HIBU.L Regulatory News (HIBU)

17 May 2011

YELL GROUP PLC

RESULTS FOR THE YEAR ENDED 31 MARCH 2011

Financial headlines(1)

·; Group revenue of £1,877.6m was down 12.4%.

§ Digital media revenue grew 9.4% to £457.0m or 24.3% of revenue (2010 - 19.6%).

§ Print revenues fell by 18.6% to £1,317.1m.

·; EBITDA of £513.6m was down £106.0m(2).

·; Profit after tax of £46.7m was down £0.1m.

·; Free cash flow of £264.7m.

·; Net debt fell by £329.5m to £2,765.1m.

Operational headlines

·; Digital media advertisers grew by 4.5% to 902,000

·; Digital media average revenue per advertiser was up by 9.2% to £528

·; Live customer websites increased by 192,000 to 230,000

·; Internet Yellow Pages visitors at 55.8m in March

·; Print advertisers were down by 9.4% to 1,195,000(3)

·; Print revenue per advertiser was down by 9.9% to £1,063m(3)

Mike Pocock, Chief Executive Officer, said:

"In the face of ongoing tough market conditions, we have continued to make good progress with our digital media offering, bringing new products to the market, increasing consumer usage and increasing revenues. Our market positions in print remain strong and print revenues, though still under pressure, continue to generate significant cash flow. Over the year, Yell has generated over £260m of cash and reduced net debt by almost £330m.

"Our strategic review is now well advanced and our extensive and thorough work to date strengthens the confidence we expressed in February. We will leverage our key assets, primarily our strong brands and customer relationships, to benefit from the large and fast growing digital market. We will provide new services and solutions that both cement our place as a champion of the SME and provide material new value to the consumer. Partnerships with key players will play an important part in accelerating this growth. Our strong market positions and profitable businesses in print and local search will nevertheless remain important for some time. Our existing operating model will also be strengthened and streamlined on a group wide basis to support these new opportunities.

"The digital marketplace is already twice the size of the total print market and some ten times larger than the segments of the print market Yell traditionally addressed. Small shares of this fast growing and highly fragmented market can mean very significant, profitable growth. This is what we intend to deliver, whilst nurturing our print business for the strong cash flows it will continue to provide for years to come.

"We look forward to presenting our strategy conclusions in early July which will demonstrate why we believe Yell can look forward to a good and prosperous future."

 (1) Results are for the year, unaudited and compared with the same period in the prior year. All revenue and EBITDA percentage changes in this document are at constant currency unless otherwise noted. Group and print revenue percentage changes are also adjusted for rescheduling and acquisitions, unless specifically labelled as constant currency.

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

(3) Excluding White Pages

Outlook

We are not counting on an improvement in the economic environment, our strategic review is still to be completed, and it will take time for the full positive impact to be evident. Nevertheless, we expect that EBITDA for the year ending 31 March 2012 will most likely fall within the current market expectations.

Group Results

Most of our customers continue to face tough economic conditions. Small business confidence has remained low throughout the year. Our market has also continued to evolve. Whilst the use of printed products remains significant and highly cost-effective for our advertising customers, the migration to digital alternatives continues, providing both challenges for our print business but also opportunities for digital media growth. Group revenues reflected these issues, falling by 12.4% to £1,877.6m, with the ongoing decline in print being only partially offset by the growth in digital media.

In order to capitalise upon the much larger addressable market that is available through digital media, the Group has expanded its core offer and now provides digital media solutions to over 900,000 customers. Over the year, digital media revenues grew by 9.4% to £457.0m and now account for 24.3% of total Group revenue (2010 - 19.6%). In the fourth quarter however digital media growth slowed to 7.0%, with the continued very strong growth in new digital media solutions being partly offset by a decline in Internet Yellow Pages revenues.

Over the last year, Yell has built nearly 200,000 customer websites, and significantly increased its provision of videos and search marketing services. New products, including group buying, social media, reputation management and mobile are also being trialled.

Usage of the Internet Yellow Pages remains strong with 55.8m users through the web of the Group's primary Internet Yellow Pages sites in March. In addition, the Group now provides search access through mobile applications and has recorded over 6m app downloads to date.

The rate of print customer decline improved during the year, driven generally by slower loss of customers rather than by increased acquisition. Print revenues nevertheless continued to decline, falling by 18.6% over the year and by 19.0% in the fourth quarter, reflecting the continuing net loss of customers and reduced average revenue per customer.

The Group has worked hard to reduce its costs whilst continuing to invest in new product development and process improvement. Over the year, gross margins were improved to 56.3% from 55.0% with increasing price pressure and the increased mix of lower margin product being more than offset by lower bad debt expense and fixed cost of sale savings. During the fourth quarter, the pace of change accelerated; gross margins improved by 2.4 percentage points and indirect fixed costs were reduced by £9.0m.

Consequently, full year EBITDA fell by £106.0m, as the effect of lower costs and improved margins was more than offset by the lower revenues.

During the fourth quarter, the Group continued to restructure, investing £30.5m to reduce costs across the Group. In the year, there were no material savings from these changes. The UK defined benefit pension scheme was also closed to future accrual with our employees moving to a defined contribution alternative, giving rise to a £35.6m exceptional credit. The consequent £5.1m exceptional credit in the fourth quarter resulted in a total exceptional charge for the year of £14.1m.

Profit after tax remained broadly flat as the decrease in EBITDA was offset by an £18.5m reduction in acquired intangible amortisation and a £75.4m decrease in interest charges due to the reduced net debt and the unwinding of interest rate hedges.

The Group continued to generate significant free cash flow, contributing £67.6m of cash in the fourth quarter and £264.7m over the year after net interest payments of £232.1m. Free cash flow was however £77.5m down on the prior year, driven by the lower EBITDA and a £46.6m lower reduction in working capital that were partly offset by a reduction of £70.0m in net interest payments.

The Group had £200.5m of cash at the end of the year after £66.5m of scheduled debt repayments in September and March and the £150.0m early debt repayment in December 2010.

These debt repayments, together with a £41.0m early repayment made in April 2011, mean that all of the £800m minimum reduction amount agreed under Yell's autumn 2009 refinancing has now been met. The Group is consequently not required to pay one-off fees of £15m or suffer a 50 bp increase in interest costs. There was an additional £65m scheduled debt repayment in April 2011 which completed repayment of the outstanding A tranche debt under the 2006 refinancing agreement.

Net debt fell by £329.5m reflecting the strong free cash flow and favourable currency movements of £86.9m. The Group had net debt of £2.8 billion at 31 March 2011.

The Group net assets of £1,513.5m include goodwill of £3,123.9m which is supported by the Group's forward plans. Whilst the final outcome of the strategic review has not yet been announced, it is clear that the Group will face challenges and uncertainties which may affect the carrying value of goodwill. Our auditors intend to reference this in the annual report under the heading "emphasis of matter", however the audit opinion will be unqualified and unmodified.

KEY OPERATIONAL METRICS FOR YELL GROUP PLC

(1) All growth rates are at constant currency, but are not adjusted for rescheduling and acquisitions.

(2) Unique live advertisers is the number of digital media customers at period end. The prior year UK figure has been restated from 199,000 due to a minor definition change.

(3) US include visitors to the Yellowbook.com network.

(4) Excluding landing pages.

FINANCIAL INFORMATION FOR YELL GROUP PLC AND SUBSIDIARIES

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

Group income statement

Group statement of comprehensive income

See notes to the financial information for additional details.

Group statement of cash flows

See notes to the financial information for additional details.

Group balance sheet

See notes to the financial information for additional details.

Consolidated statement of changes in equity

(1) Cumulative foreign currency gains attributable to owners at 31 March 2011 are £312.7m (31 March 2010 - £353.1m 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 year ended 31 March 2011 has been 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 for the year ended 31 March 2011, and in accordance with the Listing Rules of the Financial Services Authority.

The unaudited financial information contained herein does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006 but has been extracted from the statutory financial statements for the year ended 31 March 2011, which will be delivered to the Registrar of Companies in due course. The audit opinion on the statutory accounts for the year ended 31 March 2010 was unqualified and unmodified, and did not contain any statement under section 498 of the Companies Act 2006.The financial information herein should be read in conjunction with Yell's 2011 annual report due to be published in June 2011, which includes the audited consolidated financial statements of Yell Group plc and its subsidiaries for the year ended 31 March 2011. The auditors have yet to report on the Group's statutory accounts for the year ended 31 March 2011, however it is likely that the report, once issued, will include an emphasis of matter in respect of the uncertainty relating to the carrying value of goodwill however the audit opinion will be unqualified and unmodified.

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 is 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 will be updated in the annual report for the financial year ended 31 March 2011, which will be available on Yell's website in June 2011.

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. A new strategic direction for the Group may have a positive influence on these uncertainties. However, 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 March 2012 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 expect that there will be a financial covenant breach during the twelve months from 31 March 2011. 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, impairment testing and taxation.

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 year ended 31 March 2011 were $1.56 : £1.00 and €1.18 : £1.00 as compared to $1.60 : £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.

The financial statements for the year ended 31 March 2011 are not expected to be materially affected by implementation of new standards, amendments to standards, or interpretations.

2. Revenue

3. EBITDA and operating profit

4. Taxation

The tax charge for the year is different from the standard rate of corporation tax in the United Kingdom of 28% (2010 - 28%). The differences are explained below:

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

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

5. Earnings per share

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

(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 785.9m shares and the placing and open offer of 785.9m 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 year ended 31 March 2011 and 2010. Capital expenditure committed at 31 March 2011 was £11.7m (2010 - £14.4m).

8. Acquisitions and disposals

In the year to 31 March 2011, the Yell Group paid £1.2m for a digital media company in the UK with recorded net assets of £0.3m, £0.4m for the net assets of a pre-press operation in the Philippines with recorded net assets of £0.4m, and £10.2m for in-fill acquisitions in the US. Total costs were allocated to the acquired assets and liabilities as follows:

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

Year ended 31 March 2010

In the year ended 31 March 2010, the Yell Group paid £3.0m for an in-fill acquisition in the US with net assets of £1.5m. Goodwill of £1.5m was attributable to the expected future synergies, the workforces acquired and the expected future growth of the business.

Cash flow

A reconciliation of cash paid on acquisitions, including deferred payments for prior year acquisitions, to the cash flow on page 6 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.

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

10. Other 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: