Business News

Yellow Pages Income Fund Reports Strong Second Quarter Financial Results

Friday 08. August 2008 - - Organic online revenue growth of 44% - Strong margin performance - Increase in cash distributions per unit to $1.17 annually

Yellow Pages Income Fund (TSX:YLO.UN) reported strong second quarter results today highlighted by sustained performance in EBITDA growth and margins in both Directories and Vertical Media. This performance leads the industry and demonstrates the company’s continued progress, driven primarily by operational efficiencies and organic revenue growth.

Consolidated net earnings amounted to $135.7 million compared to $127.6 million for the second quarter of 2007. Income from operations reached $185.1 million, an 8.7% increase over the $170.3 million reported in the same period last year. Cash flow from operating activities reached $181.8 million during the second quarter of 2008.

Consolidated Adjusted Revenues(1) increased 4.3% in the second quarter to reach $430.6 million. Revenues increased by $19.3 million to $430.4 million during the second quarter of 2008, compared with the same period last year. Consolidated Adjusted EBITDA(1) grew by 7.3% to $235.4 million, while EBITDA (income from operations before depreciation and amortization) increased by $15.7 million or 7.1% to $236 million in the same period.

“Our management team and colleagues continue to deliver on our plan and commitments,” said Marc P. Tellier, President and Chief Executive Officer of Yellow Pages Group. “This sustained growth shows our ability to grow the company and grow it profitably as evidenced by our strong EBITDA margin performance in both of our businesses. We are also pleased by the progress our teams are making in terms of technology deployment, the introduction of new products both print and online and further initiatives to improve performance. These investments will position us well for sustained growth in 2009 and beyond.”

Online revenues from Directories and Vertical Media combined amounted to $61.4 million in the quarter. This represents organic growth of 44% over the second quarter of 2007. On an annualized basis, online revenues reached $245.6 million.

In the second quarter, Distributable cash(1) reached $190.9 million, an increase of 7.7% over the same period last year. Distributable cash per unit grew by 9.1% to reach $0.36, compared to $0.33 in the second quarter of 2007.

Directories

For the second quarter, Adjusted Revenues in directories reached $340.1 million, an increase of 5.6% over the second quarter of 2007. Our continued solid organic revenue growth was augmented this quarter by the full-quarter contribution of Aliant Directory Services which we acquired in April of 2007. Adjusted EBITDA increased by 7.2% to $203.0 million, while the Adjusted EBITDA margin was 59.7% which represents an improvement of 90 basis points over the second quarter of 2007. On a comparable basis, Adjusted Revenues increased by 4% and Adjusted EBITDA increased by 5.3%.

Vertical Media

Revenues at Trader reached $90.6 million in the quarter. EBITDA went from $30.0 million to $32.4 million, representing an increase of 8.2% over the same period last year. The EBITDA margin was 35.8% compared with 33% for the second quarter of 2007. Trader’s management continues to focus on further enhancing the experience of both users and advertisers. The company has invested significantly in the automotive vertical over the last 18 months. One of our key investments, the Trader Dealer Showroom (TDSR), a combination of dealer services, print and online media, has been embraced by a majority of online Trader dealers in Ontario and is now being rolled-out across Canada.

During the second quarter of 2008, Trader’s entry in the new car market was supported by a multi-media campaign. The nation-wide advertising campaign aims at positioning Auto TraderTM as the most compelling source of automotive information in Canada. Trader is also launching compelling products in other verticals, notably real estate to harness the potential of this vertical.

Acquisition of Directory Systems & Services From VOLT Information Sciences

YPG announced on July 30, 2008 the acquisition of the assets of VOLT Information Sciences, Inc. (VOLT)’s directory systems and services as well as directory publishing operations for a purchase price of USD$178 million, net of working capital adjustments, payable in cash at closing. The acquisition represents a key milestone in the evolution of YPG’s technological platform. VOLT and YPG have been partners for more than 17 years and this acquisition is expected to play an important role in reinforcing the integration of YPG’s back- and front-office systems and capabilities. As part of this transaction, YPG will also acquire the publishing operations of Data National, a directory publisher in selected mid-Atlantic and Southeast American markets under the Community Phonebook brand name. The acquisition is expected to be immediately accretive to Distributable cash per unit.

Normal Course Issuer Bid

During the second quarter YPG initiated its Normal Course Issuer Bid for up to 25 million units. Since the inception of the bid on April 3, 2008, the company has repurchased 9.8 million units for cancellation for an amount of $94.6 million. The company believes that the current trading price of its units does not reflect its strong fundamentals and future prospects. YPG’s corporate credit and stability ratings were confirmed following the announcement of the Normal Course Issuer Bid and again following the proposed acquisition of VOLT.

Increase in Cash Distributions

Based on the assessment of year-to-date performance in 2008 and the expectation of continuing momentum in operational and financial metrics in 2009, the Fund is increasing cash distributions per unit by 3.5% to the level of $1.17 annually from $1.13 currently. This increase will be effective on September 15, 2008 to unitholders of record on August 29, 2008.

“We believe our continuing strong performance and prospects for 2009 support this seventh increase in cash distributions since our IPO in August 2003,” mentioned Christian M. Paupe, Executive Vice President and Chief Financial Officer. “YPG continues to be well positioned for a successful transition from an income trust to a corporation on or about December 31, 2010. We are confident that the growth in our Distributable cash will allow us to progressively reduce our payout ratio over the 2008-2010 period taking into account future expected cash income taxes while sustaining cash distributions.”

2009 Outlook

Each year, we establish targets to advance our goals and drive our results through execution of initiatives to maximize revenue growth and cash flow generation in both of our operating platforms. These targets are reviewed periodically.

We expect 2009 to be another strong year for the Directories segment resulting from the full integration of recently acquired businesses, the introduction of new print and online products as well as other initiatives to sustain organic growth. For fiscal 2009, guidance for growth on a comparable basis for the Directories segment remains unchanged at 4% to 5% in Adjusted Revenues and 4% to 7% in Adjusted EBITDA.

In the Vertical Media segment, the focus has been on investing in people and technology while harmonizing business processes to maximize operating efficiencies. In 2009, Vertical Media is expected to grow its revenues by 2% to 4% while EBITDA is expected to grow between 4% and 7% as benefits accrue to results of operations from the deployment of technology and stronger organic sales execution.

Online advertising should represent a growing share of our media mix with advertisers both in Directories and Vertical Media as we expand our offers of multi-product / multi-media solutions. We expect annualized online revenues for Directories and Vertical Media combined to grow by approximately 30% annually on a sustained basis. Our objective is to grow the online proportion of Directories revenues generated online from 11.2% currently to a target of approximately 20% as we exit 2010.

We maintain our 2008 objective of growing our Distributable cash at a rate between 8% and 10% per unit and we are targeting the same rate of growth for 2009.