8th Feb 2007 07:01
Yell Group plc08 February 2007 Yell Group plc financial results for the nine months ended 31 December 2006 Good organic growth. Integration of acquisitions progressing as expected. On track to meet year end expectations. • Revenue up 29.1% to £1,433.9 million; up 32.6% at constant exchange rate. Up 7.4% excluding acquisitions at constant exchange rate • Adjusted EBITDA up 35.2% to £473.1 million; up 38.6% at constant exchange rate • Adjusted profit after tax up 18.5% to £190.6 million • Adjusted diluted earnings per share up 8.4% to 24.5 pence • Operating cash flow up 13.8% to £387.0 million. Cash conversion 81.8% (2005 - 97.2%) Nine months ended 31 DecemberStatutory results (unaudited) 2005 2006 Change £m £m %Revenue 1,111.0 1,433.9 29.1EBITDA * 350.6 471.1 34.4Profit after tax and minority interests 147.3 159.8 8.5Cash generated from operations 290.7 419.0 44.1Diluted earnings per share (pence) 20.7 20.6 (0.5)* EBITDA is reconciled to operating profit in note 3 to the financial information on page 16 John Condron, Chief Executive Officer, said: "We have again delivered strong organic growth with particularly strong growthin our online channels. "At the same time we have focused on developing our acquisitions for futuregrowth. Integration is progressing as expected with new sales management inplace at TransWestern and a good start at TPI, which has been renamed YellPublicidad. "In the UK, we are confident that the future relaxation of regulation will giveus greater flexibility in the competitive print market." John Davis, Chief Financial Officer, said: "This nine month performance underpins our confidence that we are on track tomeet year end expectations. "Our organic revenue growth of more than 7% at a constant exchange rate, overallEBITDA margins of 33% and cash conversion of 82% together demonstrate the robustnature of our businesses in their dynamic markets. Underlying earnings pershare, excluding the impact of issuing shares for the acquisition of TPI aheadof the acquisition itself and at a constant exchange rate, grew 13.2%." 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" 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 Nine months Change at ended 31 December constant exchangeUnaudited 2005 2006 Change rate (a) £m £m % % Revenue (b) 1,111.0 1,433.9 29.1 32.6Adjusted EBITDA (b) (c) 350.0 473.1 35.2 38.6 Operating cash flow (b) (d) 340.1 387.0 13.8 15.9Cash conversion (b) (e) 97.2% 81.8% Adjusted profit after tax and minority interests(f) 160.9 190.6 18.5 Adjusted diluted earnings per share (pence)(f) 22.6 24.5 8.4 (a) Change at constant exchange rate states the change in current period results compared with the same period in the previous year as if the current period results were translated at the same exchange rate as that used to translate the results for the same period in the previous year. (b) Revenue, adjusted EBITDA, operating cash flow and cash conversion are the key financial measures that we use to assess the growth in the business and operational efficiencies. (c) Adjusted EBITDA in the nine months ended 31 December 2006 is stated before exceptional costs of £2.0 million arising from post acquisition restructuring of TPI operations. Adjusted EBITDA for the nine months ended 31 December 2005 is stated before exceptional costs of £4.4 million arising from the TransWestern acquisition, and an exceptional credit of £5.0 million from releasing a provision for IPO costs. (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 share are stated before exceptional items and amortisation of acquired intangibles, all net of related tax. A reconciliation to the related statutory figures is presented in note 6 to the financial information. REVIEW OF OPERATING PERFORMANCE Revenue Group revenue increased 29.1% to £1,433.9 million, or 32.6% at a constantexchange rate, from £1,111.0 million for the same period last year. Growthbefore acquisitions, mainly TransWestern and TPI, was 7.4% at a constantexchange rate. UK operations UK revenue increased 3.5% to £510.0 million driven entirely by a 62.5% increasein revenue by Yell.com. Revenue from UK printed directories was 2.7% lower at £424.2 million, as thetotal number of unique print advertisers declined by 3.2% to 329,000 due tocompetition. This was partly offset by the 0.5% increase in average revenue perunique advertiser to £1,289. The effect of our regulatory undertaking of RPI-6%was to reduce Yellow Pages rate card prices by an average of 2.6%. Retentionwas stable at 75%. Yell.com's revenue grew 62.5% to £68.1 million with growth of 13.8% insearchable advertisers at 31 December to 190,000. Unique users grew 28.3%compared with last December and we grew recognised revenue per averagesearchable advertiser 37.5%, mainly through up-sell of higher value products. We reiterate our guidance for UK revenue growth during the current year of 3%driven entirely by Yell.com. US operations Total US revenue grew 13.9% to £704.5 million, or 20.2% at a constant exchangerate. The average exchange rate was approximately $1.87: £1.00 against $1.80:£1.00 in the same period last year. Organic revenue growth contributed 10.5% to the total revenue growth of 20.2%. In print, same market growth was 6.4% and contributed 5.9% to organic growth.In addition, launches contributed 2.9% to organic growth. Yellow Book increasedunique advertisers by 39.4% to 520,000, the majority arising from theacquisition of TransWestern. Also reflecting the integration of TransWestern,average revenue per unique advertiser was flat at $2,460 and retention wasslightly down at 70%. Yellowbook.com revenue grew 61.3% to $47.1 million, contributing 1.7% to organicgrowth. Usage of 4.4 million unique visitors in December grew from 2.6 millionin the previous December. Searchable advertisers grew 5.2% at 31 December 2006,to 385,000 and revenue per average searchable advertiser increased significantlyfrom $70 to $121. Revenue from directories publishing for the first time since acquisition, mainlyTransWestern, contributed $126.6 million or 11.5% to the total revenue growth. Revenue growth was reduced by 1.8% through the planned rescheduling ofdirectories into later months resulting from the integration of TransWestern.We expect this to reverse in the final quarter. TransWestern's integration is now progressing well with new sales management inplace. While we continue to expect same market growth in the final quarter tobe at similar levels to the third quarter, we reiterate our guidance for YellowBook as a whole to achieve organic growth of 10% in the current year. Spanish and Latin American operations Following the acquisition on 31 July 2006 of Telefonica Publicidad eInformacion, S.A. (TPI), we have consolidated revenue of £219.4 million. Theaverage exchange rate was approximately €1.48: £1.00 during the five monthssince acquisition. The majority of TPI revenue came from printed directories in Spain, whichincluded recognised revenue from 68 Paginas Amarillas classified directories.As expected, revenue in the third quarter represented approximately half of therevenue we anticipate recognising from TPI this year. Revenue from PaginasAmarillas classified directories grew 0.7% as expected on a like for like basisin the year since 31 December 2005. Adjusted EBITDA Group adjusted EBITDA increased by 35.2% to £473.1 million, or 38.6% at aconstant exchange rate. Adjusted EBITDA in the nine months ended 31 December 2006 is stated beforeexceptional costs of £2.0 million relating to the post-acquisition restructuringof TPI. Adjusted EBITDA for the same period last year is stated before anexceptional credit of £5.0 million from releasing an over-provision for IPOcosts and exceptional costs of £4.4 million relating to the TransWesternacquisition. The UK adjusted EBITDA growth of 2.4% to £180.8 million was slightly diluted bythe planned, higher proportion of annual investment in the first nine months.The overall UK adjusted EBITDA margin was 35.5%, compared with 35.8% in the sameperiod last year. We reiterate full year guidance of flat margins for the UK. In the US, adjusted EBITDA grew 17.4% to £203.7 million, a 24.3% increase at aconstant exchange rate. The US adjusted EBITDA margin increased from 28.1% to28.9% and we reiterate guidance for the year end of margin growth of onepercentage point. TPI adjusted EBITDA was £88.6 million in the period since acquisition and themargin was 40.4%, reflecting the heavy weighting of revenue in the thirdquarter, including the Barcelona and Madrid books. We expect consolidatedEBITDA margins at the year end to be similar to the margins of 34% that TPIreported for the year ended 31 December 2005. CASH FLOW AND NET DEBT The Group converted 81.8% of adjusted EBITDA to cash, as compared with 97.2%last year, which had benefited from the timing of working capital improvements.Operating cash flow increased 13.8% to £387.0 million, or 15.9% at a constantexchange rate. We reiterate guidance for year end cash conversion of between75% and 80%. Nine months ended 31 December 2005 2006Unaudited £m £m Adjusted EBITDA 350.0 473.1 Exceptional items 0.6 (2.0)Working capital movements and non-cash charges 4.9 (50.5)Pension deficit repair payment (64.8) - Cash generated from operations (see page 13) 290.7 420.6Cash payments of exceptional items 3.0 1.4Pension deficit repair payment 64.8 -Purchase of property, plant and equipment (18.4) (35.0) Operating cash flow 340.1 387.0Adjusted EBITDA 350.0 473.1 Cash conversion 97.2% 81.8% The increase in net debt at 31 December 2006 to £3,633.1 million reflects thenew debt acquired for the TPI acquisition. Net debt was 5.3 times adjustedEBITDA on a pro forma basis over the last twelve months. The movement in netdebt for the nine months ended 31 December 2006 arose as follows: Net debtUnaudited £m At 31 March 2006 1,994.0 Operating cash flow (387.0)Cash payments of exceptional items 1.4Interest and tax payments, net of £46.7 million accreted interest settled byrefinancing 209.8Redemption premiums paid 22.1Purchase of subsidiary undertakings, net of cash, plus debt acquired 2,185.7Purchase of own shares 11.5Proceeds of shares issued (350.2)Dividends paid 122.4Finance costs increasing debt 7.0Currency movements (183.6) At 31 December 2006 3,633.1 NET RESULTS Adjusted profit after tax, and after £3.0 million attributable to minorityinterests in TPI earnings, was up 18.5% to £190.6 million. Adjusted diluted earnings per share were up 8.4% to 24.5 pence. Areconciliation between statutory and adjusted figures is provided in note 6 tothe financial information on page 18. Adjusted taxation of £97.3 million represents an effective rate, as expected, of33.4% on adjusted profit before tax as compared to 34.3% last year. The effective tax rate on reported profit before tax benefited from a one-offexceptional tax credit of £45.5 million. Under IFRS we have to remeasure thevalue of deferred taxes at each balance sheet date by reference to enacted taxrates. The benefit in the period arose from remeasuring the value of netdeferred tax credits established on acquisition of TPI by reference to the newlegislation in Spain that lowered future statutory tax rates from 35% to 30%.This and other differences between reported taxation and adjusted taxation areexplained in note 6 to the financial information on page 18. The exceptional tax credit reduced the effective rate of tax on reported profitbefore tax to 6.8%, as compared with 33.2% last year. Reconciliations ofreported taxation to what taxation would have been at a 30% standard rate of taxare set out in note 4 to the financial information on page 17. UK REGULATION The Competition Commission published its Final Report on the market forClassified Directory Advertising Services on 21 December 2006. While we continue to believe that no regulation is needed, the Final Reportrecognised the highly competitive nature of the UK classified directories'market and Yell accepted the remedies. These included the replacement of RPI-6%with RPI-0% from April 2008 and measures increasing our marketing flexibility. All published information relating to the investigation can be found on theCommission's website at www.competition-commission.org.uk. KEY PERFORMANCE INDICATORSUnaudited Nine months ended 31 December 2005 2006 Change %UK Printed directoriesUnique advertisers (thousands) (a) 340 329 (3.2)Directory editions published 76 76Unique advertiser retention rate (%) (b) 75 75Revenue per unique advertiser (£) 1,282 1,289 0.5 InternetSearchable advertisers at 31 December (thousands) (c) 167 190 13.8Searches for December (millions) 21 24 14.3Unique users for December (millions) (d) 4.6 5.9 28.3Revenue per average searchable advertiser (£) (e) 272 374 37.5 US Printed directoriesUnique advertisers (thousands) (a) (f) (g) 373 520 39.4Directory editions published (g) 419 658Unique advertiser retention rate (%) (b) (f) (g) 71 70Revenue per unique advertiser ($) (g) (h) 2,460 2,460 - InternetSearchable advertisers at 31 December (thousands)(i) 366 385 5.2Unique visitors for December (millions) (j) 2.6 4.4 69.2Revenue per average searchable advertiser ($) (e) (i) 70 121 72.9 Spain (k) Paginas Amarillas classified directoriesUnique advertisers (thousands) (a) 127Directory editions published 68Unique advertiser retention rate (%) (b) 84Revenue per unique advertiser (•) 1,093 (a) Number of unique advertisers in printed directories that were recognised for revenue purposes and have been billed. Unique advertisers are counted once only, regardless of the number of advertisements they purchase or the number of directories in which they advertise. (b) The proportion of unique advertisers that have renewed their advertising from the preceding publication. (c) Unique customers with a live contract at month end. These figures refer to searchable advertisers only, i.e. advertisers for whom users can search on Yell.com. They exclude advertisers who purchase only products such as banners and domain names. (d) The number of unique users who have visited Yell.com once or more often in the indicated month. Unique users are measured according to independently established industry standard measures. (e) Yell.com revenue per average searchable advertiser is calculated by dividing the recognised revenue in the nine month period by the average number of searchable advertisers in that period. (Yell.com December 2006 - 182,000; December 2005 - 154,000). Yellowbook.com revenue per average searchable advertiser is calculated by dividing the recognised revenue in the nine month period by the average number of searchable advertisers in that period. (Yellowbook.com December 2006 - 388,000; December 2005 - 332,000). (f) As a result of the progress in the United States towards integrating our customer databases, we have been able to make improvements in the ways in which we capture, record and analyse customer information. This has led to an overall elimination of duplicate records of unique advertisers. We have not adjusted the previously reported figure for the nine months ended 31 December 2005 for any duplicated records in that period. There remains some overlap in reporting unique advertisers between Yellow Book and acquired businesses that we expect to be removed. These improvements to our systems have not affected the reporting of our financial results. Retention in the US is based on unique directory advertisers. (g) The 2005 figures relate only to Yellow Book and do not include TransWestern. The 2006 combined figures are presented after eliminating duplicate advertisers. Results for TransWestern for the same period in 2005 were: unique advertisers - 80,000; directories published - 128; revenue per unique advertiser - $2,037; retention - 69%. (h) The figure for the prior year has been restated to exclude internet revenues previously included in the calculation. (i) Searchable advertisers appearing on the Yellowbook.com website and advertisers appearing on Worldpages.com, acquired with TransWestern. As a result of improvements to our systems, we are better able to eliminate duplicate online accounts. (j) The number of individuals who have visited Yellowbook.com at least once in the month shown. Includes visitors to Worldpages.com, acquired with TransWestern. In the nine months ended 31 December 2006 we changed our data provider; we have not adjusted the previously reported figure for the nine months ended 31 December 2005. (k) Figures given for TPI in Spain refer only to the period since acquisition, i.e. 1 August 2006 to 31 December 2006. They are not comparable to figures previously reported by Telefonica Publicidad e Informacion S.A. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED INCOME STATEMENT Nine months ended 31 December Notes 2005 2006 £m £m Revenue 2 1,111.0 1,433.9 Cost of sales (512.0) (632.4) Gross profit 599.0 801.5 Distribution costs (33.2) (48.7) Administrative expenses (249.8) (386.0) Operating profit 3 316.0 366.8 Finance costs (97.1) (198.3) Finance income 1.7 6.8 Net finance costs (95.4) (191.5) Profit before taxation 220.6 175.3 Taxation 4 (73.3) (11.9) Profit for the financial period 147.3 163.4 Attributable to: Minority interests - 3.6 Equity shareholders of the group 147.3 159.8 12 147.3 163.4 (in pence) (in pence) Basic earnings per share 6 20.9 20.8 Diluted earnings per share 6 20.7 20.6 £m £m Declared and paid interim ordinary dividend of 5.7 pence per share (2005 - 5.1 pence) 5 35.6 43.9 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Nine months ended 31 December Notes 2005 2006 £m £m Profit for the financial period 147.3 163.4 Exchange differences on translation of foreign operations 54.9 (75.8) Actuarial (losses) gains on defined benefit pension schemes 11 (22.0) 7.5 Change in fair value of financial instruments used as hedges 6.5 3.3 Tax effect of net expenses not recognised in the income statement 4.5 3.7 Tax on share based payments 0.7 4.3 Net income (expense) not recognised in the income statement 44.6 (57.0) Total recognised income for the period 191.9 106.4 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 - 190.0 106.4 Attributable to: Minority interests - 3.0 Equity shareholders of the group 190.0 103.4 190.0 106.4 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED BALANCE SHEET At At 31 March 31 December Notes 2006 2006 £m £m Non-current assets Goodwill 2,486.0 3,630.9 Other intangible assets 200.3 1,248.0 Property, plant and equipment 53.8 92.6 Deferred tax assets 7 139.6 153.1 Investment and other assets 5.0 10.2 Total non-current assets 2,884.7 5,134.8 Current assets Inventories 6.7 20.0 Directories in development 226.0 304.2 Trade and other receivables 8 586.3 866.2 Cash and cash equivalents 28.5 61.3 Total current assets 847.5 1,251.7 Current liabilities Loans and other borrowings 9 (292.9) (132.8) UK corporation and foreign income tax (58.5) (54.3) Trade and other payables 10 (374.7) (641.1) Total current liabilities (726.1) (828.2) Net current assets 121.4 423.5 Non-current liabilities Loans and other borrowings 9 (1,729.6) (3,561.6) Deferred tax liabilities 7 (130.8) (493.8) Retirement benefit obligations 11 (39.9) (33.8) Total non-current liabilities (1,900.3) (4,089.2) Net assets 1,105.8 1,469.1 Capital and reserves attributable to equity shareholders Share capital 12 1,192.3 1,186.9 Other reserves 12 (103.7) (161.8) Retained earnings 12 17.2 398.7 1,105.8 1,423.8 Minority interests 12 - 45.3 Total equity 1,105.8 1,469.1 See notes to the financial information for additional details. YELL GROUP PLC AND SUBSIDIARIESUNAUDITED CONSOLIDATED CASH FLOW STATEMENT Nine months ended Notes 31 December 2005 2006 £m £m Net cash inflow from operating activities Cash generated from operations 290.7 420.6 Interest paid (66.4) (204.0) Interest received 1.7 6.8 Redemption premium paid - (22.1) Net income tax paid (14.2) (59.3) Net cash inflow from operating activities 211.8 142.0 Cash flows from investing activities Purchase of property, plant and equipment 13 (18.4) (35.0) Purchase of subsidiary 14 undertakings (920.5) (2,025.5) Net cash outflow from investing activities (938.9) (2,060.5) Cash flows from financing activities Proceeds from issuance of ordinary shares 0.2 350.2 Purchase of own shares (9.7) (11.5) Net new borrowings (payments) on revolving credit facility 268.8 (211.1) Acquisition of new loans 1,440.6 3,841.5 Repayment of borrowings (883.9) (1,827.8) Financing fees paid (13.3) (64.8) Dividends paid to Company's shareholders (94.5) (122.4) Net cash inflow from financing activities 708.2 1,954.1 Net (decrease) increase in cash and cash equivalents (18.9) 35.6 Cash and cash equivalents at beginning of the period 55.5 28.5 Exchange gains (losses) on cash and cash equivalents 1.9 (2.8) Cash and cash equivalents at end of the period 38.5 61.3 Cash generated from operations Profit for the period 147.3 163.4 Adjustments for: Tax 73.3 11.9 Finance income (1.7) (6.8) Finance costs 97.1 198.3 Depreciation of property, plant and equipment and amortisation of software costs 17.4 27.0 Amortisation of other acquired intangible assets 17.2 77.3 Changes in working capital: Inventories and directories in development (29.2) (51.6) Trade and other receivables 2.2 (42.9) Trade and other payables 26.0 32.7 Pension deficit repair (64.8) - Share based payments and other 5.9 11.3 Cash generated from operations 290.7 420.6 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 nine months to 31 December 2006 hasbeen prepared 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 2006, and in accordance with the Listing Rules of theFinancial Services Authority. 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 2006 annual report published in June 2006, whichincludes the audited consolidated financial statements of Yell Group plc and itssubsidiaries for the year ended 31 March 2006. The preparation of the consolidated financial information requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial information and the reported amounts of income and expenditureduring the period. Actual results could differ from those estimates. Estimatesare used principally when accounting for doubtful debts, depreciation,retirement benefit obligations and the related employee pension costs,acquisition accounting and taxes. 2. Revenue Nine months ended 31 December Change 2005 2006 % £m £m UK printed directories 436.1 424.2 (2.7) Other products and services 56.5 85.8 Total UK revenue 492.6 510.0 3.5 US revenue at constant exchange rate (a) 618.4 743.5 20.2 Exchange impact (a) - (39.0) Total US revenue 618.4 704.5 13.9 Spanish and Latin American revenue - 219.4 Group revenue 1,111.0 1,433.9 29.1 (a) Constant exchange rate states current period results at the same exchange rate as that used to translate the results for the same period in the previous year. Exchange impact is the difference between the results reported at a constant exchange rate and the results using current period 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 geographic segment Nine months ended 31 December Change 2005 2006 % £m £m UK printed directories 155.0 149.0 (3.9) Other products and services 21.5 31.8 Total UK operations 176.5 180.8 2.4 US operations at constant exchange rate (a) 173.5 215.7 24.3 Exchange impact (a) - (12.0) Total US operations 173.5 203.7 17.4 Spanish and Latin American operations - 88.6 Group adjusted EBITDA 350.0 473.1 35.2 (a) Constant exchange rate states current period results at the same exchange rate as that used to translate the results for the same period in the previous year. Exchange impact is the difference between the results reported at a constant exchange rate and the results using current period exchange rates. Reconciliation of group operating profit to EBITDA (a) Nine months ended 31 December 2005 2006 ChangeUK operations £m £m % Operating profit 173.2 170.6Depreciation and amortisation in admin expenses 8.3 10.2 UK operations EBITDA 181.5 180.8 (0.4)Exceptional items (5.0) - UK operations adjusted EBITDA 176.5 180.8 2.4 UK operations adjusted EBITDA margin 35.8% 35.5% US operationsOperating profit 142.8 167.3 Depreciation and amortisation in admin expenses 26.3 36.4 US operations EBITDA 169.1 203.7 20.5Exceptional items 4.4 -Exchange impact (b) - 12.0 US operations adjusted EBITDA at constant exchange rate (b) 173.5 215.7 24.3 Exchange impact (b) - (12.0) US operations adjusted EBITDA 173.5 203.7 17.4 US operations adjusted EBITDA margin 28.1% 28.9% Spanish and LatAm operations Operating profit 28.9Depreciation and amortisation in admin expenses 57.7 Spanish and LatAm operations EBITDA 86.6Exceptional items 2.0 Spanish and LatAm operations adjusted EBITDA 88.6 Spanish and LatAm operations adjusted EBITDA margin 40.4% Group Operating profit 316.0 366.8Depreciation and amortisation in admin expenses 34.6 104.3 Group EBITDA 350.6 471.1 34.4Exceptional items (0.6) 2.0Exchange impact (b) - 12.0 Group adjusted EBITDA at constant exchange rate(b) 350.0 485.1 38.6Exchange impact (b) - (12.0) Group adjusted EBITDA 350.0 473.1 35.2 Group adjusted EBITDA margin 31.5% 33.0% (a) EBITDA is one of the key financial measures that we use to assess growth and operational efficiencies in the business. (b) Constant exchange rate states current period results at the same exchange rate as that used to translate the results for the same period in the previous year. Exchange impact is the difference between the results reported at a constant exchange rate and the results reported using current period exchange rates. We do not allocate interest or taxation charges by product or geographicsegment. 4. Taxation The tax charge is based on the estimated effective tax rate for the year. Theeffective tax rate for the nine month period is different from the standard rateof corporation tax in the United Kingdom (30%) as explained below: Nine months ended 31 December 2005 2006 £m £mProfit before tax multiplied by the standard rate ofcorporation tax in the United Kingdom (30%) 66.2 52.6 Effects of:Differing tax rates on overseas earnings 11.9 6.1Changes in tax rates in Spain - (45.5)Other (4.8) (1.3) Tax charge on profit before tax 73.3 11.9 Current tax 44.6 56.7Deferred tax 28.7 (44.8) Tax charge on profit before tax 73.3 11.9 5. Dividends paid The final dividend for the 2006 financial year of 10.2 pence per share (2005 -8.4 pence per share) was paid on 25 August 2006 and amounted to £78.5 million(2005 - £58.9 million). The interim dividend of 5.7 pence per share (2005 - 5.1pence per share) was paid on 15 December 2006 and amounted to £43.9 million(2005 - £35.6 million). 6. Earnings per share The calculation of basic and diluted earnings per share is based on the profitfor the relevant financial period and on the weighted average share capitalduring the period. Amortisation Exceptional of acquired Actual items intangibles Adjusted Nine months ended 31 December 2006 EBITDA (£m) 471.1 2.0 - 473.1Depreciation and amortisation (£m) (104.3) - 77.3 (27.0)Net finance costs (£m) (191.5) 36.3 - (155.2) Group profit before tax (£m) 175.3 38.3 77.3 290.9Taxation (£m) (11.9) (57.6) (27.8) (97.3) Group profit after tax (£m) 163.4 (19.3) 49.5 193.6Minority interests (£m) (3.6) 2.6 (2.0) (3.0) Group profit after tax and minority interests (£m) 159.8 (16.7) 47.5 190.6Weighted average number of issued ordinary 768.9 768.9shares (millions) Basic earnings per share (pence) 20.8 24.8Effect of share options (pence) (0.2) (0.3) Diluted earnings per share (pence) 20.6 24.5 Nine months ended 31 December 2005 EBITDA (£m) 350.6 (0.6) - 350.0Depreciation and amortisation (£m) (34.6) - 17.2 (17.4)Net finance costs (£m) (95.4) 7.8 - (87.6) Group profit before tax (£m) 220.6 7.2 17.2 245.0Taxation (£m) (73.3) (4.2) (6.6) (84.1) Group profit after tax (£m) 147.3 3.0 10.6 160.9 Weighted average number of issued ordinary 704.7 704.7shares (millions) Basic earnings per share (pence) 20.9 22.8 Effect of share options (pence) (0.2) (0.2) Diluted earnings per share (pence) 20.7 22.6 Exceptional costs of £2.0 million for the nine months ended 31 December 2006 arepost-acquisition restructuring costs related to the TPI acquisition. Theexceptional finance costs for the nine months ended 31 December 2006 comprise£13.8 million for accelerated amortisation of deferred financing fees and £22.5million premium on the redemption of our Notes, which were refinanced prior tothe TPI acquisition. The exceptional taxation benefit comprises £0.7 millionrelated to post-acquisition restructuring costs, £11.4 million related toexceptional finance costs and a £45.5 million exceptional tax credit fromremeasuring deferred taxes in Spain at the lower tax rates enacted in November2006. Exceptional items of £0.6 million in the prior year include restructuringand other costs of £4.4 million arising from the TransWestern acquisition, and acredit of £5.0 million arising from the release of a provision for IPO costs inthe UK. Exceptional finance costs in the prior year relate to the acceleratedamortisation of deferred financing fees on our senior debt, which was redeemedat the date of the TransWestern acquisition. 7. Deferred tax assets and liabilities The elements of deferred tax assets recognised in the accounts were as follows: At At 31 March 31 December 2006 2006 £m £m Tax effect of timing differences due to:Bad debt provisions 38.3 46.5Defined benefit pension scheme 26.6 21.7Other allowances and accrued expenses 20.4 21.2Share options 15.9 17.7Recognition of revenues and expenses - 13.2Depreciation 6.9 6.9Recognised tax net operating losses 20.5 1.3Other 11.0 24.6 Recognised deferred tax assets 139.6 153.1 The elements of deferred tax liabilities recognised in the accounts were asfollows: At At 31 March 31 December 2006 2006 £m £mTax effect of timing differences due to:Intangible assets - 333.3Amortisation 76.1 79.3Directories in development 32.9 31.7Recognition of revenues and expenses - 10.3Financial instruments 3.3 5.0Foreign investments - 4.6Goodwill - 3.8Other and deferred costs 18.5 25.8 Recognised deferred tax liabilities 130.8 493.8 8. Trade and other receivables At At 31 March 31 December 2006 2006 £m £mNet trade receivables (a) 555.5 761.9Other receivables 19.0 48.2Accrued income (a) 1.4 41.0Prepayments 10.4 15.1 Total trade and other receivables 586.3 866.2 (a) The Group's trade receivables and accrued income are stated after deducting a provision of £220.5 million at 31 December 2006 (31 March 2006 - £157.8 million). 9. Loans and other borrowings and net debt At At 31 March 31 December 2006 (a) 2006 (a) £m £mAmounts falling due within one yearTerm loans under credit facilities 50.1 101.8Revolving loan under senior credit facilities 242.2 30.0Net obligations under finance leases 0.6 1.0 Total amounts falling due within one year 292.9 132.8Amounts falling due after more than one year Credit facilities 1,390.6 3,561.6Senior 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 3,561.6 Net loans and other borrowings 2,022.5 3,694.4Cash and cash equivalents (28.5) (61.3) Net debt at end of period 1,994.0 3,633.1 (a) Balances are shown net of deferred financing fees of £50.4 million at 31 December 2006 (31 March 2006 - £10.8 million). 10. Trade and other payables At At 31 March 31 December 2006 2006 £m £m Trade payables 32.9 70.0Other taxation and social security 17.3 14.3Accruals and other payables 163.3 245.7Deferred income 161.2 311.1 Total trade and other payables falling due within one year 374.7 641.1 11. Retirement benefit obligations The £6.1 million decrease in retirement benefit obligations from £39.9 millionat the year end to £33.8 million at 31 December 2006 is largely the result ofactuarial gains of £7.5 million that arose in the nine months due to an increasein asset values and real interest rates, offset by total charges in excess ofcash contributions. 12. Statement of changes in equity Attributable to equity shareholders Share Other Retained Minority capital reserves earnings interest Total £m £m £m £m £m Balance at 31 March 2006 1,192.3 (103.7) 17.2 - 1,105.8 Profit on ordinary activities after taxation - - 159.8 3.6 163.4Net (expense) income recognised directly in equity - (56.4) - (0.6) (57.0) Total recognised (expense) income for the period - (56.4) 159.8 3.0 106.4 Share placement and capital restructuring 0.7 - 344.1 - 344.8Value of services provided in return for share based payments - 11.3 - - 11.3Ordinary share capital issued to employees 5.4 - - - 5.4Own shares purchased by ESOP trust (a) (11.5) - - - (11.5)Capital duty paid on TPI acquisition - (13.0) - - (13.0)Minority interest arising on purchase of subsidiary - - - 42.3 42.3Dividends paid - - (122.4) - (122.4) (5.4) (58.1) 381.5 45.3 363.3 Balance at 31 December 2006 1,186.9 (161.8) 398.7 45.3 1,469.1 (a) Purchase of shares held in an ESOP trust for employees. Cumulative foreign currency losses attributable to equity shareholders at 31December 2006 are £143.6 million (31 March 2006 - £68.4 million). 13. Capital Expenditure Capital expenditure on property, plant and equipment in the nine months to 31December 2006 and 2005 was £35.0 million and £18.4 million, respectively.Proceeds on the sale of property, plant and equipment were £nil in the sameperiods. Capital expenditure committed at 31 December 2006 and 2005 was £4.0 million and£3.4 million, respectively. 14. Acquisitions Nine months ended 31 December 2006 In the nine months to 31 December 2006, the Yell Group paid £2,025.5 million foracquisitions. The largest acquisition was that of 94.25% of the share capitalof Telefonica Publicidad e Informacion, S.A. ("TPI") on 31 July 2006 (which weintend to rename Yell Publicidad, S.A.), for €2,939.8 million (£2,010.3million). The purchase price of TPI was provisionally allocated to the acquiredassets and liabilities as follows: Acquiree's Fair value Provisional 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 - 30.8 Total non current assets 164.9 1043.5 1,208.4 Current assetsDirectories in development 48.0 34.9 82.9Trade and other receivables 292.2 - 292.2Cash and cash equivalents 16.8 - 16.8 Total current assets 357.0 34.9 391.9 Current 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 1,245.6 Non-current liabilitiesLoans and other borrowings (70.2) - (70.2)Deferred tax liabilities (29.1) (403.7) (432.8)Other non current liabilities (6.4) - (6.4) Identifiable net assets 61.5 674.7 736.2Minority interests (42.3)Share of net assets acquired 693.9Goodwill 1,316.4 Total 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. The acquisition of TPI was financed by debt acquired of £1,634.0 million,proceeds from the share placement of £344.8 million, and operating cash of £31.5million. The consolidated financial information of the Yell Group consolidates thefinancial results of TPI for the five months ended 31 December 2006. If theacquisition of TPI had occurred on 1 April 2006, we estimate that the pro formagroup revenue to 31 December 2006 would have been £1,565.6 million and groupadjusted EBITDA would have been £504.3 million. We also made other acquisitions in the nine months that are not consideredmaterial for separate presentation. We paid cash of $19.8 million (£12.8million) to acquire operations with net liabilities of $5.5 million (£3.4million) before the fair value adjustments to record goodwill of $20.2 million(£13.0 million) and other intangible assets of $5.1 million (£3.2 million).These acquisitions have contributed $24.3 million of revenue in the period fromthe dates of acquisition to 31 December 2006. A reconciliation of cash paid on acquisitions, including a deferred payment of$11.9 million (£6.2 million) for the acquisition of TransWestern Publishing(TWP), to the cash flow on page 13 is as follows: Nine months ended 31 December 2006 £m Total cost of acquisitions 2,023.1Less cash acquired (16.8)Capital duties paid (a) 13.0Deferred payment for TWP 6.2 Net cash outflow in period 2,025.5 (a) Capital duties paid on the acquisition of TPI and recorded in equity; see note 12 to the financial information. Nine months ended 31 December 2005 In the nine months to 31 December 2005, the Yell Group acquired a number ofdirectories businesses in the US for consideration totalling $1,629.3 million(£920.5 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 Non current assetsOther intangible assets 84.9 111.8 - 196.7Property, plant and equipment 2.7 (0.1) - 2.6Deferred tax assets 31.8 0.2 - 32.0 Total non current assets 119.4 111.9 - 231.3 Current assetsDirectories in development 26.2 - - 26.2Trade and other receivables 53.6 (0.6) - 53.0Cash and cash equivalents 1.1 - - 1.1 Total current assets 80.9 (0.6) - 80.3 Current liabilitiesLoans and other borrowings (3.6) - 3.6 -Corporation Tax (0.7) - - (0.7)Trade and other payables (88.6) - 27.7 (60.9) Total current liabilities (92.9) - 31.3 (61.6) Total assets less current liabilities 107.4 111.3 31.3 250.0 Non-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 681.2 Total cost 909.9 Goodwill of £681.2 million is attributable to future synergies expected, theworkforce acquired and future growth of the business. We also made other acquisitions in the nine months ended 31 December 2005 thatwere not considered material for presentation in the above table. We paid cashof $34.0 million (£19.2 million) to acquire net assets with a fair valuetotalling $2.2 million (£1.3 million) giving rise to additional goodwill of$24.3 million (£13.7 million) and other intangible assets of $7.5 million (£4.2million). 15. 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 2006, Yell published 113 directories in the UnitedKingdom and 835 in the United States. In the United Kingdom, where it is aleading player in the classified advertising market, it served 462,000 uniqueadvertisers. In the United States, where it is the leading independentdirectories business, it served 622,000 unique advertisers. Yell's 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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