Yell directories group scraps dividend payout

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The Independent Online

The directories group Yell is scrapping dividend payments to help bring down its debt mountain and win approval from bankers for a new financing deal.

Yell's share price has been shredded over the past year amid worries about the impact of the credit crunch on its £3.6bn of debt. But in a move aimed at staving off possible confrontation with its lenders, Yell said it was asking its seven bankers to ease their loan conditions as it intensified efforts to service its borrowings.

The company said its largest lenders had already "pre-approved this request in principle", giving the shares a much-needed lift. It is hoped the other bankers will fall in line over the next few weeks. Yell is asking its shareholders to bear some of the pain by cancelling dividend payments – which will save £70m between now and the end of the year – until it has cut its debt to less than four times its earnings before interest, tax and other charges. In June, its debt stood at 4.9 times its earnings – which remained within its banking covenants, although the company clearly felt any sudden shifts in trading or other factors could jeopardise the position. Yell also feels that the present arrangement leaves it in a financial straitjacket and unable to take advantage of any acquisition opportunities.

Charles Peacock, at the broker Landsbanki, said: "It is encouraging to see Yell addressing the balance sheet issue and arranging greater covenant flexibility." However, there will be a price to pay. The interest rate on its debt is expected to go up from 7 to 8 per cent or even higher in exchange for giving it more financial headroom. A 1 per cent rise would add about £35m a year to its interest bill.

However, advisers say additional repayments can be accommodated given current cash flow is around £300m a year. Yell, which was hived off from BT in 2001 and floated two years later, has borrowed heavily to finance ambitious growth in Spain and the US. In 2006, it bought Spain's leading directories business TPI using expensive loans from hedge funds.

The group has been pushing hard to build up its online business to compensate for the steady decline of its printed Yellow Pages directories. The on-line version is proving resilient in tough markets and in the first three months of this year accounted for 16 per cent of total revenue compared with 12 per cent a year ago.

However, the tightening trading conditions and Yell's own debt problems have conspired to knock nearly 80 per cent off the share price over the past year. There was a spike when the company was rumoured to be in the sights of Google but no bid emerged.

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