0.4Group adjusted EBITDA 201.2 232.9 15.8% Group adjusted EBITDA margin 33.3% 32.8% (a) EBITDA is one of the key financial measures that we use to assess thegrowth in the business and operational efficiencies. (b) Constant exchange rate states current period results at the sameexchange rate as that used to translate the results for the same period in theprevious year. Exchange impact is the difference between the results reportedat a constant exchange rate and the actual results reported using current periodexchange rates. We do not allocate interest or taxation charges by product or geographicsegment. 4. Results before and after exceptional items Six months ended 30 September 2004 2005 Ordinary Exceptional Total Ordinary Exceptional Total items items items items £m £m £m £m £m £mGross profit 333.0 - 333.0 386.7 - 386.7Distribution costs (17.7) - (17.7) (21.8) - (21.8)Administrative expenses (128.5) (12.8) (141.3) (150.5) 2.6 (147.9)Operating profit 186.8 (12.8) 174.0 214.4 2.6 217.0Net finance costs (47.7) - (47.7) (53.3) (7.8) (61.1)Profit (loss) beforetaxation 139.1 (12.8) 126.3 161.1 (5.2) 155.9Taxation (43.6) 4.8 (38.8) (56.0) 3.5 (52.5)Profit (loss) for theperiod 95.5 (8.0) 87.5 105.1 (1.7) 103.4 The exceptional items for the six months ended 30 September 2005 includerestructuring and other costs of £2.4 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 six months ended 30September 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 six months ended 30September 2004 are costs relating to litigation brought against our USoperations (see note 18). 5. Taxation The tax charge is based on the estimated effective tax rate for the year. Theeffective tax rate for the six month period is different from the standard rateof corporation tax in the United Kingdom (30%) as explained below: Six months ended 30 September 2004 2005 £m £mProfit on ordinary activities before taxation multiplied by thestandard rate of corporation tax in the United Kingdom (30%) 41.7 48.3Effects of:Higher tax rates in US 4.1 6.8Other disallowable expenses 0.7 0.9Previously unrecognised US tax losses recognised in period (2.9) -Tax charge on ordinary profit before tax 43.6 56.0Net tax benefit on exceptional items (4.8) (3.5)Net charge on profit before tax 38.8 52.5 UK Corporation tax 32.9 30.7Overseas income tax 5.9 21.8Net charge on profit before tax 38.8 52.5 6. Interim dividend The interim dividend of 5.1 pence per share (2004 - 4.2 pence per share) ispayable on 16 December 2005 to shareholders registered at the close of businesson 18 November 2005 and will amount to £35.9 million (2004 - £29.5 million). The accounting for the announced interim dividend is in compliance with IFRS,which stipulates that the liability for the dividend payment is not recordeduntil the period in which it is approved. Accordingly, the interim dividend hasnot been recorded as a liability in this financial information. 7. 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. Exceptional items, Amortisation, Actual net of tax a net of tax b AdjustedSix months ended 30 September 2005Group profit after tax (£m) 103.4 1.7 4.2 109.3Weighted average number of issued ordinary shares 704.4 704.4(millions)Basic earnings per share (pence) 14.7 15.5Effect of share options (pence) (0.2) (0.1)Diluted earnings per share (pence) 14.5 15.4 Six months ended 30 September 2004Group profit after tax (£m) 87.5 8.0 - 95.5Weighted average number of issued ordinary shares 699.8 699.8(millions)Basic earnings per share (pence) 12.5 13.6Effect of share options (pence) (0.2) (0.2)Diluted earnings per share (pence) 12.3 13.4 a Exceptional items are explained in note 4. b Amortisation of £6.9 million in 2005 arose from acquisitions inthe period and is added back net of £2.7 million for tax. A goodwill charge of£2.9 million in 2004 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. 8. Capital Expenditure Capital expenditure on tangible fixed assets in the six months to September 2005and 2004 was £9.8 million and £8.7 million, respectively. Proceeds on the saleof tangible fixed assets were £nil million in the same periods. Capital expenditure committed at 30 September 2005 and 2004 was £5.9 million and£5.8 million, respectively, in respect of computers and office equipment. 9. Acquisitions In the six months to 30 September 2005, the Yell Group acquired a number ofdirectories businesses in the US for consideration totalling $1,611.1 million(£918.6 million). The purchases were accounted for as acquisitions. Thelargest acquisition was that of TransWestern Publishing on 15 July 2005 for apurchase price of $1,573.8 million (£897.6 million) plus expenses of $21.5million (£12.3 million). The purchase price of TransWestern was allocated tothe acquired assets and liabilities as follows: Acquiree's Debt and other carrying Fair value liabilities Provisional amount adjustments extinguished fair value £m £m £m £m Fixed 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 fixed 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 £5.6 millionin the period from the date of acquisition to 30 September 2005. The results ofTransWestern increased group results before amortisation, exceptional costs andtax by £3.2 million in the period from the date of acquisition to 30 September2005. The consolidated financial information of the Yell Group includes aconsolidation of the financial results of TransWestern for the 78 days ended 30September 2005. The unaudited condensed pro forma financial information for theYell Group, estimated as if TransWestern was purchased on 1 April 2004, for thesix months ended 30 September 2004 and 2005 is as follows: Six months ended 30 September 2004 2005 £m £m Group revenue 700.4 770.7 Profit for the period 86.4 109.4 We also made other acquisitions in the half year that are not consideredmaterial for presentation in the above pro forma table. We paid cash of $15.8million (£8.7 million) to acquire net liabilities with a fair value totalling$0.4 million (£0.2 million) giving rise to additional goodwill of $12.8 million(£7.0 million) and other intangible assets of $3.4 million (£1.9 million).These acquisitions have contributed revenue of £0.3 million in the period fromthe dates of acquisition to 30 September 2005. Six months ended 30 September 2005 £mTotal cost of acquisitions 918.6Costs accrued at 30 September 2005 (7.5)Cash paid 911.1Less cash acquired (1.1)Net cash outflow in period 910.0 10. Deferred tax assets The elements of deferred tax assets recognised in the accounts were as follows: At At 31 March 30 September 2005 2005 £m £mTax effect of timing differences due to:Retirement benefit obligations 29.9 30.4Bad debt provisions 25.1 28.3Net operating losses 20.9 20.4Deferred revenue - 15.5Depreciation 9.2 9.2Unrealised benefit on unexercised stock options 6.5 7.4Accrued expenses and other items 5.5 12.5Recognised deferred tax assets 97.1 123.7 11. Trade and other receivables At At 31 March 30 September 2005 2005 £m £mTrade receivables 429.3 475.1Other receivables 8.1 16.1Accrued income 4.7 0.9Prepayments 9.2 24.1Total trade and other receivables 451.3 516.2 12. Loans and other borrowings and net debt At At 31 March 2005 30 September (a) 2005 (a) £m £mAmounts falling due within one yearSenior credit facilities 90.0 234.2Net obligations under finance leases 1.3 1.5Total amounts falling due within one year 91.3 235.7Amounts falling due after more than one year Senior credit facilities 761.0 1,423.7Senior notes:Senior sterling notes 159.8 160.8Senior dollar notes 67.4 72.7Senior discount dollar notes 82.1 94.3Total amounts falling due after more than one year 1,070.3 1,751.5 Net loans and other borrowings 1,161.6 1,987.2Cash and cash equivalents (55.5) (35.1)Net debt at end of period 1,106.1 1,952.1 (a) Balances are shown net of deferred financing fees of £12.9 million at30 September 2005 and £14.0 million at 31 March 2005. 13. Trade and other payables At At 31 March 30 September 2005 2005 £m £mTrade payables 22.9 18.2Other taxation and social security 23.1 22.9Other liabilities 4.3 18.2Accruals 117.0 121.1Deferred income 91.5 147.7Total trade and other payables falling due within one year 258.8 328.114. Deferred tax liabilities The elements of deferred tax liabilities recognised in the accounts were asfollows: At At 31 March 30 September 2005 2005 £m £mThe effect of timing differences due to:Amortisation 25.5 38.8Directories in development 25.8 32.3Acquired intangible assets - 15.5Recognised deferred tax liabilities 51.3 86.6 15. Retirement benefit obligations The £1.5 million increase in retirement benefit obligations from £99.7 millionat the year end to £101.2 million at 30 September 2005 is the net result oftotal charges of £9.7 million in the Income Statement and the estimated deficitincrease of £5.0 million within the Statement of Recognised Income and Expense,offset by total cash contributions of £13.2 million. The £5.0 million estimatedincrease in deficit reflects an increase in liabilities arising from a change inthe reference market rate to which the discount rate is tied, net of actuarialgains, and takes into account changes in asset values by reference to relevantmarket indices. 16. Changes in equity shareholders' funds Foreign Profit and Share Share currency 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 - - - 103.4 103.4activities after taxationDividends - - - (58.9) (58.9)Ordinary share issue 0.1 11.3 - (10.0) 1.4Capital Accumulation Plan - - - 4.1 4.1and other share schemes(a)Currency movements - - 35.0 - 35.0Net losses not recognised in - - - (0.6) (0.6)income statementBalance at 30 September 2005 7.1 1,202.3 (81.2) (118.8) 1,009.4 (a) Amortisation of the costs incurred in buying shares held in an ESOPtrust for employees. 17. United States Generally Accepted Accounting Principles Our consolidated financial information is prepared in accordance with theGroup's accounting policies under International Financial Reporting Standards("IFRS") as set out in our conversion statements for the periods ended 31 March2005, which differ in certain respects from those applicable in the UnitedStates ("US GAAP"). Differences result primarily from acquisition accounting. Under IFRS,acquisitions before 1 April 2004 are accounted for on a frozen GAAP basis, underwhich other intangible assets have not been recorded. Recording these otherintangible assets would have affected the accounting for directories indevelopment, goodwill and other intangibles and taxation. The measurement ofthe value of intangible assets acquired since 1 April 2004 cannot include thevalue of tax benefits under IFRS. Under US GAAP, other intangible assets havebeen recorded at a fair value that includes the tax benefits and have beenamortised since the date of acquisition, regardless of when the acquisition wascompleted. Other differences between IFRS and US GAAP arise from when certain costsassociated with directories in development, interest that is fixed by derivativefinancial instruments, and deferred tax assets associated with net operatinglosses in the United States can be recognised. Differences in accounting for pensions arise from the use of different actuarialmethods and from a difference in the timing of when actuarial gains and lossesare recognised. Dividends are recorded, under IFRS, in the period in which they are approved bythe board of directors or shareholders. Under US GAAP, dividends are recordedin the period in which they are declared. The following information summarises estimated adjustments, gross of their taxeffect, which reconcile profit for the financial period and shareholders' fundsfrom that reported under IFRS to that which would have been recorded had US GAAPbeen applied. Net profit Six months ended 30 September 2004 2005 £m £m Profit for the financial period under IFRS 87.5 103.4 Adjustment for: Directories in development -Deferred costs (11.5) (13.7) -Acquisition accounting (4.0) (11.3) Pensions (3.7) (7.5) Other intangible assets (36.4) (28.5) Derivative financial instruments 3.4 (2.9) Employee incentive plans 1.6 - Deferred taxation 27.0 21.8 Other (0.2) (1.5) Profit for the financial period adjusted for US GAAP 63.7 59.8 17. United States Generally Accepted Accounting Principles (continued) Equity shareholders' funds At At 31 March 30 September 2005 2005 £m £m Equity shareholders' funds under IFRS 925.0 1,009.4 Adjustment for: Directories in progress (115.6) (146.6) Pensions 94.9 101.2 Additional minimum pension liability (59.0) (59.0) Goodwill (542.9) (451.4) Other intangible assets 671.9 699.4 Derivative financial instruments 2.9 - Deferred taxation (164.0) (290.8) Other 1.7 -Equity shareholders' funds adjusted for US GAAP 814.9 862.2 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 USstates and the District of Columbia. In these actions, the plaintiffs allegeviolations 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 provided for the estimated costs in the yearended 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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