Yellow Pages Limited Investor Presentation – June 2015

Yellow Pages Limited
Investor Presentation – June 2015
Available in English Only
Disclaimer
This presentation contains forward-looking statements about the objectives, strategies, financial
condition, results of operations and businesses of Yellow Pages Limited. These statements are
considered “forward-looking” because they are based on current expectations about our
business and the markets we operate in, and on various estimates and assumptions. Our actual
results could be materially different from our expectations if known or unknown risks affect our
business, or if our estimates or assumptions turn out to be inaccurate.
As a result, we cannot guarantee that any forward-looking statements will materialize.
Forward-looking statements do not take into account the effect that transactions or non-recurring
items announced or occurring after the statements are made may have on our business.
We disclaim any intention or obligation to update any forward-looking statements, except as
required by law, even if new information becomes available through future events or for any
other reason.
Risks that could cause our actual results to differ materially from our current expectations are
discussed in section 6 of our May 8, 2015 Management's Discussion and Analysis.
2
Yellow Pages at a Glance
Our Mission: To Champion Canada’s Local Neighbourhood Economies
• 55% of revenues are sourced from the sale of
digital solutions
• Servicing 251,000 local businesses through
Canada’s most comprehensive suite of digital
marketing solutions
• One of Canada’s largest sales teams, holding
1,100 Media Account Consultants
• One of Canada's largest databases of business
information, containing over 1.8 million business
listings
• Over 104 million visits executed on YP’s digital
properties every quarter
• The 3rd most visited network of Canadian digital
properties, reaching 40% of digital Canadians
monthly
3
Strong Traction of Digital Revenue Growth
$113.6
$116.9
+9%
$112.9
$108.4
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
% Digital-Only
Customers
10%
11%
13%
15%
16%
Digital Revenues as a
% of Total Revenues
47%
49%
52%
54%
55%
Consolidated Digital Revenues (in C$ millions)
$104.0
Year-over-year
+5%
+10%
+12%
+9%
Digital revenue growth is fuelled by the migration of print customers towards our digital solutions, as
well as by accelerated customer acquisition
4
Accelerating Customer Acquisition to Grow Digital Revenues
Accelerating Customer Acquisition1
Closing the Gap in Customer Count Decline1
(in thousands)
(in thousands, unless otherwise noted)
23.7
36
35
22.1
33
33
20.2
30
18.4
16.4
26
16.5
15.3
14.8
15.2
23
20
Q1
Q2
Q3
2013 TTM
Q4
Q1
Q2
Q3
2014 TTM
Q4
Q1
Q1
2015
TTM
Q2
Q3
Q4
Q1
Q2
2013
Q3
Q4
2014
19
Q1
2015
Customer
Count
300
291
283
276
270
265
260
256
251
Customer
Renewal
86%
85%
85%
85%
85%
85%
85%
84%
85%
Sustainability of digital revenue growth is dependant on finding new sources of
digital revenues, mainly from customer acquisition
5
1 YP
Core only, excludes the contribution of Mediative, 411 Local Search Corp. and Yellow Pages NextHome
Improving Trends in Revenue Performance Relative to 2014
$220.6
$218.4
$215.3
$205.9
Total Revenues (in C$ millions)
$223.2
Year-over-Year
Decline Rate1
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
-12%
-9%
-8%
-8%
-8%
Supported by customer acquisition, revenue decline rates will continue to improve relative to 2014,
with growth anticipated for 2018
6
1 Q4
2014 year-over-year decline rate adjusted for the contribution of $4 million of non-recurring revenues in Q4 2013
Return to Growth Plan – Positioning Yellow Pages For Future Growth
Growth in
the Customer
Count
2017
Growth in
Profitability
(EBITDA)
Growth in
Revenues
2018
7
Core Pillars Underlying the Return to Growth Plan (“RTG”)
MEDIA
Grow traffic on our network of media properties by providing Canadians with richer,
more diversified content and improved verticalized search experiences.
PRODUCTS
Enrich, diversify and verticalize our suite of digital solutions to
best address demands of SMEs.
SALES
Revamp acquisition engine through improved lead acquisition and management,
while optimizing sales tools to improve the productivity and effectiveness of our
Media Account Consultants.
CUSTOMER
EXPERIENCE
Promote customer renewal by improving the fulfillment process of our digital
solutions and optimizing customer service systems/processes.
BRAND
Improve the digital perception of the brand, and grow awareness of our media
properties and digital solutions among Canadian shoppers and SMEs.
RTG is aimed at improving Yellow Pages’ relationship with merchants and consumers, ultimately creating a
leadership position in Canada’s digital media and marketing industry
8
Key Achievements in RTG’s First Year of Implementation
Growing Traffic on our Digital Properties
• Total digital visits reached 104 million in Q1 2015, up 10.5% year-over-year.
• Ongoing verticalization of the Company’s media properties, with YP Dine and a redesigned YP Shopwise launched for the
restaurant/dining and shopping sectors, respectively.
Closing the Gap on Customer Count Decline
• 23,700 new customers acquired in Q1 2015 TTM, comparing favourably to the acquisition of 16,500 customers the year prior.
• Customer renewal rate remained stable and at industry-leading levels, landing at 85% for the twelve-month period ended
March 31, 2015.
Delivering Sustainable Digital Revenue Growth
• Digital revenues continued to grow in the high single-digits, up 8.6% year-over-year to reach $113 million in Q1 2015.
• Yellow Pages is now a digital company, with digital revenues representing over 55% of total revenues.
Delivering Profitability in-line with Forecasted Levels
• EBITDA margins being maintained between 30% and 35% over the life of the Return to Growth Plan, with margins reaching 34.4%
for the three-month period ended March 31, 2015.
Ongoing Strengthening of the Balance Sheet
• $140 million of the 9.25% Senior Secured Notes were repaid in 2014, exceeding the minimum aggregate mandatory redemption
requirement of $125 million for 2014 and 2015 combined.
• An additional $100 million redemption on the Senior Secured Notes is anticipated in 2015.
On track with the successful execution of the Return to Growth Plan
Growing Adoption of YP’s Digital Media Properties
Total Digital Visits in Continued Growth (in millions, unless otherwise noted)
110.2
+10%
102.4
+2%
94.1
Flat year-over-year
Q1 2014
Q2 2014
Q3 2014
Strong Reach Among Digital Canadians
Bell
Ranking
(Overall)
Reach
Amazon
CBC
YP
Trip
Advisor
Yelp
117.4
+14%
Q4 2014
104.0
+10%
Q1 2015
Rich Content & Experiences Driving Recognition
Expedia
6
10
12
14
30
59
64
58%
54%
45%
40%
26%
18%
17%
• YP added as content provider to Apple Maps
• YP and YP Shopwise selected as one of the
first Canadian apps available on Apple Watch
• YP, YP Shopwise, YP Dine and Canada411 all
received titles of “Best New App” in 2014/2015
10
MEDIA
Business &
People Search
Verticalizing the User Experience to Reach New Audiences and Merchants
YP App
Discover everything the neighbourhood
has to offer
Canada411
The person finder, Canada-wide
Retail
YP Shopwise
Your everyday shopping app to help you save
time and money
RedFlagDeals
Dining
Hunt for the best deals across the web and
share them with your fellow Canadian deal
hunters
YP Dine
Discover where to eat based on your
mood, time of day/week and expertly
curated recommendations
Coming in 2015….
Real Estate
ComFree/DuProprio Network
Offering a proven, professional and cost
effective service to reach buyers and sell your
property
YP NextHome
Gain access to listings, personalized tips
and neighbourhood information to find
your next rental and dream home
Your one-stop
resource for home
improvements and
repairs
Get the best
recommendations on
what to do this
weekend
11
MEDIA
Tuck-In M&A to Accelerate Verticalization Strategy – Restaurants
• M&A activity started in December 2014 with two acquisitions geared at accelerating
Yellow Pages’ presence, growth and monetization within the restaurant vertical
• Provider of digital reservation
management systems
• Owner and operator of digital restaurant
guides within the Greater Toronto Area
• Strong presence in the restaurant industry
within the Greater Montreal Area
• Extensive database of local restaurant
listings, reviews, deals, playlists and
events
• Leading online transaction platform to
easily interact and manage bookings
• Real-time online ordering capabilities
12
MEDIA
Tuck-In M&A to Accelerate Verticalization Strategy – Real Estate
Leading Real Estate’s Digital Disruption
• Founded in 1997
• Offers for-sale-by-owner operations in Quebec and Saskatchewan,
and flat-fee brokerage operations in Ontario, Alberta and Manitoba
• Addresses a growing demand for comprehensive, cost effective
real estate services in Canada
Proven Business Model
• Serviced 170,000 Canadians to date, with an average satisfaction
rate of 99% in Quebec
• Leader in Quebec - holds a 17% share of the listings market and is
the #1 real estate site in the province
• Consolidated revenues exceeded $40 million in 2014, having
grown organically and profitably at a 3-year CAGR of 20%
Valuable Synergies
• Complements Yellow Pages’ mission of championing
neighbourhood economies
• Provides Yellow Pages with a leading presence in the real estate
vertical, access to exclusive listings, and platforms to transact with
Canadians
• Delivers attractive growth opportunities - Yellow Pages will
leverage its national reach to enrich ComFree/DuProprio’s value
proposition, extend it Canada-wide and improve lead monetization
13
MEDIA
Richer Content to Attract and Retain Audiences – Merchant Profiles
Quick Access to
Relevant Content
Rich Multimedia
Greater Number of
Ratings & Reviews
Key Partnerships
with Other Digital
Players
14
MEDIA
Richer Content to Attract and Retain Audiences – Editorials
Local Stories
• Discover the merchants in and
around your neighbourhood
SmartTips
• Discover tips and tricks to best
meet your everyday shopping
needs
Playlists
• Discover what’s top and
trending in your neighbourhood
Over 8,000 pieces of editorial content now published on our network of digital properties
15
MEDIA
Investment in Digital Media will Protect Long-Term Profitability
Relative Size of Gross Margins of our Digital Solutions
Print
High
Margin
Online & Mobile Priority Placement
Websites
MidMargin
SEO
Low
Margin
SEM
Leverage insourced traffic to deliver
high-margin performance-based
solutions
Placement solutions represent ~2/3rds of digital revenues and hold the highest profitability among
our digital product suite
16
MEDIA
Strongly Positioned to Succeed in the Canadian Marketing Landscape
* Size of bubble denotes approximate
advertising revenue in Canada
Breadth of Product
Offerings
Search Engine People
Self-Serve
Website
Platforms
Local Digital
Marketing
Boutiques
Local
Newspapers
Self-Serve
Service Level
Full Serve
Yellow Pages is best positioned to provide a competitive, complete and full-serve
marketing solution to local SMEs
17
PRODUCTS
Evolving Our Portfolio to Better Address SME Needs at All Price Points
Free
$10-50
$50-100
$100-250
$250-1000
$1000+
Presence Line-Up (Content Syndication)
Website Fulfillment
Social Media Campaigns
Build Your Digital
Presence
SEO Solutions
Digital Banner Ads
Digital Placement on YP’s Network of Properties
Drive Your Digital
Performance
SEM Solutions
Transactional functionalities to be rolled-out to
enhance the monetization of our digital media
properties
Power Your Digital
Transactions
18
PRODUCTS
Introducing the Presence Line-Up
Launched on April 20th, the Presence line-up provides YP with rich, relevant and up-to-date merchant
content, while allowing merchants to optimize their visibility across the digital marketplace
19
PRODUCTS
Various Initiatives To Deliver Ramp-Up in Customer Acquisition…
New Product Offerings + Tools/Functionalities on the 360o Business Center +
Branding Campaigns + Improved Self-Prospecting
Growth in Lead Sources
Enhanced Lead Management and Conversion
New Customer Relationship Management Platform to Optimize Lead Assignment & Conversion
Improved Dashboard Selling Tools
Growth of Acquisition Sales Force
Roll-out of Sales Incentive Programs
Target of 30,000 new customers in 2015
20
SALES & CUSTOMER EXPERIENCE
…And Enhance All Aspects of the Customer Experience
Fulfillment
Automation
Customer
Service
Business
Center
Improve quality and timely
delivery of products by creating
efficiencies along the fulfillment
chain
Optimize the routing and
resolution of customer inquiries
by enhancing customer service
systems and processes
Build direct relationships with
customers and prospects, while
improving the overall customer
experience, by launching
self-serve capabilities
Fulfillment handled
by a single point of
contact, improving
consistency and
reducing
cancellations
Proactive touchpoints for all
customers, creating
upsell/retention
opportunities
Quicker turnaround
for customer
inquiries & issues,
including higher first
call resolution
Single customer
profile, resulting in
more
knowledgeable
servicing touchpoints
Self-serve
capabilities
available on the
360O Business
Center
Protecting renewal rate in light of the evolving needs of our digital customers
21
SALES & CUSTOMER EXPERIENCE
Providing More Power to the Merchant via the YP 360° Business Center
Sign-in to Manage
Your Profile, Consult
YP Analytics & Buy
Solutions Online
Claim Your Listing
for Free
Discover Our
Solutions
Chat with an
Advertising Expert
22
SALES & CUSTOMER EXPERIENCE
Simplified Architecture to Enhance Recognition of the YP Brand
New Holding Name
Leveraging the Power of the YP Brand Across Our Media Properties
23
BRAND
Local Market Attacks to Promote Usage of the YP App
24
BRAND
Promoting the Growth of Local Economies
November 28th, 2014
• Held across five Canadian cities in over 200 neighbourhoods during one of the busiest shopping
weekends of the year
• Participation from over 8,000 local businesses, having uploaded 6,000 deals exclusive to YP’s
properties on event day
• Participation from 750,000 Canadians, spending $89 million at local retailers on event day
25
BRAND
Financial Review
(Figures in millions of C$, unless otherwise noted)
Revenue Performance
Consolidated
223
221
218
Print
215
206
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
YoY
Decline
-12%
-9%
-8%
-8%
-8%
Rate1:
119
112
105
Digital
98
93
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
YoY
Decline
-23%
-22%
-23%
-22%
-22%
Rate1:
104
108
114
117
113
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
YoY
Growth
+5%
+10%
+12%
+9%
+9%
Rate:
Profitability and Cash Flows
EBITDA
Operating Cash Flow
Free Cash Flow
95
81
75
65
71
58
63
57
42
45
38
31
11
-3
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
EBITDA
Margin:
42%
37%
34%
30%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
-4
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015
34%
Sufficient cash flow generation to invest in our digital transformation and
strengthen the capital structure
1 Q4
2014 year-over-year decline rate adjusted for the contribution of $4 million of non-recurring revenues in Q4 2013
FINANCIAL OVERVIEW
26
Investing in Operational Efficiencies to Promote Cost Savings
Expected Annualized Cost Savings of $20 to $25 million by 2016
Targeted Print
Directory
Distribution
Insourcing Print
Distribution
New Print
Publishing Platform
Upgrading IT
Datacenters
Operational
Excellence
Eliminating distribution
of print books in select
Canadian markets to
better align directory
delivery with usage
and demand
An initiative to bring in
specific portions of the
print distribution
process to support
improved cost
flexibility
Decommissioning and
replacement of YP’s
network of legacy
publishing systems
Consolidating various
legacy datacentres to
reduce costs and
increase agility of
corporate systems
Implementing process
improvements to
deliver cost savings
across the sales,
customer service and
digital fulfillment
functions
Completed
Completed
Ongoing
Ongoing
Ongoing
27
FINANCIAL OVERVIEW
Transferring Additional Value to Shareholders via Debt Reduction
(in millions of C$)
March 31, 2015
Senior Secured Notes 1
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
$507
$507
$647
$800
$89
$89
$88
$87
$1
$1
$1
$2
Total Gross Debt
$597
$597
$735
$888
Cash
$142
$103
$202
$107
Total Net Debt
$455
$494
$533
$782
Total Equity
$705
$684
$544
$286
1.6x
1.6x
1.3x
1.4x
9.0%
9.0%
9.1%
9.1%
Exchangeable Debentures 2
Obligations Under Finance Leases
Key Ratios
Net Debt to EBITDA
Average Interest Rate on Debt at Period End
An additional $100 million of debt repayment anticipated in 2015
Note: The Company currently has in place a $50 million Asset-Based Loan expiring in August 2018, which may be used for general corporate purposes
Senior Secured Notes due November 30, 2018
2 8% (or 12% Paid in Kind) Subordinated Unsecured Exchangeable Debentures due November 30, 2022
1 9.25%
28
Financial Outlook
 Digital revenue growth anticipated to be maintained in the high single digits for 2015
and thereafter1.
 2015 EBITDA to remain under pressure relative to 2014, as additional investments
are made to accelerate the Company’s digital transformation.
 EBITDA margins to be maintained between 30% and 35% for 2015 and thereafter.
 Capital expenditures projected to reach between $70 and $75 million in 2015.
Thereafter, as a percentage of total revenues, capital expenditures will gradually
decline to stabilize at approximately 5% by 2018.
 Targeting revenue and EBITDA growth in 2018.
 Company anticipates to be debt free by year-end 2018.
1When
excluding the impact of the acquisition of ComFree/DuProprio until Q2 2016
FINANCIAL OVERVIEW
29