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The Kelsey Report® Advisory

Yellow Pages Group Sitting Pretty
Charles Laughlin , 10/3/2003

Issue: Tellier: Focus Is on 'Organic' Opportunities in Canada

News: Yellow Pages Group CEO Marc Tellier made a succinct and compelling case for his company's future in remarks earlier this week to a Toronto investor conference sponsored by the Canadian investment bank Scotia Capital. In essence, Tellier told investors that YPG is in a dominant position in Canada, poised for steady, though modest growth and actively looking to strengthen its position in Canada further by acquiring other incumbent Canadian publishers.

In his brief remarks, followed by a longer questions-and-answers session, Tellier offered a list of strategic advantages that YPG brings to the table in Canada, which should comfort investors that the company is well positioned for the future.

These advantages include its position as owner of the Yellow Pages brand and walking fingers logo; its 30-year deal with Bell Canada to use its name and keep Bell out of the directory business; its position as the leading Internet Yellow Pages (IYP) player in Canada; and its financial strength as a company with 56 percent EBITDA margins (earnings before interest, taxes, depreciation and amortization); 90 percent customer renewal rates and consequently highly visible revenues - a feature coveted by investors. YPG's margins place it among the elite of global Yellow Pages publishers as measured by profitability.

The context of the Scotia Capital event was to feature the income trust investment vehicle, which is the capital structure that YPG chose over a more conventional initial public offering. The income trust is a Canadian financial instrument through which profits are distributed to bondholders as dividends. The mechanism was designed for companies that generate lots of cash but sustain relatively modest growth. Tellier noted the obvious when he described YPG as ideally suited for the income trust.

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