Yellow Pages Ltd T.Y

Alternate Symbol(s): YLWDF

Communication Services

Yellow Pages Limited is a Canada-based digital media and marketing company. The Company offers targeted tools to local businesses, national brands and consumers, allowing them to interact and transact within the digital economy. It offers small and medium-sized enterprises (SMEs) across Canada full-serve access to a comprehensive suite of digital and traditional marketing solutions, such as online and mobile priority placement on its digital media properties, content syndication, search engine solutions, Website fulfillment, social media campaign management, digital display advertising, video production, e-commerce solutions as well as print advertising. The Company’s media properties, primarily desktop, mobile and print, continue to serve as effective marketplaces for Canadian local merchants, brands and consumers. It holds online properties including YP.ca, Canada411 and 411.ca. It also holds the YP, Canada411 and 411 mobile applications and Yellow Pages print directories.

TSX:Y - Post by User

Yellow Pages Ltd

Bullboard Posts

Post by familyofficeguron Oct 20, 2016 10:58am

164 Views

Post# 25365721

DBRS Upgrades Yellow Pages and Yellow Pages Digital & Media

Date of Release: October 19, 2016

DBRS Upgrades Yellow Pages and Yellow Pages Digital & Media Solutions,

Stable Trends

Industry: Telecom/Media/Technology

DBRS Limited (DBRS) has today upgraded the Issuer Rating of Yellow Pages Limited (Yellow

Pages or the Company) to B (high) from B. DBRS has also upgraded the Senior Secured Notes rating

of Yellow Pages Digital & Media Solutions Limited (Yellow Pages Digital) to BB (low) from B

(high) with a recovery rating of RR3, as well as its Subordinated Exchangeable Debentures rating to

B (low) from CCC (high) with a recovery rating of RR6, based on the upgrade of the Company’s

Issuer Rating. All the trends are Stable.

The rating upgrades reflect continued progress made by the Company since the last update in the

execution of its digital transformation strategy (introduced in May 2014), including steady and

meaningful growth in digital revenues, the corresponding realignment the cost structure and

continued financial deleveraging. The ratings continue to incorporate a gradual erosion of the print

business as customers shift to alternative forms of digital advertising.

On August 28, 2015, DBRS upgraded Yellow Pages’ ratings and maintained the Positive trends,

indicating that, if digital revenues continued to grow in the mid- to high-single digits and gross

debt-to-EBITDA remained below 2.5 times (x) in the subsequent year, a positive rating action could

result. Since then, organic digital revenues rose by 7% in H1 2016 over the comparable prior-year

period and by 6% year over year in 2015. This sound growth was supported by healthy customer

acquisition and digital renewal rates, which minimized overall declines in customer counts.

Furthermore, the Company completed two strategic acquisitions which bolstered digital revenues

further. As expected, print revenues declined by 22.8% in H1 2016. As such, consolidated revenue

was $833 million in the last 12 months (LTM) ended Q2 2016 compared with $878 million in 2014.

EBITDA was $249 million in the LTM ended Q2 2016 compared with $316 million in 2014, as

expected, because of the top-line declines and lower-margin profile of the digital business. Due to the

low capital intensity of print and digital businesses, the free cash flow profile remains strong, and the

Company continued to direct free cash flow toward mandatory debt repayments. Gross debt declined

to $462 million as at June 30, 2016, and credit metrics strengthened through the LTM ended Q2 2016

(gross debt-to-EBITDA of 1.86x, free cash flow-to-debt of 24% and EBITDA interest coverage of

5.14x).

obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and

cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS

ratings, reports and any other information provided by DBRS are provided "as is" and without representation or warranty of any kind. DBRS hereby disclaims any

representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of

such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be

liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental,

special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or

contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting,

communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not

statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute

for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its

rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for

the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such

third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE

SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT https://www.dbrs.com/about/disclaimer.

ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON https://www.dbrs.com.

Yellow Pages’ earnings profile is expected to remain stable over the medium term as the Company

continues to focus on growing its digital solutions business as well as integrating and driving margin

contributions from recent acquisitions. DBRS expects the digital business to grow in the high-single

digits. DBRS notes that the sustainability of digital revenue growth will depend on accelerating

customer acquisitions, controlling churn and average revenue per customer erosion as well as pricing

optimization. Print revenues will continue their structural decline. As such, consolidated revenues

should range between $830 million and $840 million in 2016 and 2017 and increase from there in

2018. As the mix continues to evolve, DBRS expects EBITDA margins to migrate to the 28% range

over the medium term.

In terms of financial profile, DBRS expects the Company to continue to execute its deleveraging

strategy, including repaying roughly $100 million of the Senior Secured Notes in 2016 and investing

in its digital transformation. DBRS expects Yellow Pages’ credit metrics to improve in 2016 and

beyond (i.e., gross debt-to-EBITDA well below 2.0x, free cash flow as a percentage of debt above

25% and EBITDA interest coverage above 5.0x).

The Company has stated its intention to completely deleverage by 2018, which DBRS believes is

reasonable, but will depend on the successful execution of its digital strategy; however, the B (high)

Issuer Rating is not reliant on this occurrence. In fact, the credit risk could continue to strengthen

within the revised rating categories with progress made on this front in the interim period.

Notes:

All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating

Organizations are hereby incorporated by reference and can be found by clicking on the link to the

right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Publishing Industry (April 2016) and DBRS

Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on our

website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating

action. If you are interested in receiving this report, contact us at info@dbrs.com.