For Yell, Competition a Factor on Both Sides of the Pond

Yell Group reported its half-year 2008 results yesterday, and the publisher revealed that while its online product in the U.K. continues to grow at a torrid pace, print grew only modestly in the U.S. and declined 4.4 percent in the U.K. In both instances, the print challenges were attributed at least in part to strong competition.

In the U.K., Yell.com expanded its ad base 14.3 percent, and online-only advertisers grew 33 percent. Revenues were up 51.7 percent to GBP 65.1 million. Print revenues totaled GBP 294 million. The publishers reports that it is now using “extensive discounting to win, keep and grow” accounts in a competitive environment. In print directories, Yell competes with Thomson and BT, as well as a slew of smaller local publishers. Additional competition comes from local newspapers and of course the Internet.

Organic print growth in the U.S. was 1.9 percent in the first half, while same market results were down 0.2 percent. Yellow Book saw a roughly 5 percent decline in the number of advertisers and a slight drop in retention to 69 percent. The good news for Yellow Book came from growth in its online product (+67.5 percent). Yell also offered as a hopeful sign a decline in the number of U.S. competitive directory launches over the past year, which was the topic of a recent Advisory from The Kelsey Report. Yell maintained its earlier guidance that Yellow Book would hit 3 percent organic growth for the full financial year. One drag on organic growth was from discontinued directories (mostly due to overlap in acquired markets).

Yell Publicidad, the Spanish and Latin American operation, posted first-half revenues of GBP 163.4 million. Print directories in Spain grew 3.8 percent, an improvement over 2.4 percent growth for the same period last year. Yell Publicidad includes directory publishing operations in Spain, as well as Argentina, Chile and Peru. Yell warned that organic growth for the Spain/Latin American markets might come in at slightly below guidance because these operations are transitioning to a new “back to basics” sales approach. Yell said any shortfall would be offset by results from the directory assistance operation in Italy (launched before Yell acquired TPI and which Yell is trying to sell).

Yell still has a big challenge ahead in transforming Yellow Book back into a growth engine. It also is clearly facing a tough battle to maintain stability in U.K. print, which maintained positive growth longer than most developed market incumbents. Competition and the general market shift away from traditional print media have caught up with Yell. The company was successful in growing print through years of stiff rate caps, and now that the cap is lifting, the environment for growing print is much more difficult. Still some newfound pricing power should help Yell.

TKG will offer more detail on the Yell earnings announcement in an upcoming Client Inquiry Brief.

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