26 Jun 2012 18:22
Yell Group Plc ("Yell")
Annual Report for the year ended 31 March 2012, Notice of Annual General Meeting and Proxy Card
The above documents were posted to shareholders on 26 June 2012.
In compliance with LR 9.6.1, all the above documents have been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available to the public for inspection at www.hemscott.com/nsm.do.
These documents (with the exception of the Proxy Card) are also available to view on Yell's website at:
http://www.yellgroup.com/annualreport
Yell's Annual General Meeting will be held at 11am on Thursday 26 July 2012 at Exchange House, Primrose Street, London EC2A 2HS.
The unaudited condensed set of financial statements for the year ended 31 March 2012, were published on 22 May 2012. These were prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs"), IFRIC Interpretations and the Companies Act 2006, as will be set out in Yell's Annual Report and financial statements for the year ended 31 March 2012, and in accordance with the Listing Rules of the Financial Services Authority.
Set out below in this announcement is additional information reproduced for the purposes of compliance with the Disclosure and Transparency Rules. This information is extracted from the audited Annual Report and financial statements for the year ended 31 March 2012, and therefore, page and note references relate to that document. This announcement should not be regarded as a substitute for reading the full Annual Report and financial statements.
Enquiries:
Christian Wells
Company Secretary
T: +44 (0) 118 358 2307
Information required to be disclosed under the Disclosure and Transparency Rule 6.3.5R
Related party transactions
Company
There were no transactions with Group companies in the years ended 31 March 2012 and 2011 other than the following transactions with Yell Finance B.V. and ESOP trust:
Year ended 31 March
£ m | 2012 | 2011 |
Finance income from Yell Finance B.V. | 38.3 | 35.3 |
Net finance income | 38.3 | 35.3 |
Year ended 31 March
£ m | 2012 | 2011 |
Amounts charged by the Company to subsidiaries for employee share plans | 10.5 | 20.1 |
At 31 March
£ m | 2012 | 2011 |
Non-current assets | ||
Amounts owed by Yell Finance B.V. | 13.5 | 1,024.2 |
Amounts owed by ESOP trust, net of £22.2m provisions (2011 - £22.2m) | 11.0 | 21.9 |
Total amounts owed by Group companies | 24.5 | 1,046.1 |
Subsidiary undertakings
Brief details of principal subsidiary undertakings at 31 March 2012 and 2011, all of which are unlisted, are disclosed in note 12 of the 2012 Yell Group plc financial statements.
Key management compensation was as follows:
Year ended 31 March
£m | 2012 | 2011 |
Salaries and other short-term employee benefits | 3.0 | 3.1 |
Post-employment benefits | - | 0.4 |
Share-based payments | 0.8 | 0.4 |
Termination benefits | - | 0.9 |
Total key management compensation | 3.8 | 4.8 |
Responsibility statement
The Annual Report and financial statements for the year ended 31 March 2012 contain, on page 118, a responsibility statement signed on behalf of the Board and stating as follows:
Each of the current directors, whose names and functions are set out on page 113 confirm that, to the best of their knowledge:
• The Group financial statements, prepared in accordance with IFRSs as adopted by the EU and issued by IASB, give a true and fair view of the assets, liabilities, financial position and loss of the Group and Company; and
• The directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties that they face.
Principal risks
The Annual Report and financial statements for the year ended 31 March 2012 describes the principal risks and uncertainties faced by Yell. These are reproduced in the attached Appendix.
Appendix
Yell undertakes various activities within a risk management framework to ensure that risk and uncertainty are properly managed, appropriate internal controls are in place and effective risk treatment plans are initiated where necessary.
·; The directors have overall responsibility for establishing and maintaining the systems of internal control and risk management, and for reviewing their effectiveness. These systems are designed to manage risks within the risk appetite of the Group and its shareholders, consider the interactive effects of risk events and increase the likelihood that strategic objectives are realised. The systems also provide reasonable, but not absolute, assurance against material misstatement or loss
·; Yell carries out an annual risk assessment to identify and document key strategic, operational and financial risks. A systematic approach is adopted that considers a broad spectrum of internal and external risk drivers, assesses the likelihood of risks occurring and the potential impact should they materialise, and where appropriate, risk treatment plans are developed and monitored. These risks (and corresponding treatment plans) are then monitored and reviewed on a quarterly basis, with oversight of the Audit Committee and the Board, for any changes and emerging risks. This process has been in place for the reporting period covered by this report and up to the date of approval of this Annual Report
·; The annual internal audit plan has been developed to review controls and key auditable mitigating actions highlighted as part of this process
·; The Audit Committee and senior management review regularly the risk assessment, management plans, and internal audit plan
·; Yell has designed and implemented financial reporting controls in line with what it believes are best practices. The financial framework comprises processes that represent a set of coordinated tasks and activities, conducted by both people and IT systems, where significant classes of transactions are initiated, recorded, processed and reported. Yell has fully documented the systems, processes and key controls that produce financial reporting. Key controls are those controls that have a significant effect on reducing the risk of misstatement and will affect one or more financial statement assertions and reduce the risk of financial misstatement in relation to those assertions, to a relatively low level. Yell updates its documentation and tests the identified key controls annually. This testing is in addition to, and runs parallel with, the internal audit plan and risk assessment programme. Results of internal audit plan testing and testing of the key controls are provided to the Audit Committee for review
·; The Board, with advice from the Audit Committee, has completed its annual review of the effectiveness of the system of internal controls. In the Board's view, the information it received was sufficient to enable it to review the effectiveness of the Group's system of internal controls in accordance with the Internal Control Revised Guidance for Directors in the Combined Code (Turnbull) and the Board is satisfied that the system complies with that guidance
·; Of the following risks, the three principal risk categories are: debt and refinancing risks, strategic risks and competition risks.
1. Debt and financing risk and potential effect | Mitigation |
Risk from: Refinancing debt
Yell has funded the business largely from cash flows generated from operations and bank debt in the form of term loans. Yell's leverage remains high. Net debt at 31 March 2012 was 4.8 times annualised EBITDA at consistent exchange rates compared with 5.5 times on the same basis at 31 March 2011. Details of the Group's borrowings are disclosed in notes 18 and 19 to the financial statements; approximately £197m of Yell's long term debt falls due on or prior to 31 March 2013 and most of the balance of £2,197.4m will need to be repaid or refinanced before it falls due in Q1 and Q2 2014. In practice, and in order to continue to prepare its accounts on a going-concern basis, the Group will need to repay, extend, or otherwise refinance its long term debt before 31 March 2013. Whilst Yell enjoys ongoing relationships with its lenders and is currently able to service its level of debt, there is a risk, given the relative infancy of the strategy and the continued global economic conditions, that the debt markets will remain fragile and sometimes illiquid, such that the cost of replacing maturing debt is relatively high and access is either restricted or not possible at all.
Potential effect: Failure to prepare the Group's accounts for the year ended 31 March 2013 on a going concern basis would likely give rise to a qualification by the auditors of those accounts. Such a qualification would, if in the reasonable opinion of the two-thirds of the lenders it was materially adverse in the context of the borrowing facilities, trigger a default under the provisions of the Group's borrowing facilities. As a consequence, the lenders' facility agent then may, and must if directed by two thirds of lenders (by reference to debt held) demand immediate repayment of all amounts due to them. The consequence to current shareholders of such a demand for immediate repayment is likely to be the almost complete loss of their equity value. |
Yell recognises refinancing risk and continually monitors the financial markets for opportunities to diversify its debt portfolio. This risk reduces as Yell demonstrates progress in executing the strategy. Yell intends to consult with its lenders and shareholders in order to put in place an appropriate new capital structure within the 2013 financial year. |
Risk from: Financial covenants
As a consequence of increasingly difficult trading conditions and a greater proportion of future income expected to come from as yet unproven new strategies, there is a higher risk in the current year than in the previous year that the Group would not be able to meet its financial covenants under the borrowing facilities. Under certain circumstances considered by the Board, it is possible that the Group will not be able to meet its financial covenants. The financial covenants are described in note 16 to the financial statements. The debt cover covenant requires that the ratio of net debt at the testing date to EBITDA for the previous twelve month period should not exceed specific threshold ratios at specific test dates. The net debt to EBITDA covenant levels were reset on 19 December 2011 to increase the headroom thereunder and continue to tighten over time. There is a risk that in the future, the Group would need to reset its financial covenant levels which would require the consent of two-thirds of the lenders (by reference to debt held). Any breach of the financial covenants would require a waiver, again from two-thirds of the lenders (by reference to debt held). If the Group were required but not able to reset its financial covenants with, or obtain a waiver from, its lenders such that the financial covenants 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 year ending 31 March 2013 interest payments will be fully met, with further cash generated to meet debt repayment obligations.
Potential effect: Failure to prepare the Group's accounts for the year ended 31 March 2013 on a going concern basis would likely give rise to a qualification by the auditors of those accounts. Such a qualification would, if in the reasonable opinion of the two-thirds of the lenders it was materially adverse in the context of the borrowing facilities, trigger a default under the provisions of the Group's borrowing facilities. As a consequence, the lenders' facility agent then may, and must if directed by two-thirds of lenders (by reference to debt held) demand immediate repayment of all amounts due to them. The consequence to current shareholders of such a demand for immediate repayment is likely to be the almost complete loss of their equity value. |
Yell is currently in full compliance with the financial covenants contained in its borrowing agreements. Yell actively monitors progress against the covenants and when required can take corrective action by cutting discretionary costs to reduce the risk of a breach occurring. The Group is cash generative and profitable (before exceptional items). The Group intends to consult with its lenders and shareholders in order to put in place an appropriate new capital structure within the 2013 financial year. |
2. Strategic risk and potential effect | Mitigation |
Risk from: Execution of the new strategy
In 2011, the Yell Board and senior management undertook a strategic review of the business. The output was a four year business transformation strategy that leverages its strong presence in the local market place through its digital and print portfolio, to become an online provider of eMarketplace to SMEs and consumers; developing a broad range of digital services tailored to meet their converging needs to connect and transact in a convenient, local online environment.
In executing the new strategy there are significant risks associated with technology and product development, timely and successful delivery of new products and services to market and profitably meeting client needs in the highly competitive digital media industry.
Potential effect: Lost revenue and profits, asset impairments and funding issues.
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To mitigate this risk and maximise the probability of achieving the business transformation strategy, Yell has selected strategic partners and acquisitions with proven market and technical expertise (including Microsoft, Znode, Moonfruit, Bazaarvoice, Shopkick and Netbiscuits). Yell has also built and piloted products, reorganised the group to work as one business and brought in essential new skills in order to deliver a "best in class" experience.
To mitigate this risk further, a new incubation team has been set up to accelerate the introduction of new products and a customer service team has been established to ensure the customer is at the heart of everything Yell does. Yell has also announced a new corporate brand to help its customers and consumers find and identify with its new products and services.
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3. Competition | Mitigation |
Risk from: Strong competition in existing and new markets
Yell faces strong competition in all of its markets from both the arrival of new products, such as the replacement of print with digital alternatives, and from the action of other companies, some of whom are material organisations with resources far greater than those of Yell, particularly in its new digital markets
Potential effect: Yell is unable to replace, or replace quickly enough, the cash flow lost as its legacy directory products decline, with income from new products and markets. Solvency, funding and going concern issues would result. |
Yell has built and is implementing a transformational new strategy to deliver material new cash flows as soon as possible. In addition, significant cost reductions are being made and the legacy directory business is being sustained as far as possible in order to provide more time for the new strategy to have sufficient effect. |
In addition the Board has identified certain other material risks to Yell Group's business:
4. Current economic downturn | Mitigation |
Risk from: Economic uncertainty
Economic uncertainty and tight credit markets can lead to SMEs spending less money on advertising than they have in better times. A prolonged global recession (or double dip) remains a threat to Yell's financial performance and the timely delivery of its strategic objectives. The three largest markets for Yell are the United States, the United Kingdom and Spain which have all experienced and/or are experiencing slow or negative economic growth. As such, whilst Yell operates in other jurisdictions across the world (principally Chile, Peru and Argentina) it is exposed to any material slowdown in, or continued uncertainty regarding, the United States or the Eurozone.
Potential effect: Lost revenue and profits, asset impairments and funding issues.
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Yell has progressed its plans to re-shape the business, streamlining the supply chain, taking out costs (exceeding cost reduction targets set in July 2011 for the following two years) and developing a variable cost model for the new strategy. The new strategy also gives access to a growing, much larger addressable market. |
5. Information Technology | Mitigation |
Risk from: Dependence on IT
Yell is dependent on effective IT systems and the need to constantly update its systems to maintain competitive edge. These systems are key to both our existing business operations and to delivery of the new strategy. Successful execution of the IT element of the new strategy is critical and some IT systems may move onto new platforms during 2012. Yell is also dependent upon the uninterrupted and secure operation of its computer systems and data bases.
Potential effect: Lost revenue and profits, asset impairments, breach of legislation and damage to reputation. |
Yell is investing heavily in order that the Group's IT systems can support the roll out of the new strategy. Yell has in place a disaster recovery plan to replicate the data stored on its business critical computer systems and maintains firewalls and IT security controls. |
6. Compliance with applicable law | Mitigation |
Risk from: Failure to adhere to applicable laws, rules and regulations
Any failure to comply with applicable laws, rules and regulations may result in civil and/or criminal legal proceedings being filed against Yell, or in Yell becoming subject to regulatory sanctions. Regulatory authorities have wide-ranging administrative powers to deal with any failure to comply with continuing regulatory oversight (and this could affect Yell, whether such failure is Yell's or that of third party contractors).
Potential effect: Lost revenue and profits and damage to reputation |
Yell devotes significant resources to the considerable challenge of compliance with applicable current and emerging laws and regulations, such as implementing adequate procedures to comply with the requirements of the UK Bribery Act. In addition to Yell's in-house and external legal teams, Yell appoints specific steering groups and compliance teams to put in place specific policies and guidelines as appropriate. Yell requires at least two people to be involved in all transactions and, through its Authorities System, ensures that senior managers are involved in all key transactions and decisions. Yell invests significantly in ensuring the integrity of its control framework, such as internal and external audit. |
7. Environmental laws | Mitigation |
Risk from: Potential changes in environmental laws
Potential changes in the United States requiring customers to request delivery of a Yellowbook directory, may lead to a possible decline on print, a material impact on the financial performance of the Group and delivery of the new strategy. This risk may materialise in other jurisdictions in which Yell operates.
Potential effect: Lost revenue and profits and asset impairments, damage to reputation |
Yell has representation and advisory roles in local governments and industry bodies, recycling networks, and non-government organisations which has assisted in successfully presenting the benefits and relevance of printed directories. Yell continues to monitor current and pending environmental legislation. For many years, Yell has actively sought to reduce its impact on the environment, by including recycled paper in its printed directories, reducing the size of its directories, by actively promoting directory recycling and by introducing the new strategy to move from print to digital products. |
8. Key Personnel | Mitigation |
Risk from: Key people leaving the business
The success of Yell is partly dependent upon the continued service of its key management personnel particularly in relation to implementing the new strategy and upon its ability to attract, motivate and retain suitably qualified employees. Due to the current uncertainty across the business, and the increased workload in a number of key areas, the risk of key people leaving the business remains high and recruiting replacements challenging.
Potential effect: Lost revenue and profits, damage to reputation. |
Succession planning for key roles is continually being addressed by Yell's Human Resources (HR) department. A global HR strategy is currently being developed which will include initiatives to further ensure that Yell is able to attract, develop and retain key people. |
9. UK Pension scheme | Mitigation |
Risk from: Reduced asset values
Yell's pension obligations are backed by assets invested across the broad investment market. Yell's most significant obligations relate to the UK pension fund. There is a risk that the value of the fund assets may not be sufficient to meet the liabilities of the fund. This could arise due, for example, to the fund investments falling in value due to market conditions, the fund investments not delivering sufficient return or the fund liabilities growing faster than expected due to improved longevity of life.
Potential effect: Yell incurs higher funding costs, stressing the business ability to invest in the new strategy. Various different actuarial methods are available for valuing pension scheme liabilities and legislation can require the use of specific methods in some circumstances (for example the insurance buy out basis applies if debts are triggered under s75 Pensions Act 1995). These methods can result in liability figures substantially in excess of those reported in the financial statements. |
The directors and the trustees review the scheme funding on various actuarial bases (including the buy-out basis) at least triennially in accordance with legislation and discussions around the latest valuation as at 5 April 2011 are on-going. The directors and trustees are actively seeking to agree a sensible funding plan, taking account of all of the relevant business and fund issues. The scheme is closed to further accrual. |
10. Key suppliers and partners | Mitigation |
Risk from: The failure of a key supplier or partner
Yell is dependent upon a few key suppliers and partners continuing to support Yell's business. The failure of a key supplier or partner is an inherent risk to Yell; particularly given the current economic uncertainty, the highly leveraged position of Yell, and the critical role of suppliers and partners in ensuring the successful implementation of the new strategy.
Potential effect: Lost revenue and profits. |
Yell keeps a register of key suppliers and the impact of their relationship with Yell ceasing. In addition Yell continues to develop mutually beneficial relationships with its key suppliers and develops relationships with new suppliers and partners. Yell avoids using a single source for its key supplies, applies an appropriate level of due diligence in the selection process and monitors its key suppliers ongoing financial position. |