HIBU.L Regulatory News (HIBU)

15 February 2011

YELL GROUP PLC ("Yell" or "the Group")

REPORT FOR THE NINE MONTHS ENDED 31 DECEMBER 2010

Financial headlines(1)

·; Group revenue of £1,351.4 million was down 11.8%.

§ Digital media revenue was up by 10.4% to £342.2 million and is now 25.3% of total revenue (2009 - 20.0%).

§ Print revenues fell by 18.4% to £936.6 million.

·; EBITDA of £386.7 million was down £89.8 million(2).

·; Profit after tax of £23.4 million was down £24.2 million.

·; Free cash flow of £197.1 million.

·; Net debt fell by £264.8m to £2,829.8 million.

Mike Pocock, Chief Executive Officer, said:

"Since arriving at Yell, Tony Bates, our new CFO, and I have commenced an in-depth review and we will present a strategy update for Yell this summer.

"Yell's challenges stem from both economic pressures and, more fundamentally, from the shift to digital media. However, Yell also has clear strengths including its brand, its relationships with 1.4 million SME customers, the quality of its people and its powerful cash flows.

"We expect print to continue to decline steadily. That said, print remains highly cost-effective for our advertisers and it will continue to be so, complementing digital for many years to come. In this reducing print market, we believe that Yell continues to gain market share.

"The digital marketplace is rapidly growing and highly fragmented. It is one where the consumer is a leader and a small market share can mean big business and strong growth. General search is consolidated. Local search is not, and Yell is already the source of many of the local listings produced by general search engines, as well as growing its own Yell destination sites. The foundations of web print are established; Yell's website creation and management services are developing and growing rapidly; Yell has successfully entered the mobility space, itself still very young, with apps on smartphones and iPads; and it is beginning to explore social networking and recommendation.

"All this can be radically built upon to provide solutions for consumers and to be a solutions provider for the SME, making Yell as relevant in the digital age as Yellow Pages was in the print only age - perhaps more so.

"Doing this will change Yell's structure, products, systems, culture and prospects. It will open up not only the opportunity for digital revenue streams but also for substantial synergies through group-wide operation of key functions and it will bring with it new strategic partnerships.

"It will take time to change the revenue trajectory and to secure the available synergies but we can see a course for Yell to return to sustainable profitable growth and we believe Yell has the business base and financial strength to achieve this."

(1) Results are for the nine months, unaudited and compared to the same period in the prior year. All revenue and EBITDA percentage changes in this document are at constant exchange rate unless otherwise noted. Group and print revenue percentage changes also take into account rescheduling and acquisitions.

(2) EBITDA is profit for the period before interest, tax, depreciation, amortisation and exceptional items.

Outlook

EBITDA for the current financial year is now expected to be slightly below the current range of market expectations. We plan to provide earnings guidance for the full year ending March 2012 at our full year results presentation in May.

Group Results

The economic environment remains challenging in all major geographies. Against this backdrop, Yell is rapidly changing its product offering to deliver digital marketing solutions across a range of media, whilst tightly managing the structural decline in its print business. Over 50% of customers take both digital media and print solutions and 73,000 take digital media only.

Website design and lead generation services continue to grow in all countries. The Group's website offer continues to improve with much faster delivery and a broader, stronger product range. We have sold over 200,000 customer websites and are adding approximately 5,000 new sites per week. In recent months, the Group has expanded its digital media offering through Weforia.com, a group buying site, and Chatterhub, a reputation management tool.

The usage of Yell's primary internet sites continues to increase, with 52.2 million unique users(1) in December. Usage is being enhanced through the rapidly improving mobile channels, where the Group's smartphone applications now rank highly in all countries. To date, there have been nearly 5 million downloads of Yell applications across the Group.

Largely as a result of the strength of its new product offerings, the Group's digital media revenue grew 10.4% over the nine months and the quarter.

The Group's print business remains highly cash generative, advertiser retention rates are improving and we believe that Yell continues to gain market share in all markets. Print revenue nevertheless declined by 18.4% in the nine months and 19.7% in the quarter reflecting both the current economic environment and the structural shift to digital media.

The Group has continued to enhance its directory products through changes in format and dedicated call tracking lines which enable our customers to identify leads that come directly from a Yell directory.

Cost reductions have been made across the Group to fund revenue focused investment, particularly in new product development, website fulfilment and sales headcount. The exceptional costs of £19.2 million result from the restructuring charges associated with achieving the cost reductions.

The Group continued to generate significant free cash flow and delivered a further material reduction in net debt.

At £197.1 million, free cash flow included £386.7 million from EBITDA, net interest payments of £182.8 million and a reduction of £87.1 million in working capital due mainly to lower print revenues. Cash interest fell by £54.9 million due to lower net debt and the unwinding of interest rate hedges.

The Group had £172.1 million of cash at the end of the period after the £150.0 million early repayment of senior debt in December. This repayment addresses future contractual obligations, saves interest costs and leaves only £66 million of the Minimum Reduction Amount to pay by May 2011.

Net debt fell by £264.8 million mainly reflecting free cash flow of £197.1 million and favourable currency movements of £84.1 million. With net debt of £2.8 billion at 31 December 2010, the Group had more than 20% headroom on its debt covenants.

(1) Excluding mobile users.

Key metrics

(1) Unique live advertisers is the number of digital media customers at period end. The prior year UK figure has been restated from 208,000 due to a minor definition change.

(2) Yellowbook figures include visitors to the Yellowbook.com network. This figure may be subject to revision by the third party provider.

(3) Growth is at constant exchange rates and does not include the effect of rescheduling or acquisitions.

FINANCIAL INFORMATION FOR YELL GROUP PLC AND SUBSIDIARIES

All of the following financial information is unaudited except the balance sheet information for 31 March 2010, which was presented in Yell's 31 March 2010 Annual Report.

Consolidated income statement

Consolidated statement of comprehensive income

See notes to the financial information for additional details.

Consolidated statement of cash flows

See notes to the financial information for additional details.

Consolidated balance sheet

See notes to the financial information for additional details.

Consolidated statement of changes in equity

(1) Cumulative foreign currency gains attributable to equity shareholders at 31 December 2010 are £331.6 million (31 December 2009 - £292.1 million gain; 31 March 2010 - £353.1 million gain).

See notes to the financial information for additional details.

Notes to the financial information

1. Basis of preparation and consolidation

The principal activity of Yell Group plc and its subsidiaries is the sale of quality business leads and marketing solutions to small and medium sized enterprises in the UK, US, Spain and some countries in Latin America through an integrated portfolio of simple-to-use, cost effective advertising. Yell's products are available through printed, online, telephone and mobile based media.

This unaudited condensed set of financial statements for the nine months ended 31 December 2010 has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs") as set out in Yell's annual report for the year ended 31 March 2010 and in accordance with the Listing Rules of the Financial Services Authority. It does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

The financial covenants are disclosed in note 14 on page 17 of this financial information. A discussion of the risks associated with the debt covenants, which remain current, are presented on page 22 of Yell's annual report for the financial year ended 31 March 2010, a copy of which is available on Yell's website at http://www.yellgroup.com.

These risks and uncertainties include strategic risks faced by Yell's industry; operational risks faced by the Group's businesses; debt and financing risks faced in funding Group operations and the financial reporting and related risks faced in reporting Yell's results. The extent to which new management may have a positive influence on these uncertainties is not yet known. As a consequence of these uncertainties there is a risk that in the future the Group would need to reset its financial covenants with, or obtain a waiver from its lenders, either of which would require a two thirds majority vote.

If the Group were required but not able to reset its financial covenants with, or obtain a waiver from, its lenders such that undertakings to the Group's lenders were breached, the lenders' facility agent may, and must if directed by two thirds of lenders (by reference to debt held) demand immediate repayment of all amounts due to them. Whilst this eventuality would, if it arose, cast doubt on the future capital funding of the Group, the Group's cash flow forecasts show that in the twelve months ending 31 December 2011 interest payments will be fully met, with further cash generated to repay debt.

The financial information contained herein has been prepared on a going concern basis. The Group is in full compliance with the financial covenants and undertakings contained in all its borrowing agreements and the Directors do not currently expect that there will be a financial covenant breach during the twelve months from 31 December 2010. The Group is cash generative and profitable. For these reasons the directors have adopted the going concern basis in preparing these financial statements.

The preparation of the consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of income and expenditure during the period. Actual results could differ from those estimates. Estimates are used principally when accounting for doubtful debts, depreciation, retirement benefits, acquisitions and taxation.

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

Where change at constant currency is stated in this document it states the change in the current period compared with the previous period as if the current period results were translated at the same exchange rates as those used to translate the results for the previous period. Figures reported at constant exchange rates are stated at the same exchange rates as those used to translate the comparative figures for the previous period. Exchange impact is the difference between the results reported at constant exchange rates and the results reported using current period exchange rates. The average effective exchange rates for the nine months ended 31 December 2010 were $1.54 : £1.00 and €1.18 : £1.00 as compared to $1.61 : £1.00 and €1.13 : £1.00 for the same period last year.

In the opinion of management, the financial information included herein includes all adjustments necessary for a fair presentation of the consolidated results, financial position and cash flows for each period presented.

2. Revenue

The percentage changes in the table above are not on a like for like basis as they do not take into account acquisitions or rescheduling, primarily the £25 million of revenue from Chilean directories delayed until the fourth quarter.

3. EBITDA and operating profit

4. Taxation

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

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

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

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

5. Earnings per share

The calculation of basic and diluted earnings per share is based on the profit for the relevant financial period and on the weighted average share capital during the period.

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

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

(3) The basic and diluted earnings per share reflect the firm placing of 785.9 million shares and the placing and open offer of 785.9 million shares on 30 November 2009.

6. Exceptional items

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

7. Capital expenditure

Proceeds on the sale of property, plant and equipment were £nil in the nine months ended 31 December 2010 and 2009. Capital expenditure committed at 31 December 2010 was £13.7 million (2009 - £14.3 million).

8. Acquisitions and disposals

Nine months ended 31 December 2010

In the nine months to 31 December 2010, the Yell Group paid £1.2 million for a digital media company in the UK with recorded net assets of £0.3 million, £0.4 million for the net assets of a pre-press operation in the Philippines with recorded net assets of £0.4 million, and £10.2 million for in-fill acquisitions in the US. Total costs were allocated to the acquired assets and liabilities as follows:

(1) Goodwill of £5.9 million was attributable to the expected future synergies, the workforces acquired and the expected future growth of the businesses.

Nine months ended 31 December 2009

In the nine months ended 31 December 2009, the Yell Group acquired an in-fill acquisition in the US for £3.0 million. Total costs were allocated to the acquired assets and liabilities as follows:

(1) Goodwill of £1.5 million was attributable to the expected future synergies, the workforces acquired and the expected future growth of the businesses.

Cash flow

A reconciliation of cash paid on acquisitions, including deferred payments for prior period acquisitions, to the cash flow on page 5 is as follows:

The Yell Group did not make any disposals in any of the periods presented in this financial information.

9. Goodwill

Goodwill is not amortised but is tested, at least annually, for impairment. The impairment analysis is based on certain assumptions, including future revenue and profit growth, that can change the conclusion on whether goodwill is impaired. A sensitivity analysis on changes in assumptions is provided on page 79 of the annual report for the financial year ended 31 March 2010, a copy of which is available on Yell's website at http://www.yellgroup.com.

No impairment charges have been required in the periods presented in this financial information.

10. Other non-current intangible assets

11. Property, plant and equipment

12. Deferred tax assets and liabilities

The elements of deferred tax assets recognised in the financial statements were as follows:

The elements of deferred tax liabilities recognised in the financial statements were as follows:

During the period, legislation to change corporation tax rates were enacted in the UK and Chile. The effect of these changes has been to reduce deferred tax assets by £1.1 million, deferred tax liabilities by £0.2 million, profit after tax by £0.2 million in the period and other comprehensive income not recognised in the income statement by £0.7 million.

13. Trade and other receivables

(1) The Group's trade receivables and accrued income are stated after deducting a provision of £196.1 million (March - £216.8 million) for bad and doubtful debts.

14. Loans and other borrowings, net debt