Yell seeks to quell covenant fears

Yell Group, the company which publishes Yellow Pages directories, tried to calm investors' concerns yesterday by dismissing fears that it could breach banking covenants, and unveiling a 6.2 per cent increase in third-quarter revenues despite "increasingly difficult economic times".

The company, whose shares have plunged by 84 per cent in the past 12 months, admitted that its sales would suffer as markets deteriorated further, but stuck to its earnings targets and said it would have no problems servicing its £3.6bn debt.

The group, formerly owned by private-equity investors, said its revenues rose to £468.4m in the three months to the end of June. The news surprised the market, sending Yell's shares up 8p, or 11 per cent, to 79p – a welcome respite for shareholders after a month in which the stock plummeted to an all-time low.

Yells said the growth came from its cost-cutting plan and improvements in its online business. The internet now contributes 16 per cent of Yell's revenues, up from 12 per cent last year. It also achieved better-than-expected growth in the US.

Its chief executive, John Condron, said: "We have made a good start to the year, driven by very strong performances from our online channels." Yell "continues to show resilience despite the increasingly difficult economic times", he added.

Brokers at Cazenove said in a note yesterday: "The quarterly numbers are significantly ahead of expectations due to timing of cost savings and a strong UK and Spanish earnings before interest taxation but outlook has deteriorated further over the last three months."

Other analysts had feared that Yell's revenues would suffer because its directories business has faced belt-tightening by advertisers and stiffer competition from rivals such as Google, although its debt levels remain a principal concern. Merrill Lynch said: "Whilst Yell's superior economic resilience should command a premium, this is offset by higher than average debt, where risk of re-negotiation continues to weigh."

Yell, however, rejected suggestions that it could struggle to meet its debt repayments from next year, saying it was reducing the debt as well as paying off the interest. It added that it had 13 per cent headroom on its banking covenants, which are in place until 2011. Its market capitalisation of about £550m remains a seventh of its net debt, which stood at £3.68bn last month, down from £3.75bn at the end of March. Yell must pay off £244.6m within a year.

Mr Condron also denied reports yesterday that the company was a takeover target for Google.

Yell was stripped out of BT Group, and sold to Apax Partners and Hicks, Muse, Tate & Furst for £2.14bn in the wake of the dot-com crash. It floated on the London exchange in 2003.