30.07.2014 07:30:00

Solocal Group: Results for 2nd quarter 2014

Regulatory News:

Solocal Group (Paris:LOCAL):

Ongoing transformation of the Group and confirmed outlook for 2014

  • Q2 consolidated revenues of €255.1 million, down 6.3%
  • Internet growth of +0.4% in 2nd quarter
  • Q2 normalised gross operating margin of €100.8 million with a 39.5% margin rate
  • Debt of €1.12 bn, leverage of 2.9 times as of 30 June
  • Confirmed outlook for 2014

On the announcement of Solocal Group’s results for the 2nd quarter of 2014, Jean-Pierre Remy, Chairman and CEO, declared :

« The results for the 2nd quarter 2014 are in line with the 2014 outlook announced in November 2013. Following the large success of our capital increase and the effective set-up of a new organisation now verticalised and in running order, Solocal Group can now finalise its digital transformation, already well under way. The Group confirmed on this occasion its objective of a return to global growth in 2015.»

The Board of Directors approved the Group’s consolidated accounts as of 30 June 2014.

In millions of euros   Q2 2014   Q2 2013   Change
Group revenues 255.1   272.3   -6.3%
of which Internet 161.3   160.7   +0.4%
as % of Group revenues 63.2%   59.0%    
Normalised gross operating margin* 100.8   119.5   -15.6%
as % of Group revenues 39.5% 43.9%
*Normalised GOM for non-cash impacts of changes to sales contracts (cf. appendix 3)

I. Key highlights for 2nd quarter

Finalisation of the strengthening of the financial structure

  • Net debt decreased by € 461M in H1, down to € 1.12bn
  • Financial leverage reduced to 2.92x GOM as of June, with a 35% headroom on covenant

2nd Quarter results in line with the outlook announced

  • Consolidated revenues of € 255.1M, down 6.3%
  • Internet revenues up +0.4%
  • Normalised gross operating margin of € 100.8M, with a 39.5% margin rate
  • Confirmed annual outlook

Operational implementation of Digital 2015 transformation program

  • Continued strong audience growth driven by mobile and partnerships
  • Deployment of 5 Verticalised BUs and 1 BU dedicated to key accounts
  • Reskilling of the salesforce with the replacement of 280 people
  • Delivery of part of the new information system and front loading of technology investments in H1 (x2 compared to H1 2013)
  • Confirmed objective to return to global growth in 2015 and generate about 75% of our revenues online

II. Audiences for 2nd quarter

Audiences (in millions of visits)   Q2 2014   Q2 2013   Change
PagesJaunes 361.4 324.4 +11.4%
of which mobile 120.9 87.5 +38.2%
Mappy (a) 86.1 81.3 +5.9%
of which mobile (a) 34.2 27.6 +23.9%
ComprendreChoisir 26.9 17.8 +51.1%
of which mobile 8.6 3.8 +126.3%
Other (a)   29.0   30.1   -3.7%
Total (b)   503.4   453.7   +11.0%
of which mobile   168.8   121.4   +39.0%
Source : Solocal Group (a) on a like-for-like basis
(b) shut down of 123people in Q1 2014

Furthermore, the Internet audience for the Group’s sites grew by +11% in the 2nd quarter of 2014 compared to the 2nd quarter of 2013, in particular thanks to the strong growth in the number of mobile Internet visits, up +39.0%. At the end of June 2014, the Solocal Group applications (primarily PagesJaunes and Mappy) had been downloaded more than 33 million times across all smartphones and tablets in France.

The Group’s Internet media continue to benefit from strong audiences at the end of June 2014: 23 million unique visitors1 on the fixed and mobile Internet portion in April 2014 (the 6th Group whose websites are the most visited in France on fixed and mobile Internet).

1 Source: Médiamétrie NetRatings – April 2014

III. Revenues and gross operating margin

In millions of euros  

Q2 2014

 

Q2 2013

  Change
Group revenues 255.1   272.3   -6.3%
Internet 161.3   160.7   +0.4%
as % of Group revenues 63.2% 59.0%
Printed directories 89.6 106.7 -16.0%
as % of Group revenues 35.1% 39.2%
Other businesses 4.1 5.0 -18.0%
as % of Group revenues 1.6%   1.8%    
Normalised gross operating margin* 100.8   119.5   -15.6%
as % of Group revenues 39.5% 43.9%
Internet 59.8 68.6 -12.8%
as % of Internet revenues 37.1% 42.7%
Printed directories 40.2 49.7 -19.1%
as % of Printed directories revenues 44.9% 46.6%
Other businesses 0.8 1.2 -33.3%
as % of Other businesses revenues 19.5%   24.0%    
Reported gross operating margin 96.2   119.5   -19.5%
as % of Group revenues 37.7% 43.9%
Internet 56.7 68.6 -17.3%
as % of Internet revenues 35.2% 42.7%
Printed directories 38.8 49.7 -21.9%
as % of Printed directories revenues 43.3% 46.6%
Other businesses 0.8 1.2 na
as % of Other businesses revenues 19.5% 24.0%
*Normalised GOM for non-cash impacts of changes to sales contracts (cf. appendix 3)

The Group recorded consolidated revenues down 6.3% over the 2nd quarter of 2014.

  • Internet business represents 63% of the Group’s revenues and has increased +0.4% over the 2nd quarter of 2014.
  • The decrease in the Printed directories business remains contained and amounts to -16.0% over the 2nd quarter of 2014.

The Group's normalised gross operating margin of 100.8 million euros over the 2nd quarter of 2014 is down 15.6% compared to the 2nd quarter of 2013: the reduction by 26% of the production costs2 of Printed directories and the control of personnel costs have partially offset the drop in the activity and and the investments made to support the digital transformation. The Group has recorded a normalised gross operating margin of 39.5% for the 2nd quarter of 2014 compared to 43.9% for the 2nd quarter of 2013.

2 Paper, Print, Distribution

IV. Financial results

In millions of euros   H1 2014   H1 2013   Change
Revenues 470.8   500.3   -5.9%
Normalised gross operating margin* 186.8   215.5   -13.3%
Normalisation impact 4.6        
Reported gross operating margin 182.2   215.5   -15.5%
as % of Group revenues 38.7%   43.1%    
Operating income 133.0   184.9   -28.1%
Net financial income (57.8)   (66.8)   +13.5%
Share of profit or loss of an associate (0.2)   (0.1)   na
Income before tax 75.0   118.0   -36.4%
Corporate income tax (34.1) (47.4) +28.1%
Corporate income tax rate 45.4%   40.1%    
Net income 40.9   70.6   -42.1%
*Normalised GOM for non-cash impacts of changes to sales contracts

The Group's operating income has reached 133.0 million euros in the 1st half of 2014, down 28.1% compared to the 1st half of 2013. The decrease in operating income is 51.9 million euros of which : 30.8 million euros due to operational elements and 21.1 million euros due to exceptional items, such as an additional provision for the restructuring costs concerning PagesJaunes salesforce of 9.8 million euros. Excluding exceptional items, the operating income has reduced by 17%.

The financial result represents a net expense of 57.8 million euros as of 30 June 2014 down 13.5% compared to 30 June 2013, mainly impacted by the reduction of the average cost of gross debt by 84 basis point. The average cost of gross debt (including hedging instruments) has reached 6.07% as of 30 June 2014.

As of 30 June 2014, the Group has recorded a corporation tax charge of 34.1 million euros, down 28.1% compared to 30 June 2013. The effective tax rate is 45.4 % as of 30 June 2014, 5.3 points higher than as of 30 June 2013, under the combined effect of higher corporation tax rate and lower partial deductibility of financial interest.

The Group's net income stands at 40.9 million euros as of 30 June 2014, down 42.1% compared to 30 June 2013. Excluding exceptional items, the net income has reduced by 22%.

V. Financial structure

Net debt3 amounts to 1,118.9 million euros as of 30 June 2014, down 460.7 million euros compared to 31 December 2013. This decrease is mainly due to the capital increase made on June 6, 2014 and of net cash flow generated in the 1st half of 2014.

During the 1st half, the Group has repaid € 400 million in respect of the refinancing completed in June and € 83.6 million in respect of the ' excess cash flow' clause and contractual payments.

As of 30 June 2014, the Group had a headroom of 35% for its financial leverage covenant which was 2,92 times an aggregate close to GOM and of 22% on its interest coverage ratio which was 3,65 times the net interest expenses4. Following the bank debt refinancing, the financial leverage covenant is as follows :

  • 4.50 times until March 2015 included
  • 4.25 times in June and September 2015
  • 4.00 times post September 2015.

The Group's net cash flow at 64.9 million euros at the end of June 2014 is down -31.7% compared to 30 June 2013. This decline is primarily related to the drop in the gross operating margin over the period, the increase in investments supporting the "Digital 2015" program partially offset by a reduction of financial expenses. As of 30 June 2014, the Group had a net cash flow of 52.7 million euros.

VI. Confirmed outlook for 2014

As announced in November, 2014 will be a year of structural changes, especially in the commercial area.

In this context and in light of a mediocre economic environment, the outlook for 2014 is:

  • Revenue decrease between -3% and -6%
  • Normalised5 gross operating margin expected between 355 million euros and 375 million euros.

Digital 2015 investments shall allow to return to global growth in 2015 by generating about 75% of revenues on Internet.

3 Net debt corresponds to the total gross financial debt plus or minus the fair value of derivative asset and/or liability hedging instruments and minus cash and cash equivalents.
4 Excluding the change in the fair value of hedging instruments, amortisation of loan issue expenses and accretion income.
5 GOM normalised : GOM adjusted for accounting effects (without cash impact) related to the implementation of the new sales contracts

About Solocal Group

Solocal Group, the leader in local communication, became the new name of PagesJaunes Groupe on 5 June 2013. The Group offers online content, advertising solutions and transactional services that connect consumers and clients locally. It brings together around 4,500 people – including nearly 2,200 advisors in local communication in France and Spain to support the digital development of companies (SMEs and micro businesses, tier 1 brand accounts, etc.) – 17 strong and complementary brands (PagesJaunes, Mappy, 123deal, A vendre A louer, Embauche.com, Keltravo, Chronoresto, ZoomOn, Solocal Network, ComprendreChoisir, ClicRDV, PJMS, Horyzon Media, Leadformance, QDQ, Editus and Solocal Group) and nearly 650,000 clients. In 2013, Solocal Group generated nearly €1 billion in revenues, of which 63% via the Internet, and thus ranks among the key European players in terms of online advertising revenues. Solocal Group is listed on NYSE Euronext Paris (LOCAL). Further information on Solocal Group is available on www.solocalgroup.com.

This press release contains forward-looking statements. Although Solocal Group feels that its estimates are based upon assumptions which we believe to be reasonable, these forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those anticipated in said forward-looking statements. For a discussion of risks and uncertainties which could cause actual results, financial condition, performance or achievements of Solocal Group to differ from those contained in the forward-looking, please refer to the "Risk factors" section of the "Document de Référence" filed with the French financial markets authority (AMF) and available on the Internet sites of the AMF (www.amf-france.org) and of Solocal Group (www.solocalgroup.com). Accounting data are presented on an annual basis in audited consolidated form and on an quarterly basis in unaudited consolidated form.

Appendix 1 : Evolution of audiences for Internet fixed and mobile

In millions of visits   H1 2014   H1 2013   Change
PagesJaunes 721.0 658.0 +9.6%
of which mobile 232.3 169.7 +36.9%
Mappy 159.6 158.1 +0.9%
of which mobile 61.7 50.3 +22.7%
ComprendreChoisir 48.7 34.5 +41.2%
of which mobile 14.8 6.8 +117.6%
Other (a)   59.3   62.6   -5.3%
Total (b)   988.6   913.2   +8.3%
of which mobile   318.7   232.0   +37.4%
Source : Solocal Group (a) on a like-for-like basis
(b) shut down of 123people in Q1 2014

Appendix 2 : Revenues and gross operating margin for 1st semester

In millions of euros   H1 2014   H1 2013   Change
Group revenues 470.8   500.3   -5.9%
Internet 315.3   316.0   -0.2%
as % of Group revenues 67.0% 63.2%
Printed directories 146.4 173.5 -15.6%
as % of Group revenues 31.1% 34.7%
Other businesses 9.1 10.7 -15.0%
as % of Group revenues 1.9%   2.1%    
Normalised gross operating margin* 186.8   215.5   -13.3%
as % of Group revenues 39.7% 43.1%
Internet 120.0 132.7 -9.6%
as % of Internet revenues 38.1% 42.0%
Printed directories 64.7 79.8 -18.9%
as % of Printed directories revenues 44.2% 46.0%
Other businesses 2.1 3.1 -32.3%
as % of Other businesses revenues 23.1%   29.0%    
Reported gross operating margin 182.2   215.5   -15.5%
as % of Group revenues 38.7% 43.1%
Internet 116.8 132.7 -12.0%
as % of Internet revenues 37.0% 42.0%
Printed directories 63.3 79.8 -20.7%
as % of Printed directories revenues 43.2% 46.0%
Other businesses 2.1 3.1 -32.3%
as % of Other businesses revenues 23.1% 29.0%
*Normalised GOM for non-cash impacts of changes to sales contracts (cf. appendix 3)

Appendix 3 : Normalisation impact following the change of compensation terms for salesforce

In millions of euros   H1 2014   H1 2013   Change
Normalised gross operating margin 186.8   215.5   -13.3%
as % of Group revenues 39.7%   43.1%  
Normalisation impact 4.6   0.0    
Reported gross operating margin 182.2   215.5   -15.5%
as % of Group revenues 38.7% 43.1%

The year 2014 is marked by the extension, to almost all of the sales force, of the "specialist" status, resulting in a modification of the employment contract with in particular the switching from a travelling sales representative to an executive status. This modification comes with the introduction of a fixed remuneration and reimbursement for costs, with the direct consequence of a decrease in the variable share of the sales force compensation. Recall that this status had already been partially set up in 2012 with a population of about 230 sales staff.

Recall that, according to IFRS rules, only the variable compensation with an incremental nature were capitalised as "acquisition costs of contracts" and were recognised as expense at the same time as the revenue, i.e. in a single action at the time of publication for printed directories and, spread out starting from online publication, and over the duration of publication.

The 2014 financial statements, starting in the 2nd quarter, will support a dual accounting effect: the recognition as expense of the commercial costs concerning the revenue prospected in 2013 (activated and booked in the balance sheet at at 31 December 2013) as well as the fixed remuneration paid in 2014 for the revenue prospected in 2014.

As the sales representatives do not receive double compensation in 2014, this is a double accounting effect without impact on cash flow.

The purpose of normalised GOM is to neutralise this double effect linked to the acceleration in the recognition of commercial costs (decrease in the variable share in total remuneration) in order to make it possible to obtain a pertinent and comparable aggregate, in such a way that it reveals the economic activity of the business. The impact in terms of figures corresponds to an estimate based on forecast projections.

Appendix 4: Consolidated income statement for 2nd quarter

In millions of euros   Q2 2014   Q2 2013   Change
Revenues   255.1   272.3   -6.3%
Net external expenses   (59.8)   (56.9)   -5.1%
Salaries and charges   (99.1)   (95.9)   -3.3%
Gross operating margin 96.2 119.5 -19.5%
as % of revenues   37.7%   43.9%    
Legal employee profit-sharing (3.4) (4.1) +17.1%
Share-based payment (5.7) (0.7) na
Depreciation and amortisation (12.9) (10.1) -27.7%
Other income and expenses   (4.7)   (2.2)   na
Operating income 69.5 102.4 -32.1%
as % of revenues   27.2%   37.6%    
Net financial income   (30.0)   (32.8)   +8.5%
Share of profit or loss of an associate   (0.2)   0.0   na
Income before tax   39.2   69.6   -43.7%
Corporate income tax (17.9) (28.0) +36.1%
Corporate income tax rate   45.4%   40.2%    
Net income   21.3   41.6   -48.8%

Appendix 5: Consolidated income statement for 1st semester

In millions of euros   H1 2014   H1 2013   Change
Revenues   470.8   500.3   -5.9%
Net external expenses   (106.5)   (102.9)   -3.5%
Salaries and charges   (182.0)   (182.0)   na
Gross operating margin 182.2 215.5 -15.5%
as % of revenues   38.7%   43.1%    
Legal employee profit-sharing (6.0) (7.0) +14.3%
Share-based payment (6.0) (1.3) na
Depreciation and amortisation (23.2) (20.0) -16.0%
Other income and expenses   (14.1)   (2.2)   na
Operating income 133.0 184.9 -28.1%
as % of revenues   28.2%   37.0%    
Net financial income   (57.8)   (66.8)   +13.5%
Share of profit or loss of an associate   (0.2)   (0.1)   na
Income before tax   75.0   118.0   -36.4%
Corporate income tax (34.1) (47.4) +28.1%
Corporate income tax rate   45.4%   40.1%    
Net income   40.9   70.6   -42.1%

Appendix 6 : Consolidated cash flow statement for 2nd quarter

In millions of euros   Q2 2014   Q2 2013   Change
Gross operating margin   96.2   119.5   -19.5%
Legal employee profit-sharing (3.4) (4.1) +17.1%
Non monetary items included in GOM 1.4 2.9 -51.7%
Net change in working capital (6.0) 4.8 na
Acquisition of tangible and intangible fixed assets   (18.9)   (12.1)   -56.2%
Operational cash flow 69.4 110.9 -37.4%
as % of GOM 72.1% 92.8%
Cash financial income (24.9) (60.4) +58.8%
Other income and expenses (5.9) (2.0) na
Corporate income tax paid   (24.7)   (27.3)   +9.5%
Net cash flow 13.8 21.2 -34.9%
Increase (decrease) in borrowings and bank overdrafts (450.4) (1.9) na
Capital increase 422.9 - -
Other   (16.5)   (1.9)   na
Net cash variation (30.3) 17.5 na
Net cash and cash equivalents at beginning of period   82.9   88.4   -6.2%
Net cash and cash equivalents at end of period   52.7   105.9   -50.2%

Appendix 7 : Consolidated cash flow statement for 1st semester

In millions of euros   H1 2014   H1 2013   Change
Reported gross operating margin   182.2   215.5   -15.5%
Legal employee profit-sharing (6.0) (7.0) +14.3%
Non monetary items included in GOM 3.0 3.7 -18.9%
Net change in working capital 12.9 25.4 -49.2%
Acquisition of tangible and intangible fixed assets   (35.5)   (21.6)   -64.4%
Operational cash flow 156.7 216.0 -27.5%
as % of GOM 86.0% 100.2%
Cash financial income (37.5) (70.8) +47.0%
Other income and expenses (9.5) (2.0) na
Corporate income tax paid   (44.8)   (48.3)   +7.2%
Net cash flow 64.9 95.0 -31.7%
Increase (decrease) in borrowings and bank overdrafts (489.4) (78.9) na
Capital increase 422.9 - na
Other   (18.7)   (2.1)   na
Net cash variation (20.4) 14.0 na
Net cash and cash equivalents at beginning of period   73.1   91.9   -20.5%
Net cash and cash equivalents at end of period   52.7   105.9   -50.2%

Appendix 8 : Consolidated balance sheet

In millions of euros   30 June 2014   31 Dec 2013   30 June 2013
ASSETS            
Total non-current assets 227.3 214.8 210.6
Net goodwill 82.2 78.7 83.9
Other net intangible fixed assets 97.6 80.8 72.2
Net tangible fixed assets 26.2 23.6 24.1
Other non-current assets of which deferred tax assets   21.2   31.7   30.5
Total current assets 518.9 585.3 581.1
Net trade accounts receivable 333.8 405.8 350.7
Acquisition costs of contracts 56.9 63.3 64.9
Prepaid expenses 10.0 5.9 12.3
Cash and cash equivalents 54.6 75.6 107.9
Other current assets   63.6   34.7   45.4
TOTAL ASSETS   746.1   800.0   791.7
LIABILITIES
Total equity   (1,389.2)   (1,866.7)   (1,923.5)
Total non-current liabilities 1,240.3 1,617.5 1,693.0
Non-current financial liabilities and derivatives 1,153.0 1,516.2 1,595.6
Employee benefits (non-current) 78.4 85.1 89.6
Other non-current liabilities   8.9   16.3   7.9
Total current liabilities 895.0 1,049.2 1,022.1
Bank overdrafts and other short-term borrowings 3.6 132.7 133.8
Deferred income 552.4 597.5 599.2
Employee benefits (current) 113.2 119.2 114.9
Trade accounts payable 98.6 84.5 79.9
Other current liabilities   127.1   115.4   94.5
TOTAL LIABILITIES   746.1   800.0   791.7

Appendix 9 : Consolidated net debt

In millions of euros   30 June 2014   31 Dec 2013   30 June 2013
Cash and cash equivalents   54.6   75.5   107.9
Gross Cash position   54.6   75.6   107.9
Bank overdrafts   (1.9)   (2.5)   (2.0)
Net Cash position   52.7   73.1   105.9
Bank borrowings (813.9) (1,297.5) (1,368.2)
Bond borrowings -Senior secured notes (350.0) (350.0) (350.0)
Revolving credit line drawn* - - -
Loan issuance expenses 29.3 25.4 31.6
Capital leases (1.0) (0.0) (0.1)
Fair value of hedging instruments (16.2) (20.2) (34.4)
Accrued interest not yet due (16.9) (6.3) (7.0)
Other financial liabilities   (2.8)   (4.1)   (6.2)
Gross financial debt   (1,171.5)   (1,652.7)   (1,734.3)
of which current (18.5) (136.4) (138.8)
of which non-current   (1,153.0)   (1,516.2)   (1,595.6)
Net debt   (1,118.9)   (1,579.6)   (1,628.5)
             
Net cash (debt) excluding fair value of financial instruments and loan issuance expenses   (1,131.9)   (1,584.8)   (1,625.6)
*At 06/30/2014, €65,3 M available under the undrawn revolving credit line

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