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Last week, Yell Group issued its nine-month earnings report (the company’s financial year ends March 31) and most of the news was sobering. Organic growth is expected to be in the negative double digits in its fourth quarter, and small-business advertisers are paralyzed by uncertainty over how long the downturn will last and how bad it will get. Still, company leaders say first-quarter canvasses so far suggest a leveling off in the rate of print declines.

Yell Group is one of the world’s largest directory publishers, with market leading positions in the U.K., Spain and Latin America, and a strong U.S. competitive platform with Yellowbook.

For the nine months ended Dec. 31, 2008, Yell Group generated revenues of GBP 1.65 billion, up 7 percent over the same period in 2007. However, the growth was all driven by exchange rates. At a constant exchange rate, revenues were down 2.4 percent, which reflects groupwide online growth (at a constant exchange rate) of 40 percent and an overall print decline of 7 percent. In the U.K., print revenues declined 9.4 percent. In the U.S., print was down 5 percent and in Spain, which is facing a particularly difficult economy, print was off by 13.4 percent.

The company expects things to get worse before they get better, and getting better in this environment simply means a slowing rate of decline.

Yell CFO John Davis said on last week’s earnings conference call that group organic results would be down 12 percent in the fourth quarter, which ends March 31. This means print results will be more dramatically negative, given the company currently generates 15 percent of group revenues from online, which continues to grow at a double-digit pace.

Yell Group CEO John Condron painted a bleak picture of the current mood of small businesses, noting that canvasses are increasingly “back-end loaded” as SMBs delay spending decisions until the last possible moment. However, he did offer a slightly brighter picture of the company’s first quarter. Both Condron and Davis went to lengths to avoid being misinterpreted as predicting recovery. They merely said there is evidence the rate of decline may be slowing a bit. That is what passes for good news in this media environment.

Condron also offered some revealing comments on the U.S. competitive environment. Yellowbook is generally the second player in a given metro market in terms of revenues, with competition up the ladder from incumbent publishers and down the ladder from smaller independent publishers.

For years, Yellowbook led the consolidation of the smaller independents but has all but ceased its acquisition program as market conditions have deteriorated.

“There is no surprise that we are getting more and more rescue calls [from independent publishers] begging use to save them from imminent collapse. The model doesn’t work when faced with an organization as well organized as ours and with an economy as tough as this,” Condron said. “And most are experiencing a double whammy because they do not have a credible Internet offering and they cannot make the investment for the future.” 

Granted, Condron’s characteristically direct comments reflect an interpretation of events that favors Yell’s interests. However, it does appear that the tide has shifted for many independents, which experienced years of strong growth and plentiful exit opportunities. Now, with an economy in tatters and spending patterns shifting to platforms that are more digital, flexible and explicitly performance-based, it stands to reason that many independents will struggle, particularly those with higher exposure to major metro markets.

TKG will write up Yell’s results in greater detail next week in a Client Inquiry Brief.     

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