Yellow Pages Limited
TSX : Y

Yellow Pages Limited

February 12, 2015 07:00 ET

Yellow Pages Limited Reports Full Year and Fourth Quarter 2014 Financial Results

MONTREAL, QUEBEC--(Marketwired - Feb. 12, 2015) - Yellow Pages Limited (TSX:Y)

  • 2014 full year digital revenues grew 9% year-over-year to reach $442.8 million, representing over 50% of total revenues. For the fourth quarter of 2014, digital revenues totaled $116.9 million, growing 8.9% year-over-year and representing 54.3% of total revenues.

  • EBITDA decreased to $316 million in 2014, as compared to $416.1 million in 2013. The EBITDA margin reached 36% in 2014, down from 42.8% the year prior. For the fourth quarter of 2014, EBITDA reached $64.8 million, down from $91.3 million in 2013. The EBITDA margin for the fourth quarter of 2014 totaled 30.1%, as compared to 38.3% the year prior.

  • The Company acquired 22,100 new customers during the twelve-month period ended December 31, 2014, up from 15,200 new customers the year prior. For the twelve-month period ended December 31, 2014, YP's customer renewal rate stood at 84%.

  • Total digital visits across the YP, RedFlagDeals, YP Shopwise and Canada411 desktop and mobile properties grew 6.8% year-over-year to reach 424.1 million in 2014. For the three-month period ended December 31, 2014, total digital visits amounted to 117.4 million, up 14.2% over the same period last year.

  • The Company repaid a total of $139.6 million of its 9.25% Senior Secured Notes in 2014, exceeding the minimum mandatory redemption requirement of $125 million for 2014 and 2015 combined.

  • Yellow Pages recorded net earnings of $188.5 million in 2014, as compared to $176.5 million the year prior. This was principally explained by lower EBITDA, more than offset by an income tax recovery of $84.8 million recorded in 2014 related to the cancellation of various income tax liabilities following the settlement of tax assessments.

Yellow Pages Limited (TSX:Y) (the "Company") released today its full year and fourth quarter 2014 operational and financial results. The Company continues to execute upon its Return to Growth Plan, a long-term strategy designed to accelerate its digital transformation and help it gain a leadership position within Canada's local digital advertising market.

"We have made significant progress on the execution of our Return to Growth Plan, and remain on track to returning Yellow Pages to revenue and profitability growth in 2018," said Julien Billot, President and Chief Executive Officer of Yellow Pages. "In the plan's first year of implementation, we strengthened our brand, media and customer value proposition, enabling us to establish the technologies and processes required to operate a strong, standalone digital business."

Full Year 2014 Financial Results

Revenues in 2014 decreased to $877.5 million, representing a 9.7% year-over-year decline. The decrease is due to lower print revenues, which remain impacted by a decline in customer count and the migration of print advertising spend towards digital solutions.

Print revenues decreased to $434.7 million in 2014, down 23.1% relative to the same period last year. Albeit declining, print revenue decline rates are stabilizing and remain supported by the launch of the Print Product Simplification ("PPS") initiative in rural and urban markets. PPS aims to protect customer renewal, and ultimately preserve content and usage of the print directory, by offering customers increased print advertisement sizes at little-to-no incremental cost. PPS also simplifies the selling process by reducing the number of print offers available for sale.

Digital revenues in 2014 increased 9% to $442.8 million, up from $406.3 million the year prior and representing over 50% of total revenues. Digital revenues across the Company's core operations ("YP"), which exclude the impact of Mediative, 411 Local Search Corp., and Yellow Pages Homes Limited ("YP Next Home"), experienced a year-over-year growth of 9.1% in 2014.

Digital revenue growth remains fuelled by the migration of print revenues to the Company's comprehensive suite of digital solutions. Priority placement products sold on Yellow Pages' digital owned and operated properties currently represent approximately 60% of digital revenues and remain the most profitable of the Company's digital product suite. As at December 31, 2014, customer penetration of online and mobile priority placement grew to 57.3% and 24.1%, respectively, up from 47.1% and 14.9%, respectively, the year prior. Digital revenue growth is also supported by accelerated customer acquisition, as the majority of new customers only purchase digital solutions.

As at December 31, 2014, digital-only customers grew to 37,000, or 14.5% of YP's customer base, as compared to 23,900, or 8.7% of YP's customer base, as at the same period last year.

EBITDA decreased to $316 million in 2014, as compared to $416.1 million the year prior. EBITDA remains adversely impacted by print revenue pressure and a lower EBITDA margin, which decreased to 36% for the twelve-month period ended December 31, 2014 relative to 42.8% for the same period last year. Lower print revenues and investments related to the digital transformation were the main contributors to the decrease in the EBITDA margin.

For the year ended December 31, 2014, the Company recorded net earnings of $188.5 million and basic earnings per share of $6.95. This compares to net earnings of $176.5 million and basic earnings per share of $6.34 for the same period last year. This was principally explained by lower EBITDA, more than offset by an income tax recovery of $84.8 million recorded in 2014 related to the cancellation of various income tax liabilities following the settlement of tax assessments.

Free cash flow in 2014 reached $72.6 million, as compared to $274.6 million in 2013. The decrease in free cash flow is mainly attributable to lower EBITDA, a more stable level of operating assets and liabilities, higher income taxes paid in 2014 (as the Company was not required to pay income tax installments in 2013), and higher capital expenditures. Capital expenditures in 2014 totaled $84 million, up from $66.1 million the year prior.

As at December 31, 2014, Yellow Pages had reduced net debt to $494.1 million. This compares favourably to $533.1 million of net debt as at December 31, 2013. In 2014, the Company repaid a total of $139.6 million of its 9.25% Senior Secured Notes, exceeding the minimum mandatory redemption requirement of $125 million for 2014 and 2015 combined.

"This past year was earmarked by the Company's ability to promote shareholder value through proper execution of its digital transformation and debt repayment," said Ginette Maillé, Chief Financial Officer of Yellow Pages. "Although 2015 remains a heavy investment year, Yellow Pages will continue to generate adequate levels of free cash flow to further strengthen its capital structure."

Fourth Quarter 2014 Financial Results

Revenues for the fourth quarter ended December 31, 2014 decreased 9.5% to $215.3 million, as compared to $238 million in the last quarter of 2013.

Print revenues declined by 24.6% year-over-year to reach $98.4 million. Non-recurring print revenues were recorded during the fourth quarter of 2013 which, when excluded, resulted in a year-over-year print revenue decline rate of 22.4% during the fourth quarter of 2014.

Digital revenues grew 8.9% year-over-year to reach $116.9 million, representing 54.3% of total revenues as compared to 45.1% the year prior. For the fourth quarter of 2014, digital revenues across the Company's core YP operations increased 6.5% year-over-year.

EBITDA reached $64.8 million, down from $91.3 million the year prior. The EBITDA margin decreased to 30.1% for the fourth quarter of 2014, as compared to 38.3% for the same period last year, remaining negatively impacted by print revenue pressure and investments in its digital transformation. As anticipated, the Company materially ramped-up spending during the fourth quarter of 2014 to promote timely and successful execution of its Return to Growth Plan. These included investments in branding and promotion, customer acquisition, and digital media development, in addition to program management expenses related to the launch of new products, delivery of enhanced customer service and realization of operational efficiencies.

For the quarter ended December 31, 2014, the Company recorded net earnings of $95.2 million and basic earnings per share of $3.53. This compares to net earnings of $31 million and basic earnings per share of $1.11 for the same period last year. This was principally explained by lower EBITDA, more than offset by an income tax recovery of $84.8 million recorded in 2014 related to the cancellation of various income tax liabilities following the settlement of tax assessments.

The Company utilized $3.9 million of free cash flow during the fourth quarter of 2014, as compared to free cash flow generation of $74.2 million for the same period last year. The decrease in free cash flow is mainly explained by lower EBITDA, timing in the payment of certain accounts payable, as well as higher capital expenditures. Capital expenditures during the fourth quarter of 2014 totaled $34.4 million, up from $14.3 million the year prior.

Operational Update

"We have met our key operational and financial targets for 2014, and plan to continue this momentum throughout 2015," said Mr. Billot. "We will leverage the progress made in 2014 to further strengthen the core pillars of our digital transformation, provide additional value to our customers and shareholders, and ultimately promote long-term, sustainable growth in revenues and profitability."

Extending our Brand Promise

  • Following a 2013 launch in Toronto, Yellow Pages extended its corporate social responsibility campaign, Shop The Neighbourhood™ ("STN") to Montreal, Vancouver, Calgary and Ottawa in 2014. To celebrate small businesses and encourage local shopping, STN was held during a weekend when many Canadians shop at U.S. retailers to take advantage of Black Friday and Cyber Monday deals. In 2014, STN garnered significant support from national and local media, politicians and celebrities. Over 200 Canadian business associations also participated in the event, in addition to 8,000 local businesses who offered 6,000 deals exclusive to YP's digital properties for event day.

  • Yellow Pages remains committed to strengthening its digital brand perception among users and merchants. In 2015, the Company will increase the frequency and visibility of its advertising campaigns to grow traffic across its network of digital properties and raise merchant adoption of its digital product offerings.

Strengthening our Media Assets

  • Total digital visits across the YP, RedFlagDeals, YP Shopwise and Canada411 desktop and mobile properties grew by 6.8% year-over-year to reach 424.1 million in 2014. For the three-month period ended December 31, 2014, total digital visits grew to 117.4 million, up 14.2% over the same period last year.

  • The YP mobile application was recently selected as one of Apple's "Best New Apps of 2014" and included in Google Play's "Best Apps of 2014" list. YP's digital properties now contain over 480,000 merchant profiles, offering users access to a larger database of pictures, videos, deals, ratings and reviews. Over 7,500 editorial pieces in the form of playlists, articles and business stories were also published across our media, promoting improved neighbourhood discovery and enriching the user experience.

  • The Company will deliver new content and experiences throughout 2015 to grow consumer engagement. Richer merchant information and editorial content will continue to be published across YP's digital properties. In conjunction, Yellow Pages will launch a suite of online and mobile properties in underpenetrated verticals to offer users a more targeted and differentiated local shopping experience.

  • On December 17, 2014, Yellow Pages completed the acquisitions of Bookenda and dine.TO, providing the Company with the talent and technologies required to accelerate the development of its new media verticals. With a strong presence in the restaurant industry within the Greater Montreal Area, Bookenda's digital properties offer a leading online transaction platform for users and merchants to interact and manage bookings. dine.TO owns and operates local digital restaurant guides for the Greater Toronto Area, providing users with an extensive database of local restaurant listings, reviews, deals, playlists and events, as well as real-time online ordering capabilities.

Enhancing our Go-to-Market Strategy

a) Promoting Customer Acquisition

  • The Company's customer count totaled 256,000 as at December 31, 2014, compared to 276,000 as at the same period last year. This represents a decrease in the customer count of 20,000 customers in 2014, relative to 33,000 customers the year prior.

  • Fuelled by an expanding sales team, the launch of entry-level digital product offerings and the introduction of new sales incentive programs, the rate of customer acquisition reached 22,100 for the twelve-month period ended December 31, 2014. This exceeds the Company's 2014 target of 20,000 new customers. In addition, it compares favourably to the acquisition of 15,200 and 20,200 new customers during the twelve-month periods ended December 31, 2013 and September 30, 2014, respectively.

  • To further accelerate customer acquisition in 2015, the Company will introduce a new customer relationship management system (Salesforce.com) across its sales channels to improve customer lead assignment, management and conversion. Yellow Pages' digital product suite will also evolve to better meet the changing needs of local merchants. In 2015, the Company will introduce an entry-level content management and syndication solution to help current and prospective customers build and maintain a more complete digital presence.

b) Promoting Customer Retention

  • The renewal rate among Yellow Pages' customers reached 84% for the twelve-month period ended December 31, 2014, as compared to 85% in 2013. As a key driver of customer renewal, customer penetration of the Yellow Pages™ 360º Solution, defined as the percentage of YP customers purchasing three or more product categories, grew to 36.6% as at December 31, 2014, up from 27.1% at the same time last year.

  • In an effort to enhance the overall customer experience, the Company introduced new self-serve functionalities on its redesigned Yellow Pages™ 360° Business Center (http://businesscentre.yp.ca/), allowing merchants to claim their business listings, manage their content and track the performance of their marketing campaigns online. Technologies are also being rolled out to offer customers higher quality digital solutions. In the fourth quarter of 2014, Yellow Pages implemented a new business process management system, providing its digital fulfillment teams with the required capabilities to promote quality and timely delivery of website solutions.

  • In 2015, the Yellow Pages 360° Business Center will evolve into a fully functional self-serve digital platform, providing customers with the ability to buy solutions online and better manage their merchant profiles. In addition, improved selling tools, digital fulfillment processes and customer service levels will be delivered across the organization to encourage growth in customer satisfaction and retention.

c) Improving Business Efficiencies

  • The Company continues to actively streamline operations to generate cost savings and protect long-term profitability and cash flow generation. Yellow Pages is currently operating under a new print directory distribution model, insourcing a portion of efforts and better aligning directory distribution with consumer usage. Cost savings are also being realized through the ongoing decommissioning and replacement of legacy print publishing systems and information technology data centers, as well as through the optimization of various customer service and digital fulfillment processes.

Financial Outlook

The Company reaffirms its long-term financial outlook relative to the Return to Growth Plan, targeting revenue and EBITDA growth in 2018.

  • Digital revenue growth is anticipated to be maintained in the high single-digits for 2015 and thereafter.

  • 2015 EBITDA will remain under pressure relative to 2014, as additional investments are made to accelerate the Company's digital transformation. EBITDA margins, however, will be maintained between 30% and 35% for 2015 and thereafter.

  • Capital expenditures are projected to reach between $70 and $75 million in 2015. Thereafter, capital expenditures, as a percentage of total revenues, will gradually decline to stabilize at approximately 5% by 2018.

The Return to Growth Plan remains a fully funded plan, allowing the Company to support required operational and capital expenditures while materially deleveraging the balance sheet. In 2015, Yellow Pages anticipates redeeming approximately $100 million of its outstanding 9.25% Senior Secured Notes.

Investor Conference Call

Yellow Pages Limited will hold an analyst and media call at 1:00 p.m. (Eastern Time) on February 12, 2015 to discuss the full year and fourth quarter 2014 results. The call may be accessed by dialing (416) 340-2218 within the Toronto area, or 1 866 225-2055 outside of Toronto.

The call will be simultaneously webcast on the Company's website at http://corporate.yp.ca/en/investors/financial-reports/2014/quarterly-reports/fourth-quarter-webcast.

The conference call will be archived in the Investors section of the site at www.corporate.yp.ca.

A playback of the call can also be accessed from February 12 to February 19, 2015 by dialing (905) 694-9451 within the Toronto area, or 1 800 408-3053 outside Toronto.

The conference passcode is 4386268.

About Yellow Pages Limited

Yellow Pages Limited (TSX:Y) is a Canadian digital media and marketing solutions company that supports local economies by helping neighbourhood businesses reach new customers and foster stronger relationships with existing clients through its various media and products. Yellow Pages holds some of Canada's leading local online search properties including YP.ca™, RedFlagDeals.com™, Canada411.ca and YP NextHome. The company also holds the YP, YP Shopwise, RedFlagDeals and Canada411 mobile applications and Yellow Pages™ print directories. Yellow Pages is also a leader in national digital advertising through Mediative, a division of Yellow Pages devoted to digital marketing and performance media services for national-scale agencies and customers.

Caution Concerning Forward-Looking Statements

This press release contains forward-looking statements about the objectives, strategies, financial conditions, results of operations and businesses of the Company. These statements are forward-looking as they are based on our current expectations, as at February 12, 2015, about our business and the markets we operate in, and on various estimates and assumptions. Our actual results could materially differ from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, there is no assurance that any forward-looking statements will materialize. Risks that could cause our results to differ materially from our current expectations are discussed in section 6 of our February 12, 2015 Management's Discussion and Analysis. We disclaim any intention or obligation to update any forward-looking statements, except as required by law, even if new information becomes available, as a result of future events or for any other reason.

Financial Highlights
(in thousands of Canadian dollars - except share information)
For the three-month
periods ended December 31,
For the years ended
December 31,
Yellow Pages Limited 2014 2013 2014 2013
Revenues $215,319 $237,951 $877,528 $971,761
Income from operations $37,115 $62,013 $219,541 $332,610
Net earnings $95,225 $30,964 $188,540 $176,530
Basic earnings per share attributable to common shareholders $3.53 $1.11 $6.95 $6.34
Cash flow from operating activities $30,566 $88,444 $156,507 $340,680
EBITDA1 $64,832 $91,253 $315,976 $416,112
EBITDA margin1 30.1 % 38.3 % 36 % 42.8 %
Weighted average number of common shares outstanding 26,956,786 27,619,358 27,128,062 27,797,170

Non-IFRS Measures1

In order to provide a better understanding of the results, the Company uses the term EBITDA, defined as income from operations before depreciation and amortization and restructuring and special charges. Management believes this measure is reflective of ongoing operations. This term is not a performance measure defined under IFRS. EBITDA does not have any standardized meaning and is therefore not likely to be comparable to similar measures used by other publicly traded companies. Management believes EBITDA to be an important measure.

Contact Information

  • Investor Relations
    Amanda Di Gironimo
    Director, Corporate Planning
    and Investor Relations
    (514) 934-2680
    Amanda.DiGironimo@yp.ca

    Media
    Fiona Story
    Director, Public Relations
    and Corporate Communications
    (514) 934-2672
    Fiona.Story@yp.ca