22nd May 2007 07:02
Yell Group plc22 May 2007 Yell Group plc financial results for the year ended 31 March 2007 Strong 2007 results in line with expectations. Rapid online growth. 2008 prospects good despite increased US competition • Revenue up 28.0% to £2,075.1 million o Up 32.6% at constant exchange rate o Up 6.8% excluding acquisitions at constant exchange rate• Adjusted EBITDA up 34.7% to £677.5 million o Up 39.3% at constant exchange rate• Adjusted profit after tax and minority interests up 18.4% to £276.6 million• Adjusted diluted earnings per share up 8.2% to 35.5 pence o Up 13.1% at constant exchange rate and excluding the effect of issuing shares in advance of the Yell Publicidad acquisition.• Operating cash flow up 21.2% to £541.6 million o Cash conversion 79.9% (2006 - 88.9%)• Proposed final dividend up 11.8% to 11.4 pence per share Year ended 31 March Statutory results (unaudited) 2006 2007 Change £m £m % Revenue 1,621.3 2,075.1 28.0 EBITDA * 503.5 668.6 32.8 Profit after tax and minority interests 212.3 212.7 0.2 Cash generated from operations 411.5 585.2 42.2 Diluted earnings per share (pence) 29.7 27.3 (8.1) * EBITDA is reconciled to operating profit in note 3 to the financial information on page 18 John Condron, Chief Executive Officer, said: "These are good results, with rapid growth in our UK and US online businesses,demonstrating the continuing effectiveness of our channel-neutral approach. "We are in a strong position to deal with the challenges of the 2008 financialyear, particularly in the US where we are refocusing our sales effort on theheightened competition which we reported in April. In the UK, we are takingfull advantage of the opportunity to drive future volume growth as we beginmarketing and selling under more even-handed regulation. Integration in Spainis progressing very well with a vigorous adoption of "Back to Basics" inproducts and sales. We are confident that our Win, Keep and Grow strategy andthe investment in our brands will drive continued profitable growth." John Davis, Chief Financial Officer, said: "These results are in line with expectations and continue to demonstrate Yell'sstrong financial characteristics including good growth, high margins and strongcash generation. The 11.8% increase in the dividend is in line with underlyingearnings growth and reflects our confidence in Yell's overall future financialperformance in spite of increased competition in the US." Enquiries Yell - InvestorsJill SherrattTel +44 (0)118 950 6984Mobile +44 (0)7764 879808 Yell - MediaJon SalmonTel +44 (0)118 950 6656Mobile +44 (0)7801 977340 Citigate Dewe RogersonAnthony 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" in Yell Group plc's 31 March 2006 annualreport for a discussion of some of these factors. We undertake no obligationpublicly to update or revise any forward-looking statements, except as may berequired 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 2006 2007 Change rate (a) £m £m % % Revenue (b) 1,621.3 2,075.1 28.0 32.6Adjusted EBITDA (b) (c) 502.9 677.5 34.7 39.3 Operating cash flow (b) (d) 447.0 541.6 21.2 24.2Cash conversion (b) (e) 88.9% 79.9% Adjusted profit after tax and minority interests(f) 233.6 276.6 18.4 Adjusted diluted earnings per share (pence)(f) 32.8p 35.5p 8.2 (a) 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. (b) Revenue, adjusted EBITDA, operating cash flow and cash conversion arethe key financial measures that we use to assess the growth in the business andoperational efficiencies. (c) Adjusted EBITDA in the year ended 31 March 2007 is stated beforeexceptional costs of £4.4 million arising from post acquisition restructuring ofYell Publicidad operations, and £4.5 million arising from post acquisitionrestructuring at Yellow Book USA. Adjusted EBITDA for the year ended 31 March2006 is stated before exceptional costs of £4.4 million arising from theTransWestern acquisition, and an exceptional credit of £5.0 million fromreleasing a provision for IPO costs. (d) Cash generated from operations before payments of exceptional costs,less capital expenditure. (e) Operating cash flow as a percentage of adjusted EBITDA. (f) Adjusted profit after tax and adjusted diluted earnings per shareare stated before exceptional items and amortisation of acquired intangibles,all net of related tax. A reconciliation to the related statutory figures ispresented in note 6 to the financial information. REVIEW OF OPERATING PERFORMANCE Group Group revenue increased 28.0% to £2,075.1 million, or 32.6% at a constantexchange rate, from £1,621.3 million last year. Growth, excluding the revenuefrom acquired directories publishing for the first time, was 6.8% at a constantexchange rate. Group adjusted EBITDA increased by 34.7% to £677.5 million, or 39.3% at aconstant exchange rate. Adjusted EBITDA in the year ended 31 March 2007 isstated before exceptional items of £8.9 million relating to post-acquisitionrestructuring costs. The Group adjusted EBITDA margin of 32.6% is up on 31.0%in the previous year. Operating cash flow increased 21.2% to £541.6 million, or 24.2% at a constantexchange rate, resulting in conversion of 79.9% of adjusted EBITDA to cash.Free cash flow was £252.2 million before costs of £69.2 million arising onrefinancing in the first quarter and exceptional items of £2.1 million. Looking forward to the 2008 financial year, we expect overall Group revenuegrowth of around 9% of which around 4% is organic. We expect to maintain Groupadjusted EBITDA margins around the 2007 financial year level. While underlying first quarter trading will be in line with guidance for thefull year, earnings in the first quarter of the 2008 financial year will besignificantly diluted by the rephasing of expenditure into that quarter in theUK; by rescheduling of US directories from that quarter into later quarters; andthe consolidation of Yell Publicidad's seasonally low first quarter revenue forthe first time against the full run-rate of financing for the acquisition. Wealso expect the currently weaker US dollar to affect the first quarter results. Yell UK operations UK revenue increased 3.0% to £719.9 million driven entirely by a 61.0% increasein revenue by Yell.com, which more than offsets a 3.1% decline in print. Totalunique customers live at 31 March declined by 1.4% to 492,000, reflecting adecrease in print-only advertisers partly offset by those advertising onYell.com only. Revenue from UK printed directories was 3.1% lower at £600.5 million, as thetotal number of unique print advertisers declined by 2.6% to 450,000, largely asa result of competition, with retention stable at 75%. Average revenue perunique advertiser was 0.4% lower than last year at £1,335. The effect of ourregulatory undertaking of RPI-6% was to reduce Yellow Pages rate card prices byan average of 2.8% during the year and restricted our ability to competeeffectively through innovative marketing initiatives. Yell.com's revenue grew 61.0% to £95.9 million, driven by a 37.0% increase inrecognised revenue per average searchable advertiser achieved mainly throughup-sell to higher value products. Searchable advertisers at 31 March grew 12.6%to 196,000 and unique users grew 11.8% to 7.6 million in the month of Marchcompared with last year. Adjusted EBITDA grew 3.4% to £252.9 million, reflecting a margin of 35.1%, inline with last year. We expect that the considerable potential benefits of the new rate cap of RPI-0%(which replaces the current RPI-6%) along with other relaxations in theregulation of Yellow Pages directories will be felt in the 2009 financial year.However, marketing and sales under the new regulatory undertakings commenceduring the 2008 financial year. We expect to use our greater marketing freedomsto ensure we expand the benefits of advertising in our products and so increasevolumes. We expect revenue to grow at around 3% in the 2008 financial year, entirelydriven by Yell.com, with stable margins. Yellow Book USA operations US revenue grew 10.0% to £1,014.3 million, or 18.1% at a constant exchange rate.The effective exchange rate was approximately $1.90: £1.00 against $1.77: £1.00last year. Organic revenue growth contributed 9.8% to the total revenue growth of 18.1%,comprising 5.0% from print same market growth, 3.2% from directory launches, and1.6% from internet revenue. Revenue from directories publishing for the firsttime since acquisition, mainly TransWestern, contributed $136.0 million or 8.3%to the total revenue growth. In printed directories, Yellow Book increased unique advertisers by 41.5% to692,000, the majority arising from the acquisition of TransWestern. Averagerevenue per unique advertiser was slightly up at $2,694 and retention wasslightly down at 69%. Yellowbook.com revenue grew 62.4% to $68.7 million, driven by a 44.7% increasein revenue per average searchable advertiser from $123 to $178. Our uniquevisitor numbers grew from 2.4 million to 6.1 million in March 2007. Searchableadvertisers decreased 2.8% as we integrated TransWestern. Adjusted EBITDA grew 14.9% to £296.8 million, a 23.7% increase at a constantexchange rate. The adjusted EBITDA margin increased from 28.0% to 29.3%. As announced in April, we have recently seen a significant increase incompetitive pressures in the US market. There has been a marked increase in thenumbers of directories launched, both by incumbents, particularly companiondirectories, and independents; and we believe that the incumbents have putpricing programmes in place to become more competitive. We are addressing thecompetitive forces as rapidly as they arise through our products and our sales. The increased competition means that we expect around 3% organic growth for the2008 financial year driven by launches and internet. In addition, we expectaround $20 million revenue from the publication of directories already acquired.We expect margins to remain stable. Yell Publicidad operations Revenue for the eight months since we acquired Yell Publicidad, S.A. (formerlyTelefonica Publicidad e Informacion, S.A.) on 31 July 2006 was £340.9 million.The effective exchange rate was approximately €1.49: £1.00 during the eightmonths since acquisition. Printed directory revenue in Spain grew 0.8% on alike for like twelve month basis. Yell Publicidad adjusted EBITDA was £127.8 million in the eight months sinceacquisition and the margin was 37.5%, which reflects the weighting of directorypublications towards the second half of the year. The underlying margin overthe last twelve months was 34.0%. The integration of Yell Publicidad is progressing well with the adoption of ourBack to Basics approach. We have reinvested in usage with the first significantadvertising campaign for directories for many years, simplified the productrange and rate card and begun to refocus sales on Win, Keep and Grow. We have also made good progress in refocusing our portfolio of businessesincluding the disposal of operations in Brazil. We have consolidated ourposition in Argentina with the acquisition of the second major operator in thatmarket, giving us national coverage. The businesses that we expect will continue to be in our portfolio generatedrevenues of €650 million over the last twelve months. In the 2008 financialyear we expect growth of around 5% from these businesses, plus an additional €20million in revenue from the Argentine acquisition. We expect margins of around 37%, taking into account the disposal of low marginbusinesses. The early delivery of operational synergies will enable us toincrease investment and maintain margin improvement. CASH FLOW AND NET DEBT Operating cash flow increased 21.2% to £541.6 million, or 24.2% at a constantexchange rate. The Group converted 79.9% of adjusted EBITDA to cash, ascompared with 88.9% last year, which had benefited from the timing of workingcapital improvements. Year ended 31 March 2006 2007Unaudited £m £m Adjusted EBITDA 502.9 677.5 Exceptional items in administrative expenses 0.6 (8.9) Working capital movements and non-cash charges (27.2) (83.4) Pension deficit repair payment (64.8) - Cash generated from operations (see page 15) 411.5 585.2 Cash payments of exceptional items 3.6 2.1Pension deficit repair payment 64.8 -Purchase of property, plant and equipment (32.9) (45.7)Operating cash flow 447.0 541.6 Adjusted EBITDA 502.9 677.5 Cash conversion 88.9% 79.9% We expect to convert around 80%-85% of adjusted EBITDA to cash in the 2008financial year. The increase in net debt at 31 March 2007 to £3,662.6 million reflects thepurchase of Yell Publicidad, including £93.6 million to purchase shares fromminority shareholders on 30 March 2007 which brought our ownership of YellPublicidad to 98.72%. Net debt was 5.2 times adjusted EBITDA on a pro formabasis over the last twelve months, compared with 5.6 times at the date ofacquisition of Yell Publicidad. The movement in net debt for the year ended 31March 2007 arose as follows: Net debtUnaudited £m At 31 March 2006 1,994.0Operating cash flow (541.6)Cash payments of exceptional items 2.1Interest and tax payments, net of £46.7 million accreted interest settled by 289.4refinancingRedemption premiums paid 22.5Purchase of subsidiary undertakings, net of cash, plus debt acquired 2,298.0Net cash inflow on disposal of subsidiary (3.7)Purchase of own shares 11.5Proceeds of shares issued (355.1)Dividends paid 122.4Finance costs increasing debt 10.0Currency movements (186.9)At 31 March 2007 3,662.6 TAXATION Adjusted taxation of £138.3 million represents an effective rate of 33% onadjusted profit before tax of £418.6 million as compared to 34% last year. Thecash tax rate, our primary measure, was 19% of adjusted profit before tax. Thelower rate arises from the benefit of goodwill amortisation and small lossesbrought forward in the US but does not include any potential benefit fromamortisation of goodwill on the acquisition of Yell Publicidad. In the 2008 financial year, we expect an effective rate of circa 31% and a cashtax rate of around 20%, both on adjusted profit before tax. NET RESULTS AND EXCEPTIONAL ITEMS Adjusted profit after tax of £276.6 million was up 18.4% (after £3.7 millionattributable to minority interests in Yell Publicidad earnings). Adjusted diluted earnings per share were up 8.2% to 35.5 pence (see note 6 tothe financial information on page 20 for a reconciliation between statutory andadjusted figures). Underlying earnings per share were up 13.1% at a constantexchange rate and after adjusting for the timing of the share placing for theacquisition of Yell Publicidad in advance of the acquisition. Adjusted results are after exceptional items of £57.4 million before tax. Thisnon-recurring cost arose mainly on the refinancing of debt in the first quarter(£36.3 million), restructuring costs in Spain and the US (£14.7 million) and abook loss on the disposal of the Brazilian operation (£6.4 million). The taxbenefit on these exceptional items, coupled with a reduction in deferred taxfollowing the lowering of the Spanish corporation tax rate, resulted in anexceptional credit of £8.6 million after tax. DIVIDEND PER SHARE A final dividend of 11.4 pence per share has been proposed bringing the totaldividend for the year to 17.1 pence per share. This represents an increase of11.8% over last year. The ex-dividend date will be 27 June 2007 and thedividend will be paid on 27 July 2007 to shareholders registered on 29 June2007. The AGM will be held on 19 July 2007. OUTLOOK We are confident of delivering further growth with high margins and strong cashflows in the 2008 financial year. In the UK, we expect to sustain the rate of revenue growth and margin, driven bycontinued rapid online growth, with the benefit of relaxed regulation in thefollowing year. At Yell Publicidad, we will continue to drive the "Back toBasics" approach and we expect to make good progress towards achieving the fullbenefit of revenue and margin expansion in the following year. In the US, weare focused on dealing with heightened competition and taking advantage of anyfuture shake-out in the market. Overall, we are confident of the continued opportunities in all our markets andwe will maintain our Win, Keep and Grow strategy and the investment in ourbrands and our business. KEY PERFORMANCE INDICATORSUnaudited Year ended 31 March 2006 2007 ChangeYell UK %Printed directoriesUnique advertisers (thousands) (a) 462 450 (2.6)Directory editions published 113 113Unique advertiser retention rate (%) (b) 75 75Revenue per unique advertiser (£) 1,341 1,335 (0.4) InternetSearchable advertisers at 31 March (thousands) (c) 174 196 12.6Searches for March (millions) 32 33 3.1Unique users for March (millions) (d) 6.8 7.6 11.8Revenue per average searchable advertiser (£) (e) 378 518 37.0 Yellow Book USA Printed directoriesUnique advertisers (thousands) (a) (f) (g) 489 692 41.5Directory editions published (g) 599 969Unique advertiser retention rate (%) (b) (f) (g) 70 69Revenue per unique advertiser ($) (g) (h) 2,690 2,694 0.1 InternetSearchable advertisers at 31 March (thousands)(c) 391 380 (2.8)Unique visitors for March (millions) (i) 2.4 6.1 154.2Revenue per average searchable advertiser ($) (e) 123 178 44.7 Yell Publicidad (Spain) (j) Paginas Amarillas classified directoriesUnique advertisers (thousands) (a) 191Directory editions published 92Unique advertiser retention rate (%) (b) 84Revenue per unique advertiser (•) 1,081 See notes to the table on the following page. (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) Unique customers with a live contract at month end. Thesefigures refer only to those advertisers for whom users can search. They excludeadvertisers who purchase only products such as banners and domain names. (d) The number of unique users who have visited Yell.com once ormore often in the indicated month. Unique users are measured according toindependently established industry standard measures. (e) Yell.com revenue per average searchable advertiser is calculatedby dividing the recognised revenue in the year by the average number ofsearchable advertisers in the year. (Yell.com year ended 31 March 2007 -185,000; year ended 31 March 2006 - 158,000). Yellowbook.com revenue peraverage searchable advertiser is calculated by dividing the recognised revenuein the year by the average number of searchable advertisers in the year.(Yellowbook.com year ended 31 March 2007 - 386,000; year ended 31 March 2006 -344,000). (f) 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 an overall elimination of duplicate records of unique advertisers. Wehave not adjusted the previously reported figure for the year ended 31 March2006 for any duplicated records in that year. There remains some overlap inreporting unique advertisers between Yellow Book and acquired businesses that weexpect to be removed. These improvements to our systems have not affected thereporting of our financial results. Retention in the US is based on uniquedirectory advertisers. (g) The 2006 figures relate only to Yellow Book and do not includeTransWestern. The 2007 combined figures are presented after eliminatingduplicate advertisers. Results for TransWestern for 2006 were: uniqueadvertisers - 133,000; directories published - 236; revenue per uniqueadvertiser - $2,086; retention - 69%. (h) The figure for the year ended 31 March 2006 has been restatedto exclude internet revenues previously included in the calculation. (i) The number of individuals who have visited Yellowbook.com atleast once in the month shown. In the year ended 31 March 2007 we changed ourdata provider; we have not adjusted the previously reported figure for the yearended 31 March 2006. (j) Figures given for Yell Publicidad in Spain refer only to theperiod since acquisition, i.e. 1 August 2006 to 31 March 2007. They are notcomparable to figures previously reported by Telefonica Publicidad e InformacionS.A. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED INCOME STATEMENT Year ended 31 March Notes 2006 2007 £m £m Revenue 2 1,621.3 2,075.1 Cost of sales (751.4) (919.7) Gross profit 869.9 1,155.4 Distribution costs (49.5) (72.0) Administrative expenses (370.5) (571.4) Operating profit 3 449.9 512.0 Finance costs (134.9) (266.3) Finance income 2.4 8.7 Net finance costs (132.5) (257.6) Loss on disposal of subsidiary - (6.4) Profit before taxation 317.4 248.0 Taxation 4 (105.1) (31.7) Profit for the financial year 212.3 216.3 Attributable to: Minority interests - 3.6 Equity shareholders of the group 212.3 212.7 12 212.3 216.3 (in pence) (in pence) Basic earnings per share 6 30.1 27.6 Diluted earnings per share 6 29.7 27.3 £m £m Declared and paid interim ordinary dividend of 5.7 pence 35.6 43.9per share (2006 - 5.1 pence) 5Proposed final ordinary divided of 11.4 pence per share 78.5 88.8(2006 - 10.2 pence) See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended 31 March Notes 2006 2007 £m £m Profit for the financial year 212.3 216.3 Exchange gain (loss) on translation of foreign 47.8 (71.3) operations Actuarial (losses) gains on defined benefit pension 11 (3.5) 16.1 schemes Gain in fair value of financial instruments used as 10.8 8.8 hedges Tax effect of net (gains) losses not recognised in (2.9) 0.2 the income statement Net tax benefit on share based payments 8.1 1.3 Net income (expense) not recognised in the income 60.3 (44.9) statement Total recognised income for the year 272.6 171.4 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 - 270.7 171.4 Attributable to: Minority interests - 3.3 Equity shareholders of the group 270.7 168.1 270.7 171.4 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED BALANCE SHEET At At 31 March 31 March Notes 2006 2007 £m £m Non-current assets Goodwill 2,486.0 3,645.3 Other intangible assets 200.3 1,229.5 Property, plant and equipment 53.8 94.5 Deferred tax assets 7 139.6 143.2 Investment and other assets 5.0 8.2 Total non-current assets 2,884.7 5,120.7 Current assets Inventories 6.7 12.0 Directories in development 226.0 257.2 Trade and other receivables 8 586.3 947.4 Cash and cash equivalents 28.5 66.7 Total current assets 847.5 1,283.3 Current liabilities Loans and other borrowings 9 (292.9) (224.3) UK corporation and foreign income tax (58.5) (54.4) Trade and other payables 10 (366.8) (633.8) Total current liabilities (718.2) (912.5) Net current assets 129.3 370.8 Non-current liabilities Loans and other borrowings 9 (1,729.6) (3,505.0) Deferred tax liabilities 7 (130.8) (497.7) Retirement benefit obligations 11 (39.9) (27.2) Trade and other payables 10 (7.9) (13.0) Total non-current liabilities (1,908.2) (4,042.9) Net assets 1,105.8 1,448.6 Capital and reserves attributable to equity shareholders Share capital 12 1,192.3 1,201.2 Other reserves 12 (103.7) (214.3) Retained earnings 12 17.2 451.6 1,105.8 1,438.5 Minority interests 12 - 10.1 Total equity 1,105.8 1,448.6 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED CASH FLOW STATEMENT Notes Year ended 31 March 2006 2007 £m £m Net cash inflow from operating activities Cash generated from operations 411.5 585.2 Interest paid (103.9) (266.0) Interest received 2.4 8.7 Redemption premium paid - (22.5) Net income tax paid (23.8) (78.8) Net cash inflow from operating activities 286.2 226.6 Cash flows from investing activities Purchase of property, plant and equipment 13 (32.9) (45.7) Purchase of subsidiary undertakings, net of cash 14 (968.2) (2,137.1) acquired Net cash inflow on disposal of 15 - 3.7 subsidiary Net cash outflow from investing activities (1,001.1) (2,179.1) Cash flows from financing activities Proceeds from issuance of ordinary shares 2.4 355.1 Purchase of own shares (9.7) (11.5) Net new borrowings (payments) on revolving credit facility 242.7 (143.8) Acquisition of new loans 1,440.8 3,841.7 Repayment of borrowings (885.0) (1,860.2) Financing fees paid (14.0) (64.8) Dividends paid to Company's shareholders (94.5) (122.4) Net cash inflow from financing activities 682.7 1,994.1 Net (decrease) increase in cash and cash equivalents (32.2) 41.6 Cash and cash equivalents at beginning of the year 55.5 28.5 Exchange gains (losses) on cash and cash equivalents 5.2 (3.4) Cash and cash equivalents at end of the year 28.5 66.7 Profit for the year 212.3 216.3 Adjustments for: Tax 105.1 31.7 Loss on disposal of subsidiary - 6.4 Finance income (2.4) (8.7) Finance costs 134.9 266.3 Depreciation of property, plant and equipment and 24.1 43.4 amortisation of software costs Amortisation of other acquired intangible assets 29.5 113.2 Changes in working capital: Inventories and directories in development (21.3) (11.4) Trade and other receivables (51.4) (100.7) Trade and other payables 33.7 14.8 Pension deficit repair (64.8) - Share based payments and other 11.8 13.9 Cash generated from operations 411.5 585.2 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED 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, the United States,Spain, and certain countries in Latin America. This unaudited financial information for the year to 31 March 2007 has beenprepared in accordance with International Financial Reporting Standards asadopted by the European Union ("IFRS") as set out in our annual report for theyear ended 31 March 2007, and in accordance with the Listing Rules of theFinancial Services Authority. The unaudited information contained herein does not constitute statutoryfinancial statements within the meaning of section 240 of the Companies Act1985, but has been extracted from the statutory financial statements for theyear ended 31 March 2007 which will be delivered to the Registrar of Companiesin due course. The audit opinion on the statutory accounts for the year ended31 March 2006 was unqualified. 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 2007 annualreport due to be published in June 2007, which will include the auditedconsolidated financial statements of Yell Group plc and its subsidiaries for theyear ended 31 March 2007. 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. We have made certain changes to the presentation of amounts in the prior yearbalance sheet. These changes have no effect on our results. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 2. Revenue Year ended 31 March Change 2006 2007 % £m £m Yell UK printed directories 619.4 600.5 (3.1) Other products and services 79.5 119.4 50.2 Total Yell UK revenue 698.9 719.9 3.0 Yellow Book USA revenue at constant exchange rate (a) 922.4 1,089.2 18.1 Exchange impact (a) - (74.9) Total Yellow Book USA revenue 922.4 1,014.3 10.0 Yell Publicidad revenue - 340.9 Group revenue 1,621.3 2,075.1 28.0 (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 results using current year exchange rates. See note 14 for an analysis of the effect of acquisitions on our results. 3. Operating profit and EBITDA information Adjusted EBITDA by management segment Year Change ended 31 March 2006 2007 % £m £m Yell UK printed directories 219.8 210.2 (4.4) Other products and services 24.7 42.7 72.9 Total Yell UK 244.5 252.9 3.4 Yellow Book USA at constant exchange rate (a) 258.4 319.6 23.7 Exchange impact (a) - (22.8) Total Yellow Book USA 258.4 296.8 14.9 Yell Publicidad - 127.8 Group adjusted EBITDA 502.9 677.5 34.7 (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 results using current year exchange rates. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 3. Operating profit and EBITDA information (continued)Reconciliation of group operating profit to EBITDA (a) Year ended 31 March 2006 2007 ChangeYell UK operations £m £m %Operating profit 238.3 239.2Depreciation and amortisation in admin expenses 11.2 13.5Yell UK operations EBITDA 249.5 252.7 1.3Exceptional items (5.0) 0.2Yell UK operations adjusted EBITDA 244.5 252.9 3.4Yell UK operations adjusted EBITDA margin 35.0% 35.1% Yellow Book USAOperating profit 211.6 242.7Depreciation and amortisation in admin expenses 42.4 49.6Yellow Book USA EBITDA 254.0 292.3 15.1Exceptional items 4.4 4.5Exchange impact (b) 22.8Yellow Book USA adjusted EBITDA at constant exchange 258.4 319.6 23.7rate (b)Exchange impact (b) (22.8)Yellow Book USA adjusted EBITDA 258.4 296.8 14.9Yellow Book USA adjusted EBITDA margin 28.0% 29.3% Yell PublicidadOperating profit 30.1Depreciation and amortisation in admin expenses 93.5Yell Publicidad EBITDA 123.6Exceptional items 4.2Yell Publicidad adjusted EBITDA 127.8Yell Publicidad adjusted EBITDA margin 37.5% GroupOperating profit 449.9 512.0Depreciation and amortisation in admin expenses 53.6 156.6Group EBITDA 503.5 668.6 32.8Exceptional items (0.6) 8.9Exchange impact (b) 22.8Group adjusted EBITDA at constant exchange rate(b) 502.9 700.3 39.3Exchange impact (b) (22.8)Group adjusted EBITDA 502.9 677.5 34.7Group adjusted EBITDA margin 31.0% 32.6% (a) EBITDA is one of the key financial measures that we use to assessgrowth and operational efficiencies in the business. (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 results reported using current year exchange rates. We do not allocate interest or taxation charges by product or geographicsegment. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 4. Taxation The effective 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 2006 2007 £m £mProfit before tax multiplied by the standard rate ofcorporation tax in the United Kingdom (30%) 95.2 74.4 Effects of:Differing tax rates on overseas earnings 10.5 3.8Changes in tax rates in Spain - (46.6)Other (0.6) 0.1Tax charge on profit before tax 105.1 31.7 Current tax:Current year UK corporation tax 50.1 36.1Current year foreign income tax 2.2 38.9Adjustments in respect of prior year (1.7) (2.0) 50.6 73.0Deferred tax:UK 4.9 5.9Foreign 49.6 (47.2)Tax charge on profit before tax 105.1 31.7 5. Interim and final dividend per share Dividends paid in the year were as follows: Year ended 31 March 2006 2007 £m £m Final dividend of 8.4 pence and 10.2 pence per share for2005 and 2006, respectively 58.9 78.5 Interim dividend of 5.1 pence and 5.7 pence per share for2006 and 2007, respectively 35.6 43.9 Dividends paid 94.5 122.4 The proposed final dividend for the 2007 financial year of 11.4 pence per sharewill be paid on 27 July 2007 to shareholders registered at the close of businesson 29 June 2007. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 6. Earnings per share The calculation of basic and diluted earnings per share is based on the profitfor the relevant financial year and on the weighted average share capital duringthe year. Amortisation of Exceptional acquired Actual items intangibles Adjusted Year ended 31 March 2007EBITDA (£m) 668.6 8.9 - 677.5Depreciation and amortisation (£m) (156.6) 5.8 113.2 (37.6)Net finance costs (£m) (257.6) 36.3 - (221.3)Loss on disposal (6.4) 6.4 - -Group profit before tax (£m) 248.0 57.4 113.2 418.6Taxation (£m) (31.7) (66.0) (40.6) (138.3)Group profit after tax (£m) 216.3 (8.6) 72.6 280.3Minority interests (£m) (3.6) 2.8 (2.9) (3.7)Group profit after tax and minority 212.7 (5.8) 69.7 276.6interests (£m)Weighted average number of issued ordinary 771 771shares (millions)Basic earnings per share (pence) 27.6 35.9Effect of share options (pence) (0.3) (0.4)Diluted earnings per share (pence) 27.3 35.5 Year ended 31 March 2006EBITDA (£m) 503.5 (0.6) - 502.9Depreciation and amortisation (£m) (53.6) - 29.5 (24.1)Net finance costs (£m) (132.5) 7.8 - (124.7)Group profit before tax (£m) 317.4 7.2 29.5 354.1Taxation (£m) (105.1) (4.2) (11.2) (120.5)Group profit after tax (£m) 212.3 3.0 18.3 233.6Weighted average number of issued ordinary 705 705shares (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 Exceptional administrative costs of £8.9 million for the year ended 31 March2007 are post-acquisition restructuring costs of £4.4 million related to theYell Publicidad acquisition, and £4.5 million related to US acquisitions.Exceptional depreciation and amortisation costs relate to associated write-offsof assets. The exceptional loss on disposal of £6.4 million relates to thedisposal of the Brazilian business. The exceptional finance costs for the yearended 31 March 2007 comprise £13.8 million for accelerated amortisation ofdeferred financing fees and £22.5 million premium on the redemption of ourNotes, which were refinanced prior to the Yell Publicidad acquisition. Theexceptional taxation benefit of £66.0 million comprises £5.8 million related topost-acquisition restructuring costs, £2.2 million related to the loss ondisposal, £11.4 million related to exceptional finance costs and a £46.6 millionexceptional tax credit from remeasuring deferred taxes in Spain at the lower taxrates enacted in November 2006. Exceptional items of £0.6 million in the prioryear include restructuring and other costs of £4.4 million arising from theTransWestern acquisition, and a credit of £5.0 million arising from the releaseof a provision for IPO costs in the UK. Exceptional finance costs in the prioryear relate to the accelerated amortisation of deferred financing fees on oursenior debt, which was redeemed at the date of the TransWestern acquisition.The exceptional tax credit in the prior year represents tax on the exceptionalitems before tax. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 7. Deferred tax assets and liabilities The elements of deferred tax assets recognised in the accounts were as follows: At At 31 March 31 March 2006 2007 £m £mTax effect of timing differences due to:Bad debt provisions 38.3 44.8Defined benefit pension scheme 26.6 17.9Other allowances and accrued expenses 20.4 20.1Recognised tax net operating losses 20.5 18.7Share options 15.9 16.4Depreciation 6.9 7.3Financial instruments - 4.9Post-acquisition alignment of accounting policies - 4.1Other 11.0 9.0Recognised deferred tax assets 139.6 143.2 The elements of deferred tax liabilities recognised in the accounts were asfollows: At At 31 March 31 March 2006 2007 £m £mTax effect of timing differences due to:Intangible assets 76.1 415.8Directories in development 32.9 31.5Deferred selling costs 16.8 14.0Post-acquisition alignment of accounting policies - 11.4Financial instruments 3.3 9.1Other 1.7 15.9Recognised deferred tax liabilities 130.8 497.7 YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 8. Trade and other receivables At At 31 March 31 March 2006 2007 £m £mNet trade receivables (a) 555.5 830.7Other receivables 19.0 62.0Accrued income (a) 1.4 42.0Prepayments 10.4 12.7Total trade and other receivables 586.3 947.4 (a) The Group's trade receivables and accrued income are statedafter deducting a provision of £208.6 million at 31 March 2007 (31 March 2006 -£157.8 million). 9. Loans and other borrowings and net debt At At 31 March 31 March 2006 (a) 2007 (a) £m £mAmounts falling due within one yearTerm loans under credit facilities 50.1 121.7Revolving loan under credit facilities 242.2 97.2Net obligations under finance leases and other shortterm borrowings 0.6 5.4Total amounts falling due within one year 292.9 224.3Amounts falling due after more than one year Term loans under credit facilities 1,390.6 3,505.0Senior notes:Senior sterling notes 161.8 -Senior dollar notes 74.4 -Senior discount dollar notes 102.8 -Total amounts falling due after more than one year 1,729.6 3,505.0 Net loans and other borrowings 2,022.5 3,729.3Cash and cash equivalents (28.5) (66.7)Net debt at end of year 1,994.0 3,662.6 (a) Balances are shown net of deferred financing fees of £46.8million at 31 March 2007 (31 March 2006 - £10.8 million). YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 10. Trade and other payables At At 31 March 31 March 2006 2007Due within one year £m £mTrade payables 27.3 88.4Other taxation and social security 17.3 18.2Accruals and other payables 162.3 237.5Deferred income 159.9 289.7Trade and other payables falling due within one year 366.8 633.8 Amounts falling due after more than one yearTrade payables 5.6 11.1Accruals and other payables 1.0 1.1Deferred income 1.3 0.8Trade and other payables falling due after more than one year 7.9 13.0Total trade and other payables 374.7 646.8 11. Retirement benefit obligations Year ended 31 March 2006 2007 £m £mActual return less expected return on pension scheme assets (26.8) (0.2)Experience losses (gains) arising on scheme liabilities (14.3) 1.3Changes in assumptions underlying the present value of liabilities (a) 44.6 (17.2)Net actuarial loss (gain) on defined benefit pension schemes 3.5 (16.1)Annual charges in excess of annual contributions 0.9 3.4Deficit repair payment (64.8) -Net decrease in retirement benefit obligations (60.4) (12.7)Retirement benefit obligation at 31 March 2005 and 2006,respectively 100.3 39.9Retirement benefit obligations at 31 March 2006 and 2007,respectively 39.9 27.2 (a) The gain in 2007 and loss in 2006 were largely the result of changes inreal interest rates which are determined by reference to corporate andgovernment bond rates at the balance sheet date. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 12. Statement of changes in equity Attributable to equity shareholders Share Other Retained Minority capital reserves earnings interest Total £m £m £m £m £mBalance at 31 March 2006 1,192.3 (103.7) 17.2 - 1,105.8Profit on ordinary activities - - 212.7 3.6 216.3after taxationNet expense recognised directly in - (44.6) - (0.3) (44.9)equityTotal recognised (expense) income - (44.6) 212.7 3.3 171.4for the yearShare placement and capital 0.7 - 344.1 - 344.8restructuringValue of services provided in - 13.9 - - 13.9return for share based paymentsOrdinary share capital issued to 19.7 (8.2) - - 11.5employeesOwn shares purchased by (11.5) - - - (11.5)ESOP trust (a)Capital duty paid on Yell - (13.6) - - (13.6)Publicidad acquisitionMinority interest arising on - - - 42.3 42.3purchase of subsidiaryPurchase of minority interests - (58.1) - (35.5) (93.6)Dividends paid - - (122.4) - (122.4) 8.9 (110.6) 434.4 10.1 342.8Balance at 31 March 2007 1,201.2 (214.3) 451.6 10.1 1,448.6 (a) Purchase of shares held in an ESOP trust for employees. Cumulative foreign currency losses attributable to equity shareholders at 31March 2007 are £139.7 million (31 March 2006 - £68.4 million). 13. Capital Expenditure Capital expenditure on property, plant and equipment in the year to 31 March2007 and 2006 was £45.7 million and £32.9 million, respectively. Proceeds onthe sale of property, plant and equipment were £nil in the same periods. Capital expenditure committed at 31 March 2007 and 2006 was £3.2 million and£1.8 million, respectively. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 14. Acquisitions Year ended 31 March 2007 In the year to 31 March 2007, the Yell Group paid £2,039.2 million foracquisitions. The largest acquisition was that of 94.25% of the share capitalof Telefonica Publicidad e Informacion, S.A. ("Yell Publicidad") on 31 July 2006(which we have renamed Yell Publicidad, S.A.), for €2,939.8 million (£2,010.3million). The purchase price of Yell Publicidad was allocated to the acquiredassets and liabilities as follows: Acquiree's Fair value carrying amount adjustments Fair value £m £m £m Non current assetsOther intangible assets 109.4 1,028.7 1,138.1Property, plant and equipment 24.7 14.8 39.5Deferred tax assets 30.8 - 30.8Total non current assets 164.9 1043.5 1,208.4Current assetsDirectories in development 48.0 34.9 82.9Trade and other receivables 292.2 - 292.2Cash and cash equivalents 16.8 - 16.8Total current assets 357.0 34.9 391.9Current liabilitiesLoans and other borrowings (90.0) - (90.0)Corporation tax (12.8) - (12.8)Trade and other payables (251.9) - (251.9)Total current liabilities (354.7) - (354.7)Total assets less current liabilities 167.2 1,078.4 1,245.6Non-current liabilitiesLoans and other borrowings (70.2) - (70.2)Deferred tax liabilities (29.1) (403.7) (432.8)Trade and other payables (6.4) - (6.4)Identifiable net assets 61.5 674.7 736.2Minority interests (42.3)Share of net assets acquired 693.9Goodwill 1,316.4Total cost 2,010.3 Non-current intangible assets totalling €1,664.4 million (£1,138.1 million)comprise €1,130.7 million (£773.2 million) of brand names, €408.4 million(£279.3 million) of customer lists, and €125.3 million (£85.6 million) allocatedbetween software, contracts, and non-compete agreements. Directories indevelopment comprise all current intangible assets, including customercommitments and a customer database. Goodwill of €1,925.0 million (£1,316.4million) is attributable to the future synergies expected, the workforceacquired and future growth of the business. YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 14. Acquisitions (continued) The acquisition of Yell Publicidad was financed by debt acquired of £1,634.0million, proceeds from the share placement of £344.8 million, and operating cashof £31.5 million. The consolidated financial information of the Yell Group consolidates thefinancial results of Yell Publicidad for the eight months ended 31 March 2007.If the acquisition of Yell Publicidad had occurred on 1 April 2006, we estimatethat the pro forma group revenue to 31 March 2007 would have been £2,206.8million and group adjusted EBITDA would have been £708.7 million. On 28 March 2007, we purchased a further 16,136,315 shares of Yell Publicidadfor €137.5 million (£93.6 million) representing a further 4.47% of the sharecapital, resulting in ownership of 98.72% of the issued share capital. On 2April 2007, Yell Publicidad formally delisted its remaining outstanding shares. We made a number of acquisitions in the US that are not considered material forseparate presentation. We paid cash of $55.9 million (£28.9 million) to acquireoperations with net assets of $9.3 million (£4.8 million) to record goodwill of$46.6 million (£24.1 million) and other intangible assets of $15.0 million (£7.8 million). These acquisitions have contributed $30.6 million of revenue in theperiod from the dates of acquisition to 31 March 2007. The purchase price ofthe acquisitions was allocated to the acquired assets and liabilities asfollows: Acquiree's Fair value Fair value carrying amount adjustments £m £m £m Non current assetsOther intangible assets - 7.8 7.8Property, plant and equipment 0.2 - 0.2Total non current assets 0.2 7.8 8.0Current assetsDirectories in development 0.5 1.2 1.7Trade and other receivables 1.5 - 1.5Total current assets 2.0 1.2 3.2Current liabilitiesTrade and other payables (6.4) - (6.4)Total current liabilities (6.4) - (6.4)Identifiable net assets (4.2) 9.0 4.8Goodwill 24.1Total cost 28.9 YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 14. Acquisitions (continued) A reconciliation of cash paid on acquisitions, including a deferred payment of$14.2 million (£7.5 million) for the acquisition of TransWestern Publishing(TWP), to the cash flow on page 15 is as follows: Year ended 31 March 2007 £m Costs of acquisitions in the year 2,039.2 Less cash acquired (16.8) Capital duties paid (a) 13.6 Minority interests purchased 93.6 Deferred payment for TWP 7.5 Net cash outflow in year 2,137.1 (a) Capital duties paid on the acquisition of Yell Publicidad and onthe acquisition of minority interests in Yell Publicidad are recorded in equity;see note 12 to the financial information. Year ended 31 March 2006 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). Goodwill of £681.2 million is attributable to future synergiesexpected, the workforce acquired and future growth of the business. On 3 January 2006, we acquired the assets of Clarke Directory Publications(Clarke) for a purchase price of $72.0 million (£40.8 million). We also made other acquisitions in the US during the year ended 31 March 2006.We paid cash of $49.2million (£27.6 million) to acquire net assets with a fairvalue totalling $2.0 million (£1.1 million) giving rise to additional goodwillof $40.6 million (£22.8 million) and other intangible assets of $8.7 million(£4.9 million). YELL GROUP PLC AND SUBSIDIARIES UNAUDITED NOTES TO THE FINANCIAL INFORMATION (continued) 15. Disposals On 30 March 2007, the Yell Group disposed of TPI Brasil, formerly held by YellPublicidad in Brazil. The assets and liabilities disposed were as follows: Disposals £m Non current assetsIntangible assets 0.8Property, plant and equipment 1.1Investment and other assets 0.5Total non current assets 2.4Current assetsDirectories in development 6.8Trade and other receivables 11.3Cash 0.6Total current assets 18.7Current liabilitiesTrade and other payables (9.0)Total current liabilities (9.0)Currency translation reserves (1.4)Identifiable net assets 10.7Loss on disposal (6.4)Proceeds received 4.3 16. 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. 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 2007, Yell published 113 directories in the UnitedKingdom, 969 in the United States, and 92 Paginas Amarillas directories inSpain. In the United Kingdom, where it is a leading player in the classifiedadvertising market, it served 450,000 unique advertisers. In the United States,where it is the leading independent directories business, it served 692,000unique advertisers. In Spain, the Paginas Amarillas directories served 191,000unique advertisers. Yell's principal brands include: in the United Kingdom, Yellow Pages, BusinessPages, Yell.com and Yellow Pages 118 24 7; in the United States, Yellow Book andYellowbook.com; and in Spain, Paginas Amarillas and PaginasAmarillas.es. Allthese brands are trade marks. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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