Poor print advertising revenues drag on Yell

Sluggish print advertising revenues have again weighed on Yell Group, dragging down first-quarter turnover by more than 11 per cent at the highly indebted directories group.

The publisher of the UK's Yellow Pages directories, which is struggling under a net debt burden of £2.7bn, reiterated its downbeat assessment of the trading environment and said that revenues had fallen in almost all of its divisions.

Shares in the company dropped nearly 13 per cent on Wednesday before recovering to close down 6.5 per cent at 7p, valuing Yell’s equity at £177m.

In the three months to June 30 the number of print advertisers using Yell slipped 7.9 per cent to 278,000, and the average print revenue per advertiser fell 8.7 per cent to £839.

Turnover from the Yellow Pages internet directory fell 7.1 per cent to £89.5m, while print and directory assistance revenues slumped 18.5 per cent to £263.6m.

“Print trends were broadly unchanged and the weakness in digital directories reported in the fourth quarter has continued,” said Mike Pocock, chief executive of the Reading-based group.

“We have continued to take cost out of the business, whilst investing selectively to support future growth. Earnings before interest, tax, depreciation and amortisation and cash flow for the quarter fell, reflecting these points.”

However total group revenues, which fell 11.1 per cent to £383.3m, beat analysts’ consensus estimates by 1.9 per cent.

Digital services also proved a bright spot, with revenue more than doubling to £30.2m.

The slight improvement reflects the troubled group’s change in strategy to see turnover, earnings and cash flow return to growth by 2015, with the revenue mix changing so that digital sales will increase from 25 per cent to 75 per cent of the group total over the period.

Last week investors’ hopes of a quick recovery were dashed after Yell said its turnround plan would take four years, with shares falling 24 per cent in a single day.

Yell, which employs 6,400 sales people across the UK, US, Spain and Latin America, has also recently signed tie-ups with Microsoft and Bazaarvoice to expand the group’s offerings to small and medium-sized businesses.

But many analysts are sceptical that Yell can fund the strategy switch purely from cash flow, with some forecasting another rights issue or a debt-for-equity swap.

Analysts at Bank of America Merrill Lynch said of Yell’s new strategy: “The plan is credible and sensible ... But execution is not easy, and we think investors are likely to remain sceptical on the projected growth in new digital services until they see tangible evidence of success.”