Mr. Robert MacLellan reports
YELLOW MEDIA LIMITED REPORTS FOURTH-QUARTER 2012 FINANCIAL RESULTS
Yellow Media Ltd. has released its fourth-quarter and full-year results, ending 2012 with a stronger capital structure and continued progress on its business transformation.
On July 23, 2012, Yellow Media proposed a recapitalization transaction aimed at significantly reducing the company's debt and improving its maturity profile, with new debt first maturing in 2018. The recapitalization aligns the company's capital structure with its operating strategy, providing it with the necessary financial flexibility to invest in its digital transformation.
The recapitalization was approved by the requisite majority of its debtholders and shareholders on Sept. 6, 2012. A settlement was later reached with the lenders under the company's senior unsecured credit facility on Dec. 10, 2012.
The Quebec Superior Court issued its final order and approved the recapitalization on Dec. 14, 2012. Closing and implementation of the recapitalization occurred on Dec. 20, 2012.
"The completion of the recapitalization allows us to accelerate our business transformation into an industry-leading, technology and digitally focused marketing solutions company," said Marc P. Tellier, president and chief executive officer of Yellow Media. "We plan to provide superior value to Canadian businesses by offering smarter, simpler ways to manage their digital marketing needs and grow their customer base."
Board of directors
Pursuant to the implementation of the recapitalization on Dec. 20, 2012, a new board of directors of Yellow Media was appointed and comprises Craig Forman, David A. Lazzarato, David G. Leith, Robert F. MacLellan, Judith A. McHale, Martin Nisenholtz, Kalpana Raina, Michael G. Sifton and Mr. Tellier. Mr. MacLellan will serve as chairman of the board of directors.
The new board of directors brings forth extensive expertise within the on-line, media and communications industries necessary to further accelerate the company's digital transformation, alongside corporate finance, capital markets and corporate development.
Lenders under the company's senior unsecured credit facility are currently in the process of proposing a nominee for the board of directors, who will also be a member of the audit committee. The nominee is subject to approval from the board of directors.
Full-year 2012 results
Revenues in 2012 decreased 16.6 per cent to $1.11-billion, compared with $1.33-billion last year. The decline is due principally to lower print revenues, the discontinuation of duplicate directories published by Canpages, the divestiture of the LesPAC website in November, 2011, and the sale of Deal of the Day in August, 2012. On a comparable basis, excluding the impact of the changes to the Canpages business, the LesPAC divestiture, the sale of Deal of the Day, and YPG USA, revenues decreased by 11.9 per cent versus last year's results.
On-line revenues in 2012 grew to $367.2-million compared with $346.1-million the year prior, representing growth of 6.1 per cent. On a comparable basis, excluding the impact of the changes to the Canpages business, the LesPAC divestiture, the sale of Deal of the Day and YPG USA, on-line revenues grew 15.7 per cent versus the same period last year. On-line revenues represented approximately 38 per cent of total revenues during the fourth quarter of 2012, compared with 29 per cent in 2011.
As at Dec. 31, 2012, the number of advertisers, excluding Canpages, was 309,000. During the year, the company experienced an advertiser renewal rate of 86 per cent and acquired approximately 17,000 new advertisers.
"Our business continues to experience a decline in revenues, as on-line growth is currently unable to fully compensate for print revenue pressure. This trend was expected, and we do not anticipate it to reverse in the near future. We're focused on delivering long-term value through improvement of services to larger advertisers, as well as on the successful execution of our 360 degrees solution. Our Yellow Pages 360 degrees solution addresses Canadian small to medium-sized enterprises' fundamental need to generate valuable leads to grow their business," continued Mr. Tellier.
EBITDA (earnings before interest, taxes, depreciation and amortization) declined from $679.7-million in 2011 to $570.6-million in 2012, mainly attributable to print revenue pressure. The EBITDA margin for the year remained stable at 51.5 per cent, compared with 51.1 per cent last year. EBITDA margins are reflective of lower margins associated with the company's growing digital products, offset by the impact of the company's significant cost containment initiatives.
Free cash flow for the year decreased from $275.2-million in 2011 to $198.3-million, mainly attributable to lower EBITDA.
For the fiscal year ending Dec. 31, 2012, the company recorded a net loss of $2.0-billion. The net loss was affected by an impairment charge of $3.3-billion on the company's goodwill, and certain of the company's intangible assets and property, plant and equipment. This impairment charge was partly offset by a gain on settlement of debt pursuant to the recapitalization of $978.6-million. In 2011, the company recorded a net loss from continuing operations of $2.7-billion, which was impacted by a $2.9-billion goodwill impairment charge and a $50.3-million impairment of investment in associate.
For the fiscal year ending Dec. 31, 2012, net earnings before impairment and the gain on settlement of debt decreased to $189.5-million, compared with net earnings from continuing operations before impairment of $222.8-million in 2011. Net earnings per share before impairment and gain on settlement of debt was of $6.02 for 2012, compared with net earnings per share from continuing operations before impairment of $8.98 last year.
Fourth-quarter 2012 results
Fourth-quarter revenues were $264.4-million, as compared with $313.3-million in the last quarter of 2011, mainly due to lower print revenues, the discontinuation of duplicate directories published by Canpages, the divestiture of LesPAC, and the sale of Deal of the Day. On a comparable basis, excluding the impact of the changes to the Canpages business, the LesPAC divestiture, the sale of Deal of the Day and YPG USA, fourth-quarter revenues decreased by 9.7 per cent versus last year's results.
On-line revenues for the quarter were $99.7-million, as compared with $89.9-million in the last quarter of 2011. On a comparable basis, excluding the impact of the changes to the Canpages business, the LesPAC divestiture, the sale of Deal of the Day and YPG USA, fourth-quarter on-line revenues grew by 20.9 per cent versus last year's results. EBITDA for the fourth quarter declined from $147.2-million in 2011 to $141.6-million, mainly attributable to print revenue pressure. The EBITDA margin for the quarter increased to 53.5 per cent, as compared with 47.0 per cent last year, as a result of various cost containment initiatives.
Free cash flow for the fourth quarter decreased from $78.2-million in 2011 to $48.0-million in 2012. The decrease was due to a lower EBITDA and higher cash interest paid pursuant to the recapitalization, partly offset by lower cash taxes.
During the fourth quarter of 2012, the company recorded net earnings of $823.5-million. When adjusting for the $300-million impairment charge related to certain of the company's intangible assets and property, plant and equipment, alongside the gain on settlement of debt, the company recorded net earnings of $24.0-million. This compares with net earnings from continuing operations of $48.2-million recorded in 2011.
Net earnings per share before impairment and gain on settlement of debt was 70 cents during the fourth quarter of 2012, compared with net earnings per share from continuing operations of $1.53 last year.
Successful execution of Yellow Pages 360-degree solution
Launched in 2011, Yellow Pages 360-degree solution offers Canadian small to medium-sized enterprises dedicated single-point access to a comprehensive suite of products and services. Its value proposition resides in how customers can access expert support and visibility through on-line, mobile and print media platforms, in addition to services such as managed website services, customized search engine marketing and search engine optimization, and performance reporting tools such as Yellow Pages Analytics.
As at Dec. 31, 2012, the advertiser penetration of YPG's 360-degree solution (defined as advertisers that subscribe to three product categories or more) was 16.5 per cent compared with 5.5 per cent at the end of the same period last year.
In order to further expand its product and service offering, the company established a high-priority accounts program in early 2012 to best serve the needs of larger advertisers. Fully deployed across the country, the HPA program is aimed at mitigating revenue risk and optimizing revenue growth of larger advertisers through a differentiated product and servicing model. A comprehensive advertiser profiling methodology is currently in place to guide the evaluation of account needs and opportunities through the review of Yellow Pages Analytics results, website audits and competitive rankings, search engine marketing estimates, and social media and search engine reviews. This profiling is also followed by the definition of an appropriate strategy, determined by the sales representative, sales manager and performance marketing adviser.
Mediative is also supporting YPG's efforts to best serve the needs of larger advertisers through a new product line called Digital PowerPlay. Introduced during the third quarter of 2012, Digital PowerPlay establishes and optimizes a business's digital presence by determining the necessary steps to maximize qualified leads across various digital channels while offering the highest level of service and support.
To promote and demonstrate the relevance of the company's digital tools, platforms and expertise in connecting consumers with businesses, YPG launched a new ad campaign in the fourth quarter of 2012. The campaign focuses on "meet the new neighbourhood," and communicates the company's ability to address the societal, cultural and technological trends that have changed the way consumers and local businesses find and interact with one another.
Continued growth in mobile
Mobile remains a growing component of the Yellow Pages 360-degree solution product suite. As at Dec. 31, 2012, the company had approximately 24,600 Canadian SMEs purchasing mobile products, representing approximately 46,600 mobile units.
YPG's mobile applications continue to earn positive industry recognition. The company was awarded "Best in Digital Advertising" at the 2012 Digi Awards for a mobile contest which promoted the deals feature on the YellowPages website mobile application. The award marks the second Digi Award for YPG, having won "Best in Mobile" at last year's event for the location-based services of the YellowPages website mobile application.
In an effort to further enhance its mobile offering to advertisers, the company launched two new mobile products during the fourth quarter of 2012: Mobile Sponsored Placement Prestige and Mobile Placement Leader. Mobile Sponsored Placement Prestige secures maximum, exclusive visibility for business listings by offering larger displays and ensuring listings appear in the top spot of mobile search results. Mobile Placement Leader also promotes enhanced visibility by positioning business listings within a search's top-five results.
Proving advertiser value through an enhanced user experience
To promote increased traffic across its network of properties and provide valuable business leads to Canadian advertisers, YPG continues to invest in the on-line user experience. YPG's network of sites currently reaches nine million unduplicated unique visitors, representing 32 per cent of Canada's on-line population.
During 2012, the company improved the search engine optimization of the YellowPages website to ensure increased indexation on search engines. YPG also launched a redesigned Canpages website based on the concept of "life around me." The website proposes a new user experience, focusing on the user's geographic location and life needs within the context of a local search.
The company's mobile applications also continue to grow in popularity, with total downloads having exceeded five million by year-end 2012. This compares with 3.7 million downloads at the same period last year.
In 2012, the YP website application was fully redesigned to include more user-relevant content, including quick access to relevant groupings of business listings and neighbourhood deals pertaining to the user's search category. The YP website application continues to rank high among productivity applications, and was selected as one of Apple's "Best of 2012."
The ShopWise mobile application was also enhanced in 2012 to include improved content and functionalities. Innovations included the integration of a product catalogue featuring more than seven million items, and a list of 600 local and national retailers. The product and merchant data stemmed from a partnership with Shoptoit, whereby the Shoptoit platform was fully integrated into the ShopWise application. Shoptoit is currently one of the leading shopping search engines in Canada.
Since its initial launch in late 2010, the YellowAPI website has embodied YPG's digital leadership and gained industry recognition, having enrolled over 2,500 application developers. These developers generate visibility to Canadian advertisers by powering their mobile applications with valuable content from YPG's database of 1.5 million business listings.
In the fourth quarter of 2012, YPG and Yahoo! Canada announced they had expanded their six-year partnership to provide Yahoo! Canada users with an enhanced local search experience. Through YPG's YellowAPI technology and database of business listings, Yahoo! Canada users now have access to local business information based on their point of location. Partnering with Yahoo! Canada enables YPG to significantly extend its advertisers' reach on a platform outside its network of properties.
Mediative is a leading Canadian digital media advertising company, offering extensive display, mobile and other location-based marketing solutions to national advertisers. Reaching approximately 16.5 million unique visitors per month, Mediative's on-line ad network matches advertisers with the websites of premium on-line brands.
During 2012, Mediative enhanced its location-based offering with the launch of a flexible mobile advertising network enabling advertisers to reach consumers based on their intent to buy. In addition to providing broad and flexible local-based targeting options via connections to multiple ad exchanges, Mediative also offers a premium network of 20-plus mobile-enabled sites and applications to help marketers reach specific audiences.
As at Dec. 31, 2012, Yellow Media had approximately $782-million of net debt. This compares with $2.1-billion of net debt and preferred shares (series 1 and 2) as at Dec. 31, 2011. The net-debt-to-latest-12-month-EBITDA ratio as at Dec. 31, 2012, was 1.4 times compared with 2.5 times as at Dec. 31, 2011, respectively. Pursuant to the recapitalization, the company currently has outstanding:
- $800-million face value of 9.25-per-cent senior secured notes maturing Nov. 30, 2018;
- $107.5-million face value of senior subordinated unsecured exchangeable
debentures due Nov. 30, 2022, with interest payable in cash at 8 per cent or
in additional debentures at 12 per cent;
- 27,955,077 new common shares;
- 2,995,506 warrants.
The senior subordinated unsecured exchangeable debentures, new common shares and warrants are currently trading on the Toronto Stock Exchange under the following symbols:
- Senior subordinated unsecured exchangeable debentures: YPG.DB;
- New common shares: Y;
- Warrants: Y.WT.
Details of the recapitalization are currently available on SEDAR and the company's website.
Investor conference call
Yellow Media will hold an analyst and media call at 1:30 p.m. (Eastern Time) on Feb. 5, 2013, to discuss the fourth-quarter and full-year 2012 results. The call may be accessed by dialling 416-340-2218 within the Toronto area, or 1-866-226-1793 outside Toronto. The call will be simultaneously webcast on the company's website.
The conference call will be archived in the investor centre of the site.
A playback of the call can also be accessed from Feb. 5 to Feb. 12, 2013, by dialling 905-694-9451 within the Toronto area, or 1-800-408-3053 outside Toronto. The conference passcode is 3875901.
(in thousands of dollars, except share and per share information)
For the three-month periods For the years ended
ended Dec. 31, Dec. 31,
2012 2011 2012 2011
Revenues $ 264,447 $ 313,315 $ 1,107,715 $ 1,328,866
------------ ------------ ------------ ------------
Income (loss) from
operations (199,942) 109,731 (2,846,463) (2,415,084)
------------ ------------ ------------ ------------
Net earnings (loss)
operations $ 823,536 $ 48,222 $(1,954,005) $(2,708,122)
============ ============ ============ ============
(loss) per share
common shareholders $ 29.30 $ 1.53 $ (70.66) $ (97.66)
EBITDA $ 141,564 $ 147,198 $ 570,600 $ 679,707
Dividends on common
shares - - - 207,345
per common share - - - $ 0.40
We seek Safe Harbor.
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