1. Our Business, mission, strategy and capability to deliver results /
Yellow Pages is a Canadian digital and print media company, offering businesses media solutions to meet their key marketing objectives and providing consumers with platforms to access reliable local business information.
Through its sales force of 1,100 media account consultants (MACs) and sales support staff, the Company currently serves approximately 256,000 local businesses across Canada. This large and primarily face-to-face sales force is broken down into various customer segments in order to provide customers with a more targeted and specialized level of service. Yellow Pages offers small-and-medium sized businesses (SMEs) access to one of the country’s most comprehensive suites of digital and traditional marketing solutions, which include products such as online and mobile priority placement on Yellow Pages’ owned and operated media, search engine solutions, website fulfillment, social media campaign management, digital display advertising, video production and print advertising. Through its Mediative division, the Company also provides national-scale businesses with high-end, customizable digital marketing and performance media services.
Yellow Pages’ database of local merchant information currently contains 1.8 million business listings, making it one of the largest in Canada. This content reaches Canadian audiences via a variety of digital and print media, which include YP.ca™, Canada411.ca™ (now C411), RedFlagDeals.com™, 411.ca, Bookenda.com and dine.TO desktop websites, the YP, YP Shopwise™, RedFlagDeals, C411 and 411.ca mobile search applications as well as the Yellow Pages™ print directories.
- YP – Available both online and as a mobile application, YP.ca provides users access to current and comprehensive information on local Canadian businesses.
- YP Shopwise – Mobile application offering geo-localized deals and flyers, alongside access to a catalogue of over 7 million products and information on over 600 local and national retailers.
- RedFlagDeals.com – Canada’s leading provider of online and mobile deals, coupons and shopping tools.
- C411 – One of Canada’s most frequented and trusted online destinations for personal contact information.
- Bookenda.com – Online digital properties offering a leading online transaction platform for users and merchants to easily interact and manage bookings.
- dine.TO – Provides users in the Greater Toronto Area with an extensive database of online local restaurant listings, reviews, deals, playlists and events, as well as real-time online ordering capabilities.
In addition to Yellow Pages™ print directories, Yellow Pages is the official directory publisher for Bell Canada (Bell), TELUS Communications Inc. (TELUS), Bell Aliant Regional Communications LP (Bell Aliant), MTS Allstream Inc. and a number of other incumbent telephone companies that have a leading share in their respective markets. In 2014, the Company published approximately 335 print telephone directories with a total circulation of approximately 16 million copies.
We exist to champion the local neighbourhood economy by enabling Canada’s businesses and its consumers to connect, interact and build relationships.
STRATEGY AND CAPABILITY TO DELIVER RESULTS
Our objective is to become the leading local digital media company in Canada. We will accomplish this by fostering strong business relationships between Canadian SMEs and local consumers, and by developing an unparalleled local media presence across the country.
Yellow Pages introduced the Return to Growth Plan (the Plan) in early 2014 to accelerate its digital transformation and help it gain a leadership position within Canada’s local digital advertising market. The Plan sets out to accomplish these objectives by strengthening the Company’s brand perception, media properties and customer value proposition, elements which are fundamental in promoting growth in the Company’s customer count, and ultimately, growth in revenues and profitability. The Plan is also designed to help realize operational efficiencies and costs savings across the organization, while delivering the financial flexibility required to materially deleverage the balance sheet over the next four years. Successful completion of the Plan will enhance Yellow Pages’ competitive positioning in the Canadian market, improve its relationship with Canadian SMEs and consumers, and provide the Company with a strengthened platform onto which it can develop new businesses and enter new markets.
Yellow Pages achieved numerous corporate milestones since the launch of the Plan. In its first year of implementation, the Company succeeded in meeting key operational and financial targets, which included:
- Customer Acquisition – For the twelve-month period ended December 31, 2014, the Company acquired 22,100 new customers. This compares favourably to the acquisition of 15,200 customers in 2013 and surpassed Yellow Pages’ 2014 customer acquisition target of 20,000 customers;
- Digital Visits – Total digital visits across Yellow Pages’ owned and operated properties grew 6.8% year-over-year to reach 424.1 million in 2014;
- Digital Revenues – Consolidated digital revenues grew 9% year-over-year to reach $442.8 million in 2014. A key milestone was reached in 2014, as digital revenues exceeded print revenues for the first time in the Company’s history. For the fourth quarter ended December 31, 2014, digital revenues represented 54.3% of consolidated revenues; and
- Debt Repayment – Yellow Pages repaid $139.6 million of its 9.25% senior secured notes in 2014, exceeding the minimum aggregate mandatory redemption requirement of $125 million for 2014 and 2015 combined.
In 2015, Yellow Pages will leverage these achievements to properly execute upon the core pillars underlying its Return to Growth Plan. These include:
Extending its Brand Promise
Branding and promotion are aimed at strengthening the Company’s brand image among users and merchants, with a focus on improving digital perceptions and boosting recognition of its digital media platforms and solutions. In 2015, the Company will continue to invest in national and local mass media advertising campaigns to promote the download and use of the YP and YP Shopwise mobile applications among Canadian users. Campaigns will also be launched to support the adoption and use of Yellow Pages’ new verticals as they are rolled out over the course of the year.
In an effort to raise awareness of Yellow Pages’ digital solutions and grow customer acquisition and retention, the Company will increase the frequency and visibility of its radio, digital and out-of-home advertising campaigns. We will also grow involvement in the Company’s Shop The Neighbourhood™ (STN) event, promoting local shopping and celebrating the importance of SMEs in thriving neighbourhoods. In 2014, STN attracted the participation of over 8,000 Canadian SMEs, as well as notable media, celebrities, athletes and political figures, in support of the growth of local economies.
Strengthening its Media Assets
Priority placement products sold on Yellow Pages’ digital owned and operated properties currently represent approximately 60% of digital revenues and remain the most profitable of the Company’s digital product suite. Deploying engaging online and mobile properties is critical to growing traffic, providing customers with improved return on investment (ROI) and promoting digital revenue growth and profitability. In 2015, the Company will deliver enhanced content and user experiences across its network of digital properties to improve overall consumer engagement. More complete and relevant content will be published, including richer merchant information, deals, ratings and reviews, as well as local editorial content in the form of playlists, business stories and recommendations. Aligned with its media verticalization strategy, Yellow Pages will also introduce online and mobile properties in the dining, home services and leisure verticals in 2015 to offer users a differentiated local shopping experience and access to new search and transactional capabilities. The Company will leverage Bookenda’s leading online booking engine to integrate transactional capabilities across its existing and upcoming digital properties. In conjunction, Yellow Pages will utilize dine.TO’s digital restaurant guides and extensive database of local restaurant listings, reviews, deals, playlists and events to fast-track the development of its new dining vertical.
Enhancing its Customer Value Proposition
Increasing the size of its customer base is critical in ensuring Yellow Pages achieves revenue and profitability growth. In 2015, Yellow Pages is targeting total customer acquisition of 30,000 new customers, which will be supported by the ongoing deployment of a new customer relationship management platform (Salesforce.com) to optimize lead assignment, management and conversion across sales channels. The Company will also deliver enhanced selling tools, digital product fulfillment processes and customer service levels to promote higher customer satisfaction and retention. In conjunction, new self-serve functionalities will be introduced on the Yellow Pages™ 360º Business Center (360º Business Center), providing customers with the ability to better manage their profiles and purchase digital solutions via the online portal.
Yellow Pages’ digital product suite will continue to evolve to best meet the changing needs of local businesses. In 2015, the Company will introduce an entry-level content management and syndication solution to help current and prospective customers build and maintain a more complete and consistent digital presence. Through this new service, Yellow Pages will fully manage and optimize SMEs’ presence on the web by ensuring their business listing and merchant information is made available and appears in a consistent manner across a vast network of digital properties with high traffic, outside those owned and operated by YP.
Our employees are core components of our digital transformation. In 2014, we will continue investing in our workforce, hiring an additional 200 professionals within the domains of information technology and digital media. The Company will also invest in developing a stronger digital culture, offering training programs, tools and resources to elevate digital literacy and promote change management across all facets of the organization.
Operational excellence will continue to be promoted across the organization to support long-term profitability and the efficient delivery of the Plan. To address declining print revenues, the Company is actively optimizing print manufacturing and distribution expenses. A more targeted print distribution model is currently being implemented to align directory delivery with usage and demand, while a portion of Yellow Pages’ distribution efforts have been insourced to support improved cost flexibility. Initiatives are also in place to decommission and replace Yellow Pages’ network of legacy publishing and information system and information technology (ISIT) platforms, while process improvements are being implemented to deliver costs savings across the sales, customer service and digital fulfillment functions.
The Company maintains its long-term financial outlook relative to the Return to Growth Plan. The Plan will serve to accelerate the Company’s digital transformation, targeting customer count growth in 2017 and consolidated revenue and EBITDA growth in 2018.
- Digital revenue growth is anticipated to be maintained in the high single-digits for 2015 and thereafter.
- As additional investments are made to accelerate the Company’s digital transformation, 2015 EBITDA will remain under pressure relative to 2014; EBITDA margins will, however, be maintained between 30% and 35% for 2015 and thereafter.
- Capital expenditures are projected to reach between $70 and $75 million in 2015, focusing on the development of ISIT systems and platforms to support growth in digital audiences, customer acquisition, customer retention, new product introduction and the optimization of business efficiencies. Thereafter, capital expenditures, as a percentage of consolidated revenues, will gradually decline to stabilize at approximately 5% by 2018.
- Yellow Pages will also maintain a strong focus on debt repayment, and continue generating sufficient cash flow from its operations to support required capital expenditures and service all future debt obligations. In 2015, the Company anticipates redeeming approximately $100 million of its 9.25% senior secured notes.
As part of establishing the above guidance, the Company made a number of assumptions, including those described in the section Forward-Looking Information of this MD&A as well as the following assumptions:
- Economic conditions in Canada remain stable;
- Exposure to foreign exchange risk arising from foreign currency transactions remains insignificant. Annual operating costs, net of revenue, denominated in U.S. dollars, are approximately $50 million;
- Canadian local digital advertising market experiences growth of 10% per year;
- Print decline rates stabilize;
- Investments in branding will evolve legacy perceptions and boost awareness of our digital media platforms;
- Investments in new content and digital experiences across our owned and operated properties will attract and grow digital audiences;
- The introduction of performance-based solutions will leverage the power of our owned and operated digital properties and protect profitability;
- The Company will be able to further accelerate customer acquisition levels and, over time, retain and upsell newly acquired customers; and
- The Company will be able to realize efficiency gains to support profitability and cash flow generation.
The Company cautions that the assumptions used to prepare the Outlook provided above, although currently reasonable, may prove to be incorrect or inaccurate. Accordingly, our actual results may differ materially from our expectations as set forth in this section. The Outlook provided above should be read in conjunction with the section Forward-Looking Information beginning on page 1 of this MD&A.