Truvo Intermediate LLC
2008 Annual Report
Contents
Page
At a glance
3
General and definitions
Forward-looking statements
Industry and market data
Presentation of financial information
Currency presentation and exchange rate information
4
5
5
6
6
Risk factors
Risks related to our business
Risks related to our indebtedness
Risks related to our structure for holders of the Senior Notes
Risks related to the subsidiary guarantees and the security for holders of the Senior Notes
7
7
12
14
16
Recent developments
23
Selected historical consolidated financial data
24
Operating and financial review and prospects
Introduction
Overview
Factors affecting our results of operations
Principal statement of income items
Significant accounting policies and critical estimates and judgments
28
28
28
28
32
33
Comparison of the years ended December 31, 2008 and 2007
to the years ended December 31, 2007 and 2006
Summary of financial results by geographic region and other
Summary of the reconciliation from operating profit to EBITDA
Summary of financial results as percentage of revenues
Net operating revenues and (attributable) EBITDA – four quarters of 2008
Liquidity and capital resources
Historical cash flows
Future liquidity
Capital expenditure
Off-balance sheet arrangements
Quantitative and qualitative disclosure about market risk
33
35
36
37
38
40
40
43
44
44
44
Business discussions
Our business
Our business strengths
The strategy for our business operations
Company history
Our products and services
Country overview
Belgium – Truvo Belgium
Ireland – Truvo Ireland
Romania – Pagini Aurii
Portugal – Páginas Amarelas
Our minority interests in South Africa and Puerto Rico
Other information
Intellectual property / properties
Material legal proceedings and commercial disputes
Regulatory framework
46
46
46
47
48
48
50
50
51
52
53
55
56
58
58
58
Meet the management
60
Principal shareholders and corporate structure
62
Certain relationships and transactions
65
Description of indebtedness
66
Financial statements 2008
70
2
At a glance
Net operating
revenues
EBITDA
Advertisers
ARPA*
(in € millions)
(x 1,000)
(in €)
(in € millions)
2007
2008
389
365
22%
2007
Belgium
Ireland
Romania
74%
235
221
27%
29%
73%
71%
76
6%
10%
94%
90%
122
97%
2007
2008
247
1,760
1,822
122
113
1,918
1,992
31
30
2,456
2,502
323
326
1,256
1,278
26%
78%
10.9
3%
2008
2007
269
180
Truvo
2008
169
116
72
34
28
34
9.4
2%
31
98%
0.5
-0.1
67
25%
Portugal
75%
82
63
73
37%
63%
11
9
Online
Print
* Group ARPA excludes Romania
3
General and
definitions
Truvo Intermediate Corp. was incorporated under the
laws of Delaware on September 22, 2004. Its principal
st
executive offices are located at 222 East 41 Street,
Suite 801, New York, NY 10017-6702. In 2007 Truvo
Intermediate Corp. was converted into Truvo
Intermediate LLC.
“Refinancing” refers to the repayment of the outstanding
amounts under the 2004 Senior Facilities from the proceeds
of the Senior Facilities.
“Senior Dollar Notes” refers to the $200 million principal
3
amount of 8 /8% notes due 2014 of Truvo Subsidiary Corp.,
a wholly owned subsidiary of the Company.
In this annual report, the “Company” refers to Truvo
Intermediate LLC; “we”, “us”, “our” and the “group”
refer, as the context requires, to the Company and its
consolidated subsidiaries and certain of its other
affiliates described herein.
“Senior Euro Notes” refers to the €395 million principal
1
amount of 8 /2% notes due 2014 of Truvo Subsidiary Corp.,
a wholly owned subsidiary of the Company.
”Truvo USA” refers to Truvo USA, Inc.; “Truvo Belgium”
refers to Truvo Belgium Comm. V; “Truvo Services”
refers to Truvo Services B.V.; “Truvo Technology”
refers to Truvo Technology B.V.; “Truvo Services &
Technology” refers to Truvo Services & Technology
B.V.; “Truvo Information Holdings” refers to Truvo
Information Holdings LLC; “Truvo Nederland” refers to
Truvo Nederland B.V.; “Truvo Ireland” refers to Truvo
Ireland Limited; “Páginas Amarelas” refers to Páginas
Amarelas S.A.; “Pagini Aurii” refers to Pagini Aurii S.A.;
“Trudon” refers to Trudon (Pty) Ltd. (formerly TDS
Directory Operations (Pty) Ltd.); “Axesa” refers to
Axesa Servicios de Información, S en C and “Truvo
Antilles” refers to Truvo Curaçao N.V.
“Senior Facilities” refers to the €1,025 million senior
facilities entered into in connection with the Refinancing,
comprising of two term loan facilities of up to €975 million
and a revolving credit facility of up to €50 million (the
“Revolving Credit Facility”). See “Description of
indebtedness” for further information.
“ARPA” refers to average revenue per advertiser
calculated as sales divided by the number of customers
in any given period.
“core circulation” refers to the number of addresses that
receive a yellow pages book or a combined
yellow/white pages book.
“Intercreditor Agreement” refers to the intercreditor
agreement dated May 23, 2007 between the Company,
Truvo Subsidiary Corp., the subsidiary guarantors, the
global coordinator and lenders under the Company
Senior Facility Agreement, the senior agent, lenders
under the PIK Facility Agreement and the trustee for the
holders of the Senior Dollar Notes and the Senior Euro
Notes.
“Notes” refers to the Senior Notes and the PIK Notes.
“PIK Facility” refers to the €130 million PIK Facility
entered into in connection with the PIK Refinancing.
See “Description of indebtedness” for further
information.
“PIK Facility Agreement” refers to the PIK Facility
agreement dated May 23, 2007 among the Company
and the other borrowers thereunder, with JPMorgan
Europe Ltd. as administrative agent and the lender
parties, entered into in connection with the PIK
Refinancing.
“PIK Notes” refers to the notes offered pursuant to the
offering memorandum dated December 1, 2004.
“PIK Refinancing” refers to the repayment of the
outstanding amounts under the PIK Notes from the
proceeds of the PIK Facility.
“2004 Senior Facilities” refers to the €1,215 million senior
facilities comprised of three term facilities of up to €1,115
million and a revolving credit facility of up to €100 million
(the “2004 Revolving Credit Facility”). See “Description of
indebtedness” for further information.
“2004 Senior Facility Agreement” refers to the senior facility
agreement dated September 26, 2004 (as amended on
November 29, 2004) between, among others, Truvo
Subsidiary Corp., Truvo Acquisition Corp. and the other
borrowers thereunder, JPMorgan Europe Ltd. as facility
agent and security agent and the lender parties thereto,
entered into in connection with the 2004 Senior Facilities.
“Senior Facility Agreement” refers to the senior facility
agreement dated May 23, 2007 between Truvo Acquisition
Corp. and the other borrowers thereunder, JPMorgan
Europe Ltd. as facility agent and security agent and the
lender parties thereto, entered into in connection with the
Refinancing.
“Senior Notes” refers collectively to the €395 million
1
principal amount of the 8 /2% notes due 2014 and the $200
3
million principal amount of 8 /8% notes due 2014 of Truvo
Subsidiary Corp., a wholly owned subsidiary of the
Company.
Our employee data contained in this annual report refers to
the average number of full time equivalent employees,
taking into consideration full time employee and aggregated
part-time employee figures. Employee numbers exclude
temporary employees.
The Senior Euro Notes sold pursuant to Regulation S of the
U.S. Securities Act, 1933 (the “U.S. Securities Act”) and the
Senior Euro Notes sold pursuant to Rule 144A of the U.S.
Securities Act have been accepted for clearance through
the facilities of DTC, Euroclear and Clearstream under
common codes 020661470 and 020661542 for the Senior
Euro Notes respectively. The international securities
identification number for the Senior Euro Notes sold
pursuant to Regulation S of the U.S. Securities Act is
XS0206614702 and the international securities identification
number for the Senior Euro Notes sold pursuant to Rule
144A is XS0206615428.
4
The CUSIP for the Senior Dollar Notes sold pursuant to
Regulation S of the U.S. Securities Act is U94285AA8
and the CUSIP for the Senior Dollar Notes sold
pursuant to Rule144A of the U.S. Securities Act is
92926TAA2. The international securities identification
number for the Senior Dollar Notes sold pursuant to
Regulation S of the U.S. Securities Act is
USU94285AA83 and for the Senior Dollar Notes sold
pursuant to Rule 144A of the U.S. Securities Act is
US92926TAA25. The common code for the Senior
Dollar Notes sold pursuant to Regulation S of the U.S.
Securities Act is 020737972 and the common code for
the Senior Dollar Notes sold pursuant to Rule 144A of
the U.S. Securities Act is 020738146.
Forward-looking statements
This annual report contains “forward-looking
statements”, as that term is defined by U.S. federal
securities laws, relating to our business, financial
condition and results of operations. You can find many
of these statements by looking for words such as “may”,
“will”, “expect”, “anticipate”, “believe”, “estimate” and
similar words used in this annual report.
By their nature, forward-looking statements are subject
to numerous assumptions, risks and uncertainties.
Accordingly, actual results may differ materially from
those expressed or implied by the forward-looking
statements. We caution readers not to place undue
reliance on these statements, which speak only as of
the date of this annual report.
The cautionary statements set forth above should be
considered in connection with any subsequent written
or oral forward-looking statements that we or persons
acting on our behalf might issue. We do not undertake
any obligation to review or confirm analysts’
expectations or estimates or to release publicly any
revisions to any forward-looking statements to reflect
events or circumstances after the date of this annual
report.
Risks and uncertainties that could cause actual results
to vary materially from those anticipated in the forwardlooking statements included in this annual report
include factors such as:
•
the declining usage of printed directories and the
shift toward online media and other forms of
advertising;
•
the possibility that our strategy, including the
expansion of our Internet activities to benefit from
the shift in usage from print to online media, may
not be successful;
•
the negative impact of the current global economic
crisis on our customers, which in turn will
materially adversely affect our results of
operations and financial results;
•
our dependency on partnerships, joint ventures
and the cooperation of the incumbent telecom
operators in certain geographic markets;
•
our inability to compete successfully in each of our
markets due to the competitive nature of the
directory advertising industry;
•
the failure of our customers to renew their
advertising in our directories;
•
our exposure to bad credit risk of certain of our
customers, due to the credit we extend to small and
medium-sized businesses in connection with the sale
of advertising space;
•
our dependency on earnings derived from companies
that we do not control;
•
the potential loss of important intellectual property
rights;
•
our inability to obtain an unqualified audit opinion in
future years;
•
our reliance on technology;
•
government regulation and changes in regulation
regarding information technology, data protection,
privacy and other matters;
•
our reliance on third party providers for printing,
distribution, delivery services and revenue collection;
•
fluctuations in the price or availability of paper;
•
our exposure to currency exchange risks;
•
possible political, economic and regulatory instability
affecting our minority shareholding in South Africa;
•
the interests of our principal shareholders, which may
be inconsistent with the interests of the holders of the
Notes and of each other;
•
our dependency on the key executive officers and our
ability to hire, select and retain our sales force and
other qualified personnel, in particular new media
talent;
•
continuing severance costs in the future;
•
strikes or industrial action;
•
litigation and commercial dispute risks;
•
our high leverage and ability to meet our debt service
obligations;
•
our requirement for a significant amount of cash to
service our debt and our ability to generate sufficient
cash; and
•
our significant restrictive debt covenants, which limit
our operating flexibility.
We disclose important factors that could cause our actual
results to differ materially from our expectations under “Risk
factors”, the “Operating and financial review and prospects”
and elsewhere in this annual report. These cautionary
statements qualify all forward-looking statements
attributable to us or persons acting on our behalf. When we
indicate that an event, condition or circumstance could or
would have an adverse effect on us, we mean to include
effects upon our business, financial and other conditions,
results of operations and ability to make payments on the
Senior Notes.
Industry and market data
In this annual report, we rely on and refer to information
regarding our business and the market in which we operate
and compete. We obtained this information from various
third-party sources, discussions with our customers and our
own internal estimates. We have obtained market and
5
industry data relating to our business from providers of
industry and market data.
Industry publications, surveys and forecasts generally
state that the information contained therein has been
obtained from sources believed to be reliable. We
believe that these industry publications, surveys and
forecasts are reliable but have not independently
verified them and cannot guarantee their accuracy or
completeness.
In addition, in many cases, we have made statements
in this annual report regarding our industry and our
position in the industry based on our experience and
our own investigation of market conditions. We cannot
assure you that any of these assumptions are accurate
or correctly reflect our position in the industry, and none
of our internal surveys or information has been verified
by any independent sources.
Presentation of financial information
Unless otherwise indicated, the financial information in
this annual report has been prepared in accordance
with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union.
Rounding adjustments have been made in calculating some
of the financial information included in this annual report. As
a result, figures shown as totals in some tables may not be
exact arithmetic aggregations of the figures that precede
them.
Currency presentation and exchange rate
information
In this annual report: (i) “€” or “Euro” refer to the single
currency of the participating Member States in the Third
Stage of the European Economic and Monetary Union of
the Treaty Establishing the European Community, as
amended from time to time; and (ii) “$” or “Dollar” refer to
the lawful currency of the United States.
The following table sets forth, for the periods indicated,
certain information regarding the daily reference rate as
published by the European Central Bank, expressed in
Dollars per Euro. The rates below may differ from the actual
rates used in the preparation of our consolidated financial
statements and other financial information appearing in this
annual report. Our inclusion of the exchange rates is not
meant to suggest that the Euro amounts actually represent
such Dollar amounts or that such amounts could have been
converted into Dollars at any particular rate, if at all.
Dollars per Euro
2004
Exchange rate at the end of the period
(1)
Average exchange rate during the period
Highest exchange rate during the period
Lowest exchange rate during the period
(1)
1.35
1.25
1.36
1.18
Year ended December 31,
2005
2006
2007
1.18
1.24
1.35
1.17
1.32
1.26
1.33
1.18
1.46
1.37
1.49
1.29
2008
1.39
1.47
1.59
1.25
The average of the last business day of each month during the applicable period.
Month and year
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
Highest exchange rate
during the month
Lowest exchange rate
during the month
1.41
1.29
1.46
1.39
1.30
1.37
1.25
1.25
1.26
1.28
1.26
1.26
As of April 22, 2009 the currency exchange rate was $1.295 per Euro.
6
Risk factors
You should carefully consider the risks described below
as well as the other information contained in this annual
report. Any of the following risks could materially
adversely affect our business, financial condition or
results of operations. The risks described below are not
the only risks we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be
immaterial may also materially adversely affect our
business, financial condition or results of operations.
We have grouped some of the risks below according to
the business units to which they most relate. However,
some risks that relate most to one business unit may also
be relevant to other units or the business as a whole.
Risks related to our business
We have been and may continue to be materially
adversely affected by declining usage of printed
directories and the shift toward online and other
media: In recent years, overall usage of printed
directories in Europe has declined. We believe that the
decline in usage of printed directories is mainly a result of
increased usage of Internet and telephone-based media
products. We expect print usage to continue to decline,
thereby subjecting us to further competition.
Any further decline in usage of printed directories could:
•
impair our ability to maintain or increase our print
advertising prices;
•
cause businesses that purchase advertising in our
printed directories to reduce or discontinue those
purchases; and
•
discourage businesses that do not purchase
advertising in our printed directories from doing so in
the future.
products, which could further materially adversely affect
our business, financial condition and results of
operations.
Our strategy, including our strategy of transforming
into a local search and directory business and to
reduce our reliance on print directories, may not be
successful: Revenues of some of our core print products
have declined in the past few years and are expected to
continue to decline. In order to improve the performance
of our print products, we may choose to introduce new
print products, which may require significant investments
in the next few years. In 2007, we converted the
Portuguese local guides into companion guides for the
cities of Lisbon and Oporto. In 2008, we introduced a new
promotional booklet with discounts and offers in Portugal.
If these new print products do not successfully attract
increased revenues, the increased operating costs
related to their implementation may adversely affect our
results of operations.
Or core strategy is to transform into a local search and
directory business cantered on the further development of
our Internet and online activities, such as our directory
Internet sites. Net revenues from Internet advertising
represented 26.2% of our net operating revenues for the
year ended December 31, 2008 compared to 21.7% in
2007 and 17.6% in 2006. In the future we expect to derive
a greater amount of our revenues from Internet
advertising as usage growth in online media products
substitutes usage decline in print directories. The
developing technologies associated with our Internet
activities are subject to a variety of challenges and risks
including the following:
•
Inhibited growth of Internet use. Our investment in
Internet activities may not generate expected
additional revenues if the use of the Internet for the
exchange of information and as a medium for
advertising does not continue to grow. Internet
growth may be inhibited for a number of reasons that
we cannot control or predict. Our business could be
adversely affected if the market for Internet
advertising fails to develop or develops more slowly
than expected.
•
Changing technology and new product development.
The markets in which we now operate and intend to
expand are characterised by rapidly changing
technology, introductions and enhancements of
competing products and services and shifting
customer demands, including technology
preferences.
•
Cooperation with other operators or suppliers of
Internet technology and applications. In order to
compete in the Internet and online advertising
market, we have entered into a number of
cooperation and supply arrangements with other
operators in the market for Internet and online
applications. In case some of these arrangements
turn out to be unsuccessful or if they are terminated,
our ability to maintain and expand our Internet
activities may be negatively affected.
Any of the factors that have contributed and may continue
to contribute to a decline in usage of our printed
directories, or a combination of them, could further impair
our revenues and continue to have a material adverse
effect on our business, financial condition and results of
operations.
The shift in usage from print to online and other media
has arisen due to developments in technology, including
information distribution methods and users’ technological
preferences. Our future growth and financial performance
will depend in part upon our ability to develop and market
new products and services and to use new or enhanced
distribution channels to accommodate the latest
technological advances and user preferences and to
benefit from the shift in usage from print to online media
products. The increasing use of the Internet and
telephone by consumers as a means to transact
commerce has resulted in new technologies or products
being developed and services provided that can compete
with our products and services for advertising sales and
consumer usage which may result in our revenues further
decreasing over time. If our advertising customers
continue to perceive that printed directories are no longer
an effective means of reaching their target audience and
our online products do not present a viable alternative,
they may continue to increase the proportion of
advertising spend on competing media or other online
7
Any failure by us in the execution of our print product and
Internet strategies and our transformation to a local
search and directory business could have an adverse
effect on our business, financial condition and results of
operations.
to compete successfully against these and other media
for advertising.
The current global economic crisis is having a
negative impact on our customers, which in turn has
had and may continue to have a material adverse
effect on our results of operations and financial
condition: The current global economic crisis has had a
significant negative impact on businesses across regions
and industries throughout the world, which, in turn, has a
significant negative impact on our business. In particular,
a reduction in advertising spending by our customers may
lead to a further reduction in their demand for our
products and services and a migration of some or all of
their advertising spending to other products or services
we do not offer, which could have a material adverse
effect on our results of operations and financial condition.
As our print and online advertising space is usually sold
on an annual basis, our customers can only adjust their
advertisement volume annually in response to general
economic trends. Therefore, a prolonged continuation of
the current global economic crisis could have a further
material adverse effect on our business, particularly since
directory advertising tends to lag behind current economic
conditions as advertising in print directories is sold up to
eight months in advance of the publication date. Hence,
the current challenging economic conditions may not be
fully reflected in our current results. Similarly, an
improvement in general economic conditions and
increased advertising spending of our customers may not
have an immediate impact on our print directory business
and the increase in our revenues, if any, will lag behind a
general economic recovery.
Our ability to compete successfully for both users and
advertisers depends on elements both within and outside
our control, including user demand for our services,
successful development and timely introduction of new
products, our ability to deliver appropriate levels of
service to users and advertisers, pricing, industry trends
and general economic trends. Our inability to compete
successfully could have a material adverse effect on our
business, financial condition and results of operations.
We may be unable to compete successfully in each of
our markets due to the competitive nature of the
directory advertising industry: The directory advertising
business in general is competitive, but especially the
online business. The declining nature of the traditional
print directory business has further increased the
competitiveness of some of our markets in recent years.
In each of our geographic markets we usually compete
with one or more competitors. In addition, competition in
these markets may increase further if certain of our joint
venture and cooperation partners decide to terminate our
ongoing partnerships, arrangements or joint ventures or
compete with our existing businesses (see also “In certain
geographic markets we are dependent on partnerships,
joint ventures and the cooperation of the incumbent
telecom operators”). We cannot assure you that we will
be able to compete effectively with these other firms for
advertising spending or acquisitions in the future. Some
of these competitors or potential competitors are larger
and financially stronger than we are. This is particularly
the case in the online business where certain
competitors, such as Google also benefit from substantial
market share and other competitive advantages. In
addition, we compete against businesses in other media,
including newspapers, radio, television, billboards and
direct marketing as well as Internet search providers for
business and professional advertising. Some of these
competing businesses have stated that they are
specifically targeting the yellow pages market and have
significantly increased their market presence in the past
several years. We cannot assure you that we will be able
Applicable European legislation leading to additional
deregulation may further increase competition in the
various markets within the European Union.
The failure of our customers to renew their
advertising in our directories could have a material
adverse effect on our business: The performance of
our business depends in large part upon our ability to
retain our existing customer base and to sell additional or
enhanced advertising services to those customers.
Maintaining our existing customer base is critical,
because, among other reasons, established advertisers
are more likely to purchase products across our
platforms, are less expensive to service or sell to than
new advertisers and are less likely than new advertisers
to generate bad debt expense. Our year-on-year
customer retention rate for advertising customers in 2008
was more than 80% in Belgium, Ireland and Portugal
(figures which are in line with our past experience). Our
customer retention rate is particularly high with respect to
our larger customers. A larger proportion of our first-time
advertisers decide not to or is unable to renew their
contracts after the first year. Furthermore the retention
rate in online is lower than in the print business. We
cannot assure you that we will be able to maintain or
improve our customer retention rates in the future. The
failure of our customers to renew their advertising in our
print and online directories could have a material adverse
effect on our business, financial conditions and results of
operations.
In connection with the sale of advertising space we
extend credit to small and medium-sized businesses
and we are therefore subject to the bad credit risk of
certain of our customers: Most of our operating
revenues are derived from selling advertising and listings
to small and medium-sized businesses. In the ordinary
course of our business, we extend credit to these
customers to purchase advertising and listings. Small and
medium-sized businesses tend to have fewer financial
resources and higher financial failure rates than large
businesses. We believe these limitations cause some
customers in any given year not to pay for their
purchases promptly or at all, especially in difficult
economic circumstances. In addition, full collection of late
payments can take an extended period of time and
consume additional resources. Generally, we provide for
reserves in the amount of approximately 2% of our
revenues in connection with bad debt collection. Bad debt
expense as a percentage of net operating revenues
(including Páginas Amarelas) was 2.0%, 1.9% and 2.1%
for the fiscal years 2008, 2007 and 2006, respectively.
We cannot assure you that the challenging economic
environment will not require us to increase the amount of
credit that we extend to our customers, delay our debt
collection from these customers or increase the amount
of bad debt expense.
8
In certain geographic markets we are dependent on
partnerships, joint ventures and the cooperation of
the incumbent telecom operators: Our ability to publish
and distribute our product offerings in a number of our
key geographic markets is based on the continuation of
certain cooperation arrangements, publishing agreements
or joint ventures with the incumbent telephone operators.
A modification, termination or expiration without renewal
of these arrangements could materially affect our
business in these markets.
•
Truvo Belgium is operating under a data license
agreement with Belgacom, Belgium’s designated
universal service provider, governing (i) the supply of
subscriber data from Belgacom to Truvo Belgium
and certain other services and (ii) the terms under
which Belgacom acts and is remunerated as an
agent for Truvo Belgium as regards the sales of bold
listings and certain advertising insertions in Truvo
Belgium’s white pages directories. For further
information see “Business discussions - Country
overview - Belgium-Truvo Belgium”.
•
eircom, the incumbent Irish telephone operator, has,
among others, subcontracted its universal service
obligation to publish the Irish national phone book to
Truvo Ireland, our principal Irish subsidiary, on an
exclusive basis. Our agreement with eircom is
important for our operations in Ireland. In June 2006,
eircom and Truvo Ireland entered into a new
production agreement for the production of the
editions of the alphanumeric directories in respect of
the calendar years 2007 through 2013. In 2013, we
may not be able to renew our agreement with eircom
or renew it on terms satisfactorily to us. For further
information see “Business discussions - Country
overview - Ireland-Truvo Ireland”.
•
Pagini Aurii cooperates with Rom Telecom, the
incumbent Romanian telephone operator. Despite its
minimal shareholding in Pagini Aurii, Rom Telecom
enjoys an important role in the corporate governance
of Pagini Aurii. If our relationship with Rom Telecom
deteriorates, our results of operations in Romania
could be adversely affected. For further information,
see “Business discussions - Country overview Romania-Pagini Aurii”.
•
Páginas Amarelas is our joint venture with Portugal
Telecom, the incumbent Portuguese telephone
operator, through which we operate our business in
Portugal. Páginas Amarelas runs the directory
business as agent for Portugal Telecom. The joint
venture agreement contains a so-called “shot-gun”
provision which can be invoked at any time by either
party and which, if invoked by Portugal Telecom,
would require us to either purchase Portugal
Telecom’s interest in Páginas Amarelas or sell our
entire interest in Páginas Amarelas to Portugal
Telecom. If we were to decide to acquire Portugal
Telecom’s interest in Páginas Amarelas under such
a scenario, the publishing arrangements between
Páginas Amarelas and Portugal Telecom would
remain in force for two additional sales cycles and
would expire thereafter unless renegotiated.
Following the expiration of the publishing
arrangement, Páginas Amarelas must transfer the
customer data to Portugal Telecom and must not
retain any customer related information. If our
cooperation with Portugal Telecom were to expire
and we decided to purchase Portugal Telecom’s
interest in Páginas Amarelas we would, subject to
certain non-compete arrangements, be able to
continue our business in Portugal. However, our
access to customer data could become more
burdensome and Portugal Telecom could decide to
enter into direct competition with us or cooperate
with our competitors. Such a result would materially
adversely affect our competitive position in the
Portuguese market. For further information, see
“Business discussions - Country overview - PortugalPáginas Amarelas”.
In addition, we have entered into joint ventures in South
Africa and Puerto Rico, and in 2008, we held minority
shareholdings of approximately 35.1% and 40%,
respectively. The operations of these joint ventures are
also affected by their respective cooperation with the local
incumbent telephone operators. For further details on our
joint ventures and partnerships, see “Business
discussions - Country overview - Our minority interests in
South Africa and Puerto Rico”.
Historically, we have generally been able to maintain
stable relationships with our joint venture partners and
with the incumbent telephone operators. However, we
cannot assure you that we will continue to maintain the
stability of these relationships, that disputes with our
partners may not lead to a deterioration of our
cooperation with these partners or that a termination,
expiration or modification of these arrangements would
not have a material adverse effect on our business,
financial condition or results of operations. In addition, the
corporate governance provisions of our joint ventures
require shareholder voting on a number of important
issues, which may limit the ability of these joint ventures
to take advantage of business opportunities, such as
future acquisitions, disposals, or investments that would
otherwise be of advantage to us.
Some of our earnings are derived from companies
that we do not control: In 2008, we held minority
shareholdings of 35.1% and 40% in the leading directory
publishing businesses in South Africa and Puerto Rico,
respectively. In 2008, we received dividend payments of
€2.6 million (2007 €12.7 million) from our minority
shareholding in South Africa and €3.0 million (2007 €4.1
million) from our minority shareholding in Puerto Rico.
Based on our shareholdings and the contractual
arrangements we have entered into with the respective
majority shareholders, we do not control these
businesses. We expect to continue to receive dividend
payments from these businesses in the future. However,
as we do not control these businesses, we cannot assure
you that the future performance of these businesses will
be in line with our expectations or that we will continue to
receive similar dividends, if any, going forward. Our
financial condition and results of operations would be
negatively affected if our dividends from associates were
to decrease in future periods. In addition, we have a 50%
share in, and therefore limited, control of Páginas
Amarelas, our Portuguese joint venture. See “Business
discussions - Country overview - Portugal-Páginas
Amarelas - The joint venture with Portugal Telecom” and
also see “Recent developments - Joint venture with
Portugal Telecom”.
The loss of important intellectual property rights
could adversely affect our competitiveness: Some of
our trademarks such as Truvo, Golden Pages, Gouden
Gids, Pages d’Or, Páginas Amarelas and Pagini Aurii, our
9
“walking fingers” logo and other intellectual property rights
are well known in the markets where we compete and are
important to our business. We rely upon a combination of
database, copyright and trademark laws as well as,
where appropriate, contractual arrangements including
licensing agreements and confidentiality agreements to
establish and protect our intellectual property rights. We
are required from time to time to bring claims against third
parties in order to protect our intellectual property rights.
Similarly, we may become party to proceedings where
third parties challenge our use of intellectual property. We
are aware that one party is challenging the validity of our
Truvo trademark in certain jurisdictions.
The trademark Yellow Pages (and translations thereof) is
a highly descriptive trademark and could therefore be
declared null and void in some jurisdictions. If our
trademark Yellow Pages is declared void, we will not be
exclusively entitled to use this brand nor will our actions
against third parties succeed.
We cannot be sure that any lawsuits or other actions
brought by us will be successful or that we will not be
found to infringe the intellectual property rights of third
parties. Although we are not aware of any material
infringements of any trademark rights that are significant
to our business, any lawsuits, regardless of their
outcome, could result in substantial costs and diversion of
resources and could have a material adverse effect on
our business, financial condition and results of
operations. In some cases others have or intend to
register certain trademarks, logos or Internet addresses
that we intend to use for our businesses; and we may be
required to accept their use of such intellectual property
rights or we may be required to enter into agreements
with them to ensure the use of such trademarks and
logos.
The illegal use by third parties or the loss of our important
intellectual property rights, such as databases and
trademarks (for example, the Golden Pages and Yellow
Pages trademark) could have a material adverse effect
upon our business, financial condition and results of
operations.
Our reliance on technology could have a material
adverse impact on our business: Most of our business
activities rely to a significant degree on the efficient and
uninterrupted operation of our computer and
communication systems and those of third parties
(including Internet connections). Any failure of current or
future systems or any problems relating to our potential
future outsourcing arrangements could impair collection,
processing or storage of data and the day-to-day
management of our business. This could have a material
adverse effect on our business, financial condition and
results of operations. Problems with our computer
systems in the future that may lead to extended delays of
our sales cycle could negatively affect our results of
operations and our financial condition. We may be unable
to upgrade, develop and deploy our network and systems
and attract specialists in a timely and effective manner.
Furthermore, our service and network systems may not
be able to handle the traffic on our web sites efficiently.
We may not execute successfully in sourcing of our
technology solutions from external vendors.
In addition, our computer and communication systems
are vulnerable to damage or interruption from a variety of
sources, including attacks by computer viruses on web
portals that are directed against our online directories and
search engines. Despite precautions taken by us, illegal
acts of third parties, a natural disaster or other
unanticipated problems that lead to the corruption or loss
of data at our facilities could have a material adverse
effect on our business, financial condition and results of
operations. We may also face problems running our
information technology systems if any of our systems or
software providers become subject to bankruptcy
proceedings and, as a result, are not in a position to
provide support and maintenance services for our critical
products. In some cases, we have not entered into
software source code escrow arrangements. As a
consequence, we may be unable to secure access to the
software code in case of bankruptcy of our software
providers, and it may be difficult and expensive for us to
replace such software systems at short notice.
Government regulation and changes in regulation
regarding information technology, data protection,
privacy and other matters could have adverse effects
on our business, financial condition and results of
operations: We are subject to significant governmental
regulation in the countries in which we operate. Due to
applicable antitrust laws, our strong position in certain of
our markets limits our flexibility to adjust and differentiate
prices and contractual arrangements. For example, we
have been advised by the Belgian and Portuguese
antitrust authorities that, given our strong market position,
they will closely supervise our business (and may even
seek to invalidate certain contracts or try to enforce
penalties to the extent they think we may have violated
antitrust laws) and business practices. See “Regulatory
framework”.
Decisions by regulators regarding us, the markets in
which we operate and our business practices could
adversely affect our business, financial condition and
results of operations.
The adoption of new laws, policies or regulations, in
particular in connection with data protection and privacy
could adversely affect our provision of existing services or
restrict the growth of our business. The European Union
has adopted several directives affecting the
telecommunication industry, some of which have not yet
been implemented into national laws in all member states
of the European Union.
A European Union data protection directive and the
national legislation in the member states based on the
directive place enhanced restrictions on the processing of
personal data and the protection of privacy in the
electronic communication sector and have restricted our
flexibility to process the personal data required for the
production of our directories. Subscribers must be given
the opportunity to determine whether their personal data
are included in subscriber directories.
In addition to our printed directories, we also offer
Internet-based products and services. General
advertising laws and regulations and data protection
legislation may apply to our Internet activities in the same
way in which they apply to our activities generally. As our
business in this area develops, specific laws and
regulations relating to the provision of Internet services
and to the use of the Internet may become more relevant.
Regulation of the Internet and related services is itself still
developing. Our operations and profitability could be
adversely affected if our regulatory environment becomes
more restrictive, including through increased Internet
content regulation.
10
We rely on third party providers for printing,
distribution, delivery services and revenue collection:
For printing, distribution and, in certain cases, for billing,
we often rely on third party providers. In some cases, we
have concluded long-term contracts for these services.
As a consequence, our EBITDA levels are largely
dependent on achieving our revenue projections, as we
may not be able to adjust our expenses in the short term.
In addition, any failure of third parties to provide services
in accordance with our contractual arrangements and
timetables may lead to delay in the delivery of our
products and may negatively affect our business. In many
cases, we rely on a single supplier in each geographical
market for printing and distribution. As we may be
required to incur additional costs to replace exclusive
suppliers in the short term, our business, financial
condition or results of operations may be negatively
affected by our reliance on certain third party providers.
Fluctuations in the price or availability of paper could
materially adversely affect us: We are dependent upon
suppliers for all of our raw material needs and, therefore,
are subject to price increases and delays in receiving
supplies of such raw materials. Paper represents our
single largest raw material expense and constitutes a
significant operating expense. Accordingly, significant
increases in paper prices may have a material adverse
effect on our results of operations. To reduce risk, we
have concluded long-term agreements for most of our
paper needs as from 2006, but such long-term
agreements do not entirely exclude the risk of price
fluctuations and supplier shortage. In 2008, expenses for
paper accounted for approximately 4.2% of our net
operating revenues. In the past, we have experienced
substantial fluctuations in the price of paper and, in
certain cases, shortages of paper due to strong worldwide
demand in periods of strong economic growth. We can
give you no assurance that we will continue to have
access to necessary raw materials at commercially
reasonable prices or that increases in paper costs would
not have a material adverse effect on our business,
financial condition or results of operations.
We may not be able to obtain an unqualified audit
opinion in future years, which could lead to a material
adverse effect on our financial condition and
business: In 2008, we recorded substantial impairment
charges. See “Operating and financial review and
prospects - Factors affecting our results of operations”
and “Impairment - Year-end 2008”. Our audit report for
2008 includes a matter of emphasis paragraph related to
our ability to continue as a going concern under
applicable accounting standards. Please see the Auditors’
Report and note 2.2 to our audited financial statements
included in this annual report.
There can be no assurance in future years whether we
will be able to continue to obtain an unqualified audit
opinion with respect to our annual financial statements.
The failure in future years to obtain an unqualified audit
opinion could adversely impact our business and our
ability to obtain new financing.
We are exposed to currency exchange risks: Changes
in currency exchange rates may affect our financial
results. Some of our revenues are generated in
currencies not tied to the Euro (for example, in Romania,
South Africa and Puerto Rico). When financial results of
our subsidiaries located outside the Euro-zone are
translated into Euros using the exchange rates prevailing
during the relevant period, the impact of such a
translation can affect our results when compared to other
periods translated at different foreign exchange rates. If
we receive dividends from our subsidiaries outside the
Euro-zone the value of such dividends can be affected by
foreign currency exchange fluctuations. In addition, our
business is also affected by exchange rate transaction
risks to the extent our production costs, including raw
material purchases are incurred in currencies other than
the local currency. Thus, if the value of the local currency
depreciates with respect to the transaction currency, the
relative cost of the production will increase.
Our results of operations may be adversely affected
by possible political, economic and regulatory
instability affecting our minority shareholding in
South Africa: Our operating results, cash flows and
financial condition may be affected as a result of possible
political, economic and regulatory conditions in South
Africa such as high inflation and interest rates, political
instability and a difficult regulatory environment. For
example, exchange control regulations in South Africa
place restrictions on the export of capital from South
Africa.
The interests of our principal shareholders may be
inconsistent with the interests of the holders of the
Senior Notes and of each other: Private equity
investment funds affiliated with or advised or managed by
Apax and Cinven (“the Sponsors”) indirectly own the
equity of the Company and indirectly wholly-own Truvo
USA. As such, Apax and Cinven have the power to
control our affairs and policies. The interests of our
principal shareholders and their respective affiliates could
conflict with your interests, particularly if we encounter
financial difficulties or are unable to pay our debt when
due. Our principal shareholders and their respective
affiliates could also have an interest in pursuing
acquisitions, divestitures, financings or other transactions
that, in their judgment, could enhance their equity
investments, although such transactions might involve
risks, or not benefit, our creditors. Moreover, the
Sponsors may purchase or may cause us to purchase,
from time to time and depending on market conditions,
our debt, including the Senior Notes, in privately
negotiated transactions, open market transactions, by
tender offer, or otherwise. In addition, our principal
shareholders and their respective affiliates may own,
acquire and hold interests in businesses that compete
directly or indirectly with us or may own businesses with
interests that conflict with ours.
In addition, pursuant to the agreements and constitutional
documents, which govern the relationship between our
principal shareholders, the agreement of all or a
supermajority of our shareholders may be required to
make certain decisions and take certain actions. This
could limit our ability to take advantage of opportunities,
such as future acquisitions, dispositions or investments
that would otherwise be of advantage to us and to you.
Our success depends on the key executive officers
and on hiring, selecting and retaining our sales force
and other qualified personnel, in particular new media
talent: Our success depends on our continuing ability to
identify, hire and retain key managers. Our ability to
attract and retain qualified managers depends on
numerous factors, including external factors out of our
control, such as conditions in the local markets in which
we operate. If we are unable to hire or retain key
11
managers, our business, financial condition and results of
operations may be materially adversely affected.
In addition, our performance depends in large part upon
the abilities and continued service of our sales force and
other key personnel, such as new media profiles. The
loss of key sales force personnel could adversely affect
our business prospects and damage our relationship with
important customers. We may not be able to prevent the
unauthorised disclosure of our procedures, practices,
product developments or client lists by our former
employees. In addition, the loss of the services of certain
key personnel could adversely affect our ability to
implement our business strategy, and we cannot assure
you that new staff would be able to implement our
strategy immediately.
Truvo has focused recruitment initiatives, specific
retention programmes and incentives, together with
various initiatives to enhance engagement and retain key
talent in all functions and layers in the organisation.
However our flexibility to introduce incentive schemes for
our personnel, to dismiss underperforming employees or
to implement other important employment related
measures might be affected or prevented by local
employment laws.
We may continue to incur severance costs in the
future: In the past we have experienced significant
severance costs in connection with the termination of our
employees. Restructuring costs (including Páginas
Amarelas) in 2008 amounting to €7.4 million mainly
related to the significant reduction of group staff positions
and sales positions. The discontinuation of the sales force
segmentation has lead to a reduction in the sales force
staff. Restructuring costs in 2007 amounting to €14.4
million mainly related to group staff positions. We expect
to continue to incur severance costs in the future.
Strikes or industrial action could disrupt our
operations: We are exposed to the risk of industrial
actions. The implementation of sales targets or other
labour related measures could lead to industrial actions
by our personnel in the future. Regular changes in the
organisational structure have caused tension in the
workforce, with the risk of escalation. In addition, several
of our subsidiaries are parties to collective bargaining
agreements. We also have a number of works councils
and similar bodies and a substantial number of our
employees in various countries are unionised.
Consequently, many labour related measures require
negotiations, consultations or, in well-defined
circumstances, the prior approval of such works councils
or other labour related bodies, making their
implementation more time consuming, costly or even
impossible.
We face various litigation and commercial dispute
risks that could have a material adverse effect on our
results of operations: You should review “Material legal
proceedings and commercial disputes” for a summary of
certain significant litigation and investigations. See
“Recent developments - Divestiture of our operations in
The Netherlands”.
In addition, we, like other companies involved in the
directory business, are from time to time named as a
defendant in litigation relating to printing and pricing
mistakes occurring in our publication of advertisements in
our directories (including online directories) and other
products. However, we cannot assure you that such
claims may not negatively affect our business in the
future.
Private individuals listed in our directories or other
products and users of data collected and processed by us
could also assert claims against us if our listings or other
data were inaccurate or if personal data stored by us
were improperly accessed and disseminated by
unauthorised persons. Although we have not had any
material claims relating to defamation or breach of privacy
to date, we may be party to litigation that could have a
material adverse effect on our business, financial
condition or results of operations or otherwise distract the
attention of our management.
Our results may vary from period to period and may
not be indicative of our results for the full year: In
accordance with our accounting policies, we recognise
revenues from advertising fees derived from our print
directories, still our primary revenue stream, upon the
publication of the directory in which such advertising is
included (except for our associate Axesa Servicios de
Información, which company is using the amortisation
method). Our directories are mostly published in the
second, third and fourth quarters of the fiscal year. This
means that our revenues and profits do not arise evenly
throughout the year. For example, in 2008, the four
financial quarters accounted for 8.5%, 27.1%, 32.2% and
33.2%, respectively, of our net operating revenues. Any
delay in the publication and distribution of a significant
directory or a number of directories that either singly or
together generate significant turnover could have the
effect of postponing the recognition of revenues from that
directory or those directories to the following financial
period. Similarly, an earlier distribution of directories
during the year could result in recognition of revenues
and costs in an earlier period as compared to the prior
year, thus making year-to-year comparisons more
difficult. Finally, due to timing differences among the
recognition of revenues and costs, the payment of costs
and invoicing our advertisers, EBITDA and other financial
indicators generally relied on by investors to evaluate a
company’s ability to service its debt may not, in our case,
reflect actual cash received or expended during a given
period. See “Operating and financial review and
prospects”.
Risks related to our indebtedness
Our high leverage and debt service obligations could
materially adversely affect our business, financial
condition or results of operations and preclude us
from satisfying our obligations under our
indebtedness: We are highly leveraged and have
significant debt service obligations. On December 31,
2008, we (excluding Páginas Amarelas) had €1,625.9
million of external debt, of which €935.0 million is term
indebtedness under the Senior Facilities, €152.7 million
under the PIK Facility and €538.2 million of indebtedness
under the Senior Notes. Our cash interest-bearing debt
(excluding the PIK Facility) was €1,473.2 million. Our
Revolving Credit Facility allows us to increase our debt by
€50.0 million.
Our substantial leverage poses the risk that:
•
the aggregate amount of our indebtedness will
exceed the value of our assets;
12
•
our vulnerability to a downturn in our business or
economic and industry conditions is relatively high;
•
our ability to obtain additional financing to fund future
working capital, capital expenditure, business
opportunities and other corporate requirements will
be limited;
•
•
•
we may have a much higher level of debt than
certain of our competitors, which may put us at a
competitive disadvantage and may make it difficult
for us to pursue our business strategy and to grow
our business in accordance with our strategy;
a substantial portion of our cash flows from
operating activities will have to be dedicated to the
payment of principal of, and interest on, our
indebtedness, which means that the cash flows will
not be available to fund our operations, capital
expenditure or other corporate purposes; and
our flexibility in planning for, or reacting to, changes
in our business, the competitive environment and the
industry in which we operate will be limited.
Any of these or other consequences or events could have
a material adverse effect on our ability to satisfy our debt
obligations, including the Senior Notes. See note 2.2
“Notes to the consolidated financial statements – Basis of
preparation / Statement of compliance – Going concern”.
In addition, we may incur substantial additional
indebtedness in the future, which could be structurally
senior to the Senior Notes or could mature prior to the
Senior Notes. The terms of the indentures governing the
Senior Notes and the terms of the Senior Facilities restrict
us from incurring additional indebtedness but do not
prohibit us from doing so. The incurrence of additional
indebtedness would increase the leverage-related risks
described in this annual report.
We require a significant amount of cash to service
our debt. Our ability to generate sufficient cash or
access capital resources depends on many factors
beyond our control: Our ability to make payments on
and to refinance our debt and to fund working capital and
capital expenditure depends on our future operating
performance and ability to generate sufficient cash. This
depends, to some extent, on general economic, financial,
competitive, market, legislative, regulatory and other
factors, many of which are beyond our control, as well as
the other factors discussed in the section “Risk factors” in
this report.
We cannot assure you that our business will generate
sufficient cash flows from operating activities or that
future debt and equity financing will be available to us in
an amount sufficient to enable us to pay our debt when
due, including the Senior Notes, or to fund our other
liquidity needs. In particular, the difficult current credit
conditions have resulted in a reduction of the amount of
funds available and a general increase in the cost of
capital. Concerns about the general stability of financial
markets and the solvency of specific counterparties have
increased interest rates. Many lenders have imposed
tighter lending standards, refused to refinance existing
debt or terms similar to those for the existing debt or at all
and have reduced or even ceased to provide any new
funding. Please see the section entitled “Operating and
financial review and prospects” in this annual report for a
discussion of our cash flows and liquidity.
If our future cash flows from operating activities and other
capital resources (including borrowings under the
Revolving Credit Facility under the Senior Facilities) are
insufficient to pay our obligations as they mature or to
fund our liquidity needs, we may be forced to:
•
reduce or delay our business activities, capital
expenditure and research and development;
•
sell assets;
•
obtain additional debt or equity capital; or
•
restructure or refinance all or a portion of our debt,
including the Senior Notes, on or before maturity.
The terms of our debt, including the Senior Notes, the PIK
Facility and the Senior Facilities, limit, and any future debt
may limit, our ability to pursue any of these alternatives.
We cannot assure you that we would be able to
accomplish any of these alternatives on a timely basis or
on satisfactory terms, if at all. At the date of this annual
report, Standard & Poor’s and Moody’s have rated us as
“B-“ and “B3”, respectively, with a negative rating outlook
and have rated the Senior Notes as “CCC” and “Caa2”,
respectively, with a negative rating outlook. The corporate
ratings express the rating companies’ assessment of our
overall financial capacity to pay our financial obligations
and the Senior Notes ratings express the rating
companies’ assessment of our financial capacity with
respect to the Senior Notes. The rating outlook assesses
the potential direction of a rating over the intermediate
term and a negative outlook means that a rating may be
lowered. Because our corporate ratings and our Senior
Notes ratings have a negative outlook, our ratings may be
downgraded at any time. We may face difficulty in
obtaining capital resources with our current ratings or if
our ratings were to worsen.
We are subject to significant restrictive debt
covenants, which limit our operating flexibility: The
Senior Facilities, the PIK Facility and the indenture
governing the Senior Notes contain covenants
significantly restricting our ability to, among other things:
•
incur or guarantee additional indebtedness;
•
pay dividends or make other distributions or
repurchase or redeem our stock;
•
make investments or other restricted payments;
•
create liens;
•
enter into certain transactions with affiliates;
•
enter into agreements that restrict our restricted
subsidiaries’ ability to pay dividends (in the case of
the Senior Facilities and Senior Notes indenture
only); and
•
consolidate, merge or sell all or substantially all of
our assets.
These covenants could limit our ability to finance our
future operations and capital needs and our ability to
pursue acquisitions and other business activities that may
be in our interest.
In the event of a default under the Senior Facilities, the
PIK Facility, the Senior Notes or certain other defaults
under other agreements, the lenders or holders of the
Senior Notes could declare all amounts owed to them due
13
and payable and, in the case of the Senior Facilities,
terminate their revolving loan commitments. Borrowings
under other debt instruments that contain crossacceleration or cross-default provisions may, as a result,
also be accelerated and become due and payable. We
may be unable to pay these debts in such circumstances.
Risks related to our structure for holders of the
Senior Notes
Truvo Subsidiary Corp. is a holding company that has
no revenue-generating operations of its own and
depends on payments from its subsidiaries to make
payments on the Senior Notes; the subsidiaries of
Truvo Subsidiary Corp. are subject to restrictions on
making any such payments: Truvo Subsidiary Corp. is
a holding company that was formed in connection with
the acquisition of Truvo USA from The Nielsen Company
B.V. Truvo Subsidiary Corp. conducts no business
operations of its own and has not engaged in any
activities other than the holding of ownership interests in
Truvo Acquisition Corp. Truvo Subsidiary Corp. holds no
assets and has no sources of revenues other than the
ownership interests in its subsidiaries and the right to any
dividends thereon, and its rights arising from the on-loan
of the proceeds from the issuance of the Senior Notes to
Truvo Acquisition Corp. (the “Truvo Acquisition Corp.
Proceeds Loan”) and the on-lending of certain other funds
to its subsidiaries.
Truvo Acquisition Corp.’s assets consist of shares in and
loans to its subsidiaries, including the on-loan of the
proceeds of the Truvo Acquisition Corp. Proceeds Loan
to Truvo USA (the “Truvo USA Proceeds Loan”). Truvo
Acquisition Corp. conducts no business operations of its
own and relies on payments under certain inter-company
loans, dividends and other distributions from its
subsidiaries, to make payments on the Truvo Acquisition
Corp. Proceeds Loan and to pay dividends and
distributions to Truvo Subsidiary Corp.
Truvo USA relies in part on payments under certain
intercompany loans, including the on-loan of part of the
proceeds of the Truvo USA Proceeds Loan to Truvo
Belgium under a bond issued by Truvo Belgium (the
“Truvo Belgium Proceeds Note”) and the on-loan of part
of the proceeds of the Truvo USA Proceeds Loan to
Truvo Antilles (“Truvo Antilles Proceeds Loan”), as well
as dividends and other distributions from Truvo Belgium,
to pay dividends and other distributions to Truvo
Acquisition Corp. Truvo Antilles relies in part on payments
under the on-loan of the proceeds of the Truvo Antilles
Proceeds Loan to Truvo Services & Technology (“Truvo
Services & Technology Proceeds Loan”). The proceeds
loans and other intercompany loans among Truvo
Subsidiary Corp. and its subsidiaries are subordinated to
the obligations of its subsidiaries to the lenders under the
Senior Facilities and may in the future be subordinated to
other indebtedness of its subsidiaries. The terms of the
Senior Facilities and the Intercreditor Agreement and
applicable law also restrict the ability of Truvo Subsidiary
Corp.’s subsidiaries to make payments and other
distributions to it.
Except for payments by Truvo Acquisition Corp. under the
Truvo Acquisition Corp. Proceeds Loan and for the
subsidiary guarantees of the subsidiary guarantors, Truvo
Subsidiary Corp.’s subsidiaries have no obligations to
make payments to Truvo Subsidiary Corp. to enable it to
satisfy its obligations under the Senior Notes or to make
funds available for these payments, whether in the form
of loans, dividends or otherwise. Truvo Subsidiary Corp.
is therefore subject to all risks to which our group is
subject to the extent such risks may affect the ability of its
subsidiaries to make distributions to Truvo Subsidiary
Corp. If its subsidiaries are unable to distribute sufficient
funds to Truvo Subsidiary Corp., it may not be able to
make the required payments on the Senior Notes when
they become due. In such event, holders of the Senior
Notes would have to rely upon claims for payment under
the subsidiary guarantees, which are subject to the risks
and limitation described below under “Risks relating to the
subsidiary guarantees and the security for holders of the
Senior Notes”. In addition, a default under the Senior
Notes would cause certain of the subsidiaries to be in
default under the Senior Facilities.
Other than pursuant to the Truvo Acquisition Corp.
Proceeds Loan, Truvo Subsidiary Corp. only has a
shareholder’s claim in the assets of its subsidiaries. This
shareholder’s claim is junior to the claims that creditors of
its subsidiaries have against the subsidiaries. Holders of
the Senior Notes are only creditors of Truvo Subsidiary
Corp. and the subsidiary guarantors pursuant to the
subsidiary guarantees. In the case of subsidiaries of
Truvo Subsidiary Corp. that are not subsidiary
guarantors, all the existing and future liabilities of these
subsidiaries, including any claims of trade creditors and
preferred stockholders, are effectively senior to the Senior
Notes. These subsidiaries include entities that are
borrowers or guarantors under the Senior Facilities.
The Company, which is the parent of Truvo Subsidiary
Corp., has also guaranteed the Senior Notes on a
subordinated basis although it is not subject to the
covenants applicable to the Senior Notes. The Company
is a holding company subject to risks similar to those
identified above for Truvo Subsidiary Corp., which may
affect the ability of the Company to make any payments
that may become due and payable under its guarantee of
the Senior Notes.
The lenders under the proceeds loans may not be
able to recover any amounts under the proceeds
loans because of limitations on the lenders’ ability to
receive payments thereunder: The obligations of Truvo
Acquisition Corp. under the Truvo Acquisition Corp.
Proceeds Loan, Truvo USA’s obligations under the Truvo
USA Proceeds Loan and Truvo Belgium’s, Truvo Antilles’
and Truvo Services & Technology’s respective obligations
under the Truvo Belgium Proceeds Note, the Truvo
Antilles Proceeds Loan and the Truvo Services &
Technology Proceeds Loan are each contractually
subordinated to the respective borrower’s obligations
under the Senior Facilities pursuant to the Intercreditor
Agreement. The ability of Truvo Subsidiary Corp. to take
an enforcement action against Truvo Acquisition Corp.
under the Truvo Acquisition Corp. Proceeds Loan, the
ability of Truvo Acquisition Corp. to take an enforcement
action against Truvo USA under the Truvo USA Proceeds
Loan and the ability of Truvo USA to take an enforcement
action against Truvo Belgium or Truvo Antilles under the
Truvo Belgium Proceeds Note or the Truvo Antilles
Proceeds Loan, as the case may be and the ability of
Truvo Antilles to take an enforcement action against
Truvo Services & Technology under the Truvo Services &
Technology Proceeds Loan, is subject to significant
restrictions imposed by the Intercreditor Agreement. As a
result of the foregoing:
14
•
in the event of a liquidation, dissolution, bankruptcy,
insolvency, moratorium or similar proceeding
involving Truvo Acquisition Corp., (i) the lenders
under the Senior Facilities will be entitled to payment
in full of all obligations owing under the Senior
Facilities before Truvo Subsidiary Corp. would be
entitled to payments under the Truvo Acquisition
Corp. Proceeds Loan and, as a result, before
holders of the Senior Notes would ultimately receive
any payments thereon from Truvo Subsidiary Corp.,
(ii) Truvo Subsidiary Corp. will be required to turn
over any amounts it receives under the Truvo
Acquisition Corp. Proceeds Loan to the security
agent under the Intercreditor Agreement until all
obligations owing under the Senior Facilities are paid
in full and (iii) the liquidator, administrator or receiver
or similar person distributing assets of Truvo
Acquisition Corp., or any of its subsidiaries will be
required to pay any amounts payable to Truvo
Subsidiary Corp. under the Truvo Acquisition Corp.
Proceeds Loan to the security agent until all
amounts outstanding under the Senior Facilities are
paid in full;
•
neither Truvo Acquisition Corp., Truvo USA nor the
other subsidiary guarantors may make payments
with respect to the subsidiary guarantees and none
of Truvo Acquisition Corp., Truvo USA, Truvo
Belgium, Truvo Antilles and Truvo Services &
Technology may make payments with respect to the
Truvo Acquisition Corp. Proceeds Loan, Truvo USA
Proceeds Loan, the Truvo Belgium Proceeds Note,
the Truvo Antilles Proceeds Loan or the Truvo
Services & Technology Proceeds Loan, as the case
may be, in the event that any payment has not been
made when due in respect of the Senior Facilities or
a notice is served declaring the Senior Facilities due
and payable or payable on demand as a result of a
payment default with respect to the Senior Facilities
(a “Senior Payment Default”), and this prohibition will
continue until there is no outstanding Senior
Payment Default;
•
the lenders under the Senior Facilities may prevent
Truvo Acquisition Corp., Truvo USA, Truvo Belgium,
Truvo Antilles and Truvo Services & Technology
from making payments under the Truvo Acquisition
Corp. Proceeds Loan, Truvo USA Proceeds Loan,
the Truvo Belgium Proceeds Note, the Truvo Antilles
Proceeds Loan or the Truvo Services & Technology
Proceeds Loan, as the case may be, and the
subsidiary guarantors from making payments with
respect to the subsidiary guarantees, for a period of
up to 179 days in the event that there exists any
other event of default under the Senior Facilities;
•
each of Truvo Subsidiary Corp., Truvo Acquisition
Corp., Truvo USA and Truvo Antilles, respectively,
has agreed to a 179-day standstill period on
enforcement actions it could otherwise take under
the Truvo Acquisition Corp. Proceeds Loan, the
Truvo USA Proceeds Loan, the Truvo Belgium
Proceeds Note, the Truvo Antilles Proceeds Loan,
and the Truvo Services & Technology Proceeds
Loan, as the case may be, if there is an event of
default under the Senior Notes;
•
in the event of a liquidation, dissolution, bankruptcy,
insolvency, moratorium or similar proceeding
involving Truvo USA, (i) the lenders under the Senior
Facilities will be entitled to payment in full of all
obligations owing under the Senior Facilities before
Truvo Acquisition Corp. would be entitled to
payments under the Truvo USA Proceeds Loan and,
as a result, before Truvo Subsidiary Corp. would
ultimately receive any payments on the Truvo
Acquisition Corp. Proceeds Loan from Truvo
Acquisition Corp., (ii) Truvo Acquisition Corp. will be
required to turn over any amounts it receives under
the Truvo USA Proceeds Loan to the security agent
under the Intercreditor Agreement until all
obligations owing under the Senior Facilities are paid
in full and (iii) the liquidator, administrator or receiver
or similar person distributing assets of Truvo USA or
any of its subsidiaries will be required to pay any
amounts payable to Truvo Acquisition Corp. under
the Truvo USA Proceeds Loan to the security agent
until all amounts outstanding under the Senior
Facilities are paid in full;
•
in the event of a liquidation, dissolution, bankruptcy,
insolvency, moratorium or similar proceeding
involving Truvo Belgium or Truvo Antilles, (i) the
lenders under the Senior Facilities will be entitled to
payment in full of all obligations owing under the
Senior Facilities before Truvo USA would be entitled
to payments under the Truvo Belgium Proceeds
Note or the Truvo Antilles Proceeds Loan, as the
case may be, and, as a result, before Truvo
Acquisition Corp. would receive any payments on
these loans from Truvo USA, (ii) Truvo USA will be
required to turn over any amounts it receives under
the Truvo Belgium Proceeds Note and the Truvo
Antilles Proceeds Loan to the security agent under
the Intercreditor Agreement until all obligations
owing under the Senior Facilities are paid in full and
(iii) the liquidator, administrator or receiver or similar
person distributing assets of Truvo USA or any of its
subsidiaries will be required to pay any amounts
payable to Truvo USA under the Truvo Belgium
Proceeds Note and the Truvo Antilles Proceeds
Loan to the security agent until all amounts
outstanding under the Senior Facilities are paid in
full;
•
in the event of a liquidation, dissolution, bankruptcy,
insolvency, moratorium or similar proceeding
involving Truvo Services & Technology, (i) the
lenders under the Senior Facilities will be entitled to
payment in full of all obligations owing under the
Senior Facilities before Truvo Antilles would be
entitled to payments under the Truvo Services &
Technology Proceeds Loan and, as a result, before
Truvo USA would ultimately receive any payments
on the Truvo Antilles Proceeds Loan, (ii) Truvo
Antilles will be required to turn over any amounts it
receives under the Truvo Services & Technology
Proceeds Loan to the security agent under the
Intercreditor Agreement until all obligations owing
under the Senior Facilities are paid in full and (iii) the
liquidator, administrator or receiver or similar person
distributing assets of Truvo Services & Technology
or any of its subsidiaries will be required to pay any
amounts payable to Truvo Antilles under the Truvo
Services & Technology Proceeds Loan to the
security agent until all amounts outstanding under
the Senior Facilities are paid in full;
•
in the event that the lenders under the Senior
Facilities enforce a first-priority security interest with
respect to the Truvo Antilles Proceeds Loan, Truvo
15
USA’s rights under the Truvo Antilles Proceeds Loan
may be assigned to a third party and Truvo USA
would have no right, title or interest under the Truvo
Antilles Proceeds Loan or claims against Truvo
Antilles under the Truvo Antilles Proceeds Loan;
•
•
•
in the event that the lenders under the Senior
Facilities enforce their first-priority pledge of
receivables arising under the Truvo USA Proceeds
Loan, Truvo Acquisition Corp.’s rights under the
Truvo USA Proceeds Loan may be assigned to a
third party, and Truvo Acquisition Corp. would have
no right, title or interest thereunder;
in the event that the lenders under the Senior
Facilities enforce their first-priority pledge of
receivables arising under the Truvo Belgium
Proceeds Note or the Truvo Antilles Proceeds Loan,
Truvo USA’s rights under the Truvo Belgium
Proceeds Note or the Truvo Antilles Proceeds Loan
may be assigned to a third party, and Truvo USA
would have no right, title or interest thereunder; and
in the event that the lenders under the Senior
Facilities enforce their first-priority security interest
with respect to the Truvo Services & Technology
Proceeds Loan, Truvo Antilles’ rights under the
Truvo Services & Technology Proceeds Loan may
be assigned to a third party, and Truvo Antilles
would have no right, title or interest thereunder.
The Senior Notes and the proceeds loans may be
subjected to similar restrictions in the future in favour of
future indebtedness of Truvo Acquisition Corp., Truvo
USA, Truvo Belgium, Truvo Antilles, Truvo Services &
Technology or any of their respective subsidiaries.
Risks related to the subsidiary guarantees and
the security for holders of the Senior Notes
Holders of the Senior Notes may not be able to
enforce, or recover any amounts under, the
subsidiary guarantees due to the subordination
provisions and restrictions on enforcement: Each of
the subsidiary guarantees is a senior subordinated
guarantee, which means that each subsidiary guarantee
ranks behind, and is expressly subordinated to, all of the
existing and future senior obligations of the subsidiary
guarantors, including any obligations owed by the
subsidiary guarantors under the Senior Facilities.
The ability to take enforcement action against the
subsidiary guarantors under the subsidiary guarantees is
subject to significant restrictions imposed by the
Intercreditor Agreement and the terms of such subsidiary
guarantees. As a result:
•
in the event of a liquidation, dissolution, bankruptcy,
insolvency, moratorium or similar proceeding
involving a subsidiary guarantor, (i) the lenders
under the Senior Facilities will be entitled to payment
in full of all obligations owing under the Senior
Facilities before the trustee under the Senior Notes
indenture and the holders of the Senior Notes would
be entitled to payments under the subsidiary
guarantee, (ii) the trustee under the Senior Notes
indenture and the holders of the Senior Notes will be
required, subject to certain exceptions, to turn over
any amounts they receive under the subsidiary
guarantee to the security agent under the
Intercreditor Agreement until all obligations owing
under the Senior Facilities are paid in full and (iii) the
liquidator, administrator or receiver or similar person
distributing assets of a subsidiary guarantor will be
required to pay any amounts payable to the trustee
under the Senior Notes indenture and the holders of
the Senior Notes under the subsidiary guarantee to
the security agent under the Intercreditor Agreement
until all obligations owing under the Senior Facilities
are paid in full;
•
the subsidiary guarantors may not make payments
under the subsidiary guarantees in the event of a
Senior Payment Default and this prohibition will
continue until there is no outstanding Senior
Payment Default;
•
the lenders under the Senior Facilities may prevent
the subsidiary guarantors from making payments to
the trustee under the Senior Notes indenture and the
holders of the Senior Notes under the subsidiary
guarantees for a period of up to 179 days in the
event that there exists any other event of default
under the Senior Facilities; and
•
the trustee under the Senior Notes indenture has
agreed on behalf of the holders of the Senior Notes
to a 179-day standstill period on enforcement
actions it could otherwise take against the subsidiary
guarantors in respect of the subsidiary guarantees
for an event of default under the Senior Notes.
In addition, the subsidiary guarantees may be subjected
to similar restrictions in the future in favour of future
unsubordinated indebtedness of Truvo Subsidiary Corp.
or any of its subsidiaries.
The subsidiary guarantees are also subject to release
under certain circumstances, including but not limited to
the sale of any such subsidiary pursuant to an
enforcement of security over the shares of any such
subsidiary guarantor or a holding company of that
subsidiary guarantor, provided that certain requirements
with respect to such enforcement pursuant to the
Intercreditor Agreement are satisfied.
As a result of these and other provisions in the subsidiary
guarantees, holders of the Senior Notes may not be able
to recover any amounts from the subsidiary guarantors
under the subsidiary guarantees in the event of a default
and the subsidiary guarantees may be released without
any recovery being available.
Not all of the subsidiaries of Truvo Subsidiary Corp.
guarantee the Senior Notes, and any claim by Truvo
Subsidiary Corp. or any of its creditors, including the
holders of the Senior Notes, against such
subsidiaries that do not guarantee the Senior Notes
are structurally subordinated to all of the claims of
creditors of such subsidiaries: Not all of the existing
and future subsidiaries of Truvo Subsidiary Corp.
guarantee the Senior Notes. The Senior Notes indenture
does not limit the transfer of assets to, or the making of
investments in, any of the restricted subsidiaries of Truvo
Subsidiary Corp., including the non-guarantor
subsidiaries. Accordingly, non-guarantor subsidiaries
could account for a higher portion of our assets, net sales
and net income in the future.
In the event that one of the subsidiaries that is not a
subsidiary guarantor becomes insolvent, liquidates,
reorganises, dissolves or otherwise winds up, its assets
will be used first to satisfy the claims of its creditors,
16
including its trade creditors, banks and other lenders.
Consequently, any claim by Truvo Subsidiary Corp. or its
creditors, including holders of the Senior Notes, against a
subsidiary that is not a subsidiary guarantor will be
structurally subordinated to all of the claims of the
creditors of such subsidiary.
The enforceability of holders’ rights under the Senior
Notes and under the subsidiary guarantees may be
restricted: Truvo Subsidiary Corp. is a corporation
organised under the laws of Delaware and the indenture
governing the Senior Notes is subject to New York law.
Most of the members of the boards of directors and the
management of Truvo Subsidiary Corp. and the
subsidiary guarantors reside outside the United States.
The assets of most of the subsidiaries and the assets of
most of the directors and managers are located outside
the United States. Service of process upon individuals or
companies that are not resident in the United States may
be difficult to obtain within the United States. Therefore,
any judgment obtained in the United States against the
subsidiaries or such persons may not be collectible within
the United States. In addition, there is doubt as to the
enforceability in the foreign jurisdictions where most of
our directors and assets are located (including Belgium,
Romania, Ireland and Portugal) of liabilities predicated
solely upon United States federal or state securities law
against Truvo Subsidiary Corp., its directors and
controlling persons and management who are not
residents of the United States, in original actions or in
actions for enforcements of judgments of United States
courts.
U.S. federal, U.S. state, Belgian and Dutch statutes
allow courts, under specific circumstances, to void
notes, guarantees and security and require note
holders to return payments received from issuers and
guarantors and in respect of security:
U.S. federal and state law - U.S. federal and state law
may apply to payments received from issuers and
guarantors, or in respect of security. Under federal
bankruptcy law and comparable provisions of state
fraudulent transfer laws, the notes or guarantees could be
voided or the grant of security interest may be avoided, or
claims in respect of notes or guarantees or the security
interest may be subordinated to all other debts of that
issuer, guarantor or grantor if, among other things, the
issuer, guarantor or grantor, at the time it (a) incurred the
indebtedness evidenced by the notes or its guarantee or
(b) granted the security interest:
•
received less than reasonably equivalent value or
fair consideration for the issuance of the note,
incurrence of such guarantee or grant of such
security interest; and at the time thereof
•
was insolvent or rendered insolvent by reason of
such issuance, incurrence or grant; or
•
was engaged in a business or transaction for which
the issuer’s, guarantor’s or grantor’s remaining
assets constituted unreasonably small capital; or
•
intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they
mature; or
•
was a defendant in an action for money damages, or
had a judgment for money damages docketed
against it if, in either case, after final judgment, the
judgment is unsatisfied.
In addition, any payment by that issuer, guarantor or
grantor pursuant to its notes, guarantee or under security
could be voided and required to be returned to the issuer,
guarantor or grantor, or to a fund for the benefit of the
creditors of the issuer, guarantor or grantor.
As a general matter, value is given for a transfer or an
obligation if, in exchange for the transfer or obligation,
property is transferred or an antecedent debt is secured
or satisfied. A debtor will generally not be considered to
have received value in connection with a debt offering if
the debtor uses the proceeds of that offering to make a
dividend payment or other distribution on account of
equity securities issued by the debtor.
The measures of insolvency for the purposes of these
fraudulent transfer laws will vary depending upon the law
applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, an
issuer or a guarantor would be considered insolvent if:
•
if the present fair saleable value of its assets was
less than the amount that would be required to pay
its probable liability on its existing debts, including
contingent liabilities, as they become absolute and
mature; or
•
it could not pay its debts as they become due.
On the basis of historical financial information and other
factors, we believe that each subsidiary guarantor
organised under the laws of Delaware, after giving effect
to its subsidiary guarantee of the Senior Notes, was not
insolvent, did not have unreasonably small capital for the
business in which it was engaged and did not incur debts
beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court
would apply in making these determinations or that a
court would agree with our conclusions in this regard.
Belgium - The subsidiary guarantees by the Belgian
subsidiary guarantors provide the holders of the Senior
Notes with a claim against the subsidiary guarantors.
Each of these subsidiary guarantees, however, is limited
to an amount the relevant subsidiary guarantor believes it
can guarantee without rendering such subsidiary
guarantee, as it relates to that subsidiary guarantor,
voidable or otherwise ineffective under applicable law. In
addition, enforcement of any of these subsidiary
guarantees against the relevant subsidiary guarantor
would be subject to certain defences available to
guarantors generally. These laws and defences include
those that relate to fraudulent transfer, voidable
preference, financial assistance, corporate purpose or
benefit and regulations or defences affecting the rights of
creditors generally. If these laws and defences are
applicable, a guarantor may have no liability under its
guarantee.
In particular, Belgian case law requires that a guarantee
by a Belgian company of third-party obligations satisfy the
following conditions: (i) it must be within the corporate
purpose (maatschappelijke doel) of the guarantor, as
provided for in its by-laws (statuten); (ii) it must be to the
corporate benefit (vennootschapsbelang) of the
guarantor, i.e. the guarantor must derive an actual
corporate benefit, consideration or advantage from the
transaction secured by the guarantee, and the risks
resulting from the guarantee must not be disproportionate
17
to the benefit received or to the financial capabilities of
the guarantor. The presence of an actual corporate
benefit to a subsidiary guarantor having its principal place
of business in Belgium is a question of fact and Belgian
case law provides no clear definition of what constitutes
an actual corporate benefit. The relevant corporate
bodies of each subsidiary guarantor having its principal
place of business in Belgium resolved that the issuance
of the Senior Notes and its subsidiary guarantee of the
Senior Notes conferred an actual corporate benefit.
However, due to the reasons indicated above we cannot
assure you that a court in Belgium would agree with this
determination. If a court in Belgium determined that actual
corporate benefit was not established as to a subsidiary
guarantor, then the subsidiary guarantee given by that
subsidiary guarantor could be declared void or
unenforceable upon request of such subsidiary guarantor
(or its bankruptcy trustee) or a third party. In addition,
enforcement in Belgium of the subsidiary guarantees is
subject to authorisation by the Belgian courts. It is
possible that a subsidiary guarantor having its principal
place of business in Belgium, a creditor of a Belgian
guarantor or the bankruptcy trustee in case of a
bankruptcy of a subsidiary guarantor having its principal
place of business in Belgium, may contest the validity and
enforceability of the guarantor’s subsidiary guarantee and
that the applicable court may determine that the
subsidiary guarantee should be voided or declared
unenforceable.
Similar considerations apply with respect to the granting
of security by subsidiary guarantors in Belgium to cover
their obligations under the guarantees.
The Netherlands - Subsidiary guarantors organised
under the laws of The Netherlands, or their respective
bankruptcy trustees, may invoke the nullity of any legal
act (rechtshandeling) if that legal act was outside their
corporate purpose (objects) and the other party to that
legal act was or should - without investigation - have been
aware of this. The determination of whether a legal act is
within the objects of a company may not be based solely
on the description of the articles of association, but must
take into account all relevant circumstances, including in
particular the question whether the interests of that
company are served by the relevant legal act. If it
appears that there is an imbalance, to the disadvantage
of the subsidiary guarantor, between the benefits, if any,
derived by the subsidiary guarantor organised under the
laws of The Netherlands from the granting of the
guarantees and the amount for which the guarantee is
enforced, these transactions may be found to be outside
the objects of the subsidiary guarantor and the trustee
under the Senior Notes indenture may be held to have
been aware of this. To the extent a subsidiary guarantor
organised under the laws of The Netherlands, or its
bankruptcy trustee, successfully invoked the nullity of its
subsidiary guarantee, such guarantee would be limited to
the extent any portion of it is nullified. In the event it is
nullified in full, holders of the Senior Notes would no
longer be a creditor of that subsidiary guarantor and
would only be a creditor of Truvo Subsidiary Corp. and
the remaining subsidiary guarantors.
The guarantees issued by the Dutch guarantors may also
be null and void as a result of contravening the Dutch law
prohibition on financial assistance. Dutch law prohibits a
Dutch limited liability company from issuing guarantees
with a view to third parties (shareholders or others)
acquiring, or subscribing for, shares in that company. This
prohibition on financial assistance applies to both a direct
and indirect acquisition of shares in a Dutch company.
The prevailing opinion in legal doctrine is that a violation
of the prohibition results in nullity of the transaction
concerned. The liability of the Dutch guarantors under the
subsidiary guarantees does not extend to any liability
that, if it were included, would result in the guarantees
contravening the prohibition on financial assistance. This
may mean that a Dutch guarantor’s liability under a
guarantee may be limited or non-existent.
Applicable insolvency laws may affect the
enforceability of the obligations and the security of
Truvo Subsidiary Corp. and the subsidiary
guarantors: In the event that any one or more of Truvo
Subsidiary Corp., the subsidiary guarantors or any of
Truvo Subsidiary Corp.’s other subsidiaries experience
financial difficulty, it is not possible to predict with
certainty in which jurisdiction or jurisdictions insolvency or
similar proceedings would be commenced, or the
outcome of such proceedings. Applicable insolvency laws
may affect the enforceability of the obligations and the
security of Truvo Subsidiary Corp. and the guarantors.
Certain aspects of European Union insolvency law Pursuant to Council Regulation (EC) no. 1346/2000 on
insolvency proceedings (the “EU Insolvency Regulation”),
the court which shall have jurisdiction to open insolvency
proceedings in relation to a company will be the court of
the member state (other than Denmark) where the
company concerned has its “centre of main interests” (as
that term is used in Article 3 (1) of the EU Insolvency
Regulation). The determination of where any such
company has its “centre of main interests” is a question of
fact on which the courts of the different EU Member
States may have differing and even conflicting views. It
should also be noted that no final decisions have been
taken in cases that have been brought before the
European Court of Justice in relation to questions of
interpretation or the effects of the EU Insolvency
Regulation throughout the EU. Furthermore, “centre of
main interests” is not a static concept and may change
from time to time. Although under Article 3 (1) of the EU
Insolvency Regulation there is a rebuttable presumption
that any such company has its “centre of main interests”
in the Member State in which it has its registered office,
Preamble 13 of the EU Insolvency Regulation states that
the “centre of main interests” of a debtor should
correspond to the place where the debtor conducts the
administration of its interests on a regular basis and “is
therefore ascertainable by third parties”. In that respect
factors such as the place for the holding of board
meetings, the place where the company conducts the
majority of its business and the place where the large
majority of the company’s creditors are established may
all be relevant in the determination of the place where the
company has its “centre of main interests”.
If the “centre of main interests” of any such company is
and will remain located in the state in which it has its
registered office, the main insolvency proceedings in
respect of the company under the EU Insolvency
Regulation would be commenced in such jurisdiction and
accordingly a court in such jurisdiction would be entitled
to commence the types of insolvency proceedings
referred to in Annex A to the EU Insolvency Regulation.
Insolvency proceedings opened in one Member State
under the EU Insolvency Regulation are to be recognised
in other Member States (other than Denmark), although
secondary proceedings may be opened in another
Member State. If the “centre of main interests” of a debtor
18
is in one Member State (other than Denmark) under
Article 3 (2) of the EU Insolvency Regulation, the courts
of another Member State (other than Denmark) may open
“territorial proceedings” in the event that such debtor has
an “establishment” in the territory of such other Member
State. If the company does not have an establishment in
any other Member State, no court of any other Member
State shall have the ability to open territorial proceedings
in respect of such issuer or guarantor under the EU
Insolvency Regulation.
Belgium - Some of the subsidiary guarantors are
organised, and have their principal place of business, in
Belgium and, consequently, may be subject to insolvency
laws and proceedings in Belgium. There are two main
types of insolvency proceedings under Belgian law:
•
judicial restructuring (gerechtelijke reorganisatie)
proceedings; and
•
bankruptcy (faillissement) proceedings.
Judicial restructuring proceedings – Introduction: On
April 1, 2009, the Act on the Continuity of Enterprises of
January 31, 2009 (the “Continuity Act”), entered into
force. The Continuity Act deals with judicial restructuring
proceedings in Belgium, and replaces the previous Act on
Judicial Composition of July 17, 1997. The Continuity Act
will apply to all judicial restructuring proceedings started
after April 1, 2009. The previous Act on Judicial
Composition will continue to apply to all proceedings
started prior to April 1, 2009.
Please note that as of the date of this review, no
proceedings have been started under the Continuity Act.
Accordingly, no case-law in relation thereto exists.
Moreover, as the Continuity Act is very recent, only very
limited legal commentary in relation thereto is available.
The analysis below is therefore based solely on the text
of the Continuity Act, and could be impacted by future
case-law or commentary.
The Continuity Act deals with both out-of-court
restructuring and in-court (or judicial) restructuring
proceedings. The provisions relating to out-of-court
restructuring proceedings will impact mainly on claw-back
rights in bankruptcy during the suspect period (see below
under “Bankruptcy”). A brief summary of in-court (or
judicial) restructuring proceedings is set out below.
Types of judicial restructuring: The Continuity Act sets out
three types of judicial restructuring proceedings, namely:
•
judicial restructuring by "individual agreement", i.e.,
an agreement between the debtor in restructuring
and two or more of its creditors; please note that any
plan or agreement reached under these proceedings
will bind solely those creditors who have individually
agreed to the plan or agreement; such proceedings
can only be commenced upon the request of the
debtor;
third party which can show an interest in acquiring
the debtor's business.
Joint characteristics of all types of judicial restructuring
proceedings:
(i) The opening of restructuring proceedings - Judicial
restructuring proceedings may be commenced if the
continuity of the debtor's business jeopardised, or will
become jeopardised in the foreseeable future. The
continuation of the debtor’s business is in any event
deemed to be jeopardised if, as a result of losses, the
debtor’s net assets have declined to less than 50% of its
stated capital.
Please note that judicial restructuring proceedings may
even be commenced when the debtor is in a state of
bankruptcy (i.e., the debtor has ceased to make
payments and has exhausted its credit – see below under
"Bankruptcy").
(ii) Preliminary suspension of payment and stay on
enforcement - If the court chooses to allow judicial
restructuring proceedings, it will grant a preliminary
suspension of payments and stay on enforcement during
an initial period of maximum six months, which can be
extended at the request of the company, or the judgedelegate. The total duration of the preliminary suspension
of payment and stay on enforcement may not exceed 18
months (the “Preliminary Suspension Period”).
As a rule, during the Preliminary Suspension Period the
creditors cannot enforce their rights against the debtor’s
assets, although exceptions apply for certain classes of
secured creditors in accordance with the Financial
Collateral Act of December 15, 2004.
The purpose of this Preliminary Suspension Period is (i)
to allow the debtor to reach an individual agreement with
two or more of its creditors, (ii) to allow the debtor to
reach a collective agreement on a repayment or
instalment plan with its creditors or (iii) to allow for a
court-supervised sale of part or all of the debtor's
business.
(iii) Control of the debtor's business - In principle, the
debtor will retain full control over its business during the
Preliminary Suspension Period. However, note that
exceptions in relation thereto are made (i) in the event of
the debtor's apparent gross negligence or bad faith or (ii)
in the event of court-supervised sale.
(iv) Effect on ongoing agreements - Any provision
providing that an agreement would be terminated as the
result of a debtor asking for or entering into a judicial
restructuring proceeding is ineffective.
Note, however, that under certain conditions and
following the opening of judicial restructuring
proceedings, the debtor may either terminate or suspend
the performance of an agreement, provided such is
necessary for its reorganisation.
•
judicial restructuring by "collective agreement", i.e.,
proceedings similar to the judicial composition
proceedings under the previous Act on Judicial
Composition; such proceedings can only be
commenced upon the request of the debtor; and
Specific characteristics of judicial restructuring
proceedings by collective agreement: During the
Preliminary Suspension Period, the creditors must file
their claims within the period indicated to this end in the
judgment.
•
judicial restructuring by "court-supervised sale", i.e.,
a total or partial sale of the debtor's business, under
court supervision; such proceedings can be
commenced by the debtor, by the public prosecutor
("procureur des Konings"), the creditors or any other
During the Preliminary Suspension Period, the debtor
must draw up an instalment plan or a reorganisation plan
which must be approved by a majority of its creditors
(having filed their claims with the court), who were
19
present at a meeting of creditors and whose aggregate
claims represent over half of all outstanding claims of the
debtor. This plan will be approved by the court provided it
does not violate public policy or the formal provisions of
the Continuity Act. The plan will be binding on all creditors
listed in the plan. The court can then award a final
suspension of payments for a maximum period of 5
years.
Certain classes of secured creditors (e.g., creditors
whose claims are secured by rights in rem) are as a rule
not bound by the plan, unless they have expressly agreed
thereto. Such creditors may, as a result, enforce their
security from the beginning of the final suspension period.
Under certain conditions (such as continued payment of
all interest due), enforcement by such creditors can be
suspended for up to 36 months from the date that the
court approves the plan.
Specific characteristics of judicial restructuring
proceedings by court-supervised sale: If judicial
restructuring proceedings are opened with a view to selloff all or part of the debtor's business, the court will
appoint a judicial mandatary ("gerechtsmandataris") and
instruct the latter to actively solicit bids in relation to either
part of all of the debtor's business. The final decision as
to who will take-over all or part of the debtor's business
will be made by the court.
The creditors' rights over the moveable and immoveable
assets sold will be substituted by corresponding rights
over the proceeds of such sale.
Specific characteristics of judicial restructuring
proceedings by individual agreement: During the
Preliminary Suspension Period, the debtor may attempt to
reach an agreement with two or more of its creditors.
Such agreement will only bind those creditors who have
expressly agreed to the agreement. Accordingly, all other
creditors will retain their rights, and may recommence
enforcement of their security as from the end of the
Preliminary Suspension Period.
Bankruptcy - A company which, on a sustained basis,
ceases to make payments and whose credit is impaired,
will be deemed to be in a state of bankruptcy. Within one
month after the cessation of payments, the company
must file for bankruptcy. If the company is late in filing for
bankruptcy, its directors could be held liable for damages
to creditors as a result thereof. Bankruptcy procedures
may also be initiated on the request of unpaid creditors or
on the initiative of the public prosecutor.
Once the commercial court decides that the requirements
for bankruptcy are met, it will set a date before which
claims for all unpaid debts must be filed by creditors. A
bankruptcy trustee will be appointed (i) to assume the
operation of the business, (ii) to take an inventory and to
organise a sale of the debtor’s assets, (iii) to distribute the
proceeds thereof to creditors and (iv) to liquidate the
debtor.
Payments or other transactions (as listed below) made by
a company during a certain period of time prior to that
company being declared bankrupt (the “suspect period”)
(verdachte periode) can be voided for the benefit of the
creditors. The court will determine the date of
commencement and the duration of the suspect period.
This period starts on the date of sustained cessation of
payment of debts by the debtor. Usually, the court will
establish this date in a separate judgment after the
bankruptcy judgment, but this date cannot be earlier than
six months before the date of the bankruptcy judgment,
unless a decision to dissolve the company was made
more than six months before the date of the bankruptcy
judgment, in which case the date could be the date of
such decision to dissolve the company. Creditors can
start proceedings to determine the date of
commencement of the suspect period within six months
following the bankruptcy judgment. The ruling determining
the date of commencement of the suspect period or the
bankruptcy judgment itself can be opposed by third
parties, such as other creditors, within 15 days following
the publication of that ruling in the Belgian Official
Gazette.
The rules on transactions, which can or must be voided
(“claw-back right”) for the benefit of the bankrupt estate in
the event of bankruptcy are as follows:
•
Any transaction entered into by a Belgian company
during the suspect period is ineffective if the value
given to such creditors significantly exceeded the
value the company received in consideration.
•
Any transaction entered into by a company, which
has stopped making payments, may be voided upon
the subsequent bankruptcy of such company if the
counter party to the transaction was aware of the
suspension of payments. The Continuity Act limits
this ground for voidness or claw-back: it does not
apply to a transaction or agreement entered into
between the debtor and two or more of its creditors
provided (i) such transaction or agreement was filed
with the commercial court ("individual out-of-court
agreement"), or (ii) such transaction or agreement
was entered into during judicial restructuring
proceedings.
•
Security interests granted during the suspect period
must be declared ineffective if they intend to secure
a debt, which existed prior to the date on which the
security interest was granted.
•
Any payments (in whatever form, whether money, in
kind or by way of set-off) made during the suspect
period of any debt which was not yet due as well as
all payments made during the suspect period other
than with money or monetary instruments (checks,
promissory notes, etc.) must be declared ineffective.
The Continuity Act limits this ground for voidness or
claw-back: it does not apply to a transaction or
agreement entered into between the debtor and two
or more of its creditors provided (i) such transaction
or agreement was filed with the commercial court
("individual out-of-court agreement”), or (ii) such
transaction or agreement was entered into during
judicial restructuring proceedings.
•
Any transaction or payment effected with fraudulent
intent will be set aside irrespective of its date.
Following a judgment commencing a bankruptcy
proceeding, enforcement rights of individual creditors are
suspended. Creditors secured by in rem rights, such as
share pledges, will regain their ability to enforce their
rights under the security after the bankruptcy trustee has
verified the creditors’ claims.
The Netherlands - Some of the subsidiary guarantors
are incorporated under the laws of The Netherlands and
have their centre of main interest in The Netherlands.
Therefore, any insolvency proceedings in relation to such
subsidiary guarantors would likely be based on Dutch
insolvency law. Dutch insolvency law differs significantly
20
from insolvency proceedings in the United States and
may make it more difficult for holders of Senior Notes to
recover the amount they would normally expect to
recover in a liquidation or bankruptcy proceeding in the
United States.
There are two primary insolvency regimes under Dutch
law: the first, moratorium of payments (surséance van
betaling), is intended to facilitate the reorganisation of a
debtor’s indebtedness and enable the debtor to continue
as a going concern. The second, bankruptcy
(faillissement), is primarily designed to liquidate and
distribute the proceeds of the assets of a debtor to its
creditors. Such liquidation could also take place by way of
a going concern sale. Both insolvency regimes are set
forth in the Dutch Bankruptcy Act.
An application for a moratorium of payments can only be
made by the debtor itself. Upon commencement of
moratorium of payments proceedings, the court will grant
a provisional moratorium. Unless a draft composition
(akkoord) is filed simultaneously with the application for
moratorium of payments, a meeting of creditors is
required to decide on the definitive moratorium. The
definitive moratorium will generally be granted unless a
qualified minority (one-quarter in amount of claims held
by creditors represented at the creditors’ meeting or onethird in number of creditors represented at such creditors’
meeting) of the unsecured non-preferential creditors
withholds its consent. In both cases, the moratorium of
payments is only effective with regard to unsecured nonpreferential creditors. Unlike Chapter 11 proceedings
under U.S. bankruptcy law during which both secured and
unsecured creditors are generally barred from seeking to
recover on their claims during a moratorium of payments,
under Dutch law, secured and preferential creditors
(including tax and social security authorities) may enforce
their rights against assets of the subsidiary guarantors to
satisfy their claims as if there were no moratorium of
payments. However, the court may order a “cooling down
period” for a maximum period of two consecutive periods
of two months each during which enforcement actions by
secured creditors are barred. In a moratorium of
payments, a composition (akkoord) may be offered to
creditors. Such a composition will be binding on all
unsecured and non-preferred creditors if it is approved by
a majority vote in number of the affected creditors
admitted for voting purposes, representing no less than
50% in amount of the total debt owed to them and
subsequently ratified (gehomologeerd) by the court.
Consequently, Dutch insolvency laws could reduce the
recovery of a holder of Senior Notes in a Dutch
moratorium of payments proceedings. Interest payments
that fall due after the date on which a moratorium of
payments is granted cannot be claimed in a composition.
Under Dutch bankruptcy proceedings, the assets of a
debtor are generally liquidated and the proceeds
distributed to the debtor’s creditors on the basics of the
relative claims of those creditors. Certain creditors (such
as secured creditors and tax and social security
authorities) will have special rights that may adversely
affect the interests of holders of Senior Notes. For
example, secured creditors may enforce their rights
against the assets of the subsidiary purchasers that are
subject to their security rights and/or the subsidiary
guarantors to satisfy their claims under a Dutch
bankruptcy as if there is no bankruptcy. Consequently,
Dutch insolvency laws could reduce your potential
recovery in a Dutch bankruptcy proceeding. As in
moratorium of payments proceedings, the court may
order a “cooling down period” for a maximum of two
consecutive periods of two months during which
enforcement actions by secured creditors are barred. The
claim of a creditor may be limited depending on the date
the claim becomes due and payable in accordance with
its terms. Generally, contractual provisions to the effect
that a claim will become due and payable upon the
bankruptcy of the debtor of such claim are enforceable as
a matter of Dutch law. In the absence of a contractual
arrangement in this regard, the following applies. Claims
that become due and payable within one year from the
start of the bankruptcy are treated as if they were due and
payable at the start of the bankruptcy. All claims that
become due and payable more than one year after the
start of the bankruptcy are admitted in the bankruptcy for
their net present value calculated as of one year since the
start of the bankruptcy. Each of these claims will have to
be submitted to the bankruptcy trustee of the issuer and
the subsidiary guarantors to be verified. “Verification”
under Dutch law means that the receiver determines the
value of the claim and whether and to what extent it will
be admitted in the bankruptcy proceeding. Interest
payments that fall due after the date of the bankruptcy
cannot be verified. Generally, in a creditors’ meeting
(verificatie-vergadering), the receiver, the insolvent debtor
and all creditors may dispute the verification of claims of
other creditors. Creditors whose claims or value thereof
are disputed in the creditors meeting may be referred to a
separate court proceeding (renvooi procedure). These
renvooi procedures could cause holders of notes to
recover less than the principal amount of their notes or
less than they could recover in a U.S. liquidation. Such
renvooi procedures could also cause payments to the
holders of notes to be delayed compared with holders of
undisputed claims. Further, in a bankruptcy a composition
may be offered to creditors, which may be binding on
creditors in the same manner as set forth above in
relation to a moratorium. The Dutch Bankruptcy Act does
not in itself recognise the concept of classes of creditors.
A contractual subordination of the subsidiary guarantees
in respect of certain other indebtedness of the issuer
and/or the subsidiary guarantors will be given effect, as
much as possible under Dutch law, in accordance with
such contract terms.
A bankruptcy trustee can force the secured creditor to
enforce its security interest within a reasonable period of
time, failing which the receiver will be entitled to sell the
secured assets, if any, and the secured creditor will have
to share in the bankruptcy costs. Excess proceeds of
enforcement must be returned to the issuer in its
insolvency and they may not be set off against an
unsecured claim of the secured creditor on the issuer.
Such set-off is allowed prior to the issuer’s insolvency.
Simultaneously with the opening of the bankruptcy of a
subsidiary guarantor organised under the laws of The
Netherlands, a Dutch bankruptcy trustee will be
appointed. Such appointment will have an over riding
effect on the appointment of a receiver as set out in the
relevant security documents. The appointment of such
bankruptcy trustee cannot prevent the subsidiary
guarantor from being declared bankrupt in The
Netherlands. Any future rights or assets acquired by such
guarantor after it has been declared bankrupt or after it
has been granted a moratorium of payments will not be
subject to the security interests created by the relevant
security documents.
21
The ability of the holders of the Senior Notes to
recover under the security is limited by subordination
provisions and restrictions on enforcement: The
Senior Notes are secured, among others, on a firstranking basis by a security interest in the Truvo
Acquisition Corp. Proceeds Loan and on a secondranking basis by a pledge of 65% of the shares of Truvo
Acquisition Corp. The subsidiary guarantee of Truvo
Acquisition Corp. is secured on a second-ranking basis
by a pledge of the Truvo USA Proceeds Loan and a
pledge of 65% of the shares of Truvo USA. The
subsidiary guarantee of Truvo USA is secured on a
second-ranking basis by the Truvo Belgium Proceeds
Note, the Truvo Antilles Proceeds Loan and pledge of
approximately 65% of the shares of Truvo Belgium (held
by Truvo USA). The shares of each of these companies
and all these receivables are pledged to secure
obligations under the Senior Facilities on a first priority
basis. These priorities are contractually provided for in the
Intercreditor Agreement. In addition, some claims may
rank by operation of law before any other claim that may
be secured by the share pledges and pledges of
receivables. These claims can include, among others,
court costs and costs incurred for the preservation of the
pledged assets.
The holders of the Senior Notes may not be able to
recover on the share pledges or the pledges of
receivables under the proceeds loans because the
lenders under the Senior Facilities will have a prior claim
on all proceeds realised from any enforcement of these
pledges (other than in respect of the first-ranking security
interest in the Truvo Acquisition Corp. Proceeds Loan),
which would be subject to compliance with certain
provisions contained in the Intercreditor Agreement
relating to procedures to be followed in connection with
enforcement sales. Pursuant to the terms of the
Intercreditor Agreement, if the proceeds realised from
such sales of collateral exceed the amount owed under
the Senior Facilities, any excess amount of such
proceeds will be paid to the security agent for its own
benefit and for the benefit of owners of the Senior Notes
and other creditors permitted by the indenture governing
the Senior Notes to share in the collateral on an equal
and rateable basis with the Senior Notes. If there are no
excess proceeds from sales of collateral, or if the amount
of such excess proceeds is less than the aggregate
amount of the obligations under the Senior Notes and
other obligations that share in the collateral on an equal
and rateable basis with the Senior Notes, the holders of
the Senior Notes will not recover some or all of the
amounts owed to them under the Senior Notes. The
subsidiary guarantees may be automatically released at
the time of an enforcement sale, so the trustee under the
Senior Notes indenture and the holders of the Senior
Notes will have no claims under the subsidiary
guarantees following an enforcement sale. The ability of
the holders of the Senior Notes to require the security
agent to take enforcement action under the share pledges
or the pledges of receivables under the proceeds loans is
subject to significant restrictions imposed by the
Intercreditor Agreement. The Intercreditor Agreement
provides for a 179-day standstill period on enforcement of
the share pledges and the pledges of receivables under
the proceeds loans after an event of default under the
Senior Notes.
In the event that Truvo Subsidiary Corp. or its
subsidiaries incur additional debt, and the Senior Notes
indenture permits such debt to be secured, then that debt
may also be permitted to be secured in the same
collateral as that securing the Senior Notes, and may be
ranked ahead of the security granted in favour of the
Senior Notes, without the need for the consent of the
holders of the Senior Notes or the trustee under the
Senior Notes indenture. In that event, the security in
favour of the Senior Notes will be subject to restrictions
and disadvantages in favour of this additional debt similar
to those outlined above in relation to the Senior Facilities.
In addition, in the event that additional notes are issued
under the indenture governing the Senior Notes, the
security in favour of the Senior Notes will be shared
among a larger principal amount of Indebtedness.
The share pledges and pledges of receivables are not
granted directly to the holders of Senior Notes: The
share pledges and pledges of receivables that constitute
security for obligations of Truvo Subsidiary Corp. and the
subsidiary guarantors are, under the Senior Notes and
the indenture governing the Senior Notes, not granted
directly to the holders of the Senior Notes but are granted
only in favour of the security agent for the Senior Notes,
acting as joint creditor together with the holders of the
Senior Notes, of all such obligations. As a consequence,
holders of the Senior Notes do not have direct security
and are not be entitled to take enforcement action in
respect of the security for the Senior Notes and the
guarantees of the Senior Notes, except through the
security agent for the Senior Notes, which has agreed to
apply any proceeds of enforcement on such security
towards such obligations. The security agent for the
Senior Notes has agreed with the trustee under the
Senior Notes indenture that the security agent will hold
the security and any proceeds of the security in trust for
the benefit of holders of the Senior Notes and the trustee
under the Senior Notes indenture. However, as the
security agent for the Senior Notes has, as joint creditor
together with the holders of the Senior Notes, a claim
against Truvo Subsidiary Corp. and the subsidiary
guarantors for the full principal amount of the Senior
Notes, holders of the Senior Notes bear some risks
associated with a possible insolvency or bankruptcy of
the security agent for the Senior Notes. The indenture
governing the Senior Notes provides that the security
agent for the Senior Notes will be replaced if it ceases to
be rated at least “A” by Standard & Poor’s Ratings
Service or Moody’s Investors Service, Inc. (or an
equivalent rating). The security agent for the Senior Notes
has agreed that it will only proceed against the security
with the approval of the trustee under the Senior Notes
indenture acting on the instructions of the holders of the
Senior Notes and for the purpose of recovery against the
pledged shares and receivables. Nonetheless, there can
be no assurance that, in the event of an insolvency or
bankruptcy of the security agent for the Senior Notes, a
trustee in bankruptcy, receiver or similar entity would not
assert rights as a joint creditor for the full amount of the
Senior Notes.
The validity of the pledges over the shares of the
Belgian subsidiary guarantors is not certain: As
Belgian company law does not contain any provisions
relevant to the pledge over shares of a limited
partnership, such as Truvo Belgium, a court could void a
pledge over the shares in Truvo Belgium.
Proceeds following enforcement of security granted
by a Belgian subsidiary guarantor may be limited:
Under Belgian law, the following factors may limit the
22
proceeds, which could ultimately be obtained in respect of
the security provided by a Belgian subsidiary guarantor.
Enforcement of the share pledges over the shares of a
Belgian subsidiary guarantor is subject to mandatory
court intervention and approval. In an insolvency, the
insolvency official (under supervision of the court) will
handle the sale. At certain stages of the process, the
pledgors or other creditors could intervene. This could
lead to significant delays in enforcement, which in turn
could adversely affect the value of the shares, the timing
of realisation and therefore the amount of proceeds
ultimately obtained for the benefit of the holders of the
Senior Notes.
Recent
developments
2009 Trading performance
The first quarter of 2009 is heavily driven by online as
there are no printed directories published in either
Belgium or Ireland. Based on preliminary data, revenues
in the quarter are estimated to grow by 3.5 - 5.5%
resulting in EBITDA of between € 1 – 2 million. The first
quarter results are not representative of the expected
performance for any subsequent period in 2009.
Particularly in metropolitan areas, we are experiencing a
significant reduction in our print sales, which is not
compensated by the growth in our online sales.
We expect that this will result in lower print revenues for
2009, especially in the second and third quarters of 2009,
when our main metropolitan directories (Brussels, Dublin
and Lisbon) are published. Due to the volatility of the
current market and general economic uncertainty, we are
unable to provide accurate guidance for the remainder of
the year.
Group sales performance for the year-to-date up to March
31, 2009 shows our percentage of the number of sales
closed increasing by 5% over 2008 whilst the total Euro
amount of sales has declined by 16% for the same period
as compared to 2008.
We have already initiated actions to resize the cost base
for our print products to mitigate the impact of revenue
losses on our EBITDA, however we caution that, due to
the margins we have on these products in the past, this
will only be possible to a limited extent.
Joint venture with Portugal Telecom
Truvo entered into discussions with Portugal Telecom,
our joint venture partner in Portugal, early in 2009 in order
to realign the economic balance of, and simplify the
various agreements that exist between Truvo and
Portugal Telecom. These discussions have reached a
satisfactory conclusion and are in the process of being
formulated in contractual form. We do not expect that
there will be any material impact on Truvo’s overall
economic interest in Páginas Amarelas as a result of
these amendments.
In addition, the €42.4 million credit facility of Páginas
Amarelas was renewed and amended as of May 2, 2008
(see “Description of indebtedness”). The renewed credit
facility contains provisions for the repayment of the
principal by equal quarterly instalments over the term of
the agreement ending on April 30, 2013. This obligation
will impair the ability of Páginas Amarelas to make
dividend payments to us and Portugal Telecom during
this period.
Divestiture of our operations in The Netherlands
We have been made aware of a third party appeal
against the grant of the licence by the NMa (Dutch
competition authority) allowing the sale of our operations
in The Netherlands to a subsidiary of European
Directories S.A. (see “Operating and financial review and
prospects – Factors affecting our results of operations –
Divestiture of operations in The Netherlands”). We are of
the opinion that this appeal is without merit, however we
have notified the court that we are an interested party to
ensure that Truvo’s interests are suitably protected during
the proceedings. We cannot assure you as to the ultimate
outcome of this proceeding.
23
Selected
historical
consolidated
financial data
General
The following table sets forth our selected historical
consolidated financial data for the years ended December
31, 2008, 2007 and 2006. This historical financial
information has been derived from the Company’s
audited consolidated financial statements.
You should read this section together with the information
contained in “Operating and financial review and
prospects” and the financial statements and the related
notes thereto, included elsewhere in this annual report.
In the presentation of the historical consolidated financial
data below, we are presenting our figures in two ways:
1.
2.
“Equity accounting”: Consolidated figures based on
the equity method of accounting for our joint venture
Páginas Amarelas in accordance with IFRS - the
Páginas Amarelas results are included in the line
“Share of result after tax of associates and joint
ventures”; and
“Segment reporting”: The presentation used by our
management in monitoring the operating results of
the business - excluding discontinued operations in
The Netherlands (presented on the line “Profit/(loss)
for the period from discontinued operations”) and
including the operating results in Portugal (Páginas
Amarelas), fully consolidated.
Selected financial data from the consolidated statement of income
From revenues to operating profit and (attributable) EBITDA (1)
Year ended December 31,
Equity accounting
Segment reporting
in € millions
2008
2007
2006
2008
2007
2006
Net operating revenues
Other income
302.1
16.4
322.4
23.1
308.2
25.2
365.1
9.4
389.4
15.2
376.3
17.1
Revenues
318.5
345.5
333.4
374.5
404.6
393.4
90.2
28.2
(2.8)
96.7
31.8
(4.3)
92.1
32.8
(3.6)
113.0
36.1
(2.2)
119.9
40.4
(3.2)
115.2
42.7
(5.4)
2.6
43.0
1.6
52.8
2.2
56.9
3.2
58.6
2.3
67.7
3.0
74.0
Total operating costs and expenses
161.2
178.6
180.4
208.7
227.1
229.5
Operating profit before amortisation and
impairment of intangible assets,
personnel costs - restructuring and
other non-operating costs
157.3
166.9
153.0
165.8
177.5
163.9
Personnel costs - restructuring
8% clause Páginas Amarelas (2)
Other non-operating costs
Amortisation and impairment of intangible assets
7.4
0.9
0.6
731.3
6.2
4.3
82.6
5.9
1.1
0.8
64.8
7.4
(3.3)
1.0
910.4
14.4
(4.8)
103.2
9.4
(1.7)
0.8
79.6
(582.9)
73.8
80.4
(749.7)
64.7
75.8
Personnel costs - ordinary
Raw materials and purchased services
Directories in progress and Internet expense deferrals
Depreciation and impairment of property,
plant and equipment
Other operating expenses
Operating profit
(*) See definitions page 27.
24
Year ended December 31,
Equity accounting
in € millions
Operating profit
Amortisation and impairment of intangible assets
Depreciation and impairment of property,
plant and equipment
Personnel costs - restructuring
8% clause Páginas Amarelas (2)
Other non-operating costs
EBITDA
(1)
South Africa 35.1%
Puerto Rico 40.0%
Portugal 75.0% and 25.0% respectively
ATTRIBUTABLE EBITDA
(1)
Segment reporting
2008
2007
2006
2008
2007
(582.9)
73.8
80.4
(749.7)
64.7
75.8
731.3
82.6
64.8
910.4
103.2
79.6
2.6
7.4
0.9
0.6
1.6
6.2
4.3
-
2.2
5.9
1.1
0.8
159.9
168.5
155.2
15.0
4.3
6.8
16.5
4.4
8.5
15.8
4.2
9.5
186.0
197.9
184.7
3.2
7.4
(3.3)
1.0
169.0
15.0
4.3
(2.3)
186.0
2.3
14.4
(4.8)
179.8
16.5
4.4
(2.8)
197.9
2006
3.0
9.4
(1.7)
0.8
166.9
15.8
4.2
(2.2)
184.7
(*) See definitions page 27.
From operating profit to profit/(loss) for the period
Year ended December 31,
Equity accounting
in € millions
Segment reporting
2008
2007
2006
2008
2007
Operating profit
(582.9)
73.8
80.4
(749.7)
64.7
75.8
Financial income
Financial expense
51.6
(213.4)
51.2
(239.0)
44.9
(218.3)
54.4
(216.2)
54.2
(241.1)
48.3
(219.9)
(187.8)
(173.4)
(161.8)
(186.9)
(171.6)
12.6
(27.6)
14.2
14.0
Results from financial income and expense
(161.8)
Share of result after tax of associates
and joint ventures
(159.3)
Profit/(loss) before tax
(904.0)
7.8
2006
(106.2)
(80.4)
(939.1)
(108.0)
(81.8)
56.9
-
36.3
(0.3)
12.5
(0.5)
77.7
14.3
37.9
(0.1)
13.5
(0.1)
Profit/(loss) for the period from
continuing operations
(847.1)
(70.2)
(68.4)
(847.1)
(70.2)
(68.4)
Profit/(loss) for the period from
discontinued operations
(145.2)
(8.0)
9.9
(145.2)
(8.0)
9.9
Profit/(loss) for the period
(992.3)
(78.2)
(58.5)
(992.3)
(78.2)
(58.5)
Income tax gain/(expense)
Minority interests
Other financial information
Year ended December 31,
Equity accounting
in € millions
Cash and cash equivalents
Current assets
Property, plant and equipment
Total assets
Equity attributable to equity holders of Truvo
Intermediate LLC
Segment reporting
2008
2007
2006
2008
2007
2006
230.1
372.9
5.7
1,348.0
36.0
221.7
5.0
2,552.1
51.4
237.4
8.6
2,537.4
232.8
435.8
7.5
1,414.1
41.4
294.6
7.0
2,669.3
59.9
311.5
11.0
2,663.0
(1,185.8)
(134.0)
(53.6)
(1,185.8)
(134.0)
(53.6)
25
Balance sheet information
Year ended December 31,
Equity accounting
Segment reporting
in € millions
2008
2007
2006
2008
2007
2006
Depreciation, amortisation and impairment
Capital expenditure
Intangible assets
Net cash flows (continuing operations):
from operating activities
used in investing activities
733.9
(3.7)
(14.0)
84.2
(1.5)
(15.8)
67.0
(2.4)
(5.5)
913.6
(4.2)
(14.6)
105.5
(1.9)
(16.5)
82.6
(3.3)
(6.2)
117.6
(28.3)
131.0
(28.1)
142.0
(11.1)
129.2
(29.4)
137.7
(29.2)
147.9
(12.7)
(3)
Total cash interest-bearing debt
Deduct cash and cash equivalents
1,473.2
230.1
1,465.9
36.0
1,522.0
51.4
1,511.4
232.8
1,508.3
41.4
1,564.4
59.9
Net cash interest-bearing debt (3)
1,243.1
1,429.9
1,470.6
1,278.6
1,466.9
1,504.5
(*) See definitions page 27.
26
Other unaudited operational information
Year ended December 31,
2008
2007
2006
4.0
1.8
1.6
4.9
12.3
4.2
1.8
1.7
4.9
12.6
4.4
1.8
1.6
5.3
13.1
Advertising customers (in thousands except for
percentages) (4) (5)
Truvo Belgium
Truvo Ireland
Pagini Aurii
Páginas Amarelas
Total
Group advertising customer retention rate
113.5
29.8
31.1
72.8
247.2
83.2%
121.6
31.4
34.1
81.5
268.6
82.9%
127.3
32.0
34.9
87.9
282.1
83.8%
Average revenue per advertiser (ARPAs) (in €)
Truvo Belgium
Truvo Ireland
Pagini Aurii
Páginas Amarelas
Group ARPA (6)
1,992
2,502
326
1,278
1,822
1,918
2,456
323
1,256
1,760
1,792
2,359
295
1,208
1,662
Print circulation (in millions) (4)
Truvo Belgium
Truvo Ireland
Pagini Aurii
Páginas Amarelas
Total
(1)
EBITDA, a measurement used by management to measure operating performance, represents operating profit before amortisation and impairment of
goodwill and other intangible assets, depreciation of property, plant and equipment, personnel costs - restructuring, other non-operating costs and
contributions related to the 8% clause Páginas Amarelas. EBITDA is presented because we believe that it is frequently used by security analysts, investors
and other interested parties, as a measure of a company’s operating performance and debt servicing ability, because it assists in comparing performance
on a consistent basis without regard to depreciation and amortisation, which can vary significantly depending upon accounting methods or non-operating
factors (such as historical costs). Accordingly, this information has been disclosed in this annual report to permit a more complete and comprehensive
analysis of our operating performance relative to other companies. However, other companies may calculate EBITDA differently than we do. EBITDA is not
a measurement of financial performance under IFRS and should not be considered as an alternative to cash flows from operating activities or as a
measurement of liquidity or an alternative to profit/(loss) for the year as an indicator of our operating performance or any other measures of performance
derived in accordance with IFRS.
The share of result after tax of associates and joint ventures, principally related to our interests in Páginas Amarelas, Trudon (Pty) (formerly TDS Directory
Operations (Pty) and Axesa Servicios de Información, is not included in EBITDA.
Attributable EBITDA represents EBITDA including our interest in the EBITDA of Páginas Amarelas, Trudon (Pty) and Axesa Servicios de Información.
(2)
For 8% clause Páginas Amarelas see the explanation under “Off-balance sheet arrangements” and “Business discussions – Portugal-Páginas Amarelas –
The joint venture with Portugal Telecom”.
(3)
Cash interest-bearing debt comprises the Senior Facilities, including the amount drawn under the Revolving Credit Facility, the Senior Notes, and the
financial leases at December 31, 2007 and 2008, respectively. In the figures including Páginas Amarelas, also the Portuguese Credit Facility is included.
Cash interest-bearing debt excludes €137.1 million and €152.7 million under the PIK Facility, at December 31, 2007 and 2008, respectively.
Net cash interest-bearing debt comprises cash interest-bearing debt, net of cash and cash equivalents in the amount of €36.0 and €230.1 million
(including Páginas Amarelas €41.4 million and €232.8 million) at December 31, 2007 and 2008, respectively.
(4)
Print circulation includes yellow pages, white pages and white and yellow pages combined print directories.
(5)
Number of advertising customers includes online advertisers who also purchase print advertisements.
(6)
Group ARPA is calculated (excluding Pagini Aurii) by totalling the amount of sales made during the relevant year (as opposed to the revenues recognised
for that year) across the group and dividing that sum by the number of the group’s customers for that year. ARPA is a measurement used by management
to measure operating performance, particularly with respect to changes in annual customer order volumes. ARPA is presented because we believe that it is
frequently used by security analysts, investors and other interested parties in the valuation of companies in the directory industry. However, other
companies may calculate ARPA differently than we do. ARPA is not a measurement of financial performance under IFRS and should not be considered as
an alternative to other measurements as an indicator of our operating performance or any other measures of performance derived in accordance with IFRS.
27
Operating and
financial review
and prospects
Introduction
The following discussion and analysis is based on and
should be read in conjunction with our audited historical
financial statements and the related notes included
elsewhere in this annual report.
The discussion includes forward-looking statements,
which, although based on assumptions that we consider
reasonable, are subject to risks and uncertainties, which
could cause actual events or conditions to differ materially
from those expressed or implied herein. For a discussion
of some of those risks and uncertainties, please see the
sections entitled “Risk factors” and “Forward-looking
statements”.
From mid-2008, it became clear that the economic
downturn and the rapid decline of the size of the
traditional paper directory business would adversely
affect Truvo’s financial performance. Many of our
customers, typically small and medium enterprises, have
reduced their advertising spending as a reaction to the
negative trends they have experienced in their own
businesses and the increasing number of alternatives to
printed directories. Historically, our business model
tended to be more resilient to economic fluctuations than
most other advertising media. However, as our business
model moves away from the print only model towards a
more diverse mix of local advertising media, we expect to
be more sensitive to the economic cycle.
In line with guidance expressed in the second half of
2008, net operating revenues were €365.1 million,
showing a decline of 6.2% compared to last year. The
decline in print revenues was most pronounced with
11.6%. Online revenues continued to grow, at a rate of
13.2%. Online revenues now represent 26.2% of our total
net operating revenues, up from 21.7% last year, and this
despite the adjustments made in respect of our perpetual
contract revenues in Belgium, as explained in a separate
section.
We recognised early on in the year that revenue
developments would be below expectations. In order to
mitigate the impact of the decline in revenues on our
EBITDA, we reduced our operating costs by €18.4 million,
equivalent to an 8.1% reduction of our cost base. We
have reduced cost in all areas of our business, but have
left our investment in new online products and new media
intact. The resulting EBITDA is €169.0 million,
representing a decline of 6.0% compared to prior year.
On an attributable basis, taking our effective shareholding
in all our businesses into consideration, our EBITDA is
€186.0 million, equally showing a 6.0% decline compared
to prior year. These results of 2008 are in line with our
guidance, but clearly below our expectations.
We have experienced similar revenue trends across our
markets in Belgium, Ireland and Portugal. The impact on
the EBITDA varies between our country operations,
dependent on the different stages of investment in the
online business and the degree of decline of the size of
the traditional paper directory business. The impact of the
economic downturn is likely to have a more profound
impact in Romania, as this business is still in an earlier
stage of development and therefore more vulnerable to
declining revenues.
Together with actions to preserve our EBITDA and
margins, we have also implemented a series of actions to
reduce our working capital and to improve our operational
cash flows. As a result, our net cash flows from operating
activities were €129.2 million, 6.2% below last year’s
number on a like for like basis (excluding the net cash
flows from discontinued operations). The underlying cash
conversion remained almost the same: 76.4% in 2008
and 76.6% in 2007. We will continue to react flexibly to
support our customers where possible – whilst we remain
focused on protecting our own free cash flows.
On December 31, 2008 our net external debt, including
the payment-in-kind facility was reduced to €1,431.3
million, mainly as a result of the cash inflow received from
the sale of our Dutch activities, a transaction that was
successfully completed in September of 2008. As at
December 31, 2008, overall net debt leverage is at 7.7 x
our attributable EBITDA.
Overview
Truvo, formerly World Directories, operates in the local
search and advertising market. It creates value by
providing an integrated portfolio of cost-effective and
simple-to-use advertising that connects buyers quickly
and efficiently with sellers. Truvo offers a range of local
commercial search and advertising services, in print,
online, telephone and mobile, to assist the consumer in
making informed purchase decisions.
In 2008 we had a total customer base of 247,200
advertisers in our major markets. Truvo currently
operates in Belgium, Portugal, Ireland and Romania and
has minority interests in South Africa and Puerto Rico. In
2008, Truvo successfully completed the sale of its Dutch
businesses Gouden Gids B.V. and ClearSense B.V. to
European Directories. Truvo is privately owned by funds
advised by Apax Partners and Cinven, and by
management.
Factors affecting our results of operations
Divestiture of operations in The Netherlands
In March 2008, we agreed to sell our operations in The
Netherlands, trading as Gouden Gids B.V. and
ClearSense B.V., to a subsidiary of European Directories
S.A., with effect from November 1, 2007 for Gouden Gids
B.V. and completion date for ClearSense B.V.
Accordingly and pursuant to IFRS requirements, we
classified our operations in The Netherlands as
discontinued operations (held for sale) as of November 1,
28
2007, since the carrying value would be recovered
principally through a sale transaction rather than through
continuing operations.
On August 29, 2008, the Dutch competition authority
(NMa) approved the proposed transaction with European
Directories in The Netherlands and granted a license. The
sale transaction was completed on September 16, 2008.
The gross cash proceeds related to the transaction of
€283 million, as announced in our press release on
completion, comprised the cash purchase price, paid by
European Directories of €248 million, and a cash dividend
of €35 million made by Gouden Gids B.V. to its Truvo
parent immediately prior to completion. In addition, a
vendor loan of €10 million was provided to European
Directories and European Directories paid interest on the
purchase price of €18 million covering the period between
November 1, 2007, the effective date and completion.
Transaction costs amounted to some €15 million and the
group has paid corporate income taxes related to the sale
of approximately €85 million.
Pursuant to IFRS requirements, we recognised in 2008
an additional goodwill impairment loss amounting to
€144.4 million to bring the valuation of the discontinued
operations in line with the net proceeds from the sale.
This additional goodwill impairment was mainly due to the
waiver of a loan to ClearSense B.V., the valuation of the
vendor loan provided to European Directories, the writeoff of a deferred tax asset related to Dutch net operating
losses and a true-up of the costs of the sale disposal. For
more information, see note 13 of the financial statements
included elsewhere in this annual report. The vendor loan
provided to European Directories, amounting to €10
million, is interest free and the repayment is dependent
on certain actions of the purchaser.
The sale and purchase agreement contains the
customary representations and warranties for a deal of
this nature including a related indemnity. There are no
residual contractual purchase price adjustments following
completion. We have entered a 5-year non-compete
agreement covering the Dutch national market and
indemnified the purchaser against any claims by Just
Voice B.V. (see “Material legal proceedings and
commercial disputes” on page 58). Certain Beneluxregistered trade marks that were being used by both our
Dutch and Belgian businesses have been transferred to a
Dutch stichting (foundation) which is jointly administered
by Truvo and European Directories and licences these
marks to Truvo Belgium and Gouden Gids B.V. Gouden
Gids' license is limited to The Netherlands (excluding the
Dutch Antilles), whilst Truvo's license is worldwide but
excludes The Netherlands. Other Benelux-registered
trademarks used jointly have been retained by Truvo and
are being licenced to Gouden Gids B.V. for use solely in
The Netherlands. All such licences are perpetual and
royalty-free.
The cash proceeds from the sale of The Netherlands
operations will be used in accordance with the relevant
provisions of the Senior Facility Agreement and our other
debt instruments. The group is continuing its assessment
of how best to utilise the cash sale proceeds and such
uses have and/or may include the payment of related
transaction costs, the purchase of various assets to be
used in the business, capital expenditure, one or more
possible acquisitions of other businesses (including the
acquisition of YelloYello B.V.), the repayment of loans
outstanding under the Senior Facility Agreement and/or
such other potential uses as the group may consider
appropriate and in compliance with applicable
requirements under its financing arrangements.
Acquisitions
YelloYello B.V.
In December 2008, we acquired YelloYello B.V., a small
Dutch online technology firm, for a total consideration of
€2.6 million of which €1.5 million was paid in 2008 and
the remainder will be paid when specific objectives are
met. YelloYello will allow us to accelerate the technical
and commercial launch of local search sites and
applications with community aspects. These new sites
are developed with the aim of further expanding Truvo’s
reach of the online user base.
Truvo Services South Africa (Pty) Ltd.
With effect from August 1, 2007, we have acquired the
remaining 5% share that we did not own in Truvo
Services South Africa (Pty) Ltd. (“TSSA”), formerly
Maister Directories (1981) (Pty) Ltd., our holding
company in South Africa for a total purchase price of €9.5
million. TSSA is fully consolidated as from January 2006;
consequently, as from January 2006, the share of result
after tax of associates and joint ventures reflect the full
35.1% of the interest in Trudon (Pty) Ltd. (formerly TDS
Directory Operations (Pty) Ltd.), owned by TSSA. Until
August 1, 2007, the 5% share is presented under minority
interests.
ClearSense B.V.
During the second quarter of 2006, we acquired 100% of
the issued share capital of ClearSense B.V., a company
specialising in search engine marketing, for a total
purchase price of €5.5 million. The purchase price was to
be paid in four instalments over three years. In 2006 and
2007 we paid €4.3 million and the remainder was paid in
2008.
Purchase price adjustment The Nielsen Company
The sale and purchase agreement whereby Truvo
Acquisition Corp. purchased Truvo USA from VNU
International B.V., VNU Finance B.V. and VNU N.V.
(collectively “VNU” and currently called “The Nielsen
Company B.V.”) in 2004 required a purchase price
adjustment to be made following the acquisition. This
adjustment is made upon a comparison of working capital
and net indebtedness derived from actual November
2004 accounts and the estimated November accounts
available at the time of the signing of the sale and
purchase agreement. In February 2008, the Company
settled a dispute with VNU on the difference in actual and
estimated working capital and net indebtedness. The
amount receivable and payable under this settlement led
to a payment of €5.9 million and resulted in a further
adjustment of the recognised goodwill. See note 14 of the
financial statements included elsewhere in this annual
report.
Impairment
Adjustment The Netherlands
Please refer to the section entitled “Divestiture of
operations in The Netherlands” above.
Year-end 2008
Based on our accounting principles, we tested goodwill
and other intangible assets, as included in the balance
sheet as at December 31, 2008 for impairment. The lower
fair value of the cash-generating units, caused in turn by
lower market multiples of comparable companies (Truvo’s
29
peer group companies), resulted in a goodwill impairment
charge amounting to €784.0 million (consolidated entities
€651.7 million, Páginas Amarelas €88.9 million, Axesa
Servicios de Información €26.0 million and Trudon (Pty)
€17.4 million) and an impairment of other intangible
assets of €84.3 million (consolidated entities €9.1 million
and Páginas Amarelas €75.2 million minus minority
interest of 25% is €56.4 million).
While the impairment charge related to goodwill and other
intangible assets reduced our reported results, it is a noncash item in nature and is not affecting Truvo’s liquidity,
cash flows from operating activities, or debt covenants, or
has any impact on future operations. Under IFRS,
goodwill is not amortised, but rather is tested for
impairment at least annually.
Phasing of results in 2008
Due to the transition of our reporting from Dutch GAAP to
IFRS (in 2008 we continued to use Dutch GAAP for
internal reporting purposes), the quarterly phasing of our
costs during the year 2008 had to be adjusted. As a
result, the quarterly reports did not show the correct costs
and results and need to be adjusted in line with the table
included in “Net operating revenues and (attributable)
EBITDA - four quarters of 2008” on page 38 of this
document.
Change in accounting principles Puerto Rico
Axesa Servicios de Información, Inc., our associate in
Puerto Rico, is managed by the controlling shareholder
Local Insight Media. This associate is using the amortisation method, instead of the publication method, for the
recognition of its print revenues. In the amortisation
method, the revenues of a print directory are amortised
over the duration of the print contract (typically 12
months). To be able to present more reliable financial
information, we changed our accounting principles
regarding the revenue recognition of our associate Axesa
Servicios de Información also to the amortisation method.
The effect on our equity as at December 31, 2008 was
€5.5 million (lower) and the difference in the share of
result after tax of associates was €0.08 million. Please
refer to note 2.1 in the financial statements included
elsewhere in this annual report.
Perpetual contracts in Belgium
The results of 2008 were influenced by a change in
estimates regarding the so-called perpetual contracts. In
2007 we changed our commercial practice and
introduced perpetual contracts, as opposed to annual
contracts. Based on the terms of these perpetual
contracts, we were allowed to continue to recognise
revenues for as long as an advertising program remained
online, based on the following elements:
•
•
•
•
existence of a valid contract;
delivery of services;
ability to enforce payment; and
no possibility of cancellation.
During the closing of our financial statements for 2007,
based on all available information, we estimated an
accrual necessary for possible credit notes to be issued in
2008 regarding revenues recognised in 2007 related to a
possible “free period” between the renewal date of an
existing contract and the start date of a new contract with
the same customer. In hindsight, our recognised online
revenues in 2007 were over estimated by €5.2 million and
our EBITDA also by €5.2 million. These amounts have
been recognised as a change in an accounting estimate
in 2008, which adversely impacted our financial results.
The following table is showing reported and adjusted net
operating revenues (online revenues and total net
operating revenues) in 2007 and 2008 (in € millions –
including Páginas Amarelas):
Online revenues
Reported net operating revenues
Perpetual billing adjustment
Adjusted net operating revenues
2008
95.5
5.2
100.7
2007
84.4
-5.2
79.2
Total net operating revenues
Reported net operating revenues
Perpetual billing adjustment
Adjusted net operating revenues
2008
365.1
5.2
370.3
2007
389.4
-5.2
384.2
From 2008 onwards, based on the experience we have
obtained in operating perpetual contracts over the last
two years, we are spreading the net operating revenues
on a straight-line basis over the entire period, including
the “free period”. As soon as we conclude a new contract
with a client, we -if necessary- adjust the revenues
already recognised.
Restructuring
In 2008, €7.4 million was spent on restructuring (€nil in
Portugal); in 2007 we spent €14.4 million (€8.2 million in
Portugal) and in 2006 €9.4 million (€3.5 million in
Portugal).
Demand for directory advertising and current
economic environment
Although general demand for advertising has a strong
correlation with economic cycles, directory advertising
oriented toward small and medium-sized businesses
historically tended to be more stable and less subject to
economic cycles as a result of the following factors:
•
directories are generally the primary form of paid
advertising for small and medium-sized enterprises
and represent a “must have” form of advertising
even in difficult economic conditions;
•
advertising in directories is “directional” in that it
seeks to direct users to a product with respect to
which they already have an interest as opposed to
creating consumer demand, which has a greater
correlation with economic conditions;
•
advertising in print directories is a single annual
decision;
•
diversity of revenues by customer and industry
mitigates the impact of economic downturns; and
•
directory advertising does not include a significant
amount of cyclical advertising such as employment
offers, automotive sales and property sales.
To the extent that directory-advertising demand is linked
to general economic conditions, revenue trends tend to
lag behind current economic conditions as advertising in
print directories is sold up to eight months in advance of
the publication date (which triggers the recognition of the
related revenues). Expectations of consumer confidence
and spending by small and medium-sized enterprises
with respect to the coming year also affect demand for
directory advertising. A growing proportion of our
revenues are derived from our online business. As the
characteristics of the online business differ in many
30
aspects from the print business (e.g., no annual
publication cycle), our sensitivity to the economic cycle
may increase.
The particularly pessimistic economic environment, we
experienced since the second half of 2008, and the
uncertainty about the timing of any economy recovery
negatively influenced our 2008 results. See “Risk factors Risks related to our business”.
Number of advertising customers and their average
value order
The key factors affecting our revenues and profitability
are the number of our advertising customers and the
quantity and type of advertising purchased per customer
(average revenue per advertiser, or ARPA). The annual
number of our advertising customers is calculated by
aggregating the number of customers retained from the
prior period together with new customers. The majority of
our customer loss is realised when newer customers
decide not to renew or are unable to renew their contracts
with us.
The ARPA of our directory business is measured by the
amount of each customer’s expenditure as determined by
a calculation of the particular products purchased and
their corresponding prices. As our customer base is
primarily print-based, we seek to grow our ARPA by
cross-selling products from multiple platforms to our
current customers and instituting targeted price
increases. Pricing, in turn, is driven in part by the
marketability of a directory’s product, which is derived in
part from demand for advertising space, as measured in
look-ups for printed products and searches for online
products by the directories’ end users.
Shift in usage of and revenues derived from print
directory products toward online directory products
As a result of increased online usage and high mobile
phone penetration, usage for both the yellow and white
pages print directories has declined in recent years. The
growth of Internet penetration in our markets has
contributed to an increasing decline in usage of our print
directories due to the availability of Internet directories as
an alternative source of information. Moreover, the
increasing number of people who rely exclusively on
mobile phones and no longer have fixed telephone lines
do not directly receive print directories in most of our
markets as directories are mainly delivered to known
fixed line customers.
At the same time, the growth in Internet usage in our
markets has resulted in a shift towards our online
directory products. Increased usage of our online
directory products has provided an opportunity for
revenue growth through sales of new online directory
products as an alternative to our existing print and voice
directory customer base and such cross marketing
enhances our ARPA. In addition to being a retention
factor, our online directory products have also brought in
a limited number of new advertising customers. In
accordance with our business strategy to benefit from this
shift in usage, we continue to invest in developing online
platforms in each of our markets by improving content (for
example, by including local information, maps and route
descriptions in multiple languages and by expanding
search methods). Since 2006, as a percentage of net
operating revenues, our revenues generated from online
products and services have increased from 17.6% in
2006 to 26.2% in 2008. However, this increase in online
revenues was not large enough to affect the decline in
our revenues from printed directory products.
Going forward, we expect that our online pricing policies
will continue to diverge from our print directory pricing
policies as a consequence of the different growth rates in
usage between print and online products and services.
Online pricing will continue to be more performance
based, skewed toward the top advertisers and will vary
throughout the year. For example, the value of online
advertisements in terms of likelihood of customer contact
will be greater for the top five or ten search results and
will therefore be relatively more expensive than similar
premium listings in our print directories. Online pricing will
also correlate to usage levels (in terms of clicks, calls and
emails received through the online product) as opposed
to a one-time charge for a full year advertisement in our
directories. Online customers also tend to vary their
investment in online advertising during the year, in
particular with respect to holiday shopping peaks or lower
activity levels seen during summer holidays, as opposed
to print advertising where the decision about whether or
not to advertise occurs once annually.
Fees to incumbent telephone companies and joint
venture partners
We operate under a data license and agency agreement
with the incumbent telephone operator in Belgium and a
joint venture agreement with the incumbent telephone
operator in Portugal. In addition, our affiliate in South
Africa operates under a joint venture agreement with the
incumbent telephone operator. These agreements
generally provide that the incumbent telephone
companies receive a portion of our or our affiliates’
advertising revenues in those countries. In exchange for
or pursuant to certain fee arrangements, incumbent
operators provide us or our affiliates with the subscriber
data necessary for our business and certain other
licensed intellectual property rights and/or services in the
relevant country. Our operations in Ireland and Puerto
Rico pay a fee to the relevant incumbent operator under
production agreements that grant them the rights to
produce white pages. See “Business discussions Country overview” for further information.
Personnel costs
Our principal operating costs consist primarily of
compensation for our sales force and other personnel.
Personnel – ordinary costs represented 30.6%, 30.8%
and 30.9% of net operating revenues in 2006, 2007 and
2008, respectively. In 2008, of those personnel costs,
16.3% represented sales commission costs, with the
remainder being fixed personnel costs. We continuously
seek to increase the efficiency and effectiveness of our
sales force through proactive sales management based
on a detailed sales planning method, a sales verification
program and implementation of best practices in sales
management in particular in connection with our sales
approach towards the various customer segments and
the various media. As a consequence, the sales force has
been reorganised during 2008 based on a segment
specific combination of print and online advertising
programs. Sales staff is given targets and is paid on a
salary plus commission basis. We have also reduced
overall employee numbers through our ongoing
restructuring program; see “Restructuring” above.
Raw materials and printing costs
Our primary raw material employed in the production of
our publications is paper. We used approximately 35,860,
31
24,560 and 21,100 tons of telephone directory paper in
2006, 2007 and 2008, respectively. Our total paper costs
during these periods were €18.0 million, €16.7 million and
€15.5 million, respectively, and represented 4.8%, 4.3%
and 4.2% of net operating revenues in 2006, 2007 and
2008 respectively. While paper prices have comprised a
relatively fixed percentage of our cost base historically,
international paper prices fluctuate globally, and these
fluctuations can affect our margins. For a description of
our paper purchase contracts, see “Business discussions
- Production and distribution”.
Third party printing costs in 2006, 2007 and 2008 were
€14.8 million, €14.6 million and €10.3 million,
respectively, representing 3.9%, 3.7% and 2.8% of net
operating revenues in those years. As of 2006, printing
arrangements are managed centrally. For a description of
our printing arrangements see “Business discussions Production and distribution”.
Publication timing differences
We publish and distribute most of our print directories on
an annual basis. We defer the income and related costs
attributable to print directories in progress and only
recognise such income and costs on the date of
publication of the directory. Our publishing cycle typically
results in the lowest number of directories being
published in the first quarter of each year. In addition, we
publish relatively fewer directories in the third quarter due
to the summer holidays. Because the quantity and type of
print directories published throughout the year are uneven
and particularly lower in the first quarter of each year, net
operating revenues and profits do not arise evenly
through the year. For example, in 2008, the four financial
quarters accounted for 8.5%, 27.1%, 32.2% and 32.2%,
respectively, of our net operating revenues (including
Páginas Amarelas).
As a result, changes in the timing of the publication of a
printed directory can cause fluctuations in our results of
operations in a given period that are not indicative of
changes in our business in that period. See “Risk factors Our results may vary from period to period and may not
be indicative of our results for the full year”. By the same
token, because our sales and publishing cycle requires us
to sell advertising months in advance of the publication of
the directories and the recognition of the corresponding
revenues, we have good visibility of our expected nearterm financial results. In addition, as our revenue mix
migrates toward online products and services, which
recognise revenues and costs relating to electronic
advertisements on a straight-line basis over the period in
which the advertisement is available electronically, the
effect of publication timing differences on our results of
operations will be mitigated in part.
Introduction of new or improved products
In accordance with our business strategy, we have
developed a number of sales and marketing initiatives,
including the launch of new features in our print
directories and the improvement of our current Internet
offering. For example, to increase usage and retain
customers in the print business, we included a B2B
section, a voucher section, an “open on Sunday tag” and
a fast-finding index in some of our directories. We also
converted local guides into companion guides in Portugal.
Continuous product improvements contribute to revenue
growth.
To further grow our market share in the increasingly
competitive Internet directory market, we are in the
process of implementing a new Internet strategy. We are
improving and expanding our online content and
improving the user experience of our online offerings by
providing more information and improving search
parameters, thereby allowing us to increase the
attractiveness of our offerings to our advertising
customers.
Principal statement of income items
Revenues
Our primary source of revenues is derived from the
publication of print directories, with an increasing portion
of revenues coming from online directory products and
services. Net operating revenues reflect the amount of
billings invoiced to customers, or billed revenues, net of
(i) variable fees paid to incumbent telephone operators,
(ii) commissions payable to external sales agents, (iii)
allowances and adjustments for errors and faulty
insertions (returns), (iv) retention discounts given to large
or loyal customers (sales discounts), (v) early payment
discounts and (vi) value-added taxes, adjusted as
described above under Publication timing differences.
Other income includes mainly the royalty fees charged to
South Africa and Puerto Rico and the advisory fee
charged to Portugal (eliminated when Páginas Amarelas
is fully consolidated) and the discontinued operations in
The Netherlands. Other income includes any gains and
losses from the sale of assets, including disposals of
assets in subsidiaries, and income from the distribution
for third parties.
Personnel costs
Personnel costs comprise primarily wages and salaries
(most of which are payable to our sales force), social
insurance and employee benefit costs and pension
charges. These personnel costs include variable sales
commission costs. In the year ended December 31, 2008,
these costs, including restructuring costs, comprised
33.0% of net operating revenues.
Raw materials and purchased services
Raw materials and purchased services comprise primarily
the costs of paper and printing as well as freight and
other distribution costs incurred in the production of our
directories. In the financial year ended December 31,
2008, raw materials and purchased services comprised
9.9% of our net operating revenues.
Other operating expenses
Other operating expenses include primarily the costs of
advertising, promotion and marketing, travel, lodging and
car expenses, information technology, occupancy costs,
office and general expenses and bad debt expense.
Operating profit
Operating profit consists of total revenues less total
operating costs and expenses, including depreciation of
property, plant and equipment, amortisation of other
intangible assets and impairment of intangible assets.
Operating income does not include our results from
financial income and expense, nor the amortisation of
capitalised transaction costs.
EBITDA
EBITDA, a measurement used by management to
measure operating performance, represents operating
32
profit before amortisation and impairment of goodwill and
other intangible assets, depreciation of property, plant
and equipment, personnel costs-restructuring, charge in
relation to the 8% clause Páginas Amarelas and other
non-operating costs.
consolidating Páginas Amarelas (see our management
discussion), Portugal Telecom’s 25% economic interest in
the profit of Páginas Amarelas. For normal IFRS
reporting, Páginas Amarelas is accounted for following
the equity method.
Income tax expense/gain
Income taxes are computed on profit/(loss) before tax
based upon the consolidated statement of income using
various tax rates in effect in different countries.
Differences between the recorded tax assets and
liabilities and the realisation of such assets and liabilities
are reflected in income tax expense/gain in the
consolidated statement of income. The effective tax rate
is calculated as income tax expressed as a percentage of
profit/(loss) before tax plus non tax-deductible
amortisation and impairment of intangible assets.
Significant accounting policies and critical
estimates and judgments
Share of result after tax of associates and joint
ventures
Our share of result after tax of associates and joint
ventures, including our interests in Páginas Amarelas,
Trudon and Axesa, in which we can exercise significant
influence and for which equity accounting on the basis of
our accounting policies is applied, is presented on this
line. The share of result after tax of associates and joint
ventures reporting in currencies other than the Euro are
translated at weighted average rates of exchange during
the relevant year. In 2008, we decided to base our share
of result after tax of Axesa on revenue recognition
following the amortisation method instead of the
publication method, to be able to present more reliable
information. Based on this change in accounting
principles, we restated our results in 2006 and 2007.
Our significant accounting policies and critical estimates
and judgments are more fully described in our
consolidated financial statements included elsewhere in
this annual report. See for the accounting policies etc. our
financial statements 2008 note 2.1 to 2.5. Certain of our
accounting policies are particularly important to the
presentation of our results of operations and require the
application of significant judgment by our management.
In applying these policies, our management uses its
judgment to determine the appropriate assumptions to be
used in the determination of certain estimates used in the
preparation of our results of operations. These estimates
are based on our previous experience, the terms of
existing contracts, information provided by our customers,
information available from other outside sources and
other factors, as appropriate.
In the presentation of the statements of income and cash
flows and the discussion below, we follow the
presentation used by our management in monitoring the
operating results of the business: excluding the
discontinued operations in The Netherlands (up to and
including October 31, 2007 presented on the line
“Profit/(loss) for the period from discontinued operations”)
and including the operating business in Portugal (Páginas
Amarelas).
Minority interests
Minority interests represent, in the case we are fully
Comparison of the years ended December 31, 2008 and 2007 to the years ended December 31, 2007
and 2006
Year ended December 31,
in € millions
Net operating revenues
Belgium
Ireland
Romania
2008
2007
2006
220.5
72.2
9.4
235.7
75.8
10.9
223. 8
74. 0
10.4
Portugal
302.1
63.0
322.4
67.0
308.2
68.1
365.1
389.4
376.3
Belgium
Ireland
Romania
Other and corporate
116.0
28.2
(0.1)
15.8
122.0
33.8
0.5
12.2
111.9
31.6
0.8
10.9
Portugal
159.9
9.1
168.5
11.3
155.2
11.7
EBITDA (1)
169.0
179.8
166. 9
Net operating revenues
EBITDA
(1)
(1) See definition page 27.
33
Year ended December 31, 2008 compared to the year
ended December 31, 2007
Note: The following discussion is including Páginas
Amarelas.
Revenues
Revenues decreased by 7.4% to €374.5 million in 2008,
compared with €404.6 million in 2007.
As in the previous years, the revenue mix shows a
growing online component. Online revenues, €95.5
million in 2008 and €84.4 million in 2007, increased from
21.7% to 26.2% of net operating revenues between 2008
and 2007.
Geographical breakdown of revenues
Belgium. Net operating revenues in Belgium decreased
by 6.4% from €235.7 million in 2007 to €220.5 million in
2008. The decline in print revenues from €172.4 million in
2007 to €155.6 million in 2008 was partially offset by an
increase in online revenues of 2.5% to €64.9 million in
2008 as compared to €63.3 million in 2007. Online
revenues represented 29.4% of net operating revenues in
2008. Customer retention rate in Belgium decreased from
89.0% in 2007 to 85.1% in 2008. The customer base
decreased from 121,600 in 2007 to 113,500 in 2008.
ARPA increased from €1,918 in 2007 to €1,992 in 2008.
Ireland. Net operating revenues in Ireland were €72.2
million in 2008, a decrease of 4.7% compared to €75.8
million in 2007. Online revenues were showing an
increase of 71.4% from €4.2 million in 2007 to €7.2 million
in 2008. The customer base decreased from 31,400 in
2007 to 29,800 in 2008, and the customer retention rate
decreased from 81.9% in 2007 to 80.5% in 2008. ARPA
increased from €2,456 in 2007 to €2,502 in 2008.
Romania. Net operating revenues in Romania decreased
by 13.8% from €10.9 million in 2007 to €9.4 million in
2008. The customer base decreased by 8.8% from
34,100 in 2007 to 31,100 in 2008. The customer retention
rate went down slightly from 65.5% in 2007 to 63.0% in
2008. The ARPA increased from €323 in 2007 to €326 in
2008.
Other and corporate. Revenues of other and corporate
mainly include contract service charges and royalties.
Other income decreased by 38.2% from €15.2 million in
2007 to €9.4 million in 2008, mainly caused by the
decrease of the contract service income from our
discontinued operations in The Netherlands.
Portugal. Net operating revenues in Portugal decreased
by 6.0% from €67.0 million in 2007 to €63.0 million in
2008. Sales performance was adversely influenced by a
weak economic environment. Print revenues decreased
by 21.0% from €50.4 million in 2007 to €39.8 million in
2008. However, online revenues increased by 39.8%
from €16.6 million in 2007 to €23.2 million in 2008. The
customer base decreased from 81,500 in 2007 to 72,800
in 2008, and the customer retention rate decreased from
82.1% in 2007 to 81.4% in 2008. ARPA increased from
€1,256 in 2007 to €1,278 in 2008.
Total operating costs and expenses
Total operating costs and expenses, including
restructuring costs and other non-operating costs and
income, in 2008 were €213.8 million, a decrease of €22.9
million or 9.7% compared to 2007 (€236.7 million). The
reduction in operating costs is essentially due to lower
personnel costs (including restructuring) by €13.9 million,
lower raw materials and purchased services by €4.3
million and lower other operating expenses by €9.1
million.
Personnel costs-ordinary. Personnel costs decreased
from €119.9 million in 2007 to €113.0 million in 2008, a
decrease of €6.9 million or 5.8%. The average number of
effective full time employees (sales and non-sales
combined) decreased from 1,946 in 2007 to 1,899 in
2008, there being 47 fewer full time employees or a 2.4%
decrease in the workforce.
Personnel costs-restructuring. The personnel
restructuring costs of €7.4 million in 2008 relate mainly to
the continuing work force reduction programs in our back
office functions. Total restructuring costs incurred in 2008
decreased by €7.0 million compared to 2007, where
restructuring costs were €14.4 million.
Raw materials and purchased services. The costs of raw
materials and purchased services in 2008 were €36.1
million, which is €4.3 million or 10.6% lower than in 2007,
where the costs of raw materials and purchased services
were €40.4 million.
Other operating expenses. Other operating expenses
were €58.6 million in 2008, which is €9.1 million or 13.4%
lower than in 2007, due to lower sales and marketing
costs, information and technology costs and outside
services.
Other non-operating costs. Other operating costs were
€1.0 million in 2008 and consists of costs due to the move
of the headquarter offices and a write-off of an old
receivable regarding our joint venture partner.
Depreciation and impairment of property, plant and
equipment. Depreciation and impairment of property,
plant and equipment amounted to €3.2 million in 2008,
which is an increase of €0.9 million compared to €2.3
million in 2007.
Amortisation of other intangible assets. Total amortisation
of other intangible assets in 2008 was €85.5 million,
compared to €84.3 million in 2007. The increase is
caused by higher amortisation of capitalised software.
Impairment of intangible assets. In 2008 we recognised
an impairment of intangible assets of €824.9 million,
compared to €18.9 million in 2007. Impairment of goodwill
amounted to €740.6 million in 2008 and related to our
operations in Belgium, Ireland and Romania, whereas in
2007 the impairment of goodwill (€18.9 million) related to
Portugal, Romania and The Netherlands (discontinued
operations). Impairment of other intangible assets in 2008
amounted to €84.3 million and related to our operations in
Romania and Portugal.
Operating profit
As a result of the foregoing, our results after amortisation
and impairment of intangible assets decreased by €814.4
million. Excluding the impairment of intangible assets, our
operating profit of 2007 of €83.6 million decreased by
10.0% or €8.4 million to €75.2 million in 2008.
EBITDA
EBITDA decreased by 6.0% to €169.0 million in 2008,
compared with €179.8 million in 2007. EBITDA decreased
in Belgium, Ireland, Romania and Portugal but was offset
by an increase in other and corporate as a consequence
of cost reductions.
34
Geographical breakdown of EBITDA
Belgium. EBITDA in 2008 was €116.0 million, a decrease
of €6.0 million (4.9%) compared to €122.0 million in 2007.
Revenues in 2008 were €220.5 million, a decrease of
€15.2 million compared to €235.7 million in 2007. The
lower net operating revenues in 2008 were partly offset
by lower personnel costs and other operating expenses.
Total average full-time equivalents decreased to 707 in
2008 while the average full time equivalents in 2007 was
749.
Ireland. EBITDA in 2008 was €28.2 million, a decrease of
€5.6 million compared to €33.8 million in 2007. The main
reason for the €5.6 million decrease in EBITDA is the
decrease in net operating revenues in 2008 of €3.6
million compared to 2007 and an increase in costs due to
the expansion of our online business. Total average full-
time equivalents were 296 in 2008 compared to 298 in
2007.
Romania. EBITDA in 2008 was a loss of €0.1 million, a
decrease of €0.6 million compared to €0.5 million in 2007.
The decrease in net operating revenues amounting to
€1.5 million was partially compensated by lower other
operating expenses. Average full-time equivalents in
2008 were 328, a decrease of 6 compared to the 334 in
2007.
Portugal. EBITDA in 2008 was €9.1 million, a decrease of
€2.2 million compared to €11.3 million in 2007. This
decrease in EBITDA relates to the shortfall in net
operating revenues in 2008, which were €4.0 million less
compared to 2007, partly compensated through savings
in personnel costs. Total average full time equivalents
were higher than in 2007: 484 in 2008 versus 472 in
2007.
Summary of financial results by geographic region and other
Year ended December 31,
in € millions
Belgium
Net operating revenues
E BITDA (1)
Ireland
Net operating revenues
(1)
E BITDA
Other and corporate
Net operating revenues
(1)
E BITDA
Romania
Net operati ng revenues
(1)
EBITDA
Portuga l
Net operati ng revenues
(1)
EBITDA
Headquarters
Net operati ng revenues
(1)
EBITDA
Technology (IT service provider)
Net operati ng revenues
(1)
EBIT DA
Group total
Net operating revenues
Other income
Revenues
E BITDA (1)
P ortugal (Páginas Amarelas)
Net operating revenues
Other income and elimination of group revenues
(1)
E BITDA
Total
Net operating revenues
Other income
Revenues
(1)
E BITDA
2008
2007
2006
220.5
235.7
223.8
116.0
122.0
111.9
72.2
75.8
74.0
28.2
33.8
31.6
9.4
10.9
10.4
15.7
12.7
11.7
9.4
10.9
10.4
(0.1)
0.5
0.8
-
-
-
2.9
3.3
3.5
-
-
-
8.3
8.8
12.6
-
-
0.3
0.6
302.1
16.4
318.5
159.9
322.4
23.1
345.5
168.5
(1. 4)
308.2
25. 2
333.4
155.2
63.0
(7.0)
67.0
(7.9)
68.1
(8.1)
9.1
11.3
11.7
365.1
9.4
374.5
169.0
389.4
15.2
404.6
179.8
376.3
17.1
393.4
166.9
(1) See definition page 27.
35
Summary of the reconciliation from operating profit to EBITDA
Year ended December 31,
2008
2007
2006
Belgium
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
(72.7)
186.3
2.4
72.8
46.9
2.3
63.4
46. 7
1.8
E BITDA (1)
116.0
122.0
111.9
Ireland
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
10.9
16.1
1.2
16.2
16.8
0.8
15.4
14.3
1.9
E BITDA (1)
28.2
33.8
31.6
(521.1)
531.5
5.3
(15.2)
20.5
7.4
1.6
6.0
4.1
15.7
12.7
11.7
(582.9)
733.9
8.9
73.8
84.2
10.5
80.4
67.0
7.8
159.9
168.5
155.2
in € millions
Other and corporate
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
E BITDA
(1)
Total consolidated financial statem ents
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
E BITDA (1)
P ortugal (Páginas Amarelas 100% )
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
E BITDA (1)
Total
Operating profit
Depreci ation, amortisation and impairment
Pe rsonnel costs - restructuring and other non-operating costs (income)
E BITDA (1)
(166.8)
179.7
(3.8)
(9.1)
21.3
(0.9)
(4.6)
15.6
0.7
11.3
11.7
(749.7)
913.6
5.1
64.7
105.5
9.6
75.8
82.6
8.5
169.0
179.8
166.9
9.1
(1) See definition page 27.
Results from financial income and expense
Total results from financial income and expense in 2008
were a net expense of €161.8 million, a €25.1 million
reduction compared to 2007. Financial income in 2008
amounting to €54.4 million was €0.2 million higher than
the amount recognised in 2007 (€54.2 million). This
increase is the net of lower financial income received
from our financial derivative instruments (€13.3 million),
more than offset by the financial income received from
the sale of our operations in The Netherlands
(discontinued operations) and higher financial income on
short-term deposits (€13.5 million).
Financial expense decreased from €241.1 million in 2007
to €216.2 million in 2008. This difference of €24.9 million
is mainly caused by the impairment of capitalised
transaction costs in 2007 amounting to €16.4 million,
lower financial expenses paid pursuant to our financial
derivative instruments (€9.8 million), lower interest
expense on the senior bank facilities, senior notes and
PIK facilities (€2.3 million), partially offset by higher
interest expense on the shareholders’ loan (€5.6 million).
Income tax gain/(expense)
The tax charge in the year 2008 was a credit of €77.7
million or €39.8 million higher than the credit of €37.9
million in 2007, mainly due to a higher tax gain in the
United States.
Share of result after tax of associates and joint
ventures
Our share of result after tax of associates in 2008 was a
loss of €27.6 million, but excluding the impairment
charges on our associates Axesa (€26.0 million) and
Trudon (€17.4 million), our share of result after tax of
associates in 2008 was €15.8 million: €12.0 million from
Trudon and €3.8 million from Axesa. In 2007, our share of
result after tax of associates was €14.2 million: €10.3
million from Trudon and €3.9 million from Axesa.
Profit/(loss) for the year from continuing operations
As a result of the foregoing, profit/(loss) for the year from
continuing operations in 2008 amounted to a loss of
€847.1 million, compared to a loss of €70.2 million in
2007.
36
Profit/(loss) for the year from discontinued operations
The loss for the year from discontinued operations is
related to the Dutch activities. See for a detailed
discussion note 13 to the financial statements included
elsewhere in this annual report.
Summary of financial results as percentage of revenues
The following table sets out our results of operations as a percentage of revenues for the periods under review:
Year ended December 31,
Equity accounting
Segment reporting
in € millions
2008
2007
2006
2008
2007
2006
Net operating revenues
Other income
94.9%
5.1%
93.3%
6.7%
92.4%
7.6%
97.5%
2.5%
96.2%
3.8%
95.7%
4.3%
100.0%
28.3%
8.9%
-0.9%
100.0%
28.0%
9.2%
-1.2%
100.0%
27.6%
9.8%
-1.1%
100.0%
30.2%
9.6%
-0.6%
100.0%
29.6%
10.0%
-0.8%
100.0%
29.3%
10.9%
-1.4%
0.8%
13.5%
0.5%
15.2%
0.7%
17.0%
0.9%
15.6%
0.6%
16.6%
0.8%
18.7%
Total operating costs and expenses
50.6%
51.7%
54.1%
55.7%
56.1%
58.3%
Operating profit before amortisation and
impairment of intangible assets,
personnel costs - restructuring and
other non-operating costs
Personnel costs - restructuring
8% clause Páginas Amarelas (2)
Other non-operating costs
49.4%
2.3%
0.3%
0.2%
48.3%
1.8%
1.2%
0.0%
45.9%
1.8%
0.3%
0.2%
44.3%
2.0%
-0.9%
0.3%
43.9%
3.6%
-1.2%
0.0%
41.7%
2.4%
-0.4%
0.2%
46.6%
229.6%
45.3%
23.9%
43.6%
19.4%
42.9%
243.1%
41.5%
25.5%
39.5%
20.3%
-183.0%
21.4%
24.1%
-200.2%
16.0%
19.3%
50.2%
48.8%
46.6%
45.1%
44.4%
42.4%
Revenues
Personnel costs - ordinary
Raw materials and purchased services
Directories in progress and Internet expense deferrals
Depreciation and impairment of property,
plant and equipment
Other operating expenses
Operating profit before amortisation and
impairment of intangible assets
Amortisation and impairment of intangible assets
Operating profit
EBITDA
(1)
(*) See definitions page 27.
Note: Please take into account that our net operating
revenues and profits do not arise evenly through the year.
Furthermore, due to the transition of our reporting from
Dutch GAAP to IFRS (in 2008 we continued to use Dutch
GAAP for internal reporting purposes) the quarterly
phasing of our costs during the year 2008 had to be
adjusted. As a result, the quarterly reports did not show
the correct costs and results. The following table shows
net operating revenues and (attributable) EBITDA
(including Portugal – Páginas Amarelas) of the four
financial quarters in 2008, adjusted for the phasing
differences.
37
Net operating revenues and (attributable) EBITDA – four quarters of 2008
2008
in € millions
1st quarter
2nd quarter
3rd quarter
4th quarter
(0.1)
0.9
65.9
2.1
21.3
53.2
4.0
68.5
11.8
2.2
Group
0.8
68.0
78.5
82.5
Portugal (Páginas A marelas)
7.2
7.3
14.4
10.9
Group (including Páginas Amarelas)
8.0
75.3
92.9
93.4
Belgium
Ireland
Romania
16.4
1.7
-
16.1
1.7
0.1
16.8
1.9
-
15.6
1.9
0.1
Group
18.1
17.9
18.7
17.6
5.1
5.6
6.1
6.4
23.2
23.5
24.8
24.0
Belgium
Ireland
Romania
16.3
1.7
0.9
82.0
1.7
2.2
38.1
55.1
4.0
84.1
13.7
2.3
Print revenues
Belgium
Ireland
Romania
Online revenues
Portugal (Páginas A marelas)
Group (including Páginas Amarelas)
Net operating revenues
Group
18.9
85.9
97.2
100.1
Portugal (Páginas A marelas)
12.3
12.9
20.5
17.3
Group (including Páginas Amarelas)
31.2
98.8
117.7
117.4
1st quarter
2nd quarter
3rd quarter
4th quarter
Belgium
Ireland
Romania
Other and corporate
3.6
(3.9)
(0.9)
(4.1)
41.8
(3.4)
0.2
2.3
17.6
30.8
0.4
6.8
53. 0
4.7
0.2
10.8
Group
(5.3)
40.9
55.6
68.7
1.9
0.9
2.1
4.2
Gr oup (including Páginas Amarelas)
(3.4)
41.8
57.7
72.9
South Africa
Puerto Rico
Portugal (25%)
1.5
1.0
(0.5)
2.8
1.0
(0.2)
6.0
1.0
(0.5)
4.7
1.3
(1.1)
(1.4)
45.4
64.2
77.8
2008
in € millions
EBITDA
(1)
Portugal (Páginas A marelas)
Attributable EBITDA Group
(1)
(1) See definition page 27.
Year ended December 31, 2007 compared to the year
ended December 31, 2006
Note: The following discussion is including Páginas
Amarelas.
Revenues
Revenues increased by 2.8% to €404.6 million in 2007,
compared with €393.4 million in 2006.
Revenues increased in Belgium, Ireland and Portugal but
were partly offset by a decrease in other and corporate.
As in the previous years, the revenue mix shows a
growing online component. Online revenues increased
from 17.6% to 21.7% of net operating revenues between
2006 and 2007.
Geographical breakdown of revenues
Belgium. Net operating revenues in Belgium increased by
5.3% from €223.8 million in 2006 to €235.7 million in
2007. Online revenues increased by 22.9% to €63.3
million in 2007, and represented 26.9% of net operating
revenues in 2007. Customer retention in Belgium was up
from 84.4% in 2006 to 89.0% in 2007. The customer base
38
decreased from 127,300 in 2006 to 121,600 in 2007.
ARPA increased from €1,792 in 2006 to €1,918 in 2007.
Ireland. Net operating revenues in Ireland were €75.8
million in 2007, an increase of 2.4% compared to €74.0
million in 2006. Online revenues were showing an
increase of 75% from €2.4 million in 2006 to €4.2 million
in 2007. The customer base went from 32,000 in 2006 to
31,400 in 2007, and the customer retention rate
decreased from 84.9% in 2006 to 81.9% in 2007. ARPA
increased from €2,359 in 2006 to €2,456 in 2007.
Romania. Net operating revenues in Romania increased
by 4.8% from €10.4 million in 2006 to €10.9 million in
2007. The customer base decreased by 2.3% from
34,900 in 2006 to 34,100 in 2007. The customer retention
rate went down slightly from 66.1% in 2006 to 65.5% in
2007. The ARPA increased from €295 in 2006 to €323 in
2007.
Other and corporate. Revenues of other and corporate
(excluding Romania) mainly include contract service
charges and royalties.
Portugal. Net operating revenues in Portugal decreased
slightly by 1.6% from €68.1 million in 2006 to €67.0
million in 2007. Sales performance was still adversely
influenced by a weak economic environment. However,
online revenues increased by 38.3% from €12.0 million in
2006 to €16.6 million in 2007. The customer base
decreased from 87,900 in 2006 to 81,500 in 2007, and
the customer retention rate increased from 80.4% in 2006
to 82.1% in 2007. ARPA increased from €1,208 in 2006
to €1,256 in 2007.
Total operating costs and expenses
Total operating costs and expenses, including
restructuring costs and other non-operating costs and
income, in 2007 were €236.7 million, a decrease of €1.3
million or 0.5% compared to 2006 (€238.0 million). Higher
personnel costs (including restructuring) of €9.7 million
were compensated by lower raw materials and purchased
services and other operating expenses.
Personnel costs-ordinary. Personnel costs increased from
€115.2 million in 2006 to €119.9 million in 2007, an
increase of €4.7 million or 4.1%. The average number of
effective full time employees (sales and non-sales
combined) increased from 1,871 in 2006 to 1,946 in 2007,
there being 75 more full time employees or a 4.0%
increase in the workforce.
Personnel costs-restructuring. The personnel
restructuring costs of €14.4 million in 2007 related mainly
to the continuing work force reduction programs in our
back office functions in line with our best practices
implementation and cost reduction initiatives. Total
restructuring costs incurred in 2007 increased by €5.0
million compared to 2006 where restructuring costs were
€9.4 million.
Raw materials and purchased services. The costs of raw
materials and purchased services in 2007 were €40.4
million, which is €2.3 million or 5.4% lower than in 2006,
where the costs of raw materials and purchased services
were €42.7 million.
Other operating expenses. Other operating expenses
were €67.7 million in 2007, which is €6.3 million or 8.5%
lower than in 2006 due to lower sales and marketing
costs and information and technology costs.
Depreciation of property and equipment. Depreciation of
property and equipment amounted to €2.3 million in 2007,
which is a decrease of €0.7 million compared to €3.0
million in 2006.
Amortisation of other intangible assets. Total amortisation
of other intangible assets in 2007 was €84.3 million,
compared to €79.6 million in 2006. The increase is mainly
caused by the amortisation of the publishing rights in
Ireland. Furthermore the amortisation on ICT (Information
Communication Technology) related assets is included.
Impairment (and amortisation) of intangible assets. In
2007 we recognised a goodwill impairment amounting to
€18.9 million related to our operations in The Netherlands
(discontinued operations), Romania and Portugal.
Operating profit
As a result of the foregoing, our results after amortisation
and impairment of intangible assets decreased by €11.1
million, and excluding the goodwill impairment increased
with €7.8 million.
EBITDA
EBITDA increased by 7.7% to €179.8 million in 2007,
compared to €166.9 million in 2006. EBITDA increased in
Belgium, Ireland and other and corporate but was offset
by a decrease in Portugal and Romania.
Geographical breakdown of EBITDA
Belgium. EBITDA in 2007 was €122.0 million, an increase
of €10.1 million (9.0%) compared to €111.9 million in
2006. Revenues in 2007 were €235.7 million, an increase
of €11.2 million compared to €224.5 million in 2006. The
higher revenues in 2007 were partly offset by a slight
increase in total personnel costs. Total average full-time
equivalents increased to 749 in 2007 while the average
full time equivalents in 2006 was 705.
Ireland. EBITDA in 2007 was €33.8 million, an increase of
€2.2 million compared to €31.6 million in 2006. The main
reason for the €2.2 million increase in EBITDA is the
increase in revenues in 2007 of €1.8 million compared to
2006. Total average full-time equivalents were 298 in
2007 compared to 278 in 2006.
Romania. EBITDA in 2007 was €0.5 million, a decrease
of €0.3 million compared to €0.8 million in 2006. The
increase in revenues amounting to €0.5 million is more
than compensated by higher other operating expenses.
Average full-time equivalents in 2007 were 334, an
increase of 3 compared to the 331 in 2006.
Portugal. EBITDA in 2007 was €11.3 million, a decrease
of €0.4 million compared to €11.7 million in 2006. This
decrease in EBITDA relates to the shortfall in revenues in
2007, which was €1.1 million less compared to 2006 and
an increase in personnel costs (restructuring), partly
compensated through cost savings in raw materials and
purchased services and other operating expenses. Total
average full time equivalents were slightly higher than in
2006: 472 in 2007 versus 470 in 2006.
Results from financial income and expense
Total results from financial income and expense in 2007
were a net expense of €186.9 million, a €15.3 million
increase compared to 2006. Financial income in 2007
amounting to €54.2 million was €5.9 million higher than
the amount recognised in 2006 (€48.3 million). €3.2
million of this increase is related to interest rate swaps
39
and €3.7 million to the receivable as a result of the sale of
our operations in The Netherlands.
Financial expense increased from €219.9 million in 2006
to €241.1 million in 2007. This was mainly caused by the
impairment of capitalised transaction costs at acquisition
amounting to €16.4 million, following the refinancing in
May 2007.
Income tax gain/(expense)
The tax charge in the year 2007 was a credit of €37.9
million mainly due to the deferred tax impact (credit) on
the amortisation of trademarks and customer
relationships compared with a credit of €13.5 million in
2006.
income of €14.2 million: €10.3 million from Trudon and
€3.9 million from Axesa. In 2006, our share of result after
tax of associates was €14.0 million: €10.4 million from
Trudon and €3.6 million from Axesa.
Profit/(loss) for the year from continuing operations
As a result of the foregoing, profit/(loss) for the year from
continuing operations in 2007 amounted to a loss of
€70.2 million.
Profit/(loss) for the year from discontinued operations
The loss for the year from discontinued operations was
related to the Dutch activities. See for a detailed
discussion note 13 to the financial statements included
elsewhere in this annual report.
Share of result after tax of associates and joint
ventures
Our share of result after tax of associates in 2007 was an
Liquidity and capital resources
Historical cash flows
Consolidated statement of cash flows for the years ended December 31, 2008, 2007 and 2006
The table below sets forth our cash flows for the three years ended December 31, 2008, 2007 and 2006.
Year ended December 31,
in € millions
Operating activities
Profit/(loss) from continuing operations
Adjustments to reconcile profit/(loss) for the year
to net cash flows from operating activities
Share of result after tax of associates / joint ventures
Depreciation and impairment of property, plant and
equipment
Amortisation of other intangible assets
Impairment of intangible assets
Gains/(losses) on disposal of property, plant
and equipment
Results from financial income and expense
Movements in provisions (non-current)
Deferred tax assets and liabilities
Working capital adjustments
Increase/decrease in inventories and directories in
progress
Increase/decrease in trade and other receivables
Increase/decrease in other current assets
Income tax paid
Other variations in income tax receivable/payable
Increase/decrease in trade and other payables
Increase/decrease in other current liabilities
Increase/decrease in related party positions - net :
Income tax paid
Other activities
Equity accounting
2007
2008
Segment reporting
2008
2007
2006
(847.1)
(69.9)
(67.8)
(861.4)
(70.1)
(68.3)
159.3
(7.8)
(12.5)
27.6
(14.2)
(14.0)
2.6
70.5
660.8
1.6
69.4
13.2
2.2
64.9
-
2.3
90.1
13.1
3.0
79.6
-
0.4
161.8
(2.2)
(56.9)
0.1
187.8
(0.5)
(36.3)
0.1
173.3
0.9
(12.6)
3.2
85.5
824.9
0.4
161.8
(2.2)
(77.7)
0.2
186.9
(0.5)
(37.9)
0.2
171.6
0.9
(13.5)
(3.0)
20.5
(1.9)
(7.8)
(1.7)
(5.1)
(15.1)
(4.4)
(14.2)
(0.7)
(6.2)
2.9
(1.4)
1.4
(3.8)
3.7
(0.8)
(2.1)
9.3
(1.9)
(4.0)
(2.0)
25.8
(1.5)
(11.4)
(1.7)
(12.3)
(15.8)
(3.4)
(18.8)
(0.4)
(8.2)
2.9
0.4
2.3
(6.5)
8.0
(0.7)
(6.7)
9.9
(3.3)
(4.8)
(13.5)
(4.0)
(2.2)
(1.8)
(6.9)
(13.5)
(0.5)
(2.2)
(4.8)
(7.5)
Net cash flows from operating activities
117.6
131.0
Investing activities
Proceeds from the sale of property, plant and
equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of interests in associates and joint ventures
(0.3)
(3.4)
(14.0)
(10.6)
(1.5)
(15.8)
(10.8)
Net cash flows used in investing activities
(28.3)
89.3
Net cash flows from operating activities
less net cash flows used in investing activities
2006
142.0
129.2
137.7
147.9
(0.1)
(2.3)
(5.5)
(3.2)
(0.2)
(4.0)
(14.6)
(10.6)
(1.9)
(16.5)
(10.8)
(0.1)
(3.2)
(6.2)
(3.2)
(28.1)
(11.1)
(29.4)
(29.2)
(12.7)
102.9
130.9
99.8
108.5
135.2
40
Year ended December 31,
in € millions
Equity accounting
2008
2007
2006
Segment reporting
2008
2007
2006
Net cash flows from operating activities
less net cash flows used in investing activities
89.3
102.9
130.9
99.8
108.5
135.2
11.4
22.7
5.4
15.4
6.2
(109.6)
(0.2)
2.9
(119.5)
24.1
18.0
(0.5)
2.9
(105.4)
(2.0)
9.0
(113.5)
(2.7)
5.9
(121.3)
17.2
18.0
(2.7)
6.3
(106.7)
6.6
(2.6)
8.5
1,090.5
(1,145.6)
26.0
0.9
(77.7)
2.8
6.6
(4.2)
(2.5)
8.5
1,090.5
(1,145.6)
25.8
0.9
(77.7)
2.7
(88.0)
(114.7)
(134.9)
(101.2)
(123.5)
(142.0)
1.3
(11.8)
(4.0)
(1.4)
(15.0)
(6.8)
191.4
(3.8)
0.7
191.4
(3.8)
0.7
192.7
1.4
36.0
(15.6)
0.2
51.4
(3.3)
(1.5)
56.2
190.0
1.4
41.4
(18.8)
0.3
59.9
(6.1)
(1.6)
67.6
230.1
36.0
51.4
232.8
41.4
59.9
Financing activities
Dividends received from associates and joint ventures
Dividends received from discontinued operations
Dividends paid to minority interests
Interest income received
Interest expense paid
Interest rate swaps and interest rate currency swaps
net
Net proceeds from borrowings
Repayment of borrowings
Loans with related parties and other financing
Net cash flows used in financing activities
Net increase/(decrease) in cash and cash
equivalents from continuing operations
Net increase/(decrease) in cash and cash
equivalents from discontinued operations
Net increase/(decrease) in cash and cash
equivalents
Net foreign exchange differences
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Net increase/(decrease) in cash and cash equivalents from discontinued operations can be summarised as follows:
Year ended December 31,
in € millions
Equity accounting
2008
2007
2006
Segment reporting
2008
2007
2006
Discontinued operations
Profit/(loss) for the period from discontinued operations
Amortisation of other intangible assets
Increase/decrease related party positions - net
Costs related to discontinued operations
(145.2)
(8.0)
9.9
(145.2)
(8.0)
9.9
144.4
17.1
0.8
41.1
-
12.9
-
144.4
17.1
0.8
41.1
-
12.9
-
17.1
33.1
22.8
17.1
33.1
22.8
Purchase of property, plant and equipment and
purchase of intangible assets
Proceeds from the sale of subsidiaries
Costs related to the sale of subsidiaries
282.9
(90.2)
(5.5)
(16.5)
-
(1.7)
-
282.9
(90.2)
(5.5)
(16.5)
-
(1.7)
-
Net cash flows provided for (used in) investing
activities
192.7
(22.0)
(1.7)
192.7
(22.0)
(1.7)
Interest income related to the sale of subsidiaries
Loans discontinued operations
Results from financial income and expense
18.1
(35.6)
(0.9)
(17.1)
2.2
(3.8)
(16.6)
18.1
(35.6)
(0.9)
(17.1)
2.2
(3.8)
(16.6)
Net cash flows used in financing activities
(18.4)
(14.9)
(20.4)
(18.4)
(14.9)
(20.4)
Net increase/(decrease) in cash and cash
equivalents from discontinued operations
191.4
(3.8)
0.7
191.4
(3.8)
0.7
Net cash flows from operating activities
Discussion comparison statement of cash flows 2008
and 2007
Net cash flows from operating activities
In 2008, net cash flows from operating activities
amounted to €129.2 million, a decrease of 6.2% or €8.5
million compared to 2007 (€137.7 million). Excluding the
working capital adjustments, net cash flows from
operating activities were €162.1 million in 2008,
compared to €169.9 million in 2007, a decrease of €7.8
million.
In 2008, the working capital generated a cash outflow of
€32.9 million, representing an outflow increase of €0.7
million compared to the cash outflow of €32.2 million in
2007. This outflow of €32.9 million was mainly due to
income tax paid (€13.1 million), a decrease in trade and
other payables (€12.3 million) and other current liabilities
(€15.8 million) and related party positions (€14.0 million),
partly compensated by a decrease in trade and other
receivables of €25.8 million. The inflow from current
assets (the first three lines) of €22.3 million in 2008 was
mainly attributable to a decrease of €25.8 million in trade
41
and other receivables, offset by an increase of €2.0
million in deferred costs for not-yet published directories
and other current assets of €1.5 million. The outflow from
current liabilities (the other six lines) of €55.2 million in
2008 was mainly driven by a decrease in other current
liabilities of €15.8 million (including deferred income) and
trade and other payables of €12.3 million, tax payments
and variations in income tax receivable/payable (€13.1
million) and related party positions (€14.0 million). The
main part of the net related party positions (€13.5 million)
were corporate income tax payments by Truvo Parent
Corp., not included in this consolidation. The most
material differences between the working capital
movements in 2008 compared to 2007 were: lower trade
and other receivables (€44.6 million – as a result of
higher collections and timing of VAT payments), and on
the other side, lower trade and other payables (€12.7
million), lower other current liabilities (€18.1 million) and
higher tax payments related parties (€11.3 million).
Net cash flows used in investing activities
Our net cash flows used in investing activities amounted
to €29.4 million during 2008. This represents an increase
of €0.2 million compared to 2007. In 2008, we invested
€4.0 million for property, plant and equipment, an
increase of €2.1 million compared to 2007. We also
invested €14.6 million for intangible assets in 2008 (Irish
publishing rights and software), a decrease of €1.9 million
compared to 2007. In 2008, we paid €10.6 million for
acquisitions: €1.2 million for the final settlement of the
acquisition of ClearSense B.V., €5.9 million related to the
final settlement of the discussion regarding the
statements of working capital and net indebtedness to
The Nielsen Company B.V., €1.5 million for the
acquisition of YelloYello B.V. and €2.0 million for a
settlement with a former managing director, to receive
back from The Nielsen Company B.V. in 2009. In 2007,
we invested €1.3 million for the acquisition of ClearSense
B.V. and €9.5 million for the acquisition of the remaining
5% share in Truvo Services South Africa (Pty) Ltd.
(formerly Maister Directories (1981) (Pty) Ltd.).
Net cash flows used in financing activities
Our net cash flows used in financing activities amounted
to €101.2 million during 2008 compared to €123.5 million
in 2007. In 2008 we received €5.4 million in dividends
from our associates: €3.0 million from Axesa and €2.4
million from Trudon. In 2007 we received €15.4 million in
dividends: €4.1 million from Axesa and €11.3 million from
Trudon. The dividend amount of €2.0 million in 2008 was
paid to Portugal Telecom (€2.7 million in 2007). The
interest income received in 2008 amounted to €9.0 million
(€5.9 million for the same period in 2007). This also
included interest charged to clients for late payments in
Belgium and interest in relation to extended payment
terms of Portugal Telecom. In 2008 and 2007, we paid
€113.5 million and €121.3 million, respectively for interest
expense. This was essentially related to the interest
expense associated with the Senior Facilities for €63.3
million in 2008 (2007: €63.3 million), the Senior Notes for
€45.4 million in 2008 (2007: €45.4 million), and the PIK
Notes/Facility for €9.4 million in 2007 (2008: €nil).
Furthermore, the financing activities included in 2008 an
amount of €6.6 million related to interest rate swaps and
interest rate currency swaps (€8.5 million in 2007). The
repayment of borrowings in 2008 was related to the
Portuguese credit facility. The proceeds from and the
repayment of borrowings of 2007 were related to the
refinancing of the Senior Facilities and the PIK
Notes/Facility. In 2007 we lent €25.8 million from related
parties.
Discontinued operations
The net increase/decrease related party positions (in
2008, €17.1 million and in 2007, €41.1 million) is
reflecting the settlement of intercompany positions of the
discontinued operations: Gouden Gids B.V. and
ClearSense B.V. In 2008, we received €192.7 million from
the sale of the Dutch operations, net of costs directly
attributable to the sale. The €16.5 million in 2007 under
proceeds regards the cash position of the divested
operations.
In 2008 we also received €18.1 million interest related to
the sale of the Dutch operations. In 2008 we repaid €36.5
million (including interest) to related parties (in connection
with the discontinued operations in The Netherlands); in
2007 this was €14.9 million.
Discussion comparison statement of cash flows 2007
and 2006
Net cash flows from operating activities
In 2007, net cash flows from operating activities
amounted to €137.7 million, a decrease of 6.9% or €10.2
million compared to 2006 (€147.9 million). Excluding the
working capital adjustments, net cash flows from
operating activities were €169.9 million in 2007,
compared to €159.5 million in 2006, an increase of €10.4
million.
In 2007, the working capital generated a cash outflow of
€32.2 million, representing an outflow increase of €20.6
million compared to the cash outflow of €11.6 million in
2006. This outflow of €32.2 million was mainly due to
higher trade and other receivables €18.8 million, income
tax paid (€5.3 million), and related party positions (€7.0
million). The outflow from current assets (the first three
lines) of €22.6 million in 2007 was mainly attributable to
an increase of €18.8 million in trade and other receivables
and an increase of €3.4 million in deferred costs for notyet published directories. The outflow from current
liabilities (the other six lines) of €9.6 million in 2007 was
mainly driven by tax payments and variations in income
tax receivable/payable (€5.3 million) and related party
positions (€7.0 million). The most material differences
between the working capital movements in 2007
compared to 2006 were: higher trade and other
receivables (€26.8 million) and higher income tax paid
(€8.5 million), partly compensated by higher other current
liabilities (€7.1 million).
Net cash flows used in investment activities
Cash flows used in investing activities amounted to €29.2
million during the year ended December 31, 2007
compared to €12.7 million in 2006. We invested €1.3
million for the acquisition of ClearSense B.V. (the third
instalment of a net total price to-be-paid of €5.4 million)
and also spent €9.5 million for the acquisition of the
remaining 5% share of Truvo Services South Africa (Pty)
Ltd. Furthermore we invested €1.9 million in property,
plant and equipment, compared to €3.2 million in 2006.
We also invested €16.5 million in intangible assets or
€5.7 million in software and €10.8 million related to
publishing rights.
42
Net cash flows used in financing activities
For the year ended December 31, 2007, our cash flows
used in financing activities were an outflow of €123.5
million, against €142.0 million in 2006.
We received dividend income from our associates in
Puerto Rico and South Africa of €4.1 million and €11.3
million, respectively. We paid a dividend to our former
minority partner in South Africa of €0.2 million; the
remaining dividend was paid to Portugal Telecom.
We paid €115.4 in interest expense net of the €5.9 million
in interest received. In addition to our repayment of €40.0
million for our senior facility, we also paid €15.1 million in
transaction costs as a consequence of the refinancing in
2007.
Discontinued operations
In the proceeds from the sale of subsidiaries, amounting
to €16.5 million in 2007, is the cash and cash equivalents
position included of our discontinued operations in The
Netherlands.
Future liquidity
Capital resources
Our principal sources of liquidity are our net cash flows
from operating activities, which are analysed above. Our
ability to generate cash from our operations depends on
future operating performance which is in turn dependent
on general economic, financial, competitive market,
legislative, regulatory and other factors, many of which
are beyond our control, as well as the other factors
discussed in the section of our annual report entitled
“Risk factors”.
In addition, under our Senior Facilities, we have a
committed Revolving Credit Facility of €50.0 million to
service our working capital needs, which we have fully
available. The availability of this facility is dependent upon
certain conditions. See “Description of indebtedness –
Senior Facilities”.
Truvo Acquisition Corp., Truvo Subsidiary Corp. and the
Company are holding companies with no source of
operating profit. They are therefore dependent on capital
raising abilities, dividend payments from subsidiaries and
payment on intercompany loans to generate funds. The
terms of the Senior Facilities, our other outstanding debt
and the indenture governing the Senior Notes contain a
number of significant covenants that restrict our ability,
and the ability of our subsidiaries to, among other things,
pay dividends or make other distributions and incur
additional debt and grant guarantees. Furthermore, the
ability of the Company’s subsidiaries to pay dividends and
make other payments to Truvo Acquisition Corp., Truvo
Subsidiary Corp. and the Company may be restricted by,
among other things, other agreements and legal
prohibitions on such payments.
We believe that our net cash flows from operating
activities, together with the possible borrowings under the
Revolving Credit Facility, will be sufficient to fund our
working capital requirements, anticipated capital
expenditure and debt service requirements as they
become due for the foreseeable future, although we
cannot assure you that this will be the case.
If our future cash flows from operational activities and
other capital resources (including borrowings under the
Revolving Credit Facility under the Senior Facilities) are
insufficient to pay our obligations as they mature or to
fund our liquidity needs, we may be forced to:
•
reduce or delay our business activities, capital
expenditure and research and development;
•
sell assets;
•
obtain additional debt or equity capital; or
•
refinance all or a portion of our debt, including the
Senior Notes, on or before maturity.
We cannot assure you that we would be able to
accomplish any of these alternatives on a timely basis or
on satisfactory terms, if at all. In addition, the terms of our
existing debt, including the Notes, the PIK Facility and the
Senior Facilities, limit, and any future debt may limit, our
ability to pursue any of these alternatives. As market
conditions warrant, we and our Sponsors, including our
and our Sponsors’ affiliates, may from time to time
purchase, repurchase, redeem, prepay or otherwise
cancel our indebtedness, including debt under the Senior
Facilities, the PIK Facility, and the Senior Notes, in
privately negotiated or open market transactions, by
tender offer or otherwise. No assurance can be given as
to whether or when such purchases, repurchases,
redemptions or prepayments will occur and at what price.
Financing arrangements
As of December 31, 2008 the Senior Facilities consist of
€935 million of senior term loans and a Revolving Credit
Facility of €50 million. The term loan facilities comprise a
senior term loan 1 in the principal amount of €648 million
and a senior term loan 2 in the principal amount of €287
million.
The calculation of EBITDA under the Senior Facilities
varies from the calculation of EBITDA presented in this
annual report. For more information, please see
“Description of indebtedness - Senior Facilities”.
The Senior Facilities also contain customary affirmative
and negative covenants, including restrictions on
additional indebtedness, dividend payments,
intercompany and other loans and investments, asset
sales, liens and pledges, transactions with affiliates and
amendments to charter documents and material
agreements. The Senior Facilities also contain certain
customary events of default, and defaults resulting from
certain events affecting the business and assets of the
group, that may result in the acceleration of the debt
under the Senior Facilities. In addition, the margin
payable on the Senior Facilities is dependent upon our
leverage, meaning that we could have increased cash
flow requirements at any time in the event that our
leverage rises. Please see the section entitled
“Description of indebtedness - Senior Facilities”.
Truvo Subsidiary Corp., our direct subsidiary, issued
1
€395 million principal amount of 8 /2% Senior Notes due
3
2014 and $200 million principal amount of 8 /8% Senior
Notes due 2014. The Senior Notes accrue cash interest
which is payable semi-annually. The Senior Notes mature
on December 1, 2014. Please see “Description of
indebtedness - Senior Notes due 2014” for a description
of the terms and conditions of the Senior Notes.
A €130.2 million PIK Facility was made available to Truvo
Intermediate LLC pursuant to the PIK Facility Agreement.
The PIK Facility is due for repayment on November 29,
2015. The total proceeds from the PIK Facility have been
43
used to prepay all outstanding principal of the PIK Notes
as of May 29, 2007.
more information on this loan facility, please see the
section entitled “Description of indebtedness - Portuguese
credit facility”.
Caixa Geral de Depósitos S.A. has extended a loan
facility in the amount of €42.4 million to our joint venture
Páginas Amarelas under a five year amended loan
agreement, which loan is not consolidated in our IFRS
balance sheet anymore. The loan agreement terminates
on April 30, 2013. As from May 2, 2008 Páginas
Amarelas pays interest on the loan in the amount of the
three months EURIBOR plus a margin of 1.375%. For
Summary of commitments
The following table summarises our contractual
obligations and the principal payments we and our
subsidiaries were obliged to make as of December 31,
2008 under our debt instruments as well as other
agreements including the Senior Notes.
Exceeding
Total
W ithin a year
1-5 years
5 years
2008
S enior bank facilities
Term B facilities 1 and 2
(1)
Revolving credit facility
-
-
935.0
-
935.0
-
Total senior bank facilities
-
-
935.0
935.0
S enior euro notes
S enior dollar notes
C urrency-swap - senior dol lar notes
-
-
395.0
143.2
6.8
395.0
143.2
6.8
Total senior notes
-
-
545.0
545.0
P IK facility
-
-
152.7
152.7
Total external loans
-
-
1,632.7
1,632.7
S hareholders' loan
-
-
681.9
681.9
Total liabilities
-
-
2,314.6
2,314.6
P ortuguese credit facility
8.5
29.7
-
38.2
Total liabilities including Portugal
8.5
29.7
2,314.6
2,352.8
in € millions
.
(1) At December 31, 2008, no amounts were drawn under the Revolving Credit Facility of €50.0 million.
Capital expenditure
Our operations are being more capital intensive and
relate primarily to investments in software development,
information technology, sales systems, computer
hardware and leasehold improvements. In the last two
years, we spent an average (including Páginas Amarelas)
of 2.8% of net operating revenues per year on capital
expenditure (including software); for example, in 2008 our
capital expenditure (including software) was 3.7% of net
operating revenues.
Off-balance sheet arrangements
Pursuant to the joint venture agreement between Truvo
USA, Inc. and Portugal Telecom establishing Páginas
Amarelas, if the profit for the year of Páginas Amarelas
falls below 8% of its net sales attributable to insertions
and advertising, as it did in the years 2006, 2007 and
2008, Truvo USA, Inc. will contribute an amount equal to
approximately 22% of the shortfall up to a maximum of
5% of annual net sales attributable to insertions and
advertising in that year and Portugal Telecom will
contribute an amount equal to approximately 78% of the
shortfall up to a maximum of 18% of the annual net sales
attributable to insertions and advertising. If these
contributions are not sufficient, both parties will be
required to make additional contributions to support
Páginas Amarelas’ profit, such additional support being
an amount of not more than 5% and 18%, respectively of
Páginas Amarelas’ net sales insertions and advertising. In
the year 2008 and 2007, the profit for the year did drop
under the threshold and Truvo invested €0.9 million
(2007, €4.3 million) under its shareholder’s obligations to
pay for the shortfall in 2008 and 2007, respectively.
As of December 31, 2008, we were not party to any other
off-balance sheet transactions.
Quantitative and qualitative disclosure about market
risk
In the normal course of business, our financial position is
routinely subjected to interest rate and foreign exchange
rate risks as well as other market risks. These market
risks principally relate to our outstanding debt and assets
and liabilities denominated in a currency other than the
Euro.
Market risk policy
Our policy regarding market risk consists of the following:
44
•
•
monitoring on a regular basis the activities and the
level and value of the current market risk exposures;
and
evaluation of the credit quality of counterparties to
minimise the risk of non-performance.
Raw materials
We are dependent upon suppliers for all of our raw
material needs and, therefore, are subject to price
increases and delays in receiving supplies of such raw
materials. Significant increases in paper prices may have
a material adverse effect on our results of operations.
Long-term agreements for most of our paper needs
reduce partially the risk of price fluctuations and supplier
shortage.
Country risk
Our operating results, cash flows and financial condition
may be affected as a result of possible political, economic
and regulatory conditions in South Africa and Puerto Rico
such as high inflation and interest rates, political instability
and a difficult regulatory environment.
Credit risk
We are geographically diversified with revenues and
EBITDA contributions coming from six countries
(Belgium, Ireland, Romania, Portugal, South Africa and
Puerto Rico) in different stages of development and with
different economic profiles. Our international presence
provides diversification and the ability to leverage our
know-how across various countries and development
cycles.
We invoice and collect revenues directly from our
customers except for Páginas Amarelas, which is
invoicing almost all its customers indirectly via Portugal
Telecom. Portugal Telecom generally passes on the
collection risk of outstanding invoices under a set-off
mechanism. In the ordinary course of our business, we
extend credit to small and medium-sized businesses to
purchase advertising and listings. Small and mediumsized businesses tend to have fewer financial resources
and higher financial failure rates than large businesses.
We believe these limitations cause some customers in
any given year not to pay for their purchases promptly or
at all. In addition, full collection of late payments can take
an extended period of time and consume additional
resources. Generally we provide for reserves in the
amount of approximately 2% of our revenues in
connection with bad debt collection.
Transaction currency risk
Transaction risk is the risk from which the value of the
transactions to be settled at a future date in a foreign
currency will fluctuate relative to the functional currency of
the subsidiaries. This risk exists to the extent production
costs, including raw material purchases are incurred in
currencies other than the local currency. Thus, if the
value of the local currency depreciates with respect to the
transaction currency, the relative cost of the production
will increase. This exposure is minimal since a natural
hedge exists, as operating units generate revenues and
incur costs within the same country with minimal cross
currency transactions.
Further, our debt is denominated in the functional
currency of the borrower. At December 31, 2008 and
December 31, 2007, all the loans were held in Euros with
the exception of the $200.0 million Senior Notes, which
have been fully hedged until December 1, 2009.
Transaction risk is not hedged.
Interest rate risk
Our exposure to changes in interest rates relates
primarily to our debt obligations. We will not have any
cash flow exposure due to rate changes on our Senior
Notes because they bear interest at a fixed rate.
However, we will have cash flow exposure on our Senior
Facilities and PIK Facility due to the variable interest rate
pricing under the Senior Facilities and the PIK Facility.
For example, a 0.125% increase in EURIBOR would have
resulted in an interest expense increasing by
approximately €1.4 million in 2008. However, the
borrowers under the Senior Facility Agreement and the
PIK Facility Agreement entered into interest rate swap
contracts. During 2007 on average 60% of the floating
rate exposure was hedged through these interest rate
swaps and during 2008 approximately 30%, until
November 28, when the swaps matured. The interest rate
hedging strategy will be periodically reviewed.
Exchange rate risk
Our reporting currency is the Euro. A portion of our
assets, liabilities, revenues and costs are denominated in
various currencies other than the Euro, including the
Dollar and, with respect to Pagini Aurii, Romanian Leu. In
addition, the share of result after tax of associates
regarding Trudon and Axesa, are translated from the
South African Rand and the US Dollar respectively to
Euro and recorded in our statement of income.
In addition to currency translation risks related to the
preparation of our financial statements, our Dollar
business is also affected by exchange rate transaction
risks to the extent our production costs, including raw
material purchases, are incurred in currencies other than
the Euro.
Another exchange rate risk exposure has been created
by the $200.0 million Senior Notes. This exposure from
US Dollars into Euros has been fully hedged until
December 1, 2009.
Liquidity risk
We are highly leveraged and have significant debt service
obligations. On December 31, 2008, we had €1,625.9
million of external indebtedness (including the PIK
facility), of which:
•
€935.0 million is term indebtedness under the Senior
Facilities;
•
€538.2 million of indebtedness under the Senior
Notes;
•
€152.7 million of indebtedness under the PIK
Facility.
Net cash interest-bearing debt as at December 31, 2008
amounted to €1,473.2 million (excluding the PIK facility).
The Revolving Credit Facility allows us to increase the
debt by €50.0 million.
Liquidity risk also arises from hedging instruments used
to protect the statement of income against any adverse
change in foreign exchange rates or interest rate yield
curves.
Financial instruments are dealt only with high-level credit
rated banks.
45
Business
discussions
Our business
Truvo, formerly World Directories, operates in the local
search and advertising market. It creates value by
providing an integrated portfolio of cost-effective and
simple-to-use advertising that connects buyers quickly
and efficiently with sellers. Truvo offers a range of local
commercial search and advertising services, in print,
online, voice and mobile, to assist the consumer in
making informed purchase decisions. In 2008 we had a
total customer base of 247,200 advertisers in our major
markets. Truvo currently operates in Belgium, Ireland,
Romania and Portugal (under IFRS accounted for using
the equity method) and has significant interests in South
Africa and Puerto Rico. The results of these interests are
included in “Share of result after tax of associates and
joint ventures”. Although we do not hold more than half of
the voting rights of Páginas Amarelas in Portugal, we
have an effective economic interest of approximately 75%
in the distributed profits. See “Business discussions –
Country overview – Portugal-Páginas Amarelas”.
Therefore, we also discuss Páginas Amarelas in this part
of the annual report. Truvo is privately owned by funds
advised by Apax Partners and Cinven, and by
management.
economic profiles. Our international presence provides
diversification and the ability to leverage our know-how
across various countries and development cycles.
We market our products under leading brand names,
including Pages d’Or, Gouden Gids, Golden Pages,
Páginas Amarelas and Pagini Aurii. We offer and crosssell our products and services through our large and
experienced local sales forces in a wide array of media,
such as print, online (Internet), CD/DVD, mobile phones
and operator-assisted audio services.
High average retention rates and ARPA
We enjoy high average advertiser retention rates and
strong ARPA in nearly all of our markets, illustrating the
effect of the high value-added products we offer. Our
average annual customer retention rate was still above
80% in our three main markets for 2008. By achieving
high advertiser retention rates and effectively crossmarketing the product portfolio across multiple platforms,
we have been able to attain ARPAs in our key markets
that we believe are higher than the industry average.
We believe that our products constitute the preferred form
of advertising for the small and medium sized enterprises
(“SMEs”) in our markets and that directory advertising
represents the most cost-effective advertising vehicle for
such enterprises. As a result, we have achieved strong
customer loyalty evidenced by what we believe are
industry-leading (annual) customer retention rates across
our markets.
The main source of our revenues is the sale of
advertising space in our print and online media products.
Whilst paper-based products still account for the majority
of our revenues, we also offer an increasing number of
online and other products in order to capitalise on the
growing electronic commerce market. Most of our
customers who are interested in advertising in our online
directories purchase both print and online advertising
products. We believe that our strong market positions,
brand names and experience in successfully bringing new
products to market together with a large and experienced
sales force position us to capitalise on further
opportunities in the growing market for online and other
electronic media products and services.
Our business strengths
Geographically diverse portfolio of assets
We are geographically diversified with revenue and
EBITDA contributions coming from six countries in
different stages of development and with different
Leading market positions with strong brand
awareness
We are the market leader in the directory business in all
countries in which we operate (continuing operations).
Market leadership is critical in the directory business
where the value to advertisers increases with market
position, i.e., the depth and breadth of the advertiser
content provided.
Our leading market positions drive strong brand
recognition, with our brands being recognised by over
90% of consumers in each such market. We believe that
the strength of our brands will continue to drive the
growth of our online customer base and online ARPAs by
enabling the online offerings to benefit from the same
incumbent advantages available to the print directory
offerings. Brand recognition and local business content
also generate online traffic, which provides a significant
advantage for us over potential competitors.
Complete product offering, supported by a large and
experienced sales force
We offer an extensive range of complementary products
across different mediums, including print and online,
which provide comprehensive marketing solutions to our
customers and relevant, readily available information to
our users.
We are the only national directory publisher with a
comprehensive product offering in each of the countries
in which we operate. We are the designated producer of
white pages on behalf of the leading incumbent national
telecom operators in each of the countries in which we
operate, providing a powerful basis for cooperation and
enhanced perception of our products.
In addition, we have a large and experienced sales force,
which has developed long-standing relationships with
advertising customers.
Predictable financial profile with stable cash flows
and high cash conversion
Historically we have had a consistent track record of
generating high EBITDA margins and high cash
conversion rates due to low capital expenditure and
working capital requirements. Net cash flows from
46
operating activities as a proportion of EBITDA was 76.4%
in FY 2008.
insurance companies with a long-term investment
horizon.
Strong and experienced management team
We possess a proven senior management team
consisting of Donat Rétif (“CEO”) and Marc Goegebuer
(“CFO”) with extensive experience in the directory
industry. We have invested in an improved and
rejuvenated management team with significant
experience:
Both Apax Partners and Cinven have extensive
knowledge of the media, publishing and directory sectors
having invested in (among other enterprises) Emap,
Trader Media Group, Incisive Media, PCM Uitgevers, Yell
Group, Ziggo, Numéricable, Completel, Central European
Media Enterprises, NEP Broadcasting, Cengage
Learning, HIT Entertainment, and Springer.
•
•
•
•
The strategy for our business operations
MD for Belgium - Martine Bayens
MD for Ireland - David McGuffey
MD for Portugal - José Lema-Abreu
VP New Media - Gianluca Carrera
This team has demonstrated its ability to successfully
implement new strategies and grow the online business,
which contributed significantly to revenues in 2008.
Sponsors’ expertise
Apax Partners and Cinven are two of Europe’s largest
and longest established private equity advisory firms.
Apax Partners is an independent global private equity
advisory firm. Funds advised by Apax Partners (“Apax
Funds”) typically invest in companies with a value of
between €1 and €5 billion. The Funds invest in five
growth sectors: Tech & Telecom, Retail & Consumer,
Media, Healthcare and Financial & Business Services.
Apax Funds commit capital on behalf of a diverse range
of investors, which include public and private pension
funds, insurance companies, university endowments and
other financial institutions.
Apax Funds buy both majority and minority stakes in
large companies that have strong, established market
positions and the potential to expand. Apax Funds back
excellent management teams to create efficient and
sustainable businesses that have a strong track record of
growing by investing in research and development,
exports, sales and employment.
Cinven is a leading international buyout firm. They
acquire companies valued at €500 million and above that
require an equity investment by Cinven’s funds of €100
million or more, and focus on six sectors on an
international basis: Business Services, Consumer,
Financial Services, Healthcare, Industrials and TMT.
Cinven has offices in London, Paris, Frankfurt, Milan and
Hong Kong and wherever they are based, their people
work together as one team.
Cinven acquires successful, high-quality companies and
works closely with them to help them grow and develop,
using Cinven’s proven value creation strategies. They
take a responsible approach towards their portfolio
companies, their employees, suppliers and local
communities, the environment and society as a whole.
Cinven has a strong and consistent investment track
record. Since the firm was founded in 1977, they have
completed transactions valued at in excess of €60 billion
including 25 buyouts of €1 billion or more, to the end of
2007. They are responsible for many buyout industry
“firsts”, including the first €1 billion - plus buyouts in
France, The Netherlands, Spain and the UK.
Cinven is currently investing their fourth fund, which totals
€6.5 billion and drew support from more than 150
investors based in 23 countries. Some 50% of investors
in the fund by value are based in Europe and another
40% are based in North America. They include leading
institutional investors, mainly pension funds and
Truvo’s strategy is to become the first choice in local
search and advertising in the markets in which we
operate. In order to achieve this central vision, we must
focus on users, advertisers and our capabilities to
transform successfully Truvo from a directory company
into a local search and advertising business. As part of
this strategy, we anticipate that our stand-alone print
directory business will diminish over time.
Users: We are increasing the focus on users to become
the preferred community for local products and services.
With a category driven approach, we offer relevant
features, functionality and experiences for different
consumer needs. In order to do this, we listen to our
users and focus our development on product features and
functionality that they find helpful to fulfil their search
needs. We want to encourage users to FIND what they
are searching for, SHARE their views, experiences and
favourites and BUY as a result of their interaction with
Truvo.
Embracing user-generated content is key to this strategy.
In 2007 and 2008, Truvo took some initial steps with the
inclusion of ratings, reviews and the sharing of favourites
in our core sites. In 2009 and beyond, we will launch new
sites and applications with a greater focus on user
generated content.
Central to our business is accurate and comprehensive
data covering local businesses that can be stored once
and published in multiple formats and mediums.
Expanding and enriching our content is a key priority with
user and advertiser generated content as well as with
selected editorial and third party information. We seek to
ensure that our content is available on the most widely
used mediums and devices.
Advertisers: Truvo increasingly focuses on the calls,
clicks and contacts provided to its advertisers rather than
the product or medium through which they are generated.
In order to offer a compelling one-stop-shop for local
business, Truvo offers a web presence via a landing
page, which is distributed in Truvo and third party media
properties including major search engines. Truvo offers
advertisers a range of search engine marketing products
and services and will continue to enhance its solutions in
this area. We intend to pursue further partnerships and
re-selling opportunities that attract relevant users and
enable Truvo to deliver value and relevant services to its
advertisers.
In order to address the different needs of advertisers, we
intend to continue to evolve our customer-centric
segmentation model to meet the varied and changing
needs. We intend to increase our focus on providing
differentiated products and services to groups of
advertisers based on their needs; at the heart of this is a
tailored approach by category.
47
Capability: in order to deliver on our vision and provide
compelling services to users and products to advertisers,
we seek to be innovative, flexible and responsive to
customer needs. This strategy is supported by technology
enhancements such as customer relationship
management tools and self-service integrated customer
reporting. Truvo continues to improve its in-house web
development capabilities to accelerate time to market and
increase flexibility.
We also intend to remain focused on cost and cash
management. Cost and working capital reduction
programs have been implemented and further
opportunities are being assessed.
Consistent with the above, our current priorities are to:
•
focus on value creation and transparency of return
on investment with a differentiated approach by
segment;
•
launch new sites focused on user generated content
to attract and engage with new users;
•
deepen content and deliver it through highly used
devices;
•
complete the assessment and decide how to best
maximise the useful and profitable life of print;
•
accelerate time to market and flexibility with
improved new media delivery capabilities; and
•
focus on careful financial management and ensure
investment in new media.
The group is also continuing its assessment of how to
utilise the cash sale proceeds from the sale of its
operations in The Netherlands. Such uses have and/or
may include the payment of related transaction costs, the
purchase of various assets to be used in the business,
capital expenditure, one or more possible acquisitions of
other businesses (including the acquisition of YelloYello
B.V.), the repayment of loans outstanding under the
Senior Facility Agreement and/or such other potential
uses as the group may consider appropriate and in
compliance with applicable requirements under its
financing arrangements.
Company history
We were founded in 1967 by ITT Corporation and The
Berry Company, a private directory sales and publishing
company. We began operations in Puerto Rico and
started publishing and distributing directories in Belgium
and Ireland in 1969 and entered The Netherlands,
Portugal and South Africa in 1970. Over the years, we
have acted as an agent in the directory business for more
than 20 telephone companies.
The VNU group (now: The Nielsen Company B.V.)
acquired us in 1998.
On September 26, 2004, Truvo Acquisition Corp., a
wholly-owned subsidiary of the Company, entered into a
sale and purchase agreement with the VNU group to
acquire 100% of the shares in Truvo and certain loans
granted to subsidiaries of Truvo by a finance company of
VNU N.V. The Acquisition from VNU closed on November
29, 2004. The purchase price for the shares and the
loans together with certain additional funding and
transaction costs used in connection with this acquisition
was approximately €2.2 billion.
In 2008, Truvo completed the sale of its Dutch operations,
Gouden Gids B.V. and ClearSense B.V., to European
Directories.
Our products and services
We provide a variety of products and services to enable
consumers to find local products and services and
advertisers to reach such consumers. Primary products
and services include:
•
printed classified and alphabetical directories;
•
online classified and alphabetical directories;
•
online vertical Internet sites;
•
online Search Engine Marketing services;
•
mobile directory services; and
•
other directory products and services, including
alphabetical and classified directories on CDROM
and DVD, operator assisted classified directories,
and database products for direct marketing
purposes.
In 2008 we published 102 directories (excluding local and
specialty directories) and distributed approximately 12.3
million copies of our yellow pages and combined yellow
and white pages directories to business and residential
users in our markets and had a total of approximately
247,200 advertising customers, consisting primarily of
small- and medium-sized enterprises. We operate 24
(including Portugal) websites offering local search and
advertising information to online audiences in our
markets.
48
Summary of our product and service offerings
Product type
Golden pages /
Yellow pages
(Golden pages)
White pages
Print and online alphabetical directories
Local
City and neighbourhood printed directories
Specialty
Print directories focused on a particular topic (i.e., B2B, tourist
guides, local guide for travellers on the move, seasonal
promotional cards, directory in Braille)
Companion guides
Smaller printed golden pages directories to complement the
core golden pages directories
Both golden pages and white pages directory information on a
CD or DVD. This is the only product that we sell to our users
(not freely distributed)
Call centre operation that provides both classified and
alphabetical directory information
Alphabetical information is not provided in all countries
Specialised verticals for real estate, restaurants, cars and
classifieds
Golden pages and white pages accessible on mobile handsets
Search engine advertising (SEA) and search engine
optimisation (SEO) services complementary to golden pages
and white pages products
Sale of database for direct marketing purposes
CD/DVD
Operator assisted
golden pages
(OAGP)
Vertical guides
Mobile
Search engine
marketing
Direct marketing
Description
Print and online classified directories
Brands
®
®
Golden Pages , Gouden Gids ,
®
Pages d’Or , Páginas
®
®
Amarelas , Pagini Aurii
Eircom Phonebook, Witte Gids,
Pages Blanches,
®
Zoom , The Local Golden
TM
Pages
Páginas Amarelas Turísticas do
®
®
Algarve , Mobilo , Páginas
®
Amarelas em Braille , Páginas
®
Amarelas de Concelhos
®
Páginas Amarelas de Bolso
®
Gouden Gids , Pages d’Or
®
®
Truvo , Wiselinks
Datasell
®
Source: Truvo
Overview of our products and services offered by country
Affiliates
FY 2008
Belgium
Print golden pages / white pages
Online
Local
Specialty
CD/DVD
1
OAGP
Verticals
Mobile
SEM
Direct marketing
Number of print directories
2
Ireland
Romania
Portugal
South
Africa
Puerto
Rico
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29
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6
44
23
20
8
Source: Truvo
1
Operator assisted golden pages
2
Includes golden pages and white pages regional directories; excludes local directories
3
Business listings
49
Country overview
Belgium
Truvo Belgium
General
Truvo Belgium is the leading local search and directory
advertising company in Belgium, with an estimated 98%
share of directory advertising spending in Belgium in
2008. Truvo Belgium has a large and diversified
advertiser base of 113,500 accounts, most of which are
small and medium-sized businesses. The customer
Key figures Truvo Belgium
Net operating revenues (in € millions)
EBITDA (in € millions)
ARPA (in €)
Number of customers (x 1,000)
Number of FTE’s (weighted average)
Print products
Truvo Belgium’s print products have a core circulation
(defined as the number of addresses that receive a
yellow pages book or a combined yellow/white pages
book) of 4.0 million annually and contributed 70.6% of
total net operating revenues in 2008. Truvo Belgium
annually publishes 10 regional yellow pages directories
under the trade names Gouden Gids/Pages d’Or and
19 regional white pages directories under the trade
names Witte Gids/Pages Blanches throughout Belgium
as well as 26 local guides in Dutch and French under
the trade name Zoom. Gouden Gids/Pages d’Or
contain information and advertisements on businesses
located in Belgium. Each edition of Gouden Gids/Pages
d’Or includes an introductory section that contains
useful local and regional information on, and addresses
and telephone numbers for a wide range of public
services, government ministries and consumer
information.
Gouden Gids/Pages d’Or had approximately 3.1 million
unique monthly users during 2008. Five of Truvo
Belgium’s ten classified directory editions generated
more than €10 million of revenues in 2008, with the
Brussels edition contributing approximately 16% of
Truvo Belgium’s revenues in 2008. Witte Gids/Pages
Blanches contains listings of all fixed-line telephone
subscribers (other than those who have opted out of the
directory) and mobile telephone users who have
requested to have their phone numbers included. Each
edition contains an introductory section that provides
information about telephone services call rates,
telecommunication operators and the Belgian Institute
for Postal Services and Telecommunications, the
Belgian telecommunications regulatory agency. Witte
Gids/Pages Blanches had approximately 3.4 million
unique users per month in 2008. Each Zoom directory
contains both an informational section created in
collaboration with local administrative authorities that
contains information on local cities, towns and the
region and a business section in which local companies
are organised under alphabetically arranged headings.
In 2008, Truvo Belgium’s local guides generated
approximately 1.0 million unique users.
retention rate was 85.1% in 2008 (2007 89.0%). For 2008,
Truvo Belgium had a weighted average number of 707
employees.
The following table sets forth a brief summary of certain key
figures of Truvo Belgium:
Year ended December 31,
2008
2007
220.5
235.7
116.0
122.0
1,992
1,918
113.5
121.6
707
749
2006
223.8
111.9
1,792
127.3
705
Online products
Truvo Belgium has one of the leading online directory
businesses in Belgium, which contributed 29.4% of net
operating revenues in 2008. The search engines available
on Truvo Belgium’s websites permit users to retrieve
information by entering either basic or advanced search
criteria. In addition, its websites provide street maps for
locating addresses, a route finder for planning journeys and
links to advertisers’ websites.
Users can also post ratings and reviews on the majority of
companies listed as well as share these reviews on their
profile in social networks such as Facebook, on
microblogging sites such as Twitter, as well as on
bookmarking sites such as Google Bookmarks and
Delicious. The content of the site is also enriched by high
quality videos further enhancing the user value of our site.
Truvo Belgium has integrated Internet verticals dedicated to
a specific category of products or services into its websites
including a restaurant and a hotel vertical. The websites
www.wittegids.be, www.goudengids.be and
www.pagesdor.be have approximately 2.5 million unique
viewers per month.
Other directory products and services
Truvo Belgium offers a version of its Gouden Gids/Pages
d’Or on compact disc (“CD”) in a network version for
professionals and a DVD-Rom for residentials that both
include 480,000 professionals and businesses from its print
Gouden Gids/Pages d’Or and 4 million telephone numbers
from its print Witte Gids/Pages Blanches. They also include
detailed street maps of all Belgian roads and software that
enables users to plan routes for trips with some advanced
facilities. The CD/DVD had approximately 0.3 million unique
monthly users in 2008.
Truvo Belgium also provides operator-assisted yellow
pages that allow users to consult all the categories of
Gouden Gids/Pages d’Or in Dutch, French or English. The
service is available 24 hours a day, 7 days a week to both
mobile and fixed-line telephone users. In 2008, Truvo
Belgium’s operator-assisted yellow pages received an
average of 5,975 calls per day. Truvo Belgium also delivers
its Gouden Gids/Pages d’Or to mobile phone handsets via
50
most of the mobile technologies such as Vodaphone
Live via every mobile operator offering those platforms.
Truvo Belgium also delivers an interactive service on
digital television by offering the Gouden Gids/Pages
d’Or professionals and businesses to the Telenet
subscribers.
Furthermore, Truvo Belgium’s directory publishing activities
are governed by the Law on Electronic Communications of
June 13, 2005 (the “Telecom Law”). The Telecom Law
implements the new EU regulatory framework on electronic
communications in Belgium and replaces the former
Telecommunications Law of March 21, 1991.
In 2008, Truvo launched a mobile version of its yellow
and white pages site, further consolidating its position
as a leading cross-media local search and advertising
company. These mobile sites are available on all
devices with Internet access and are distributed through
telco mobile portals.
The Telecom Law contains general rules with respect to the
publication of the universal directory. Significantly, the
universal directory should be made available, free of
charge, in printed form and through a functional website.
The specifications that should be contained in a universal
directory are nearly identical to the specifications that
characterise the current universal directory. The Telecom
Law provides that the publisher of the universal directory
will be designated by Royal Decree on recommendation of
the Belgian Institute for Postal Services and
Telecommunications and following an open
selection/tendering procedure. If a call for tender does not
elicit a satisfactory response, the publisher of the universal
directory will be designated ex officio. The tendering
procedure has not yet been organised. Until then,
Belgacom remains responsible for the publication of the
universal directory, unless a third party such as Truvo
Belgium ensures such publication. Truvo Belgium has
entered into a contractual commitment vis-à-vis Belgacom
to publish the universal directory.
In 2008, Truvo started offering high-end SEM services
to a segment of its advertisers. These services are
supported by specialised back office staff optimising our
advertisers’ presence on the web, outside the directory
space.
Competitive situation and outlook
Over the past ten years, there have been three major
entrants into the Belgian print directory market: BDS,
Scoot and TDL Direct, a subsidiary of Thomson
Directories United Kingdom. All three exited the market
by 2002. Today we compete with a number of smaller
local directory companies, and, on the national level,
we mainly face competition from some niche online
providers such as resto.be and also other “freesheets”
like media as Roularta’s and Passe-Partout’s products
both on paper and online. The major search engines
like Google are also present on the Belgian online
advertising market, offering additional competition.
Regulatory environment
In addition to the applicable European legislation (see
“Regulatory framework”), Truvo Belgium is subject to
the Belgian national antitrust laws and the regulations
of the Belgian competition authority. Under Belgian law,
Truvo Belgium’s pricing and sales activities are subject
to certain restrictions.
Relationship with Belgacom
Truvo Belgium is operating under a data license agreement
with Belgacom, Belgium’s designated universal service
provider, governing (i) the supply of subscriber data from
Belgacom to Truvo Belgium and certain other services and
(ii) the terms under which Belgacom acts and is
remunerated as an agent for Truvo Belgium as regards the
sales of bold listings and certain advertising insertions in
Truvo Belgium’s white pages directories. For the fiscal year
2008, Truvo Belgium’s database fee to Belgacom was €3.6
million and the agency commission was €2.5 million.
Ireland
Truvo Ireland
General
Truvo Ireland is a leading local search and directory
advertising company in Ireland and estimates that it had
a 90% share of directory advertising spending in 2008.
In 2008, Truvo Ireland had approximately 29,800
unique customers and an annual customer retention
Key figures Truvo Ireland
Net operating revenues (in € millions)
EBITDA (in € millions)
ARPA (in €)
Number of customers (x 1,000)
Number of FTE’s (weighted average)
Print products
The Golden Pages Classified Directory is Ireland’s
incumbent classified directory and contains information
on approximately 157,000 businesses nationwide
organised by over 2,000 classifications. The six
regional print editions of the Classified Directory had a
core circulation of approximately 1.8 million copies. The
Dublin edition contributed 51.5% of classified directory
rate of 80.5% (81.9% in 2007). For 2008, Truvo Ireland had
a weighted average number of 296 employees.
The following table sets forth a brief summary of certain key
figures of Truvo Ireland:
Year ended December 31,
2008
2007
72.2
75.8
28.2
33.8
2,502
2,456
29.8
31.4
296
298
2006
74.0
31.6
2,359
32.0
278
revenues in 2008. During 2008, users conducted on
average 675,154 daily look-ups in Golden Pages. As
Ireland’s designated universal service provider, eircom has
a statutory obligation to publish and distribute Ireland’s
universal services telephone directory for both business and
residential listings (known as the “eircom Phone Book”).
Pursuant to an agreement with eircom for the calendar
51
years 2007 to 2013 and in return for the payment of a
publishing rights fee to eircom, Truvo Ireland has
undertaken the production and distribution of the eircom
Phone Book and secured the rights to sell
advertisements in its pages. We believe that the eircom
Phone Book is the preferred source in Ireland for
information on international and local access codes,
emergency telephone numbers, government agencies,
city councils and other municipal and non-governmental
organisations. In 2006 we launched four local
directories (Louth, Meath, Kildare and Wicklow). Overall
print products contributed 90.0% of net operating
revenues in 2008.
Online products
Truvo Ireland launched its website
(www.GoldenPages.ie) in 1999 and continues to update
its design and interactive functions, including the
implementation of a more user-friendly and
sophisticated search engine. As Internet users in
Ireland subscribe to DSL and other broadband services
in increasing numbers, Truvo Ireland expects to benefit
from an increase in revenues generated from
advertising on its website. Although currently less than
22% of Truvo Ireland’s advertisers have purchased
advertising on Truvo Ireland’s website, the company
intends to focus its sales and marketing efforts on
increasing online advertiser penetration and Internet
revenues. Online contributed 10.0% of net operating
revenues in 2008. During 2008, Internet users
conducted over 30.6 million searches on Golden Pages’
website. Truvo Ireland has launched mobile electronic
pages (m.goldenpages.ie) in early 2009 and pursuant
to the eircom production agreement, manages and sells
advertising on www.eircomphonebook.ie.
Other directory products and services
Truvo Ireland launched Search Engine Marketing
solutions in the third quarter of 2008. With these
programs we offer tailored solutions that generate traffic
and leads from online search marketing.
Competitive situation and outlook
Approximately 55% of directory advertising spending in
Ireland is generated in the Dublin area. Our largest
competitor in the Dublin area for directory advertising is the
Independent Directory, which publishes in Dublin, Cork and
in five different regional areas country wide, launched
during 2007 and 2008. The Independent Directory has an
estimated 13% share of the directory advertising spend in
the Dublin area. GoldenPages.ie competes with a number
of local Internet-based directories and with Google, Yahoo
and MSN. In addition, Truvo Ireland competes for
advertising revenues with local media companies,
especially local radio stations and the regional press, both
of which have targeted the market segment of small and
medium-sized enterprises in response to the recent
deregulation of Ireland’s radio industry.
Regulatory environment
In addition to being subject to European and Irish legislation
(see “Regulatory framework”), Truvo Ireland is affected by
the regulations and decisions of ComReg, the Irish
regulatory authority overseeing the electronic
communications sector. In addition to the general data
protection regime, the Irish government enacted new
telecommunications regulations in 2003, which
implemented European Union data protection legislation.
These regulations state amongst other things that any
person responsible for collecting and providing information
for inclusion in a directory must ensure that, prior to their
inclusion, individuals or commercial entities are given
certain information about the directory and an opportunity to
determine which of their personal data (if any) are included
in the directory. The data protection commissioner oversees
the observance of the data protection obligations.
Romania
Pagini Aurii
General
Pagini Aurii is the leading directory publisher in
Romania, with a share of approximately 67% of
Romania’s directory market in 2008. For the year ended
December 31, 2008 Pagini Aurii had 31,100 customer
accounts and an annual customer retention rate of
63.0% (in 2007 65.5%). Pagini Aurii was founded in
1997 by a consortium of companies, including Rom
Key figures Pagini Aurii
Net operating revenues (in € millions)
EBITDA (in € millions)
ARPA (in €)
Number of customers (x 1,000)
Number of FTE’s (weighted average)
Print products
Pagini Aurii has a core circulation of 1.6 million copies
of its 44 directories, out of which 36 are combined
yellow and white pages directories. Five directories
include white pages only and for Bucharest we publish
one yellow directory and two volumes of white pages.
Two vertical directories, Pagitur for tourist services and
Telecom R.A., Romania’s incumbent telephone operator.
Truvo’s interest in Pagini Aurii is over 99%. For 2008,
Pagini Aurii had a weighted average of 328 employees.
The following table sets forth a brief summary of certain key
figures of Pagini Aurii:
Year ended December 31,
2008
2007
9.4
10.9
-0.1
0.5
326
323
31.1
34.1
328
334
2006
10.4
0.8
295
34.9
331
Contact B2B, a business-to-business directory, complete
the print product portfolio. The directories are distributed in
41 Romanian counties by Rom Telecom. Pagitur, B2B and
the Bucharest yellow guide are distributed door-to-door,
starting in 2007, by Pagini Aurii. Pagini Aurii’s yellow pages
contain information on approximately 210,000 businesses in
52
Romania, organised under more than 1,210
classifications, of which approximately 31,100 are
paying customers purchasing advertising in our
directories. For the year ended December 31, 2008, the
Bucharest regional editions of Pagini Aurii’s yellow and
white pages accounted for approximately 29% of its
revenues.
Pagini Aurii’s white pages include an alphabetical listing
of fixed-line telephone subscribers of Rom Telecom.
Pursuant to the cooperation agreement between Rom
Telecom and Pagini Aurii, Rom Telecom provides
Pagini Aurii with its fixed-line subscriber database and
Pagini Aurii produces the white pages directory of Rom
Telecom subscribers. This cooperation agreement is in
force until 2013 and may be extended for an additional
five-year period.
an annual circulation of less than 100,000 copies. Pagini
Aurii also faces competition from Pagini Galbene, a
business-to-consumer directory, and Ghidul Serviciilor, a
Bucharest business-to-business directory. Pagini Aurii
believes that its print directory competitors have little brand
recognition among Romanians, as they have been unable
to publish directories consistently.
Online products
Pagini Aurii’s online directories (www.paginiaurii.ro)
provide Internet users with access to its yellow and
white pages listings online. At the end of 2008, we
launched our site, and started selling advertisements on
the Internet.
The Pagini Aurii joint venture
Pagini Aurii’s current shareholding structure is as follows:
Truvo indirectly holds 99.2% of Pagini Aurii’s common
shares, Rom Telecom holds 0.5%, Pro Entertainment &
Media SRL holds 0.3% and two natural persons hold one
share each of Pagini Aurii’s common shares. Despite its
limited shareholding, a number of important board and
shareholder decisions, such as altering the company’s
shareholding structure or increasing its capital, are subject
to approval by Rom Telecom (or its representatives). In
addition, transfers of shares in Pagini Aurii are generally
subject to a pre-emption right and tag-along rights of the
other shareholders.
The most important event of 2008, from an online
standpoint, was the relaunch of our website
paginiaurii.ro.
The new site leverages the existing technology and
power of the destination search platform, but at the
same time is highly customised for the Romanian
market and is much enhanced with new features and
accessibility modules. The purpose of the search
algorithm is, first of all, providing relevant results for our
users. We believe this benefit, combined with a
complete and continuously updated database of
companies, will place paginiaurii.ro in a strong position
in the local business search market. We believe the
website is intuitive, easy to use and has another
advantage for the Romanian users: a wide collection of
very detailed, interactive maps that they can consult
free of charge.
In December 2008, we finalised and publicly
announced the first phase of the development. This
publicity resulted in over 137 mentions of Pagini Aurii
and paginiaurii.ro, together with 11 pictures inserted in
various online, national and local press materials. We
expect that this initial press will be followed by
extensive usage incentive efforts in 2009.
Other directory products and services
Pagini Aurii annually releases its Golden CD, which
offers customers the opportunity to purchase Pagini
Aurii’s yellow and white pages directories on compact
disc.
Regulatory environment
Following the Romanian European Union accession on
January 1, 2007 and as a result of regulatory changes in
the telecommunications sector, a tender was negotiated in
2008 in order to establish the universal service provider.
The accession also changed the existing fiscal, commercial
and custom legislation, in order to be aligned with the
European Union.
Rom Telecom has granted Pagini Aurii an exclusive license
to use its telephone subscriber list for a period of 15 years
(until June 22, 2012) with the option to extend it for
additional five-year terms. Pagini Aurii acts as the exclusive
distributor of the yellow and white pages in Romania and
Rom Telecom has agreed, subject to certain legal
restrictions, not to compete with Pagini Aurii in its core
business areas. All manufacturing costs of the directories
are paid by Rom Telecom, but Pagini Aurii pays an annual
service fee to Rom Telecom in an equal amount for
providing subscriber data, for intellectual property rights and
for certain services including consulting services and
services relating to the distribution of the directories. In
addition, Pagini Aurii has entered into a number of service
and other arrangements with its shareholders under which
the shareholders provide essential support services in
consideration for service fees. For example, Truvo Belgium
agreed to advise and assist Pagini Aurii in all areas of its
business. Under this agreement, Pagini Aurii pays Truvo
Belgium 6% of its gross advertising revenues. This
agreement remains in force as long as Truvo Belgium
directly or indirectly holds at least 25% of the shares of
Pagini Aurii.
Competitive situation and outlook
Pagini Aurii’s main competitor is Pagini Nationale,
whose national business-to-business directories have
Portugal
Páginas Amarelas
General
Páginas Amarelas is the leading local search and
directory advertising company in Portugal and we
estimate that it received 96.0% of the directory
advertising spending in Portugal in 2008. Páginas
Amarelas has operated in Portugal’s directory advertising
business since 1959 and has been a contract agent for
Portugal Telecom, Portugal’s incumbent
telecommunications operator, since 1969. In 1997, Páginas
53
Amarelas became a joint venture between Truvo and
Portugal Telecom and has since then published and
distributed Portugal Telecom’s yellow and white pages.
By the end of 2008, Páginas Amarelas had a weighted
average number of 484 employees.
Key figures Páginas Amarelas
Net operating revenues (in € millions)
EBITDA (in € millions)
ARPA (in €)
Number of customers (x 1,000)
Number of FTE’s (weighted average)
Print products
On behalf of Portugal Telecom, Páginas Amarelas
annually publishes 23 directories with a core circulation
of 4.9 million copies, including separate yellow pages
(Páginas Amarelas) and white pages (Páginas
Brancas) directories in Lisbon and Porto and combined
yellow and white pages directories throughout the rest
of Portugal. In 2008, 50% of the adult population of
Portugal used the yellow pages to search information
on suppliers, products and services. Páginas Amarelas
estimates that its Páginas Brancas directories have a
regular user base of approximately 15% of the
Portuguese adult population. Páginas Brancas attracts
advertising from small and medium-sized businesses,
government agencies and other institutions. Páginas
Amarelas also publishes pocket-sized editions of
Páginas Amarelas, and local yellow pages that identify
and promote small- and medium-sized businesses and
professionals in smaller, less populated communities.
Páginas Amarelas also publishes Páginas Amarelas
Turísticas do Algarve, a tourist guide containing
information on tourist attractions, maps, and a classified
advertisement section. This is currently only available in
hotels, tourism offices, airports and car rental
companies in the Algarve.
In 2008, Páginas Amarelas launched a new product in
the DM area, called +Vale. It is a promotional booklet,
with discounts and offers, distributed four times (spring,
summer, back to school and Christmas) a year, only to
residentials of high buying power areas.
Online products
Páginas Amarelas’ online yellow pages, pai.pt, provide
Internet users with access to information on
approximately 440,000 companies located in Portugal.
In addition, pai.pt links directly to pbi.pt, a white pages
site with residential and commercial listings;
restaurants.pt, a vertical restaurant site; casas.pai.pt, a
real estate site; and compras.pai.pt, a shopping vertical.
During 2008, pai.pt had approximately 208,000
searches per day. Internet products contributed about
36.8% of net operating revenues in 2008 (in 2007 this
was 24.8%).
Other directory products and services
Mobile telephone users can retrieve contact information
for businesses and private residents by sending their
request for information via SMS to Páginas Amarelas.
Páginas Amarelas Datasell sells information from its
Portuguese databases in the form of magnetic media,
paper listings or self-adhesive labels to companies
involved in direct mail marketing, telemarketing, market
studies, promotions and personalised communications.
The following table sets forth a brief summary of certain key
figures of Páginas Amarelas:
Year ended December 31,
2008
2007
63.0
67.0
9.1
11.3
1,278
1,256
72.8
81.5
484
472
2006
68.1
11.7
1,208
87.9
470
Competitive situation and outlook
Páginas Amarelas’ primary competitor in the Portuguese
print directory market is Guião, a subsidiary of Printer
Lisgráfica S.A. Telelista, the prior main competitor of
Páginas Amarelas, declared bankruptcy in 2006. Guião
offers online and print directories that focus primarily on the
business-to-business market.
Regulatory environment
Under the Portuguese electronic communications law
promulgated on February 10, 2004, the Portuguese
National Regulatory Authority (“Anacom”) has the authority
to supervise and regulate all electronic communications
within Portugal. Anacom has designated Portugal Telecom,
Portugal’s national telephone operator, as the party
responsible for Portugal’s statutory universal service
obligation, which requires that a white pages telephone
directory be published and distributed throughout Portugal.
Portugal Telecom has subcontracted the obligation to
Páginas Amarelas.
Portugal Telecom, as the leading operator in the fixed
telephony and data services markets, is also obligated to
make available the relevant subscriber’s data that is needed
to publish directories to competitors of Páginas Amarelas
on the same commercial basis as such data are made
available to Páginas Amarelas. The electronic
communications law raises new issues that may lead to
adjustments to the definition of the universal service
obligations regarding telephone directory services relating
to the combination of white pages with yellow pages as well
as on the right to insert advertisements in the white pages
and on the pricing and organisation of subscriber databases
that are made available to competitors of Portugal Telecom
and Páginas Amarelas. These issues have not been
resolved yet but may lead to an increase of competition in
the Portuguese directory market.
The joint venture with Portugal Telecom
We have entered into a number of agreements with
Portugal Telecom setting out the terms and conditions
governing the joint venture between Portugal Telecom and
us, in particular with respect to our common company,
Páginas Amarelas. Portugal Telecom subcontracts to
Páginas Amarelas the sales and marketing, production,
publication and distribution of Portugal Telecom’s yellow
and white pages directories throughout Portugal in return
for an annual payment to Páginas Amarelas of
approximately 65% of the gross revenues from the sale of
advertising space in these directories (the “Directory
Publishing Agreement”). For the sale of advertising in
Páginas Amarelas’ online products, Portugal Telecom pays
approximately 89.5% of gross revenues to Páginas
Amarelas.
54
Truvo and its affiliates hold 100% of the non-voting
preference shares and 50% of the ordinary voting
shares of Páginas Amarelas resulting in an economic
interest of approximately 75% of the dividends
distributed by Páginas Amarelas and 50% of the voting
power. Portugal Telecom holds the other 50% of the
ordinary voting shares of Páginas Amarelas resulting in
an economic interest of approximately 25% of Páginas
Amarelas’ dividends distributed and 50% of the voting
power. Páginas Amarelas is governed by a fivemember board of directors, two of the directors to be
nominees of Truvo and its affiliates and two to be
nominees of Portugal Telecom. The fifth member of the
board, who serves as chairman of the board, is
selected by Truvo and its affiliates from a list of
nominees supplied by Portugal Telecom. The board of
directors appoints the chief executive officer (from a list
of candidates supplied by Truvo and its affiliates) who is
in charge of the day-to-day business operations.
Certain actions at a general shareholder meeting, such
as a merger, split, transformation or winding up of the
company, require a two third majority of the
shareholders (and a certain quorum requirement). We
and Portugal Telecom have both undertaken not to
compete with Páginas Amarelas.
Either Truvo and its affiliates or Portugal Telecom, as
applicable, may require the other party to either sell its
interest or purchase the requesting party’s interest in
Páginas Amarelas at any time pursuant to a so-called
“shot-gun” mechanism.
Subject to certain maximum amounts, if profit for the
year as a percentage of net sales from directory
advertising and insertions of Páginas Amarelas in any fiscal
year are less than 8%, as it was the case in 2006, 2007 and
2008, Portugal Telecom is required to contribute
approximately 78% of the shortfall and we are required to
contribute approximately 22% of the shortfall. In 2006, by
mutual agreement, this arrangement was amended to split
in equal shares restructuring costs incurred in 2006 and
2007. We refer to this arrangement as the “8% clause
Páginas Amarelas”.
Under the Directory Publishing Agreement, Páginas
Amarelas is responsible for all costs relating to the
compilation, composition, printing and distribution of
directories and the maintenance and updating of all
subscriber databases. Under a related technical services
agreement, Páginas Amarelas is also required to pay an
amount equal to 10% of the sales attributable to directory
advertising to WD Servicios Técnicos e Desenvolvimento
Lda, one of our subsidiaries, which pays fees to Páginas
Amarelas in consideration for the management services,
technical assistance and licensing of intellectual property
rights provided by Páginas Amarelas. If we were to acquire
Portugal Telecom’s interest in Páginas Amarelas under our
arrangements with Portugal Telecom, the Directory
Publishing Agreement would remain in force for two
additional sales cycles and would expire thereafter unless
renegotiated. Upon expiration of the Directory Publishing
Agreement, Páginas Amarelas must return the customer
data to Portugal Telecom (see “Risk factors - In certain
geographic markets we are dependent on partnerships,
joint ventures and the cooperation of the incumbent telecom
operators”). See also “Recent developments – Joint venture
with Portugal Telecom”.
Our minority interests
in South Africa and
Puerto Rico
In addition to our operations in Belgium, Ireland,
Romania and Portugal we hold significant minority
interests in the leading directory businesses in South
Africa and Puerto Rico of approximately 35.1% and
40%, respectively.
South Africa
Trudon (Pty) Ltd. (“Trudon”), formerly named TDS
Directory Operations (Pty) Ltd., is the leading directory
publisher in South Africa with an estimated 98% share
of directory advertising spending in South Africa in
2008. Trudon was formed in October 1997 as a result
of a merger agreement between Telkom S.A. Ltd.
(“Telkom”), South Africa’s incumbent telephone
operator, and Truvo Services South Africa (Pty) Ltd.
(formerly Maister Directories (1981) (Pty) Ltd.). Telkom
has appointed Trudon to produce its white and yellow
page directories for the South African market, and owns
64.9% of Trudon. Truvo Services South Africa (Pty) Ltd.
(“TSSA”), a wholly owned subsidiary, holds a 35.1%
interest in Trudon. No more than seven persons may
serve on the board of directors of Trudon. To constitute
a quorum, two directors appointed by each shareholder
of Trudon must be present. Each shareholder is entitled
to appoint one director for every 15% shareholding. As
long as Telkom holds more than 50% of the shares of
Trudon, it is entitled to appoint no less than four
directors. As long as TSSA holds more than 30% of the
shares, it is entitled to appoint no less than two directors. A
number of shareholder or board decisions require a 75%
majority, giving TSSA a blocking right on the shareholder
and the board level. In case of a deadlock on the board or
shareholder level, TSSA can, under certain circumstances
and after the expiration of a six-month period, put its shares
and certain loan accounts against Trudon to Telkom, and
Telkom is obliged to buy those shares at fair market value
and the loan accounts at face value, or Telkom can call
upon TSSA to sell its shares and the loan accounts against
Trudon, and TSSA is obliged to sell those shares at fair
market value and the loan accounts at face value. Transfers
of Trudon shares are subject to pre-emption rights and tagalong and drag-along provisions of the other shareholder.
The arrangement also contains a non-competition provision
prohibiting the participation by the shareholders directly or
indirectly in South Africa or Namibia in any business
competing with Trudon. The non-compete provision is
binding on Telkom for as long as it remains a shareholder.
With respect to TSSA, the non-compete provision is binding
for as long as it remains a shareholder in Trudon plus an
additional three years.
The shareholders of Trudon have agreed to provide
additional working capital to Trudon upon the request of the
board of directors in the form of a loan or share capital
(such request of the board to be passed with a 75%
majority if certain thresholds are exceeded). Each
55
shareholder shall invest such further funds on the same
terms and conditions. If a shareholder is unable to
comply with the request, it may be required to transfer
part of its shareholding to the other shareholder. If
working capital is taken from sources other than the
shareholders, the shareholders have undertaken to
provide pro rata guarantees or sureties as may be
required.
Trudon has entered into various fee arrangements with
its shareholders. Telkom has granted an exclusive
license to Trudon to use and process its subscriber
data. TSSA granted an exclusive license to Trudon to
use certain intellectual property rights. In each case,
Trudon pays 3.5% of its gross sales arising out of the
publication of the paper directories and 3.5% of its
gross sales arising out of its other businesses as royalty
payments. Historically, dividends have been declared
semi-annually by Trudon and paid to its shareholders in
March and September. Through TSSA, we received net
dividends of €9.2 million, €11.1 million and €2.3 million
in 2006, 2007 and 2008, respectively. Trudon’s current
dividend policy is to distribute to its shareholders a
minimum of 50% of its annual net profits as dividends.
Trudon’s dividend policy cannot be changed without the
approval of the directors that were appointed by TSSA,
which is fully controlled by us. Trudon will have more
focus on the online media space in the future and we
expect Trudon’s operations to continue to grow and
have an increasingly significant impact on our results of
operations through future dividend payments.
Puerto Rico
Axesa Servicios de Información, S. en C. (“Axesa”) is
the leading directory publisher in Puerto Rico with an
estimated 99% share of the gross directory advertising
revenues in 2008. Axesa was first established in its
current form in 1999 by the Puerto Rico Telephone
Company (“PRTC”), Verizon Directories International
and Truvo. We currently beneficially own 39.6% of
Axesa. Local Insight Media (“LIM”), a company
controlled by private equity investors Welsh, Carson,
Anderson and Stowe, beneficially owns the remaining
59.4% stake through a separate entity, Caribe
Information Investments Incorporated (“Caribe”). Axesa
is organised as a limited partnership and is managed by
Axesa Servicios de Información, Inc., as its general
partner. We hold 40% and Caribe holds 60% of Axesa
Servicios de Información, Inc., which in turn holds the
remaining 1% in Axesa. We appoint two of the six
members of Axesa’s Board of Directors. The
arrangement has been concluded for a term of 95
years. The sale of interests in the partnership and the
general partner during the first ten years of the joint
venture are prohibited. Thereafter it requires the
cooperation of the other partners and is subject to preemptive rights of the other partners. Under the joint
venture arrangement, the partners are prohibited from
competing with Axesa in Puerto Rico and the U.S.
Virgin Islands during the life of the joint venture and two
years after its termination. The general partner of Axesa
is entitled to request the partners to make additional
financing available. The partners are not required to
make additional financial contributions, but their equity
interest may be diluted if they do not make such
contributions. Under an advisory agreement concluded
between Axesa and Truvo Belgium, Truvo Belgium
receives an advisory fee of 4% of Axesa’s revenues.
The annual cash dividend Axesa paid to us was €5.8
million, €4.1 million and €3.0 million in 2006, 2007 and
2008, respectively. In addition, in 2006, €1.8 million was
paid to us for capital reduction. The cash distribution policy
of the partnership is to distribute all available cash not
needed for the day-to-day operation of the business. No
change in the cash distribution policy can be made without
the agreement of all shareholders.
The shareholder agreement governing the Axesa joint
venture contains a change of control provision under which
each shareholder of the general partner of Axesa agrees
that it will not, without prior written consent of the other
shareholder, which shall not be unreasonably withheld, take
the following actions in relation to itself: (i) admit additional
partners, (ii) sell or issue shares of stock or (iii) grant an
interest in its equity or control.
Other information
Group management
Our organisation is designed to combine sales, marketing
and operations presence in the countries we operate in,
with the economies of scale and skill whenever appropriate.
Our corporate governance seeks to achieve business
excellence through sharing of expertise, implementation of
best practices and creation of synergies across the group.
The headquarter management develops our group strategy
and assists the management of our local operations in
executing strategic initiatives. Headquarter management is
also responsible for reviewing and approving unit business
plans, monitoring operating performance and ensuring that
know-how is shared between members of the different unit
management teams and their counterparts in our
headquarters. Business processes, policies and procedures
are formalised by the headquarter management and
implemented by the units. Audits are conducted to assure
compliance. The headquarter management also negotiates
and manages our joint venture relationships. In addition, it
provides legal, sales, marketing and business development
operations and information technology and purchasing
services. Currently, our headquarter team consists of 49
people.
Sales and marketing
The marketing of directory advertisements is primarily a
direct sales business that requires both maintaining existing
customers and developing new customers. Renewing
customers comprise our core advertiser base, and a large
number of these customers have advertised in our
directories for many years. Our high renewal rates in our
key markets reflect the importance of our directories to our
local customers for whom directory advertising is, in many
cases, the primary form of advertising.
We maintain a separate sales force in each of our markets
for our various sales channels. All our sales representatives
undergo an initial sales training, which is complemented by
an ongoing training program. Our customer database and
sales support software are key to the success of our sales
personnel. In addition, our key account managers and our
field sales force are equipped with notebooks and other
sales tools to support their sales activities while servicing
customers outside our offices.
We have introduced a new model of sales force
segmentation across our group. Our existing and potential
customers are now approached with a segment specific
combination of print and online advertising programs. We
constantly adapt our sales approach and develop tailormade solutions in order to capitalise on known trends and
56
to best serve our customers. Through the realignment
of our sales force and the introduction of customer
segmentation, we aim to improve customer retention,
increase ARPAs and improve new customer
acquisition.
The introduction of the new model of our sales force
has led to a significant decrease in the sales headcount
towards the end of 2008.
Production and distribution
Most pre-press work for our print directories, including
the production of advertisements, editorial work,
graphic design, directory compilation and pagination, is
completed in-house. All files are prepared in-house by
our business units and transmitted to their respective
printers ready for imposition and printing plate
processing. The final layout of our products is fully
automated. We print and review proofs of printed
products before publication to eliminate anomalies and
to allow changes prior to production.
The basic raw material for directories is paper. To
reduce risks, we have concluded long-term agreements
with two major European directory paper suppliers and
with an American supplier. There have been no
significant disruptions in the supply of paper to us for at
least 20 years. During the year ended December 31,
2008, we used approximately 21,100 tons of telephone
directory paper, the cost of which amounted to
approximately €15.5 million. In 2008, unit paper prices
were approximately 1.6% higher than in 2007.
All printing is outsourced to third-party printers. Since
2006, printing is centrally managed and controlled.
Truvo Belgium has its directories printed and bound by
Mohn Media in Germany under a contract, which
expires in December 2014. Truvo Ireland has also
entered into a contract with Mohn Media that expires in
2012. Each year, Pagini Aurii undertakes a tender
process for printers in Romania and elsewhere in
Europe for bids on its publishing contract for the
following year. Lisgrafica, a major Portuguese printer,
prints and binds Páginas Amarelas’ directories under a
recently extended contract that expires in December
2014.
Depending on the geographic market we either
distribute our directories ourselves or contract with local
and national distributors for the delivery and distribution
of our directories to residents and businesses with fixed
telephone lines. Truvo Belgium contracts with
approximately 1,150 individuals for the distribution of its
directories. Truvo Ireland relies exclusively on an
external distribution company for the distribution of the
directories in Ireland (see “Risk factors - Risks related
to our business - We rely on third-party providers for
printing, distribution, delivery services and revenue
collection”). In Romania, Pagini Aurii’s directories are
primarily distributed by the incumbent telephone
operator, Rom Telecom. Pagini Aurii distributes on its
own Bucharest Yellow and Contact B2B, leverages its
sales force for part of the distribution and shares the
door-to-door distribution with Rom Telecom. Páginas
Amarelas relies predominantly on two contractors for
the distribution of the directories in Portugal.
Billing and credit management
Truvo Belgium and Truvo Ireland invoice and collect
their revenues directly from their customers. Páginas
Amarelas invoices almost all its customers indirectly via
Portugal Telecom. Portugal Telecom charges Páginas
Amarelas’ customers and reimburses Páginas Amarelas in
twelve monthly instalments (net of 2% retention). Portugal
Telecom generally passes on the collection risk of
outstanding invoices and debits Páginas Amarelas for
uncollected invoices, which are periodically settled by
netting against retentions held by PT. Most of our net
operating revenues are derived from selling advertising and
listings to small- and medium-sized businesses. In the
ordinary course of our business, we extend credit to these
customers to purchase advertising and listings. Small- and
medium-sized businesses tend to have fewer financial
resources and higher financial failure rates than large
businesses. We believe these limitations cause some
customers in any given year not to pay for their purchases
promptly or at all. In addition, full collection of late payments
can take an extended period of time and consume
additional resources. In 2008 we provided for reserves in
the amount of approximately 2.0% of our net operating
revenues in connection with bad debt collection.
Systems, databases and information technology
Our key business processes are highly automated, and we
believe that our information systems are key operational
management assets. Our information systems are an
integral part of our business processes and support
systems and we use them to help sell and deliver our
products and to maintain our databases. Our advertiser
database enables us to identify market potential and
allocate advertisers to appropriate sales channels, develop
sales campaigns and compile advertiser data for use by our
sales force.
We maintain extensive, high-quality proprietary databases
of all businesses and residential listings in the countries in
which we operate. The principal sources of information for
our databases are records generated and maintained by
national telephone operators and lists from chambers of
commerce, third-party contractors and other licensed
telecommunication operators. We believe that our efforts to
maintain accurate and comprehensive databases provide
us with a competitive advantage and enable us to succeed
as a multi-media supplier of business information.
In 2008, we continued to centralise IT services and
operations in order to maintain and improve efficiency in
delivery and stability of the systems. Central IT services are
provided by Truvo HQ (strategy, program, project
management and some IT operations) and by Truvo
Services & Technology (formerly Truvo Technology), our
central in-house information technology (“IT”) development
company. Truvo Services & Technology provides IT
development, maintenance and support services of existing
systems and customises third party software for most of our
group companies.
Together with the local IT departments we developed and
deployed mainly the following projects: CRM/workflow
platform for sales and back office functions; a search
engine advertisement campaign management console and
a search engine advertisement campaign budget
management platform; an extranet (advertiser lounge) for
our customers and a marketing datawarehouse to support
our internal marketing and sales preparation departments.
In the infrastructure and IT operations area, we deployed a
central software deployment package; IP telephony started
to be and a group-wide video conferencing system was
deployed in all main Truvo locations.
57
We spent approximately €13.9 million in 2008
(operating expenses) on information technology, and
employed an average of 124 FTE in our IT function.
Intellectual property
We have registered various trademarks and own trade
names and copyrights in the jurisdictions in which we
operate. In certain jurisdictions, our intellectual property
includes well-recognised trademarks such as the
“walking fingers” and the trademark for the colour
yellow used in the publication of our classified
directories. We have registered the following
trademarks, among others:
•
In the Benelux, our primary registered trademarks
include Gouden Gids, Pages d’Or, Golden Pages
and Truvo. We also have several related trade
names registered in Belgium. In the Benelux, we
have further registered the use of the colour yellow
in the publication of classified directories, the
“walking fingers” logo, the names Gouden Gids
and certain other trade names and trademarks.
•
In Romania, we own the relevant trademarks such as
Pagini Aurii and the “walking fingers” logo.
•
In Ireland, we have registered the trademark for the
name Golden Pages.
•
In Portugal, we have registered the trademark Páginas
Amarelas and the associated “walking fingers” logo.
Properties
We lease offices in all our key markets to enable our sales
force to service a large customer base. Our facilities meet
our present requirements, are well maintained and are
suitable for their intended use.
Employees
The following table sets forth the number of our employees
(excluding the employees of our minority interests in South
Africa and Puerto Rico and the discontinued operations) for
2008 and 2007:
Average weighted number of FTEs per entity
Year ended December 31,
2008
2007
707
749
296
298
328
334
35
33
49
60
484
472
1,899
1,946
Truvo Belgium
Truvo Ireland
Pagini Aurii
Truvo Technology
Headquarters
Páginas Amarelas
Total average weighted number of FTEs
In addition we have had and continue to have a number
of temporary employees. We also maintain a delivery
force of about 1,150 agents in Belgium, which we use
for the delivery of our print directories during seasonal
peaks. We hire these agents on a short-term basis only.
Material legal proceedings and commercial
disputes
We are involved in a number of legal proceedings and
commercial disputes, the following of which is
substantial in nature and may potentially adversely
affect our business.
•
Van Remmerden Beheer B.V. and its subsidiary
Just Voice B.V. have started a summary
proceeding against Truvo Nederland claiming
approximately €3.7 million for breach of contract.
Truvo Nederland entered into a data license
agreement with Van Remmerden Beheer B.V. for
the Gouden Gids database and a memorandum of
understanding with Just Voice B.V. of voice
automated directory services. The data license
agreement is conditioned upon the signing of a call
option agreement and the memorandum of
understanding has a non-binding clause, which
says that parties are free until an agreement has
been negotiated and duly signed. Truvo Nederland
won the summary proceedings. Van Remmerden
Beheer B.V. and Just Voice B.V. have now started
a full proceeding and another summary
proceeding that Truvo Nederland initially lost but
won in appeal in 2006. The proceedings continued
through 2007.
In 2008 in the case on the merits Truvo Nederland
won the Van Remmerden Beheer B.V. case but
was found liable towards Just Voice B.V. The
amount of damages however was not set by the
Court but was instead referred to separate
proceedings. These proceedings will commence in
2009. Truvo Nederland has meanwhile filed an appeal
in the Just Voice B.V. case. See also “Recent
developments – Divestiture of our operations in The
Netherlands”.
We believe that no other proceedings that we are involved
in as part of our business activities, either individually or in
the aggregate, are likely to have a material adverse effect
on our business, financial condition or results of operations.
Regulatory framework
European regulatory framework
Our flexibility to adjust prices for our products in our major
markets in the European Union is strongly affected by
European antitrust laws. European antitrust laws prohibit
the abuse of a dominant market position. An abuse may,
among others, occur when a business with a dominant
market position discriminates between its customers. In
particular, European antitrust laws restrict our pricing and
discounting policy. The pricing policy needs to be
transparent and non-discriminatory.
The regulatory framework on electronic communications
contains several relevant provisions with regard to the
publishing of telephone guides. Pursuant to Article 5(1)(a)
of directive 2002/22/EC, member states of the European
Union must ensure that at least one comprehensive
directory is available to end-users in a form approved by the
relevant authority, whether printed or electronic, or both,
and is updated on a regular basis (at least once a year).
Article 25(2) of directive 2002/22/EC provides: “Member
States shall ensure that all undertakings which assign
telephone numbers to subscribers meet all reasonable
requests to make available, for the purposes of the
provision of publicly available directory enquiry services and
58
directories, the relevant information in an agreed format
on terms which are fair, objective, cost oriented and
non-discriminatory”. The directive also requires that
subscribers must be informed prior to the publishing of
their names in any subscriber directory and must be
given the opportunity to determine whether their
personal data is included in such a directory.
Country specific regulatory framework
For certain aspects of regulatory issues relating to our
activities in our major markets, see “Business discussions Country overview”.
59
Meet the
management
Truvo Leadership Team
Set forth below is certain information concerning the
individuals that serve as the Truvo Leadership Team (the
executive officers of the Truvo group, functional heads
and country managers).
Name
Position
Donat Rétif
Marc C.F. Goegebuer
Chief Executive Officer
Chief Financial Officer
38
49
Gianluca Carrera
Pierre Gatz
Dirk J.W. van Neutegem
Peter Vandenheulen
Andrew J. White
Damien Wodak
Vice President New Media
Chief Technology Officer
Vice President Tax & Corporate Secretary
Vice President Human Resources
Vice President & Corporate Controller
Vice President of Strategy
35
47
45
45
60
32
Martine Bayens
David McGuffey
Shai Goldman
José Lema-Abreu
Managing Director Belgium (Truvo Belgium)
Managing Director Ireland (Truvo Ireland)
Managing Director Romania (Pagini Aurii)
Managing Director Portugal (Páginas Amarelas)
44
49
57
53
Donat Rétif has been appointed as Chief Executive
Officer in June 2008. Mr. Rétif joined Truvo as the
Managing Director of Truvo Belgium in 2005. Prior to his
return to Europe, he held the position of Vice President
Sales – West (California, Hawaii, and North West) with
Verizon, responsible for their west-coast revenue and
sales teams. Mr. Rétif also served with Verizon in Canada
and was associate Vice-President for Operations and
Business Development. Before joining Verizon he held
the Operations Director position in Truvo Belgium
following its merger with its direct competitor Belgacom
Directory Services (“Belgacom”). Mr. Rétif is also serving
as manager of Truvo Intermediate LLC.
Marc Goegebuer has been Chief Financial Officer of
Truvo since 2001. Mr. Goegebuer joined the Truvo group
in 1992 as the Finance Director of Truvo Belgium, where
he later became the Director of Operations. In 1999, he
became the Director of VNU’s Business Development
department. Prior to joining the Truvo group, he held
various finance management positions at Federal
Express, Digital Equipment and GTE. Mr. Goegebuer is
also serving as manager of Truvo Intermediate LLC.
Gianluca Carrera, Vice President New Media, has lead
the New Media Team since November 2008. Mr. Carrera
has a wide knowledge of the online world. In 2006, he
held the role of Vice President Operational Strategy,
Yahoo Europe. Prior to 2006, he was responsible for the
commercial strategy of Yahoo Search Marketing. Mr.
Carrera joined Yahoo when Overture, where he worked
as Managing Director Italy, was taken over by Yahoo. Mr.
Carrera started his career in the financial sector and
subsequently started his own commercial search engine.
Pierre Gatz started in July 2005 as Chief Information
Officer for Truvo and in 2008 he became Chief
Technology Officer. Mr. Gatz has been active before as
consultant, advisor and investor in electronic publishing.
He advised equity firms in London and New York. During
15 years, Mr. Gatz was Director and Partner of Bureau
Age
van Dijk Electronic Publishing, active in e-publishing
services.
Wim van Neutegem joined Truvo in April 2005 as Vice
President Tax & Treasury. In the second half of 2008, he
became also responsible for Legal Affairs. Prior to this
Mr. van Neutegem was Senior Vice President Tax with
VNU N.V., in that capacity he also served as Vice
President Tax of VNU World Directories, Inc. Prior to
joining VNU, Mr. van Neutegem held various tax positions
with Levi Strauss & Co., CarnaudMetalbox S.A., and
Coopers & Lybrand.
Peter Vandenheulen is a Vice President of Truvo, with
responsibility for Human Resources since June 2002.
Prior to joining Truvo he was Human Resources Director
for Coca-Cola’s European headquarters and
simultaneously divisional Human Resources Director for
Belgium, The Netherlands, Luxembourg and France. Mr.
Vandenheulen has also worked for R.J. Reynolds
Tobacco (Japan Tobacco Int’l).
Andrew White is Truvo’s Vice President & Corporate
Controller since June 2006. Mr. White was Chief
Financial Officer Europe and member of the executive
committee of ACNielsen Europe from 2001 until 2004.
Thereafter, he was Head of Finance in Europe for
Novellus Systems, Inc. Previously, Mr. White held various
senior international finance and general management
positions with Scientific Atlanta, Inc., Tektronix, Inc. and
in the pharmaceutical industry.
Damien Wodak was appointed Vice President of
Strategy during the second half of 2006. Mr. Wodak
joined Truvo in July 2005 as Director Business Planning
& Reporting. Mr. Wodak worked for Sensis Pty Ltd. from
2000 until 2005, where he was a member of the Senior
Leadership Team, and held positions in Marketing as well
as Strategy & Corporate Development. Prior to Sensis,
Mr. Wodak held various positions with Nestlé and
Schweppes Cottee’s.
60
Martine Bayens started in August 2008 as Managing
Director of Truvo Belgium. Mrs. Bayens joined the
directory business in 1999 and held different positions in
Sales, Online and Operations in Belgium as well as
Business Operations for the Truvo group. Prior to this,
Mrs. Bayens had held several positions in Sales at
Reuters and had headed the Reuters Belgium Sales
office. She also held the Global Head of Operations role
of the Fortis Merchant Banking division.
David McGuffey started in May 2008 as Managing
Director for Truvo Ireland. Mr. McGuffey joined us from
Verizon Information Services in the USA, where he was
Regional Vice-President for California. Prior to this, he
spent over eight years in Europe managing directory
businesses in Poland, the Czech Republic and Slovakia.
He has extensive experience of directory operations and
considerable achievement in managing sales growth.
Shai Goldman has served as the Managing Director of
Pagini Aurii since joining the company in July 2000. Prior
to joining Truvo, Mr. Goldman was a General Manager of
Reuben Carpets Chain and Senior Vice President of
Cables of Zion.
José Lema-Abreu started in March 2006 as Managing
Director of Páginas Amarelas. From 1982, Mr. Lema held
senior marketing and sales positions with ITT World
Directories in Puerto Rico. Later he was Marketing
Director and Deputy General Manager for World
Directories in Japan. Mr. Lema joined Truvo from Verizon
Information Services in the United States where he was
Vice President Sales.
The management of the Company and Truvo
Luxembourg S.à r.l.
The Company is owned 100% by Truvo Parent Corp.,
which has designated Donat Rétif and Marc Goegebuer
to serve as managers of the Company. Along with Mr.
Rétif and Mr. Goegebuer, Mr. Andrew Day (Chairman),
Mr. John Dercksen, Mr. Xavier Geismar, Mr. Tom Hall
and Mr. Brian Linden serve as directors of Truvo
Luxembourg S.à r.l., our ultimate holding company. Mr.
Thibaut Large, who was a director throughout 2008,
tendered his resignation on April 3, 2009, following his
resignation from Apax Partners.
Andrew Day was named Chairman in June 2008. Mr.
Day joined Truvo in October 2004 as Chief Executive
Officer of Truvo and held this position until May 31, 2008.
Mr. Day’s contract with Truvo expires on May 31, 2009.
Prior to his appointment as Chief Executive Officer of
Truvo, he was Chief Executive Officer of Sensis,
Australia’s predominant directory business, where he
spent the last five years shaping and implementing the
new strategy of Sensis. Mr. Day was also a Managing
Director of Telstra, an Australian telecommunication
company.
Cinven he has been involved in transactions that include
Numéricable / Completel, Amadeus, and Camaieu.
Tom Hall has been with Apax Partners since October
1998 and is a partner in the media team. After completing
his degree at Cambridge University, he worked at SG
Warburg and Deutsche Bank. At Apax Partners, Mr. Hall
has been involved in investments in The Future Network,
Thomson Directories, The Stationery Office, Trader
Media Group, 20 Minutes and Zeneus Pharma. He is also
a director of Trader Media Group.
Brian Linden has been with Cinven since 1985 and is a
partner. After completing a degree in business finance, he
worked at Deloitte & Touche. At Cinven, Mr. Linden has
been involved in transactions that include Springer,
Aprovia, NCP, Ziggo, MediMedia, Dynacast, IPC, and
Gardner Merchant. He is also a director of Resources for
Autism, Springer Science + Business Media S.A.
(formerly KAP Global Publishers S.A.), and Stampdew
Limited.
Management compensation
The objectives of our remuneration policy are to enable
us to attract, retain and motivate highly competent
executives to manage a complex international
organisation.
We believe that key executives and board members
should be rewarded in line with good market practice in
the industry, taking account of their international
responsibilities and their performance as measured
against predetermined targets, while recognising the
cultural and geographic diversity of our business.
We seek to provide key executives and board members
with pensions and related benefits that are in line with
good market practice for companies of comparable size in
our industry. Therefore, we have set up a management
equity participation plan as described below. The board
members are employed pursuant to permanent contracts,
which mandate a notice period prior to a member’s
resignation.
Management equity participation
Certain executives and board members have subscribed
and paid for 9.35% of the shares in Truvo Luxembourg
S.à r.l. pursuant to the terms and conditions contained in
the Shareholders Agreement. The management equity
participation plan was implemented in 2006, pursuant to
which a foundation holds shares for the benefit of certain
participating managers. In addition to these investments,
management and board members who acquire shares in
Truvo Luxembourg S.à r.l. will be entitled to a certain
profit share based upon on the performance of our
business.
John G.H. Dercksen is a founder and managing director
of Fidessa, a financial services company, having its head
office in Luxembourg. After completing his law degree at
Radboud University in The Netherlands he joined Volmac
Holding, a Dutch software company, as a legal counsel.
Prior to founding Fidessa he worked until 1998 as a
director of a Dutch private investment company.
Xavier Geismar has been with Cinven since 2001 and is
a partner. After completing a degree at HEC, he worked
at The Boston Consulting Group and Bankers Trust. At
61
Principal
shareholders and
corporate
structure
Our shareholders
Truvo Parent Corp. is the only participant in Truvo
Intermediate LLC. The sole shareholder of Truvo
Parent Corp. is Truvo Luxembourg S.à r.l.
The following table sets forth information with respect to
the beneficial ownership of the ordinary shares of Truvo
Luxembourg S.à r.l. The amounts and percentages of
ordinary shares beneficially owned by each shareholder
are reported on the basis of SEC rules governing the
determination of beneficial ownership, and the
information is not necessarily indicative of beneficial
ownership for any other purposes. Under such rules, a
person is deemed to be a beneficial owner of a security if
that person has or shares voting power, which includes the
power to vote or direct the voting of a security, or
investment power, which includes the power to dispose of
or direct the disposition of a security, and includes
securities for which a person holds the right to acquire
beneficial ownership within 60 days. Except as otherwise
indicated in the footnotes to the table below, we believe
each beneficial owner named in the table has sole voting or
investment power with respect to all ordinary shares
beneficially owned by that owner.
Name of beneficial owner
Percentage
Apax Europe V-A, L.P.
Apax Europe V-B, L.P.
Apax Europe V-C, GmbH & Co. KG
Apax Europe V-D, L.P.
Apax Europe V-E, L.P.
Apax Europe V-F, C.V.
Apax Europe V-G, C.V.
Apax Europe V-1, L.P.
Apax Europe V-2, L.P.
Third Cinven Fund (No.1) Limited Partnership
Third Cinven Fund (No.2) Limited Partnership
Third Cinven Fund (No.3) Limited Partnership
Third Cinven Fund (No.4) Limited Partnership
Third Cinven Fund (No.5) Limited Partnership
Third Cinven Fund Dutch (No.1) Limited Partnership
Third Cinven Fund Dutch (No.2) Limited Partnership
Third Cinven Fund Dutch (No.3) Limited Partnership
Third Cinven Fund US (No.1) Limited Partnership
Third Cinven Fund US (No.2) Limited Partnership
Third Cinven Fund US (No.3) Limited Partnership
Third Cinven Fund US (No.4) Limited Partnership
Third Cinven Fund US (No.5) Limited Partnership
Cinven Nominees Limited
Other(1)
31.3%
5.6%
3.2%
4.2%
4.2%
0.7%
0.7%
0.02%
0.02%
6.4%
6.8%
1.7%
7.7%
5.8%
0.3%
1.0%
0.7%
3.3%
5.5%
3.1%
3.7%
3.7%
0.3%
0.1%
(1)
Stichting MEP Hugh MacGaillivray Langmuir, Hans Peter Gangsted, Oliver Frey, Christian Dosch, Vincent Aslangul, Nicolas Paulmier, and Sonja Mikic.
In addition to the ordinary shares, the following
instruments have been issued:
same terms as the CPECs. However, the NYPECs may not
be converted into ordinary shares.
Truvo Luxembourg S.à r.l. issued convertible preferred
equity certificates (“CPECs”) and no yield preferred
equity certificates (“NYPECs”) to its shareholders. Our
beneficial shareholders hold the CPECs and NYPECs,
in each case, pro rata for their shareholdings in Truvo
Luxembourg S.à r.l. The CPECs will mature in 2053.
They are subordinated to all present and future
obligations of Truvo Luxembourg S.à r.l. Under certain
circumstances Truvo Luxembourg S.à r.l. shall have a
right to convert the CPECs into ordinary shares of
Truvo Luxembourg S.à r.l. A liquidation of Truvo
Luxembourg S.à r.l. would require the consent of the
holders of two thirds of the then outstanding CPECs.
The NYPECS bear no interest. They have generally the
Truvo Parent Corp. issued preferred stock to our beneficial
shareholders. As in the case of the CPECs and NYPECs,
our beneficial shareholders hold the preferred stock pro rata
for their shareholding in Truvo Luxembourg S.à r.l. The
preferred stock has a coupon of 10% per annum and
matures in 2104.
The aggregate principal amount of CPECs, NYPECs, and
preferred stock is approximately €615 million.
All payments under the CPECs, NYPECs and preferred
stock shall only be made by the respective issuer to the
extent the respective issuer has sufficient funds available to
62
pay its liabilities to all other ordinary and subordinated
creditors.
details on the Shareholders Agreement, see “Certain
relationships and transactions”.
Shareholders agreement
Our corporate structure
The ultimate beneficial owners of our ordinary shares
have entered into a Shareholders Agreement. For
The following diagram sets forth a summary of the
corporate structure, including our interests in certain
affiliates (as at December 31, 2008).
Shareholders
100%
Truvo Luxembourg S.à r.l.
(Luxembourg)
100%
Truvo Parent Corp.
(Delaware - USA)
100%
Truvo Intermediate LLC
(Delaware - USA)
100%
Truvo Subsidiary Corp.
(Delaware - USA)
100%
US Virgin Islands - Registered to do business
Truvo Acquisition Corp.
(Delaware - USA)
100%
100%
Truvo USA Inc.
(Delaware - USA)
100%
Axesa Servicios de
Información Inc.
(Puerto - Rico) (5)
40 %
Truvo Media
Holdings LLC
(USA)
(Delaware LLC)
Truvo Information
Holdings LLC
(USA)
(Delaware LLC)
1%
74.71 %
Axesa Servicios de
Información S en C
(Mercantile
Partnership)
(Puerto Rico) (6)
39.6 %
Truvo Belgium
Comm. V
(Belgium )
10
0%
cross-shareholding 25.29%
99.99%
100%
Truvo Services SouthAfrica (Pty) Ltd.
(South Africa) (7)
Páginas Amarelas
SA
(Portugal) (1)
Servicios
Tecnicos
Desenvolvimento
Lda
(Portugal )
(9)
100%
49.975 %
Truvo
Corporate
CVBA
(Belgium )
Truvo Services
B.V.
(The Netherlands)
95 %
35.1 %
100%
Truvo
Curaçao N.V.
(Curaçao)
100%
Trudon (Pty) Ltd.
(Joint Venture)
(South Africa) (8)
99.8 %
Truvo Portugal
Holdings B.V. (The
Netherlands) (10)
Truvo Technology
B.V.
(The Netherlands)
10
0%
Directory Systems
Europe B.V.
(The Netherlands)
20.74 %
Truvo Dutch
Holdings B.V.
(The Netherlands)
5%
Truvo Ireland Holdings B.V.
(The Netherlands)
100 %
100 %
78.45 %
100%
Pagini Aurii SA
(Romania) (2)
100 %
Truvo Ireland Ltd.
(Ireland) (4)
100%
Golden
Pages Ltd.
(dormant)
(Ireland) (4)
Truvo Nederland
Holdings B.V.
(The Netherlands)
Truvo
Technologies
SRL (13)
(Romania)
99.436%
100%
Yellow Pages
Ltd.
(dormant)
(Ireland)
Truvo Nederland B.V.
(The Netherlands) (3)
(11)
100%
YelloYello B.V.
( The Netherlands )
(12)
63
(1)
The shareholders of Páginas Amarelas are: Truvo Services B.V., holding 199,900 ordinary shares and all 400,000 class A shares; Truvo Intermediate LLC,
holding 100 ordinary shares; Portugal Telecom SGPS, S.A., holding 199,000 ordinary shares; and Portugal Telecom Prime, holding 1,000 ordinary shares.
(2)
The shareholders of Pagini Aurii are: Truvo Services B.V., holding 78.45%; Directory Systems Europe B.V., holding 20.74%; Rom Telecom, holding
0.5452%; Pro Entertainment & Media SRL, holding 0.2617%; and two other shareholders with one share each.
(3)
The shareholders of Truvo Nederland are Truvo Nederland Holdings B.V., holding 99.436%; Quitina Thingera and Brimera Thingera, holding 10
unnumbered shares; John Philip Cheottle, holding two unnumbered shares; and the remaining shares held by unknown shareholders.
(4)
On July 20, 2007, Golden Pages Ltd. created Truvo Ireland Ltd. As a result of the rebranding in October 2007, both companies swapped names and the
operating unit in Ireland was named Truvo Ireland Ltd.
(5)
In the course of 2006, the company Verizon Información Services Incorporado changed its name into Axesa Servicios de Información, Inc. and the
shareholders are: Truvo USA, Inc., holding 40%; and Caribe Media, Inc. (formerly Caribe Information Investments, Inc.), holding 60% (a Welsh, Carson,
Anderson & Stowe subsidiary).
(6)
In the course of 2006, VIS-PR changed its name to Axesa Servicios de Información S. en C. and the shareholders are (the mercantile partnership): Truvo
USA, Inc., holding 39.6%; Axesa Servicios de Información, Inc., holding 1%; and Caribe Media, Inc., holding 59.4% (a Welsh, Carson, Anderson & Stowe
subsidiary).
(7)
On August 1, 2007, Truvo Dutch Holdings B.V. acquired the remaining 5% of the Truvo Services South Africa (Pty) Ltd. (Maister Directories (1981) (Pty)
Ltd. changed its name on July 29, 2008) shareholding. The shareholders of Truvo Services South Africa (Pty) Ltd. are: Truvo Belgium Comm. V, holding
95%; and Truvo Dutch Holdings B.V., holding 5%.
(8)
The shareholders of Trudon (Pty) Ltd. (TDS Directory Operations (Pty) Ltd. changed its name on December 17, 2008) are: Telkom, holding 64.9%; and
Truvo Services South Africa (Pty) Ltd., holding 35.1%.
(9)
The remaining shareholder in Serviços Técnicos e Desenvolvimento Lda is Truvo Media Holdings LLC, holding 0.2% of the shares.
(10)
On November 26, 2007, Truvo Services B.V. incorporated a new holding company, Truvo Portugal Holdings B.V.
(11)
On September 3, 2008, through a demerger operation, all operating activities were moved into a new company called “ Gouden Gids B.V.”. This new
company was on September 16, 2008 - together with ClearSense B.V. - sold to European Directories.
(12)
On December 10, 2008, the company YelloYello B.V. was acquired.
(13)
On June 23, 2008, the company changed its name to Truvo Technologies SRL.
(14)
During the first quarter of 2008, the dormant company World Directories Ireland Ltd. was struck off by the Company Registration Office in Ireland.
(15)
As at January 1, 2009 Truvo Services B.V. and Truvo Technology B.V. merged – the name of the new company is Truvo Services & Technology B.V.
64
Certain
relationships
and transactions
Shareholders agreement
Our joint ventures
The Sponsors entered into a subscription and
shareholders agreement (the “Shareholders Agreement”)
in their capacity as shareholders of Truvo Luxembourg
S.à r.l. In particular, the Shareholders Agreement
provides for:
For a description of our joint ventures and certain
contracts and fee arrangements in connection therewith,
see “Business discussions – Country overview”.
•
the board representation of the Sponsors and voting
and quorum requirements;
•
pre-emptive rights of the shareholders in connection
with increases in the capital of Truvo Luxembourg
S.à r.l. (with certain exceptions, including for
example for increases to implement the
management equity investment program or to cure
events of default under the Senior Facilities or
certain other financial indebtedness);
•
the shareholders’ intention to achieve an exit in the
form of a sale or an initial public offering of the
shares of Truvo Luxembourg S.à r.l. or another
group entity;
•
restrictions on the transferability of the shareholders’
shares and other investments in Truvo Luxembourg
S.à r.l.; and
•
tag-along and drag-along rights of shareholders of
Truvo Luxembourg S.à r.l., subject to customary
exceptions.
Our chairman is a party to the Shareholders Agreement
and all members of our management who have become
shareholders are also required to adhere to the
Shareholders Agreement. In the year 2006, a foundation
entered into the Shareholders Agreement representing
members of the management (Stichting Management
WD).
The Sponsors are entitled to a total annual monitoring net
fee of approximately €0.5 million (in 2008 - to be
increased in line with the applicable retail prices index).
Management equity participation
In 2006, we implemented a management equity
participation plan, pursuant to which a foundation holds
shares for the benefit of certain participating managers.
For details, see “Meet the management”.
Transactions with certain affiliates
In connection with our joint ventures in South Africa and
Puerto Rico (see “Business discussions – Country
overview”), we have entered into the following
transactions with our South African and Puerto Rican
associates.
South Africa
Truvo granted an exclusive license to Truvo Services
South Africa (Pty) Ltd. (“TSSA” and formerly Maister
Directories (1981) (Pty) Ltd.) to use certain intellectual
property rights related to the directory business and to
sub-license such intellectual property to Trudon.
Meanwhile, Truvo has transferred its intellectual property
and its shares in TSSA to Truvo Belgium Comm. V. TSSA
pays as royalties to Truvo Belgium a sum equal to 3% of
Trudon’s gross sales arising out of the publication of the
paper directories of Telkom, South Africa’s incumbent
telephone operator, and 3% of Trudon’s gross sales
arising out of any other Trudon business. Based on this
license agreement, TSSA granted an exclusive license to
Trudon to use its own intellectual property and has sublicensed Truvo’s interest in Truvo Belgium’s intellectual
property to Trudon. Trudon pays as royalties 3.5% of its
gross sales arising out of the publication of Telkom’s
paper directories and 3.5% of its gross sales arising out
of its other businesses to TSSA.
Puerto Rico
Truvo Belgium and Axesa have entered into an advisory
agreement, pursuant to which Truvo Belgium advises and
assists Axesa in conducting its business. In 2008 Truvo
Belgium received an advisory fee of 4% of Axesa’s gross
revenues in consideration for its services. The agreement
remains in force for as long as Truvo or an affiliate has
more than a 20% interest in Axesa. In addition, Truvo
Belgium granted Axesa a non-exclusive royalty-free
license under a license agreement to use certain of Truvo
Belgium’s software for Axesa’s directory business.
65
Description of
indebtedness
The following contains a summary of the material
provisions of the Senior Facility Agreement, the Senior
Notes, the PIK Facility Agreement and the Intercreditor
Agreement and certain other instruments or facilities. It
does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, the underlying
documents. A summary of such terms is available on
request from the Company.
requirements of the European Central Bank or certain
rules of the Bank of England and/or the Financial
Services Authority, as applicable; and
ii.
Senior Facilities
Senior Facilities amounting to €1,025 million were
made available under the Senior Facility Agreement
dated May 23, 2007 between, amongst others, Truvo
Acquisition Corp. and the other borrowers thereunder,
JPMorgan Europe Ltd. as facility agent and security
agent and the lender parties thereto (the “Senior Facility
Agreement”). The Senior Facilities comprise of two term
facilities of up to €975 million and a revolving credit
facility of up to €50 million (the “Revolving Credit
Facility”).
The total proceeds of Facility 1 and Facility 2 were used
to repay all outstanding borrowings under the 2004
Senior Facilities on May 29, 2007.
Structure
At December 31, 2008, the Senior Facilities consisted
of (after redemptions):
i.
a Term Facility 1 in the principal amount of €648
million repayable in full on May 31, 2014;
ii.
a Term Facility 2 in the principal amount of €287
million repayable in full on May 31, 2014; and
iii.
a multicurrency Revolving Credit Facility in
maximum principal amount of €50 million available
until November 30, 2013.
Revolving Credit Facility
The Revolving Credit Facility is available to Truvo
Services & Technology B.V. (formerly Truvo Services
B.V.). Any amount drawn under the Revolving Credit
Facility may be used to finance the general corporate
purposes of Truvo Acquisition Corp. and its restricted
subsidiaries (the “Group”) including working capital
requirements of the Group. The Revolving Credit
Facility can be made available in the form of
multicurrency advances up to a maximum aggregate
amount of €50 million or in the form of ancillary
facilities, letters of credit and/or bank guarantees. As of
December 31, 2008, no amounts were drawn under the
Revolving Credit Facility.
Interest rates and fees
The interest rate on each advance under the Senior
Facilities is EURIBOR or LIBOR plus a margin of 2.00%
per annum. An annual commitment fee of 0.50% is
payable on unused amounts available under the
Revolving Credit Facility. The above margin may be:
i.
increased by mandatory cost of the lenders
because of compliance with minimum reserve
reduced or increased in accordance with the ratio of
Senior indebtedness (less cash and cash equivalents
free and clear of any liens) to EBITDA and the
thresholds for the relevant facility set out in the Senior
Facility Agreement. Accordingly, the margin has been
reduced to 1.75% from August 29 till December 1 and
to 1.5% from December 1, 2008.
The margin adjustment is subject to readjustment if the
audited financial statements differ from the financial
statement delivered to the agent or in case of an event
of default.
Guarantees
Truvo Acquisition Corp., Truvo Belgium Comm. V, Truvo
Curaçao N.V, Truvo Services & Technology B.V., Truvo
Corporate CVBA, Truvo Dutch Holdings B.V., Truvo
Nederland Holdings B.V., Truvo Ireland Holdings B.V.,
Truvo Nederland B.V., Truvo Ireland Ltd. and Truvo USA,
Inc. are guarantors under the Senior Facility Agreement.
Each guarantor, subject to certain limitations set out in the
Senior Facility Agreement, irrevocably and unconditionally
jointly and severally guarantees to each lender the
performance of each other obligor’s obligations thereunder
and indemnifies each lender immediately on demand
against any cost, loss or liability suffered by that lender if
any payment obligation thereunder is or becomes
unenforceable, invalid or illegal. The amount of the cost,
loss or liability shall be equal to the amount, which that
lender would otherwise have been entitled to recover.
Such guarantee is a continuing guarantee and will extend to
the ultimate balance of sums payable by any obligor in
respect of its obligations thereunder, regardless of any
intermediate payment or discharge in whole or in part.
However, to comply with local laws, the obligations of each
U.S., Dutch, Dutch Antilles, Belgian and Irish guarantor are
subject to limitations under local laws as specified in the
Senior Facility Agreement.
Security
Obligations under the Senior Facility Agreement have the
benefit of first ranking security as follows:
•
Truvo Subsidiary Corp. grants a pledge of 65% of its
shares in Truvo Acquisition Corp., a lien in respect of
all personal property (excluding shares in group
companies) inclusive (but on a second ranking basis
as regards among others the Truvo Proceeds Loan) of
any intercompany loans and certain security in respect
of its bank accounts;
•
Truvo Acquisition Corp. grants a pledge of 65% of its
shares in Truvo USA, Inc., a lien in respect of all
personal property (excluding shares in group
companies) inclusive of all intercompany loans and its
bank accounts;
•
Truvo USA, Inc. grants certain security in respect of all
personal property (excluding shares in group
66
companies); security over all intercompany loans,
certain security over its intellectual property, its
bank accounts, and a pledge of 65% of its shares
in Truvo Belgium Comm. V;
•
•
•
•
Truvo Corporate CVBA grants certain security
over its bank accounts, its receivables (including
intercompany loans and insurance claims), and on
certain other business assets;
Truvo Belgium Comm. V grants certain security
over its bank accounts, its receivables (including
intercompany loans and insurance claims), its
intellectual property rights and on certain other
business assets and 65% of the shares in Truvo
Services & Technology B.V.;
Truvo Services & Technology B.V. grants a pledge
of 65% of the shares in Truvo Dutch Holdings
B.V., and over its shares in Truvo Curaçao N.V.
certain security over its bank accounts, its
receivables (including intercompany loans and
insurance claims), and on certain other movables;
Truvo Dutch Holdings B.V. grants a pledge over its
shares in Truvo Nederland Holdings B.V. and
Truvo Ireland Holdings B.V. and certain security
over its bank accounts and its receivables
(including intercompany loans and insurance
claims);
•
Truvo Nederland Holdings B.V. grants a pledge
over its shares in Truvo Nederland B.V.;
•
Truvo Ireland Holdings B.V. grants a pledge over
its shares in Truvo Ireland Ltd. and certain security
over its bank accounts;
•
Truvo Curaçao N.V. grants certain security over its
intercompany loans and its bank accounts;
•
Truvo Nederland B.V. grants certain security over
its bank accounts and certain IP; and
•
Truvo Ireland Ltd. grants certain security over all
of its properties and assets (including real
properties, plant and equipment areas and other
securities (other than shares in group companies),
intellectual property rights, receivables and bank
accounts).
Undertakings
The Senior Facilities contain covenants restricting the
ability of Truvo Acquisition Corp. and its subsidiaries to,
among other things, incur additional indebtedness, pay
dividends or make other distributions or repurchase or
redeem their stock, make investments or certain other
restricted payments, create liens, enter into certain
transactions with affiliates, sell, lease, transfer or
otherwise dispose of certain assets, enter into
agreements that restrict the restricted subsidiaries’
ability to pay dividends, and consolidate, merge or sell
all or substantially all of their assets. The Senior Facility
Agreement contains no financial maintenance
covenants.
Prepayments
Truvo Acquisition Corp. may prepay advances under
the Senior Facilities at par at any time.
Events of default
The Senior Facility Agreement sets out certain events of
default customary for leveraged acquisition financings, the
occurrence of which allow the lenders to accelerate all
outstanding loans and terminate their commitments.
Maturity
All amounts outstanding under the Facilities 1 and 2 are
required to be repaid by May 31, 2014. All outstanding
loans under the Revolving Credit Facility and letters of
credit or bank guarantees thereunder shall be repaid by
November 30, 2013.
Senior Notes due 2014
Truvo Subsidiary Corp., our direct subsidiary, issued €395
1
million 8 /2% Senior Notes due December 1, 2014 and $200
3
million 8 /8% Senior Notes due December 1, 2014.
Ranking
The Senior Notes are senior obligations of Truvo Subsidiary
Corp. and rank equal in right of payment with all of Truvo
Subsidiary Corp.’s existing and future senior debt. The
Senior Notes rank senior to any of Truvo Subsidiary Corp.’s
existing or future indebtedness that is expressly
subordinated to the Senior Notes.
Truvo Intermediate LLC has provided a subordinated
guarantee in respect of the Senior Notes.
Subsidiary guarantees
The Senior Notes are guaranteed, subject to certain limits
imposed by local law, on a senior subordinated basis (the
“subsidiary guarantees”) by the following subsidiaries of
Truvo Subsidiary Corp. (together, the “subsidiary
guarantors”): Truvo Acquisition Corp., Truvo USA, Inc.,
Truvo Belgium Comm. V, Truvo Services & Technology
B.V., and Truvo Corporate CVBA.
The subsidiary guarantees given by the subsidiary
guarantors may be released in certain circumstances,
including upon the sale of a subsidiary guarantor, if certain
conditions are met. The obligations of each of the
subsidiary guarantors are limited as necessary under the
respective guarantee to prevent such guarantee constituting
a fraudulent conveyance under applicable law or otherwise
to reflect limitations under applicable law.
Security
The Senior Notes are secured by a second-ranking pledge
of certain shares of Truvo Acquisition Corp. and a firstranking pledge of certain of Truvo Subsidiary Corp.’s
assets.
The subsidiary guarantee of Truvo Acquisition Corp. is
secured by a second-ranking pledge of certain assets of
Truvo USA, Inc. and certain shares of Truvo Acquisition
Corp.
The subsidiary guarantee of Truvo USA, Inc. is secured by
a second-ranking pledge of certain shares of Truvo Belgium
Comm. V and certain assets of Truvo USA, Inc.
The security interests in favour of the Senior Notes and the
subsidiary guarantees of Truvo USA, Inc. and Truvo
Acquisition Corp. are subject to release under certain
circumstances.
Where the Senior Notes and the Senior Facilities share the
same security, such security is granted by the relevant
subsidiary guarantor as first ranking security. However,
other than in relation to the Truvo Acquisition Proceeds
67
Loan, via the Intercreditor Agreement, the Senior
Facilities are preferred which in effect makes the
security second ranking as regards the Senior Notes.
In addition, in the event any of Truvo Acquisition Corp.,
Truvo USA, Inc. or Truvo Belgium Comm. V is sold
pursuant to an enforcement action, any shares in such
companies not subject to the respective pledge
arrangements must also be sold to the prospective
purchaser of Truvo Acquisition Corp., Truvo USA, Inc.
or Truvo Belgium Comm. V.
The PIK Facility Agreement contains no financial
maintenance covenants.
Prepayments
Truvo Intermediate LLC may prepay the principal of the PIK
Facility in total or in multiples of €1,000,000, at the redemption price plus unpaid interest. The redemption price is:
•
100% if prepayment is before November 29, 2009;
•
102% if between November 29, 2009 and November
29, 2010;
Covenants
The indenture governing the Senior Notes contains
covenants which limit, among other things, Truvo
Subsidiary Corp.’s ability and the ability of its restricted
subsidiaries to incur or guarantee additional
indebtedness, pay dividends or make other distributions
or repurchase or redeem their stock, make investments
or other restricted payments, create liens, enter into
certain transactions with affiliates, enter into
agreements that restrict our restricted subsidiaries’
ability to pay dividends, and consolidate, merge or sell
all or substantially all of our assets. The indenture
governing the Senior Notes contains no financial
maintenance covenants.
•
101% if between November 29, 2010 and November
29, 2011; and
•
100% if on or after November 29, 2012.
PIK Facility
Maturity
All amounts outstanding under the PIK Facility are required
to be repaid by November 29, 2015.
A €130.2 million facility was made available to Truvo
Intermediate LLC pursuant to the PIK Facility
Agreement. The PIK Facility is due for repayment on
November 29, 2015. The total proceeds from the PIK
Facility have been used to prepay all outstanding
principal of the PIK Notes as of May 29, 2007.
Ranking
The amounts drawn under the PIK facility are senior
unsecured obligations of the Company and rank equally
with all of the company’s existing and future senior
unsecured debt and will be effectively subordinated in
right of payment to all existing and future indebtedness
and other liabilities and commitments of the company’s
subsidiaries and all secured indebtedness of the
company.
Interest rate
The interest rate of the PIK Facility is EURIBOR plus a
margin of 6%. After March 31, 2008, this margin may
be retroactively (to the beginning of the interest period)
increased by a ratchet margin of 1% if the ratio of all net
(external) borrowings (less cash and cash equivalents
free and clear of any lien) to EBITDA of the Company is
above certain thresholds at the end of a six-month
interest period. Interest is payable semi-annually in
arrears and will be payable, at the Company’s option: in
cash or through an addition to the principal amount of
the PIK Facility. To date, all interest payments have
been capitalised and the principal amount of the PIK
Facility as at December 31, 2008 was €152.7 million.
Undertakings
The PIK Facility contains covenants restricting the
ability of Truvo Intermediate LLC and its subsidiaries to,
among other things, incur or guarantee additional
indebtedness, pay dividends or make other distributions
or repurchase or redeem our stock, make investments
or other restricted payments, create liens, enter into
certain transactions with affiliates, and consolidate,
merge or sell all or substantially all of our assets.
Guarantees and security
The PIK Facility does not benefit from any guarantees or
security.
Events of default
The PIK Facility Agreement sets out certain events of
default customary for PIK instruments forming part of
leveraged acquisition financings, the occurrence of which
allow the lenders to accelerate all outstanding loans.
Intercreditor Agreement
In connection with the Senior Facilities, the Senior Notes
and the PIK Facility, we, our direct subsidiary Truvo
Subsidiary Corp. and the subsidiary guarantors entered into
the Intercreditor Agreement with the global coordinator and
lenders under the Senior Facility Agreement, the senior
agent and security agent under the Intercreditor Agreement,
and the trustee under the Senior Notes indenture and the
agent for the PIK Facility, among others.
The Intercreditor Agreement sets out:
•
the relative ranking of the indebtedness of the
Company and its subsidiaries;
•
when payments will be blocked in respect of certain
indebtedness;
•
when enforcement actions can be taken in respect of
certain indebtedness;
•
the terms pursuant to which certain indebtedness will
be subordinated upon the occurrence of certain
insolvency events;
•
turnover provisions; and
•
when guarantees and security will be released to
permit an enforcement sale.
Portuguese credit facility
A €42.4 million facility was made available to and fully
drawn by Páginas Amarelas, our Portuguese joint venture,
pursuant to a credit facility agreement dated May 2, 2000
(and amended on May 2, 2004 and May 2, 2008) between
Caixa Geral De Depósitos, S.A. (“CGD”) and Páginas
Amarelas (the “Portuguese credit facility”). As from the last
amendment date, the Portuguese credit facility expires on
April 30, 2013 and has to be repaid in 20 consecutive equal
68
instalments. As at December 31, 2008 €38.16 million
was outstanding under the facility.
Interest rate
As from the last amendment date, the interest rate on
the loan for each interest period is the sum of the threemonth EURIBOR, plus a margin of 1.375% and interest
is payable quarterly in arrears.
CGD will be entitled to capitalise any unpaid interest
every three months as well as any unpaid default
interest for a period of no less than one year. In the
case of a late payment, Páginas Amarelas shall pay as
default interest an additional 2% per annum.
Undertakings
The Portuguese credit facility agreement contains
certain covenants that require Páginas Amarelas to,
among other things, only use the funds for purposes
specified in the Portuguese credit facility, to inform
CGD of the occurrence of any event which might have
a material adverse effect on the net asset value of
Páginas Amarelas in a way that would reduce CGD’s
ability to be paid, and to inform CGD of any event likely
to jeopardise or prevent the fulfilment of the
undertakings under the Portuguese credit facility.
The Portuguese credit facility also contains affirmative
undertakings by Páginas Amarelas, including, but not
limited to, undertakings related to the crediting of the
amounts payable by Portugal Telecom under the
Páginas Amarelas joint venture to an account held with
CGD.
Supplemental indenture agreement
The company has entered into a supplemental
indenture among, Truvo Subsidiary Corp., Truvo
Belgium Comm. V, Truvo Services & Technology B.V.,
Truvo Corporate CVBA among others whereby it agrees to
become a parent guarantor and to unconditionally
guarantee all of Truvo Subsidiary Corp.’s obligations under
the Senior Notes.
Further intra-group loans
From Truvo Subsidiary Corp. the net proceeds of the Senior
Notes and funds received under an intercompany loan of
the PIK Facility proceeds have been onloaned to Truvo
Acquisition Corp., from Truvo Acquisition Corp. to Truvo
USA, Inc. and from Truvo USA, Inc. to other group
companies in various amounts.
Certain additional shareholder funding
The Company has received €415.0 million plus an
additional €47.5 million under an intra-group loan from
Truvo Parent Corp., the parent company of the Company,
which is subordinated to the Senior Facilities, the Senior
Notes and the PIK Facility. Such intra-group loan mirrors
the terms of an original shareholder note between Truvo
Luxembourg S.à r.l. as lender and Truvo Parent Corp. as
borrower on which all interest is rolled-up. Therefore, such
intra-group loan will accrete at a rate of 10% per annum,
compounded annually on each anniversary. As of
December 31, 2008, the outstanding principal amount of the
shareholders’ loan was €681.9 million. The maturity date of
such intra-group loan is 2104. The funds received by the
Company have been loaned to other group companies in
various amounts, in each case pursuant to an intra-group
loan mirroring key terms of the original shareholder note
(with the exception of the principal amount of the original
shareholder note).
69
Truvo Intermediate LLC
Consolidated Financial Statements
December 31, 2008
Contents financial statements 2008
Page
Consolidated statement of income
72
Consolidated statement of recognised income and expense
73
Consolidated balance sheet
74
Consolidated statement of changes in equity
76
Consolidated statement of cash flows
77
Notes to the consolidated financial statements
Corporate information
Change in accounting principles
Basis of presentation / Statement of compliance
Summary of significant accounting policies
Future changes in accounting policies
Critical accounting estimates and judgments
79
79
79
79
79
85
85
Business combinations and acquisition of minority interests
Segment information
86
88
Notes to the statement of income
Notes to the balance sheet
90
93
Commitments and contingencies
Related parties
Events after the balance sheet date
117
119
122
Auditor’s Report
123
71
CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31, 2008
in € thousands
Notes
2008
2007
2006
Net operating revenues
5
302,080
322,432
308,175
Other income
6
16,447
23,128
25,238
318,527
345,560
333,413
90,182
96,714
92,120
7,335
6,207
5,942
Revenues
Personnel costs - ordinary
Personnel costs - restructuring
Total personnel costs
7
97,517
102,921
98,062
Raw materials and purchased services
8
28,199
31,838
32,765
(2,821)
(4,302)
(3,587)
15
2,599
1,622
2,160
9
44,595
57,162
58,887
Total operating costs and expenses before
amortisation and impairment of intangible assets
170,089
189,241
188,287
Operating profit before amortisation and
impairment of intangible assets
148,438
156,319
145,126
Directories in progress and Internet expense deferrals
Depreciation of property, plant and equipment
Other operating expenses
Amortisation of other intangible assets
14
70,518
69,370
64,763
Impairment of intangible assets
14
660,865
13,131
-
(582,945)
73,818
80,363
Operating profit
Financial income
51,570
51,199
44,907
Financial expense
(213,356)
(238,954)
(218,333)
(187,755)
(173,426)
Results from financial income and expense
10
(161,786)
Share of result after tax of associates and joint
ventures
11
(159,448)
Profit/(loss) before tax
Income tax gain/(expense)
12
Profit/(loss) for the period from continuing
operations
Profit/(loss) for the period from discontinued
operations
Profit/(loss) for the period
13
7,839
12,598
(904,179)
(106,098)
(80,465)
57,125
36,193
12,630
(847,054)
(69,905)
(67,835)
(145,197)
(8,023)
9,891
(992,251)
(77,928)
(57,944)
(992,251)
(78,239)
(58,491)
Attributable to:
Equity holders of Truvo Intermediate LLC
Minority interests
-
311
547
72
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended December 31, 2008
in € thousands
Cash flow hedges gains/(losses) taken to equity
E xchange differences on translation of foreign
operations
A ctuarial gains/(l osses) on defined benefit plans group
Notes
24
25
A ncillary costs on defined benefit plans
Tax on items taken directly in or transferred to equity
A ctuarial gains/(l osses) on defined benefit plans associates - net of tax
P rofit/(loss) for the period from continuing
operations
P rofit/(loss) for the period from discontinued
operations
Net income/(expense) recognised directly in equity
P ro fit/(loss) for the period
Total recognised income and expense for the
period
2008
2007
(7,387)
(249)
(31,418)
(13,046)
(35,512)
(6,102)
15,466
17,125
(563)
12
3,900
(84)
(3,683)
2006
11,531
327
(7,999)
(1,071)
(360)
176
(42,641)
(1,956)
(14,352)
(1,455)
(15,477)
-
(44,096)
(17,433)
(14,352)
(992,251)
(77,928)
(57,944)
(1,036,347)
(95,361)
(72,296)
(1,036,347)
(95,838)
(72,625)
A ttributable to:
E quity holders of Truvo Intermediate LLC
Minority interests
-
477
329
73
CONSOLIDATED BALANCE SHEET
As at December 31, 2008
in € thousands
Notes
2008
2007
ASSETS
Non-current assets
Intangible assets
14
Goodwill
Other intangible assets
778,649
1,493,749
474,764
1,119,205
303,885
374,544
P ro perty, plant and equipment
15
5,667
5,000
Investments accounted for under the equity method
11
108,794
312,988
Deferred tax assets
12
69,663
49,985
Other financial assets
16
12,372
41,579
975,145
1,903,301
26,518
23,520
Total non-current assets
Current assets
Inventories and directories in progress
17
Inventories
Directories in progress
1,145
788
25,373
22,732
Trade and other receivable s
18
106,235
146,669
P re payments and accrued income
19
2,106
1,830
Other current assets
20
7,856
7,953
Derivative financial instruments
24
-
5,737
Cash and cash equi valents
21
230,148
36,039
372,863
221,748
-
427,064
1,348,008
2,552,113
Total current assets
A ssets classified as held for sale
TOTAL ASSETS
13
74
CONSOLIDATED BALANCE SHEET (CONTINUED)
As at December 31, 2008
in € thousands
Notes
2008
2007
E QUITY AND LIABILITIES
E quity attributable to equity holders of Truvo Intermediate LLC
S hare capital and addi tional paid-in capital
22
Issued share capital
A dditional paid-in capital
-
-
199,995
199,995
Reserves
Revaluation and other reserves
(80,411)
(36,315)
Retai ned earnings
(313,161)
(234,922)
P rofit/(loss) for the period
(992,251)
(78,239)
A mount recognised directly in equity relating to
assets held for sale
13
-
15,477
Total equity attributable to equity holders
of Truvo Intermediate LLC
(1,185,828)
(134,004)
Minority interests
22
Total equity
22
(1,185,621)
Financial liabilities
23
2,292,187
Derivative financial instruments
24
-
10,832
P ro visions
25
39,045
66,215
Deferred tax liabiliti es
12
92,629
117,972
Other long-term liabilities
26
4,472
4,200
2,428,333
2,403,966
207
207
(133,797)
Non-current liabilities
Total non-current liabilities
2,204,747
Current liabilities
Financial liabilities
23
Derivative financial instruments
(2,662)
30,564
5,182
-
P ro visions
25
1,297
4,437
Trade and other payables
27
15,651
25,093
Income tax payable
12
287
3,124
Other current liabilities
28
85,541
104,353
105,296
167,571
-
114,373
1,348,008
2,552,113
Total current liabilities
Liabi lities directly associated with the assets
classified as hel d for sale
TOTAL EQUITY AND LIABILITIE S
13
75
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at December 31, 2008
Issued share
Additional
capital paid-in capital
Revaluation
and other
reserves
Retained
earnings
Equity
Amount
recognised attributable to
directly in equity holders
of Truvo
equity relating
Intermeto assets held
diate LLC
for sale
Minority
interests
Total equity
in € thousands
Balance at December 31, 2006
-
199,995
(18,716)
(234,894)
-
(53,615)
1,266
(52,349)
Net income/(expense) recognised directly
in equity
Profit/(loss) for the year
-
-
(2,122)
-
(78,240)
-
(2,122)
(78,240)
166
311
(1,956)
(77,929)
Total recognised income/(expense) for
the year
Liabilities directly associated with the
assets classified as held for sale
Assets classified as held for sale
Other equity changes
-
-
(2,122)
(78,240)
-
(80,362)
477
(79,885)
-
-
(20,774)
5,297
-
(27)
Balance at December 31, 2007
-
199,995
(36,315)
(313,161)
15,477
(134,004)
207
(133,797)
Net income/(expense) recognised directly
in equity
Profit/(loss) for the year
-
-
(42,641)
(992,251)
-
(42,641)
(992,251)
-
(42,641)
(992,251)
Total recognised income/(expense) for
the year
Discontinued operations
-
-
(42,641)
(1,455)
(992,251)
-
(1,034,892)
(16,932)
-
(1,034,892)
(16,932)
Balance at December 31, 2008
-
199,995
(80,411)
(1,305,412)
(1,185,828)
207
(1,185,621)
20,774
(5,297)
-
(15,477)
-
(27)
(1,536)
(1,563)
76
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended December 31, 2008
in € thousands
2008
2007
2006
Operating activities
Profit/(loss) from continuing operations
(847,054)
(69,905)
(67,835)
159,448
(7,840)
(12,598)
Adjustments to reconcile profit/(loss) for the year
to net cash flows from operating activities
Share of result after tax of associates and joint ventures
Depreciation and impairment of property, plant and equipment
Amortisation of other intangible assets
Impairment of intangible assets
Gains/(losses) on disposal of property, plant and equipment
Results from financial income and expense
Movements in provisions (non-current)
Deferred tax assets and liabilities
2,599
1,622
2,161
70,518
69,370
64,763
660,865
13,131
397
129
124
161,786
187,754
173,426
-
(2,150)
(477)
(57,125)
(36,193)
(12,630)
876
Working capital adjustments
Increase/decrease in inventories and directories in progress
(2,998)
(4,428)
(3,757)
Increase/decrease in trade and other receivables
20,510
(14,221)
3,720
Increase/decrease in other current assets
(1,941)
(729)
(784)
Income tax paid
(7,764)
(6,172)
(2,087)
Other variations in income tax receivable/payable
(1,680)
2,925
9,257
Increase/decrease in trade and other payables
(5,147)
(1,351)
(1,871)
(15,133)
1,412
(3,899)
Income tax paid
(13,476)
(2,248)
-
Other activities
(3,997)
(1,824)
(6,897)
Increase/decrease in other current liabilities
Increase/decrease in related party positions - net :
Net cash flows from operating activities
117,658
130,955
141,969
Investing activities
Proceeds from the sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiaries, net of cash acquired
Acquisition of interests in associates and joint ventures
Divestiture of subsidiaries
Net cash flows used in investing activities
(273)
(34)
(123)
(3,386)
(1,480)
(2,286)
(13,964)
(15,837)
(5,514)
-
-
(3,201)
(10,628)
(10,756)
-
-
-
-
(28,251)
(28,107)
(11,124)
89,407
102,848
130,845
Net cash flows from operating activities
less net cash flows used in investing activities
77
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
For the year ended December 31, 2008
in € thousands
2008
2007
2006
89,407
102,848
130,845
11,384
22,696
24,102
-
17,991
Net cash flows from operating activities
less net cash flows used in investing activities
Financing activities
Dividends received from associates and joint ventures
Dividends received from discontinued operations
Dividends paid to minority interests
Interest income received
Interest expense paid
Interest rate swaps and interest rate currency swaps net
6,172
(109,573)
6,632
(238)
2,941
(119,510)
8,502
(465)
2,940
(105,441)
881
Net proceeds from borrowings
-
1,090,536
-
Repayment of borrowings
-
(1,145,609)
(77,730)
Loans with related parties and other financing
(2,712)
26,032
2,903
Net cash flows used in financing activities
(88,097)
(114,650)
(134,819)
1,310
(11,802)
(3,974)
191,368
(3,762)
192,678
(15,564)
Net increase/(decrease) in cash and cash equivalents
from continuing operations
Net increase/(decrease) in cash and cash equivalents
from discontinued operations
Net increase/(decrease) in cash and cash equivalents
Net foreign exchange differences
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
in € thousands
675
(3,299)
1,431
237
(1,541)
36,039
51,366
56,206
230,148
36,039
51,366
2008
2007
2006
(8,023)
9,891
Discontinued operations
Profit/(loss) for the year from discontinued operations
Impairment of intangible assets
(145,197)
144,407
-
-
Increase/decrease related party positions - net
Costs related to discontinued operations
17,103
41,128
12,909
-
-
Net cash flows from operating activities
17,103
33,105
22,800
790
Purchase of property, plant and equipment
and purchase of intangible assets
(5,501)
(1,682)
Proceeds from the sale of subsidiaries
282,860
-
(16,462)
-
Costs related to the sale of subsidiaries
(90,313)
-
-
192,547
(21,963)
(1,682)
Net cash flows provided for
(used in) investing activities
Interest income related to the sale of subsidiaries
Loans discontinued operations
Results from financial income and expense
Net cash flows used in financing activities
18,139
-
-
(35,556)
(17,120)
(3,823)
2,216
(16,620)
(18,282)
(14,904)
(20,443)
191,368
(3,762)
(865)
Net increase/(decrease) in cash and cash
equivalents from discontinued operations
675
78
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
1.
Corporate information
The consolidated financial statements of Truvo
Intermediate LLC (“Truvo” or the “Company”) for the year
ended December 31, 2008 were authorised for issue in
accordance with a resolution of Truvo Parent Corp.,
represented by the Managers D. Rétif and M. Goegebuer
on April 23, 2009. Truvo was incorporated under the laws
of Delaware on September 22, 2004. Its principal
executive offices are located at 222 East 41st Street,
Suite 801, New York, NY 10017-6702.
Truvo Intermediate LLC is a leading provider of classified
directory services and telephone directory advertising in
Belgium, Ireland, Romania and Portugal and has strategic
partnerships to provide these services in Puerto Rico and
South Africa. The Company’s principal source of
revenues is derived from advertisements published in its
directories. The Company publishes its directories either
pursuant to contracts with national telecommunications
providers or as an independent publisher. The Company
is also engaged in providing Internet advertising services
in addition to its published directories.
2.1 Change in accounting principles
In 2008, Truvo changed the accounting principles
regarding the revenue recognition of its associate Axesa
Servicios de Información, Inc. in Puerto Rico, to be able
to present more reliable and more relevant financial
information. This associate, managed by the controlling
shareholder Local Insight Media, is using the amortisation
method instead of the publication method (Truvo
accounting principle) for the recognition of print revenues.
Truvo applied the change in accounting principles
retrospectively and as a result recognised a €5.5 million
lower equity in the balance sheet 2008 (in 2007 equity
was €5.5 million lower). The difference in the share of
result after tax of associates in 2008 was €0.08 million (in
2007 €0.71 million).
2.2 Basis of preparation / Statement of compliance
General
The consolidated financial statements of Truvo
Intermediate LLC and all its subsidiaries (the statements
2008 with comparative figures 2007 and 2006) have been
prepared in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European
Union.
The consolidated financial statements have been
prepared on a historical cost basis, except for derivative
financial instruments, which have been measured at fair
value. The carrying values of recognised assets and
liabilities that are hedged items in fair value hedges, and
are otherwise carried at cost, are adjusted to record
changes in the fair value attributable to the risks that are
being hedged. The consolidated financial statements are
presented in Euros and all values are rounded to the
nearest (€000), except when otherwise indicated.
Going concern
Current economic conditions have created, and continue
to create, uncertainty in the markets in which we operate.
The Company’s forecasts and sensitivity analyses, which
take into account possible deterioration in trading
performance, indicate that the Company will continue to
be able to operate with its existing liquid resources and
facilities (see note 21 “Cash and cash equivalents” and
note 24 “Derivative financial instruments – Defaults and
breaches”).
Debt maturities occur at the earliest in 2014 and current
debt agreements contain no maintenance covenants. The
Company has an untapped financial revolving credit
facility (see note 23 “Financial liabilities”).
As a result of an impairment charge against goodwill and
other intangible assets based upon the impairment test
conducted as at December 31, 2008 (see note 14
“Intangible assets”), the Company is showing a significant
deficit on its retained earnings (see Consolidated
statement of changes in equity). The Company is
currently examining its alternatives to strengthen its
balance sheet and, as far as possible, improve the equity
situation.
The Managers of the Company have concluded, after
making suitable enquiries that the Company has
adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing these
consolidated financial statements.
2.3 Summary of significant accounting policies
The principal accounting policies applied in the
preparation of these consolidated financial statements are
set out below.
Principles of consolidation
The consolidated financial statements comprise the
accounts of Truvo Intermediate LLC and all its
subsidiaries using consistent accounting policies.
All intercompany balances, transactions and income and
expenses resulting from intercompany transactions
between consolidated companies are eliminated in full in
the consolidation.
Accounting for associates and joint ventures
The equity method of accounting is used for investments
in affiliates and joint ventures where Truvo has significant
influence but not control, usually supported by a share
holding of between 20% and 50% of the voting rights.
Accounting for acquisitions
Truvo uses the purchase method of accounting to
account for acquisitions of subsidiaries. The cost of an
acquisition is measured as the fair value of the assets
acquired, equity instruments issued and liabilities incurred
or assumed at the date of acquisition, plus costs directly
attributable to the acquisition. The excess of the costs of
acquisition over the fair value of the Company’s share of
identifiable assets, liabilities and contingent liabilities
acquired is recorded as goodwill.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which the Company obtains
control, and continue to be consolidated until the date
such control ceases.
Minority interests
Minority interests represent the portion of profit or loss
and net assets not held by the Company and are
79
presented in the consolidated statement of income and
within equity in the consolidated balance sheet,
separately from the equity attributable to the equity
holders of Truvo Intermediate LLC. Acquisitions of
minority interests are accounted for using the parent
entity extension method, whereby the difference between
the consideration and the book value of the share of the
net assets acquired is recognised as goodwill.
net fair value of the identifiable assets, liabilities and
contingent liabilities.
Foreign currency translation
Where goodwill forms part of a cash-generating unit and
part of the operations within that unit is disposed of, the
goodwill associated with this part is included in the
carrying amount when determining the gain or loss on
disposal of the operations. Goodwill disposed of in this
circumstance is measured based on the relative values of
the operations disposed of and the portion of the cashgenerating unit retained.
The consolidated financial statements are presented in
Euro, which is the Company’s functional and presentation
currency. Each entity in the group determines its own
functional currency, and items included in the financial
statements of each entity are measured using that
functional currency. Transactions in foreign currencies
are initially recorded in the functional currency rate of
exchange ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies
are translated at the functional currency rate of exchange
ruling at the balance sheet date.
All differences are taken to the consolidated statement of
income with the exception of differences on foreign
currency borrowings that provide a hedge against a net
investment in a foreign entity. These are taken directly to
equity until disposal of the net investment, at which time
they are recognised in the consolidated statement of
income. Tax charges and credits attributable to exchange
differences on those borrowings are also dealt with in
equity. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using
the exchange rates as at the dates of the initial
transactions. Non-monetary items measured at fair value
in a foreign currency are translated using the currency
exchange rates at the date when the fair value was
determined.
Some consolidated entities do not have the Euro as their
functional currency but instead have the US Dollar (USD),
South African Rand (ZAR) or Romanian Leu (RON). As at
the reporting date, the assets and liabilities of these
entities are translated into the presentation currency of
the group (the Euro) at the rate of exchange ruling at the
balance sheet date and their statements of income and
statements of cash flows are translated at the weighted
average exchange rates for the year. The exchange
differences arising on the translation are taken directly to
a separate component of equity. On disposal of a foreign
entity, the deferred cumulative amount recognised in
equity relating to that particular foreign operation is
recognised in the consolidated statement of income.
Use of estimates
The preparation of financial information requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as
well as the disclosure of assets and liabilities at the date
of the financial information and the reported amounts of
revenues and expenses during the reporting period.
Actual outcomes could differ from estimates. The areas
involving a higher degree of judgment or complexity, or
areas where assumptions and estimates are significant to
the consolidated financial statements, are disclosed in
note 2.5.
Intangible assets - goodwill
Goodwill acquired in a business combination is initially
measured at cost being the excess of the cost of the
business combination over the Company’s share in the
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of
impairment testing, goodwill is allocated to each of the
Company’s cash-generating units that are expected to
benefit from the synergies of the combination.
Intangible assets - other intangible assets
Other intangible assets acquired separately are
measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is its
fair value as at the date of acquisition. Following initial
recognition, other intangible assets are carried at cost
less any accumulated amortisation and impairment
losses. Internally generated other intangible assets,
excluding capitalised development costs, are not
capitalised and expensed in the consolidated statement
of income in the year in which they are incurred. The
useful lives of other intangible assets are assessed to be
either finite or indefinite. Intangible assets with finite lives
are amortised over the useful economic life and assessed
for impairment whenever there is an indication that the
asset may be impaired. The amortisation period and
method are reviewed at least on an annual basis.
Changes in the expected useful life or the expected
pattern of consumption of future economic benefits are
accounted for by changing the amortisation period or
method, and treated as changes in accounting estimates.
The amortisation expense is recognised in the
consolidated statement of income under the caption
“Amortisation of other intangible assets”.
Other intangible assets with indefinite useful lives are
tested for impairment annually either individually or at the
cash-generating unit level. Such intangibles are not
amortised. The useful life is reviewed annually to
determine whether indefinite life assessment continues to
be supportable.
More specifically the Company applies the following
accounting principles:
•
Publishing rights
The costs of acquired publishing rights are
capitalised for an amount that corresponds to the
estimated profitability of the investment, not
exceeding their acquisition cost. Publishing rights,
whose useful lives are determined to be finite, are
amortised on a straight-line basis over their
estimated useful lives.
•
Trademarks
Trademarks, acquired in a business combination,
are valued using the relief-from-royalty method. The
royalty rates vary with the license agreements
between the Company and its subsidiaries. Such
intangible assets are amortised over their estimated
useful lives, which are assumed not to exceed 20
years. Given the indefinite life of the trademarks
involved and the infinite horizon used to value them,
80
the Company considers a 20-year useful life as
reasonable.
•
•
Customer relationships
Advertising customer relationships with businesses
to advertise in yellow pages, white pages, Internet
directories or CDROM directories, acquired in a
business combination, are valued using the multiperiod excess earnings method (DCF based) over
the next 20 years. The DCF rates used vary with the
market share of the associated advertising customer
relationship and its profitability. The useful life is
determined either by legal or economic factors. The
amortisation method used shall reflect the pattern in
which the asset’s future economic benefits are
expected to be consumed. The Company considers
an 8-year useful life as appropriate.
Other intangible assets
Other intangible assets mainly consist of capitalised
software costs. Software is amortised on a straightline basis over its useful life, which does not exceed
five years.
Property, plant and equipment
Property, plant and equipment are stated at historical
cost, less accumulated depreciation and impairment
losses. Depreciation is calculated on a straight-line-basis
over the useful life of the assets and begins when the
asset is available for use. Depreciation is however not
calculated on land.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected. Any gain or loss arising on derecognition is
included in the statement of income in the year the asset
is derecognised.
Depreciation percentages for the most significant asset
categories are as follows:
In %
Leasehold improvements
10 - 20
Hardware
20 - 33 1/3
Furniture and equipment
10 - 33 1/3
Other tangible assets
10 - 25
The carrying values of property, plant and equipment are
reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be
recoverable. The asset’s residual values, useful lives and
depreciation methods are reviewed, and adjusted if
appropriate, at each financial year-end.
Investments in associates and joint ventures
The Company’s investments in associates and joint
ventures are accounted for under the equity method of
accounting. Under the equity method, the investment in
an associate or joint venture is carried in the balance
sheet at cost plus post-acquisition changes in the
Company’s share of net assets. Goodwill relating to an
associate or joint venture is included in the carrying
amount of the investment and is not amortised. After
application of the equity method, the Company
determines whether it is necessary to recognise any
additional impairment loss with respect to the Company’s
net investment in the associate or the joint venture. The
consolidated statement of income reflects the share of the
results of operations of the associate or the joint venture.
When the Company contributes or sells assets to a joint
venture or an associate, any portion of gain or loss from
the transaction is recognised based on the substance of
the transaction. When the Company purchases assets
from a joint venture or an associate, the Company does
not recognise its share of the profits of the joint venture or
the associate from the transaction until it resells the
assets to an independent party.
Impairment of non-financial assets
The Company established cash-generating units based
on its internal reporting structure. For purposes of testing
goodwill for impairment, goodwill has been allocated to
each generating unit to the fair value of the respective
units. For the purposes of assessing impairment of longlived assets, assets are grouped at the lowest levels for
which there are separately identifiable cash flows (cashgenerating units).
The Company assesses at each reporting date whether
there is an indication that an asset may be impaired. If
any such indication exists, or when annual impairment
testing for an asset is required, the Company makes an
estimate of the asset’s recoverable amount. An asset’s
recoverable amount is the higher of an asset’s or cashgenerating unit’s fair value less costs to sell and its value
in use and is determined for an individual asset, unless
the asset does not generate cash inflows that are largely
independent of those from other assets or groups of
assets. Where the carrying amount of an asset exceeds
its recoverable amount, the asset is considered impaired
and is written down to its recoverable amount. In
assessing value in use, the estimated future cash flows
are discounted to their present value using a post-tax
discount rate that reflects current market assessment of
the time value of money and the risks specific to the
asset. In determining fair value less costs to sell, an
appropriate valuation model is used. These calculations
are corroborated by valuation multiples or other fair value
indicators.
Impairment losses of continuing operations are
recognised in the consolidated statement of income in
those expense categories consistent with the function of
the impaired asset.
For assets excluding goodwill, an assessment is made at
each reporting date as to whether there is any indication
that previously recognised impairment losses may no
longer exist or may have decreased. If such indication
exists, the recoverable amount is estimated. A previously
recognised impairment loss is reversed only if there has
been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss
was recognised.
The following criteria are also applied in assessing
impairment of specific assets:
•
Goodwill
Goodwill is tested for impairment annually and when
circumstances indicate that the carrying value may
be impaired. Impairment losses relating to goodwill
cannot be reversed in future periods. Truvo performs
its annual impairment test of goodwill as at
December 31.
•
Associates and joint ventures
After application of the equity method, Truvo
determines whether it is necessary to recognise an
impairment loss of the Company’s investment in its
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associates and joint ventures. The Company
determines at each balance sheet date whether
there is any objective evidence that the investment
in the associate or joint venture is impaired.
Financial instruments
The Company’s financial instruments include cash and
cash equivalents, trade and other receivables, trade and
other payables, financial liabilities (senior facilities, senior
notes, PIK facility and shareholders’ loan) and derivative
financial instruments.
The fair value of financial instruments is generally
determined by reference to market prices resulting from
trading on a national securities exchange or in an overthe-counter market. In cases where quoted market prices
are not available, fair value is based on estimates using
present value or other valuation techniques.
These financial instruments potentially subject the
Company to concentrations of credit risk. Cash
equivalents and derivative financial instruments consist
primarily of highly liquid securities held with
acknowledged financial institutions and have original
maturities of three months or less. Trade and other
receivables are not collateralised. Truvo maintains
reserves for estimated credit losses and these losses
have generally been within management’s expectations.
See note 24 “Derivative financial instruments” for a
discussion of concentrations and counter party risk of
Truvo’s derivative financial instruments.
Other financial assets
The Company has only loans and receivables as financial
assets in the scope of IAS 39 (Financial instruments:
recognition and measurement). Financial assets are
recognised initially, at fair value, plus any directly
attributable transaction costs. Truvo determines the
classification of its financial assets after initial recognition
and, where allowed and appropriate, re-evaluates this
designation at each financial year-end.
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted
in an active market. Such assets are carried at amortised
cost using the effective interest rate method. Gains and
losses are recognised in the consolidated statement of
income when the loans and receivables are derecognised
or impaired, as well as through the amortisation process.
exchange rate fluctuations. Such derivative financial
instruments are initially recognised at fair value on the
balance sheet date and are carried as assets when the
fair value is positive and as liabilities when the fair value
is negative.
See note 24 “Derivative financial instruments” for
additional information regarding derivative financial
instruments held by the Company and the related risk
management strategies.
For derivative financial instruments that qualify for hedge
accounting, changes in the fair value are either offset
against the change in the fair value of the hedged assets,
liabilities or firm commitments through income, or
recognised in equity as a component of other reserves
until the hedged item is recognised in income, depending
on whether the derivative financial instrument is being
used to hedge changes in fair value, cash flows or net
investments in foreign operations.
The ineffective portion of a derivative financial
instrument’s change in fair value is immediately
recognised in the statement of income. The purpose of
hedge accounting is to match the impact of the hedged
item and the hedging instrument in the consolidated
statement of income or to match the movements in the
net investments due to currency differences with the
related hedging instruments in equity. To qualify for
hedge accounting, the hedging relationship must meet
strict conditions with respect to documentation, probability
of occurrence, hedge effectiveness and reliability of
measurement.
Transactions qualify as hedges if they were identified as
such and there was a negative correlation between the
hedging results and the results of the positions being
hedged.
The fair value of forward currency contracts is calculated
by reference to current forward exchange rates for
contracts with similar maturity profiles. The fair value of
currency and interest rate swap contracts is determined
by reference to market values for similar instruments.
For the purpose of hedge accounting, hedges are
classified as:
•
Fair value hedges when hedging the exposure to
changes in the fair value of a recognised asset or
liability. Fair value hedges are hedges of the
Company’s exposure to changes in the fair value of
a recognised asset or liability or an unrecognised
firm commitment that is attributable to a particular
risk and could affect the statement of income. For
fair value hedges, the carrying amount of the hedged
item is adjusted for gains and losses attributable to
the risk being hedged, the derivative is re-measured
at fair value and gains and losses from both are
taken to the statement of income.
•
Cash flow hedges when hedging exposure to
variability in cash flows that is either attributable to a
particular risk associated with a recognised asset or
liability or a forecast transaction. Cash flow hedges
are a hedge of the exposure to variability in cash
flows that is attributable to a particular risk
associated with a recognised asset or liability or a
highly probable forecast transaction and could affect
the statement of income. The effective portion of the
gain or loss on the hedging instrument is recognised
Financial liabilities
All loans and borrowings are initially recognised at the fair
value of the consideration received less directly
attributable transaction costs. After initial recognition,
interest-bearing loans and borrowings are subsequently
measured at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption
value is recognised in the consolidated statement of
income over the term of borrowings using the effective
interest rate method.
Gains and losses are recognised in the consolidated
statement of income when the liabilities are derecognised
as well as through the amortisation process.
Derivative financial instruments
The Company uses derivative financial instruments, such
as forward currency contracts, currency swaps and
interest rate swaps, principally to manage the risks
associated with interest rate and foreign currency
82
directly in equity, while the ineffective portion is
recognised in the statement of income.
•
Hedges of a net investment in a foreign operation,
including a hedge of a monetary item that is
accounted for as part of the net investment, are
accounted for in a way similar to cash flow hedges.
A hedge of a foreign currency risk of a firm commitment is
accounted for as a cash flow hedge.
Assets and liabilities classified as held for sale
Assets and liabilities are classified as held for sale if it is
highly probable that the carrying value will be recovered
through a sale transaction rather than through continuing
use. When reclassifying assets as held for sale, the
assets are recognised at the lower of the carrying value
or fair value less selling costs. Assets held for sale are
not depreciated but tested for impairment. Impairment
losses on assets and liabilities held for sale are
recognised in the consolidated statement of income.
Impairment of other financial assets
The Company assesses at each reporting date whether
there is an indication that any other financial asset may
be impaired.
If there is objective evidence that an impairment loss on
other financial assets, such as loans and receivables,
carried at amortised cost has been incurred, the loss is
measured as the difference between the asset’s carrying
amount and the present value of estimated future cash
flows discounted at the original effective interest rate. As
soon as the other financial asset is impaired, the carrying
amount of the asset is reduced through use of an
allowance account. The amount of the loss shall be
recognised in the consolidated statement of income.
For purposes of assessing impairment, assets are
grouped at the lowest level for which there are separately
identifiable cash flows. For an asset that does not
generate largely independent cash inflows, the
recoverable amount is determined for the cashgenerating unit to which the asset belongs.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is
reversed.
Leases
Finance leases, which transfer to the Company
substantially all the risks and rewards of ownership, are
capitalised at the inception of the lease at the fair value of
the leased asset or, if lower, at the present value of the
minimum lease payments. The long-term portion of the
committed payments less interest is included in financial
liabilities, while the short-term portion is included in other
current liabilities. Capitalised leased assets are
depreciated over the shorter of the estimated useful life of
the asset and the lease term, if there is no reasonable
certainty that the Company will obtain ownership by the
end of the lease term.
Operating lease payments are recognised as an expense
in the consolidated statement of income on a straight-line
basis over the term of the lease agreement.
Inventories and directories in progress
Inventories are valued at the lower of cost and net
realisable value. Net realisable value is the estimated
selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs
necessary to realise the sale.
Directories in progress includes incremental costs
associated with unpublished print directories and direct
costs associated with Internet products with remaining
contractual service as of the balance sheet date. Such
costs include the costs of soliciting advertising, order
processing, the production of print and online
advertisements, compiling, programming and printing.
Trade and other receivables
The reported values represent the invoiced amounts, less
adjustments for doubtful receivables. An estimate for the
allowances is made when collection of the full amount is
no longer probable.
Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and
in hand and deposits held at call with banks with a
remaining maturity of three months or less. Bank
overdrafts, which are not intended to be settled on a net
basis, are classified as a current liability.
For the purpose of the consolidated statement of cash
flows, bank overdrafts are included as a component of
cash and cash equivalents.
Provisions for risks and charges
Provisions are recognised when the Company has a
present legal or constructive obligation as a result of a
past event, it is probable that an outflow of economic
benefits will be required to settle the obligation and a
reliable estimate can be made of the amount of the
obligation. Where the Company expects some or all of a
provision to be reimbursed, the reimbursement is
recognised as a separate asset but only when the
reimbursement is virtually certain. The expense relating to
any provision is presented in the consolidated statement
of income net of any reimbursement. If the effect of the
time value of money is material, provisions are
discounted using a current pre-tax rate that reflects,
where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to
the passage of time is recognised as borrowing costs.
Pension plans and other post-employment benefits
Employee pension plans have been established in
countries in which the Company is active in accordance
with local policy and legal requirements.
Some of the plans are defined benefit plans and some
are defined contribution plans.
Defined benefit plans
The defined benefit liability is the aggregate of the
present value of the defined benefit obligation reduced by
past service cost not yet recognised and the fair value of
plan assets out of which the obligations are to be settled
directly. If the aggregate is negative, the asset is
measured at the lower of such aggregate or the
aggregate of past service cost and the present value of
any economic benefits available in the form of refunds
from the plan or reductions in the future contributions to
the plan (asset ceiling test).
Pension costs, in respect of defined benefit pension
plans, primarily represent the increase in the actuarial
83
present value of the obligation for pension benefits based
on employee service during the period and the interest on
this obligation in respect of the employee service in
previous periods, net of the expected return on plan
assets. Actuarial gains and losses are recognised
immediately in the statement of recognised income and
expense.
The cost of providing benefits under the defined benefit
plans is determined separately for each plan using the
projected unit credit (PUC) actuarial method.
The past service cost is recognised as an expense on a
straight-line basis over the average period until the
benefits become vested. If the benefits are already vested
immediately following the introduction of, or changes to, a
pension plan, past service cost is recognised
immediately.
Defined contribution plans
Certain employees of the Company are eligible to
participate in defined contribution plans. These
contribution plans do not give rise to balance sheet
provisions or assets, other than relating to short-term
timing differences, which are included respectively in
current liabilities and current assets.
transferred assets are measured at the lower of the
original carrying amount of the asset and the maximum
amount of consideration that the Company could be
required to repay.
Financial liabilities
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or expires.
Revenue recognition
Net operating revenues comprise the fair value of the
consideration received or receivable for the sale of goods
and services.
Revenue is recognised to the extent that it is probable
that the economic benefits associated with the transaction
will flow to the Company and the revenue can be reliably
measured. The following specific recognition criteria also
govern revenue recognition within the Company:
•
Print directories
Revenues from printed advertisements are
recognised on the date that the directories, in which
these advertisements are included, are published.
Consequently, sales of advertising space billed in
respect of future directories are stated in the balance
sheet under the heading “Other current liabilities”.
To be able to present more reliable financial
information, we follow for our associate Axesa the
amortisation method instead of the publication
method for the recognition of print revenues (spread
over the whole period).
•
Online
Revenues from the sale of advertising space in
online directories are recognised on a straight-line
basis over the period, in which the advertisement is
electronically available.
The Company recognises obligations for contributions to
defined contribution pension plans as expenses in the
consolidated statement of income as they are incurred.
Other post-employment benefits
In certain countries, in addition to providing pension
benefits, the Company provides other post-employment
benefits, primarily retiree healthcare benefits.
Additional information on pension and other postemployment benefit plans is contained in note 25
“Provisions”.
Provision for restructuring
Revenues are presented net of:
Provisions include reorganisation costs following
restructuring of businesses. Provisions for restructuring
as a result of an acquisition are only recognised as part of
the cost of the acquisition if the acquired company has an
existing liability for restructuring recognised before the
acquisition date.
•
Fees paid to incumbent telephone operators when
the Company is acting as an agent;
•
Allowances and adjustments for errors and faulty
insertions (returns);
•
Retention discounts given to large or loyal
customers (sales discounts);
•
Value-added taxes.
Derecognition of financial assets and liabilities
Financial assets
A financial asset is derecognised when:
•
The rights to receive cash flows from the asset have
expired;
•
The Company retains the right to receive cash flows
from the asset, but has assumed an obligation to
pay them in full without material delay to a third party
under a ”pass-through” arrangement; or
•
The Company has transferred its rights to receive
cash flows from the asset and either (a) has
transferred substantially all of the risks and rewards
of the asset, or (b) has transferred control of the
asset.
If the Company has transferred its rights to receive cash
flows from an asset and has neither transferred nor
retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is
recognised in proportion of the Company’s continuing
involvement in the asset. Guarantees related to
Research and development
Research costs are expensed as incurred. Development
costs of software are capitalised.
Borrowing costs
Borrowing costs are recognised as an expense in the
consolidated statement of income when incurred.
Income taxes
Truvo provides for income taxes utilising the asset and
liability method of accounting for income taxes.
•
Current tax receivable/payable
Current tax receivables and payables for the current
and prior periods are measured at the amount
expected to be recovered from or paid to the tax
authorities.
•
Deferred tax assets/liabilities
Deferred income taxes are recorded to reflect the tax
84
consequences in future years of differences between
the tax basis of assets and liabilities and their
financial reporting amounts at each balance sheet
date, based on enacted or substantially enacted tax
laws and statutory tax rates applicable to the periods
in which the differences are expected to affect
taxable income.
transitional requirements, the Company will adopt this as
a prospective change. Accordingly, borrowing costs will
be capitalised with a commencement date on or after
January 1, 2009. No changes will be made for borrowing
costs incurred to this date that have been expensed.
Deferred tax assets are recognised only to the extent that
it is probable that future taxable income will be available
against which the temporary differences can be utilised.
The amendment to IAS 27, “Consolidated and separate
financial statements”, providing further clarification on
accounting for non-controlling interests in subsidiaries in
the consolidated financial statements will become
effective as of 2010. The changes are not expected to
have a significant impact on the consolidated financial
statements.
The effect on deferred tax assets and liabilities of a
change in the tax rates is recognised in the consolidated
statement of income as an adjustment to income tax
expense in the period that includes the enactment or
substantial enactment date.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
•
•
Where the deferred tax liability arises from the initial
recognition of goodwill or of an asset or liability in a
transaction that is not a business combination; and
In respect of taxable temporary differences
associated with investments in subsidiaries, and
interests in associates and joint ventures, where the
timing of the reversal of the temporary differences
can be controlled and it is probable that the
temporary differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the
asset is realised or the liability is settled.
Income tax relating to items recognised directly in equity
is recognised in equity and not in the consolidated
statement of income.
Deferred tax assets and liabilities are offset, if a legally
enforceable right exists to set off tax assets against tax
liabilities and the deferred taxes relate to the same
taxable entity and the same tax authority.
2.4 Future changes in accounting policies
Several new IFRS accounting pronouncements were
issued, of which the Company assessed that the following
may potentially impact the Company’s consolidated
financial statements for 2009 and beyond:
IAS 1 (amendment) ”Presentation of financial statements”
The amendment to IAS 1, ”Presentation of financial
statements”, which introduces the requirement to report
total comprehensive income in either a single statement
or in a separate statement of total comprehensive income
will become effective as of 2009. It is already standard
practice at Truvo to provide a separate statement of
comprehensive income (currently called “consolidated
statement of recognised income and expense”) and the
Company will align this with the new requirements.
IAS 23 ”Borrowing costs”
The amendment to IAS 23 ”Borrowing costs” was issued
in March 2007, effective for financial years beginning on
or after January 1, 2009. The standard has been revised
to require capitalisation of borrowing costs when such
costs relate to a qualifying asset, which is an asset that
necessarily takes a substantial period of time to get ready
for its intended use or sale. In accordance with the
IAS 27 “Consolidated and separate financial statements”
IFRS 3 “Business Combinations”
The revised IFRS 3, “Business combinations”, will
become effective as of 2010. It introduces a number of
changes that will be relevant for the Company’s
operations:
•
The requirement that contingent consideration must
be measured at fair value with subsequent changes
in this value being recognised in the statement of
income;
•
The requirement to expense transaction costs for
business combinations when incurred;
•
Additional guidance for step-acquisitions and for the
measurement of non-controlling interests.
IFRIC 13 ”Customer loyalty programmes”
IFRIC Interpretation 13 ”Customer loyalty programmes”
was issued in June 2007 and becomes effective for
annual periods beginning on or after July 1, 2008. This
interpretation requires customer loyalty award credits to
be accounted for as a separate component of the sales
transaction in which they are granted and therefore part
of the fair value of the consideration received is allocated
to the award credits and deferred over the period that the
award credits are fulfilled. The Company expects that this
interpretation will have no impact on the financial
statements as no such schemes currently exist.
IFRIC 16 “Hedges of a net investment in a foreign
operation”
In 2008, the IASB issued IFRIC 16 “Hedges of a net
investment in a foreign operation”, which addresses the
foreign exchange risks from investments in foreign
operations that qualify for hedge accounting and how net
investment hedge accounting should be applied in the
consolidated financial statements. IFRIC 16 is effective
for annual periods beginning on or after October 1, 2008
and does not have a material effect on the consolidated
financial statements.
2.5 Critical accounting estimates and judgments
Estimates and judgments are continually evaluated and
are based on historical experience and other factors,
including expectations of future events that are believed
to be reasonable under the circumstances. The resulting
accounting estimates will, by definition, seldom equal the
related actual results.
Judgments
In the process of applying the Company’s accounting
policies, the following judgments have been made, apart
85
from those involving estimations, which have the most
significant effect on the amounts recognised in the
financial statements.
Deferred tax assets and liabilities are computed by
assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes.
Accounting treatment of our interest in Páginas Amarelas
Deferred tax assets are only recognised to the extent that
it is probable that future taxable profits will be available
against which the temporary differences can be utilised.
Management judgment is required to determine the
amount of the deferred tax assets that can be recognised,
based upon the likely timing and level of future taxable
profits together with future tax planning strategies taking
into account any unresolved tax risks.
The Company has a 75% economic interest in Páginas
Amarelas, a Portuguese company. Based on our analysis
of the agreement with the other shareholder, Portuguese
Telecom, we are of the opinion that we do not control
Páginas Amarelas, but that together with Portuguese
Telecom we jointly control this entity. As allowed by IAS
31 “Interests in joint ventures”, the Company is
recognising its interest in Páginas Amarelas using the
equity method.
Directories in progress
Revenue from printed advertisements is recognised on
the date that the directory in which these advertisements
are included is published. The related costs are
maintained in the balance sheet under the caption
“directories in progress” until the moment revenue is
recognised. An important part of these costs are incurred
by sales persons and include among others sales
commissions. Based on the analysis of the nature of such
costs, we have judged that some costs incurred with
respect to our sales force are in substance costs incurred
in the production of the directories and are deferred in the
balance sheet as part of the caption “Directories in
progress”.
Estimates and assumptions
The key assumptions concerning the future and other key
sources of estimation uncertainty at the balance sheet
date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed
below.
Impairment of non-financial assets
The Company assesses whether there are any indicators
of impairment for all non-financial assets at each
reporting date. Goodwill and other indefinite life intangible
assets are tested for impairment annually and at other
times when such indicators exist. Other non-financial
assets are tested for impairment when there are
indicators that the carrying amounts may not be
recoverable.
When value in use calculations are undertaken,
management must estimate the expected future cash
flows from the asset or cash-generating unit and choose
a suitable discount rate in order to calculate the present
value of those cash flows.
Income taxes
Although the Company is confident that tax returns have
been appropriately prepared and filed, there is risk that
additional tax may be assessed on certain transactions or
that the deductability of certain expenditures may be
dissallowed for tax purposes. The Company’s policy is to
estimate tax risk to the best of its ability and provide
accordingly for those risks and take positions in which a
high degree of confidence exists that the tax treatment
will be accepted by the tax authorities. The policy in
respect of deferred taxation is to provide in full for timing
differences using the liability method.
Pension and other post-employment benefits
The determination of benefit obligations and expense is
based on actuarial models. In order to measure benefit
costs and obligations using these models, certain
assumptions are made with regard to the discount rate,
expected return on plan assets and the assured rate of
compensation increases. In addition retiree medical care
cost trend rates are a key assumption used in
determining costs for post-employment benefit plans.
Management reviews these assumptions at least
annually. Other assumptions involve demographic factors
such as the turnover, retirement and mortality rates.
Management reviews these assumptions periodically and
updates them when necessary. Due to the long-term
nature of these plans, the estimates are subject to
significant uncertainty.
3.
Business combinations and acquisition of
minority interests
Original acquisition
On September 26, 2004, Truvo Acquisition Corp., a
wholly-owned subsidiary of the Company, entered into a
sale and purchase agreement with VNU International
B.V., Nielsen Holding and Finance B.V. (formerly known
as VNU Finance B.V.) and The Nielsen Company B.V.
(formerly known as VNU N.V.) (collectively “VNU”) to
acquire 100% of the shares in Truvo USA, Inc. and
certain loans granted to subsidiaries of Truvo USA, Inc.
by a finance company of Nielsen Holding and Finance
B.V. (the “Acquisition”). The Acquisition closed on
November 29, 2004. The purchase price for the shares
and the loans together with certain additional funding and
transaction costs used in connection with the Acquisition
was €2,165 million (excluding the acquisition of estimated
net working capital of approximately €32 million and
including transaction fees of approximately €95 million).
The sale and purchase agreement required a purchase
price adjustment to be made following the Acquisition.
This adjustment is made upon a comparison of working
capital and net indebtedness derived from actual
November 2004 accounts and the estimated November
accounts available at the time of the signing of the sale
and purchase agreement. In February 2008, the
Company finalised the discussion and settled the
difference in actual and estimated working capital and net
indebtedness, resulting in a further adjustment of the
recognised goodwill amounting to €1.6 million in 2006
and €17.0 million in 2007 (see note 14 “Intangible assets”
and note 11 “Investments accounted for under the equity
method” of the consolidated financial statements). For the
final settlement in 2008, the Company paid The Nielsen
Company B.V. an amount of €5.9 million (see note 28
“Other current liabilities” and note 11 “Investments
accounted for under the equity method” of the
consolidated financial statements).
86
Acquisition in 2008
In December 2008 we acquired YelloYello B.V., a Dutch
online technology firm, for a total consideration of €2.6
million, of which €1.5 million was paid in 2008 and the
remainder will be paid, when specific online deliverables
are finalised. The fair value of the identifiable assets and
liabilities of YelloYello B.V. as at the date of acquisition
was:
Fair value
recogn ised
in € thousands
P ro perty, plant and equipment
on acquisition
6
Cash and cash equi valents
17
Trade receivables
14
Other payables
Net assets
(14)
23
Goodwill arising on acquisition (note 14)
2,642
Consideration, satisfied by cash
2,665
Cash flow on acquisition:
Net cash acquired with the subsidiary
Cash paid
(17)
1,528
A cquisition costs, which will be paid in 2009
165
P ayment deferred equally in 2010, 2011 and 2012
972
Net cash outflow
2,648
Acquisition in 2007
With effect from August 1, 2007, the Company has
acquired the remaining 5% shares that the Company did
not own in Truvo Services South Africa (Pty) Ltd.
(“TSSA”, formerly known as Maister Directories (1981)
(Pty) Ltd.), a holding company in South Africa for a total
purchase price of €9.5 million. TSSA is fully consolidated
as from January 1, 2006. Consequently, as from January
1, 2006, the share of result after tax of associates and
joint ventures reflects the full 35.1% of the interest in
Trudon (Pty) Ltd. (formerly known as TDS Directory
Operations (Pty) Ltd.), owned by TSSA. Till August 1,
2007, the 5% is presented under minority interests.
Fair value
recognised
in € thousands
Investments accounted for under the equity method
on acquisition
1,230
Cash and cash equi valents
24
Trade receivables
39
Trade payables
(43)
Other payables
(138)
Net assets
1,112
Goodwill arising on acquisition (note 14)
8,394
Consideration, satisfied by cash
9,506
Cash flow on acquisition:
Net cash acquired with the subsidiary
(24)
Cash paid
9,506
Net cash outflow
9,482
87
4.
Segment information
For management purposes, the Company is organised
into business units based on their geographical location
of operations, and has three reportable operating
segments as follows:
No operating segments have been aggregated to form
the above reportable operating segments. Management is
monitoring the operating results of its business units
separately for the purpose of making decisions about
allocation of resources and assessment of performance.
•
Belgium
•
Ireland
•
Portugal (activities in this country are conducted
through the joint venture Páginas Amarelas, which is
accounted for under the equity method in the
consolidated financial statements)
•
Discontinued operations: Gouden Gids B.V. (the
entity formed by a demerger from Truvo Nederland
B.V.) and ClearSense B.V.
Segment performance is evaluated based on operating
profit or loss, which in certain respects, as explained in
the table below, is measured differently from operating
profit or loss in the consolidated financial statements.
Group financing (including financial income and expense)
and income taxes are managed on a group basis and not
allocated to operating segments. Transfer prices between
the operating segments are on an arm’s length basis in a
manner similar to transactions with third parties.
Segment information 2008
in € thousands
Belgium
Ireland
Portugal
Adjustments
and
eliminations
Consolidated
2008
Revenues
Third party
Intersegment
221,345
326
72,182
60
67,797
-
(42,797)
(386)
318,527
-
Revenues
221,671
72,242
67,797
(43,183)
318,527
Operating profit
Depreciation, amortisation
and impairment
Personnel costs - restructuring
8% clause
Other non-operating items
(72,685)
10,926
(75,136)
(446,050)
(582,945)
186,318
2,369
-
16,156
1,163
-
90,928
157
(4,266)
325
440,580
3,646
5,193
304
733,982
7,335
927
629
EBITDA
116,002
28,245
12,008
3,673
159,928
Share of result after tax of
associates and joint ventures
Net result after tax from operations
Impairment of intangible assets
-
-
-
14,286
(173,734)
14,286
(173,734)
Total
-
-
-
(159,448)
(159,448)
291,696
70,289
13,623
(71,723)
303,885
2,609
145,348
1,888
38,568
1,864
67,479
36,820
(694)
120,102
36,820
5,667
371,497
439,653
110,745
82,966
84,505
717,869
66,813
8,287
21,198
(6,073)
90,225
Assets
Other intangible assets
Investments accounted for
under the equity method
Property, plant and equipment
Operating assets
Operating liabilities
1.
Discontinued operations are shown separately in the statement of income as a one-line item “Profit/(loss) for the
year from discontinued operations”.
2.
Intersegment revenues are eliminated on consolidation.
3.
Depreciation and amortisation related to discontinued operations are not included in consolidated profit/(loss)
before tax.
4.
Segment operating profit does not include financial income (€51,570) or financial expense (€213,356). Segment
operating profit does not include the loss from discontinued operations (€145,197).
88
5.
Segment assets do not include deferred tax assets (€81,230), financial assets and accrued interest income
(€13,738), goodwill (€474,764), and goodwill allocated to associates (€71,974) as these assets are managed on a
group basis.
6.
Segment liabilities do not include deferred tax liabilities (€92,629), income tax payable (€11,854), financial
liabilities and interest payable (€1,618,558), financial liabilities to related parties (€681,934), derivative financial
instruments (€5,182), other long-term liabilities (€4,472) and provisions (€40,342) as these liabilities are managed
on a group basis.
Segment information 2007
in € thousands
Belgium
Ireland
Portugal
Adjustments
and
eliminations
Consolidated
2007
Revenues
Third party
Intersegment
236,117
-
75,778
30
73,763
-
(40,098)
(30)
345,560
-
Revenues
236,117
75,808
73,763
(40,128)
345,560
72,752
16,179
(423)
(14,690)
73,818
46,920
2,330
-
16,771
843
-
15,633
8,638
(9,148)
-
4,799
(5,604)
13,452
-
84,123
6,207
4,304
-
122,002
33,793
14,700
(2,043)
168,452
Share of result after tax of
associates and joint ventures
Net result after tax from operations
Impairment of intangible assets
-
-
-
13,650
(5,811)
13,650
(5,811)
Total
-
-
-
7,839
7,839
273,758
85,562
103,211
(87,987)
374,544
1,524
129,378
2,215
32,232
1,992
81,257
83,870
(731)
(31,999)
83,870
5,000
210,868
404,660
120,009
186,460
(36,847)
674,282
84,171
13,805
29,745
(10,845)
116,876
Operating profit
Depreciation, amortisation
and impairment
Personnel costs - restructuring
8% clause
Other non-operating items
EBITDA
Assets
Other intangible assets
Investments accounted for
under the equity method
Property, plant and equipment
Operating assets
Operating liabilities
1.
Discontinued operations are shown separately in the statement of income as a one-line item “Profit/(loss) for the
year from discontinued operations”.
2.
Intersegment revenues are eliminated on consolidation.
3.
Depreciation and amortisation related to discontinued operations are not included in consolidated profit/(loss)
before tax.
4.
Segment operating profit does not include financial income (€51,199) or financial expense (€238,954). Segment
operating profit does not include the loss from discontinued operations (€8,023).
5.
Segment assets do not include deferred tax assets (€49,985), financial assets and accrued interest income
(€46,722), derivative financial instruments (€5,737), goodwill (€1,119,205), and goodwill allocated to associates
(€140,256) and joint ventures (€88,862) as these assets are managed on a group basis.
6.
Segment liabilities do not include deferred tax liabilities (€117,972), income tax payable (€3,124), financial
liabilities and interest payable (€1,627,941), financial liabilities to related parties (€619,940), derivative financial
instruments (€10,832), other long-term liabilities (€4,200) and provisions (€70,652) as these liabilities are
managed on a group basis.
89
Segment information 2006
in € thousands
Belgium
The
Netherlands
Ireland
Portugal
Adjustments
and
eliminations
Consolidated
2006
Revenues
Third party
Intersegment
224,485
-
-
74,001
-
71,585
-
(36,658)
-
333,413
-
Revenues
224,485
-
74,001
71,585
(36,658)
333,413
63,362
-
15,395
(1,490)
3,096
80,363
46,710
4,217
(2,400)
-
14,349
1,894
-
15,627
3,489
(2,414)
-
(9,763)
(3,658)
3,556
3,225
66,923
5,942
1,142
825
111,889
-
31,638
15,212
(3,544)
155,195
Share of result after tax of
associates and joint ventures
Net result after tax from operations
Impairment of intangible assets
-
-
-
-
12,598
-
12,598
-
Total
-
-
-
-
12,598
12,598
320,030
130,650
81,480
117,446
(98,431)
551,175
1,253
112,427
3,104
42,730
2,260
39,447
2,411
77,329
95,286
(474)
(37,949)
95,286
8,554
233,984
433,710
176,484
123,187
197,186
(41,568)
888,999
85,473
43,427
8,495
26,499
(42,094)
121,800
Operating profit
Depreciation, amortisation
and impairment
Personnel costs - restructuring
8% clause
Other non-operating items
EBITDA
Assets
Other intangible assets
Investments accounted for
under the equity method
Property, plant and equipment
Operating assets
Operating liabilities
1.
Discontinued operations are shown separately in the consolidated statement of income as a one-line item
“Profit/(loss) for the year from discontinued operations”.
2.
Intersegment revenues are eliminated on consolidation.
3.
Depreciation and amortisation related to discontinued operations are not included in consolidated profit/(loss)
before tax.
4.
Segment operating profit does not include financial income (€44,907) or financial expense (€218,333). Segment
operating profit does not include the profit from discontinued operations €9,891.
5.
Segment assets do not include deferred tax assets (€40,747), financial assets and accrued interest income
(€42,030), goodwill (€1,330,427), goodwill allocated to associates (€141,745) and joint ventures (€93,487) as
these assets are managed on a group basis.
6.
Segment liabilities do not include deferred tax liabilities (€175,367), income tax payable (€6,406), financial
liabilities and interest payable (€1,640,700), financial liabilities to related parties (€563,582), other long-term
liabilities (€1,250) and provisions (€80,679) as these liabilities are managed on a group basis.
5.
Net operating revenues
in € thousands
P ri nt
Onl ine
Net operating revenues
2008
2007
2006
229,814
254,590
253,902
72,266
67,842
54,273
302,080
322,432
308,175
90
The results of 2008 were influenced by a change in
estimate regarding the so-called perpetual contracts. In
2007 we changed our commercial practice and
introduced perpetual contracts, as opposed to annual
contracts. Based on the terms of these perpetual
contracts, we were allowed to continue to recognise
revenues for as long as an advertising program remained
online, based on the following elements:
amounts have been recognised as a change in an
accounting estimate, as soon as this was clear, in 2008.
These amounts adversely impacted our financial results
for 2008.
The following table is showing reported and adjusted net
operating revenues (online revenues and total net
operating revenues) in 2008 and 2007 (in € millions –
including Páginas Amarelas):
•
existence of a valid contract;
•
delivery of services;
•
ability to enforce payment;
Online revenues
Reported net operating revenues
Perpetual billing adjustment
Adjusted net operating revenues
2008
95.5
5.2
100.7
2007
84.4
-5.2
79.2
•
no possibility of cancellation.
Total net operating revenues
Reported net operating revenues
Perpetual billing adjustment
Adjusted net operating revenues
2008
365.1
5.2
370.3
2007
389.4
-5.2
384.2
During the closing of our financial statements 2007,
based on all available information, we estimated an
accrual necessary for possible credit notes to be issued in
2008 regarding revenues recognised in 2007 related to a
possible “free period” between the renewal date of an
existing contract and the start date of a new contract with
the same customer. Using hindsight, our recognised
online revenues in 2007 were over estimated by €5.2
million and our EBITDA also by €5.2 million. These
6.
From 2008 onwards, based on the experience we have
obtained in operating perpetual contracts over the last
two years, we are spreading the net operating revenues
on a straight-line basis over the entire period, including
the “free period”. As soon as we conclude a new contract
with a client, we -if necessary- adjust the already
recognised revenues.
Other income
in € thousands
2008
2007
2006
8,460
9,915
9,940
917
6,458
8,297
6,169
Other income from:
joint ventures
discontinued operations
6,020
6,257
S undry income
associates
653
368
708
Gai ns on disposal of property, plant and equipment
397
130
124
16,447
23,128
25,238
2008
2007
2006
Wages and salaries
63,448
65,613
62,357
Social security costs
24,524
26,356
24,188
3,134
3,751
4,688
344
355
144
Other personnel costs
6,067
6,846
6,685
Total personnel costs
97,517
102,921
98,062
6,798
6,207
5,942
537
-
-
90,182
96,714
92,120
Total other incom e
7.
Personnel costs
in € thousands
Pension costs
Post-employment benefits other than pensions
Personnel costs - restructuring
Personnel costs - early retirement
Personnel costs - ordinary
The personnel restructuring costs of €6.8 million, €6.2
million and €5.9 million incurred in 2008, 2007 and 2006,
respectively, mainly relate to the continuing work force
reduction programs in our back office functions in line
with our best practices implementation and cost reduction
initiatives.
91
Average weighted number of FTEs per entity
2008
2007
2006
Belgium
707
749
705
Ireland
296
298
278
Romania
328
334
331
84
93
87
1,415
1,474
1,401
484
472
470
1,899
1,946
1,871
2008
2007
2006
Headquarters including Truvo Technology
Total average weighted number of FTEs
Páginas Amarelas (accounted for under the equity method)
Total average weighted number of FTEs
including Páginas Amarelas
8.
Raw materials and purchased services
in € thousands
11,290
12,354
12,472
P ri nting third parties
P aper costs
7,277
10,587
10,366
Media spend
1,292
430
-
P urchased services
4,284
4,037
4,791
Database fees
3,779
4,188
4,921
277
242
215
28,199
31,838
32,765
2008
2007
2006
Other materials and supplies
Total raw materials and purchased services
9.
Other operating expenses
in € thousands
Travel, lodging and leased auto expenses
11,492
11,053
10,969
Occupancy costs
6,423
6,220
6,170
Off ice expenses
4,133
4,256
4,249
S ales and marketing costs
4,401
6,561
8,108
B ad debt expense
4,176
4,126
4,171
Informat ion and technology costs
4,991
6,308
8,425
General expenses
9,243
5,535
10,035
Other non operating costs
629
-
825
8% clause Páginas Amarelas
927
4,304
1,142
1,888
4,299
5,585
44,595
57,162
58,887
Other expenses
Total other operating expenses
10. Financial income and expense
Financial income and expense can be analysed as follows:
92
2008
2007
2006
Interest rate swaps
14,748
27,110
23,920
Cross currency interest rate swaps
11,377
12,308
13,432
Financial income on instalments
2,512
1,799
1,803
P ension return of assets
4,129
4,176
4,237
Other financial income
18,804
5,806
1,515
Total financial income
51,570
51,199
44,907
in € thousands
Other financial income of €18.8 million, €5.8 million and €1.5
million in 2008, 2007 and 2006, respectively, include interest
income received as a result of the sale of the operations in
The Netherlands (€14.5 million, €3.7 million and €nil million in
2008, 2007 and 2006, respectively).
2008
2007
2006
S enior loan facilities A
-
11,214
25,747
S enior loan facilities B
-
6,989
15,162
S enior loan facilities C
-
7,526
16,498
S enior loan facilities
62,482
37,719
-
S enior notes
44,952
45,883
47,009
16,396
in € thousands
P IK notes
-
7,876
P IK facility
15,549
8,128
-
S hareholders’ loan
61,994
56,358
51,234
Interest rate swaps
8,950
18,766
23,605
11,604
11,604
11,604
2,395
3,659
4,861
-
16,404
-
4,516
4,003
3,929
914
1,725
1,935
-
1,100
353
213,356
238,954
218,333
2008
2007
S hare of the associates' balance sheet
94,615
160,962
S hare of the joint venture's balance sheet
14,179
152,026
108,794
312,988
Cross currency interest rate swaps
Transaction costs - amortisation
Transaction costs - impairment
Interest on post-employment benefit plans
Other financial expense
Financial expense from discontinued operations and
related parties
Total financial expense
11. Investments accounted for under the equity method
The investments accounted for under the equity method can be analysed as follows:
in € thousands
Investments accounted for under the equity method
Associates
The carrying amount of the investments in associates (Axesa Servicios de Información, Inc., Axesa Servicios de
Información, Inc. S. en C. and Trudon (Pty) Ltd. (formerly
TDS Directory Operations (Pty) Ltd.) - can be
summarised as follows:
93
in € thousands
2008
2007
S hare of the associates' balance sheet:
Non-current assets
3,311
3,259
Current assets
31,051
31,369
Non-current liabilities
(4,008)
(2,087)
Current liabilities
(7,713)
(11,835)
Net operating assets
22,641
20,706
Goodwill and other intangible assets
71,974
140,256
Carrying amount of the investment in associates
94,615
160,962
2008
2007
At January 1
20,706
24,262
S hare of result after tax of associates
15,791
14,208
Dividend received
(5,581)
(16,809)
Other movements and foreign currency translation differences
(8,275)
(955)
At December 31
22,641
20,706
in € thousands
Movement in net operating assets:
Movement in goodwill:
140,256
141,745
Goodwill recognised in connection with the Acquisition (note 3)
At January 1
-
2,171
Goodwill recognised in connection with the 2008 acquisition (note 3)
-
8,394
Goodwill impairment
(43,416)
Other movements and foreign currency translation differences
(24,866)
(12,054)
71,974
140,256
At December 31
-
Joint venture
The carrying amount of the investment in the joint venture (Páginas Amarelas S.A.) can be summarised as follows:
in € thousands
2008
2007
S hare of the joint venture’s balance sheet:
Non-current assets
Current assets
4,335
4,514
50,548
59,906
Non-current liabilities
(22,260)
(2)
Current liabilities
(24,805)
(56,419)
Net operating assets
7,818
7,999
Goodwill and other intangible assets
6,361
144,027
14,179
152,026
Carrying amount of the investment in joint ventures
94
in € thousands
2008
2007
At January 1
7,999
7,862
Share of result after tax of joint ventures
5,843
7,439
Dividend received
(6,024)
(7,302)
At December 31
7,818
7,999
144,027
156,649
Movement in net operating assets:
Movement in goodwill and other intangible assets:
At January 1
Goodwill recognised in connection with the Acquisition (note 3)
-
1,186
Impairment of goodwill
(88,862)
(5,811)
Amortisation and impairment of other intangible assets
(67,433)
(11,030)
18,629
3,033
6,361
144,027
Release deferred tax liability
At December 31
12. Income taxes
The major components of the income tax gain for the years ended December 31, 2008, 2007 and 2006 are:
2007
2006
(14,263)
(8,998)
(4,839)
7,073
(2,009)
Relating to origination and reversal of temporary differences
64,315
47,200
16,700
Income tax gain reported in the consolidated
statem ent of income
57,125
36,193
12,630
in € thousands
2008
Consolidated statement of income
Current income tax:
C urrent income tax charge
A djustments in respect of current income tax of previous years
769
Deferred income tax:
Consolidated statement of recognised income and expense
Deferred income tax related to items charged or
credited directly to equity:
Net gains/(losses) on revaluation of cash fl ow hedges
2,231
A ctuarial losses on defined benefit pension plans
1,669
(4,049)
(4,297)
Tax on items taken directly in or transferred to equity
3,900
(3,683)
(7,999)
Deferred income tax classified as held for sale
Income tax gain/(expense) reported in the
consolidated statement of recognised income and
expense
366
497
5,297
4,397
1,614
(3,702)
-
(7,999)
A reconciliation between the effective tax rate and the domestic statutory tax rate is as follows:
95
2008
in € thousands
2007
(106,098)
2006
(80,465)
Loss before tax
(904,179)
S hare of result after tax of associates and joint ventures
(159,448)
Taxable basis
US statutory tax rate (in %)
(744,731)
35.0%
(113,937)
35.0%
(93,063)
35.0%
Income tax based on statutory rate
E ffect of sub-part F income
Non-deductible interests and other financial results
Foreign tax credits (FTCs)
True-up tax position
Non-tax deductible goodwill impairment
E ffect of CFC dividends
E ffect of operations in non-US juridictions
Tax impact on the sale of the Dutch operations
Other
260,656
(5,491)
(3,109)
23,668
418
(130,828)
(8,492)
7,878
(84,729)
(2,846)
39,878
(6,169)
1,633
11,166
1,363
(4,040)
(8,369)
1,560
(829)
32,572
(8,128)
(5,001)
17,732
1,087
(13,757)
(7,990)
(3,885)
57,125
36,193
12,630
Total income tax gain
E ffective tax rate for the year from continuing operations
in € thousands
Deferred tax assets
P ost employment benefits
Other intangible assets
Dual consolidated losses
Disallowed interest
P ersonnel costs
Net operating losses
Other
Deferred tax liabilities
Other intangible assets (trademarks and
c ustomer relationships)
Transaction costs
Derivative financial instruments
A mortisation and depreciation
Other
7.7%
As from November 29, 2004, Truvo Parent Corp., the
shareholder of Truvo Intermediate LLC, files the income
tax return to the I.R.S. in the United States. The deferred
tax assets held in the Company’s subsidiaries are
reflected in the consolidated balance sheet as if the
subsidiaries were separate payers.
As at December 31, 2008, the Company had losses of
€95,408 (2007: €37,829) that are available indefinitely for
offset against future taxable profits of the companies in
which the losses arose. Deferred tax assets have not
31.8%
Consolidated
Consolidated
balance sheet
statement of income
2008
2007
6,517
27,762
645
8,607
11,054
5,385
9,693
5,992
5,751
12,107
2,021
5,558
13,240
5,316
69,663
49,985
82,056
6,234
2,367
3,946
(1,974)
100,578
9,011
2,541
3,795
2,047
92,629
117,972
Deferred income tax income/(expense)
Deferred tax liabilities net
7,839
22,966
12,598
13.6%
2008
2007
64,315
47,200
67,987
been recognised in respect of €80,022 (2007 €nil) of
these losses as they may not be used to offset taxable
profits elsewhere in the group and they have arisen in
subsidiaries that have been loss making for some time.
At December 31, 2008 and 2007 there was no recognised
deferred tax liability for taxes that would be payable on
the unremitted earnings of certain of the Company’s
subsidiaries, associates or joint venture, as:
96
(i)
the group has determined that undistributed profits
of its subsidiaries will not be distributed in the
foreseeable future;
(ii)
the group has an agreement with its associates that
the profits of the associates will not be distributed
until it obtains the consent of Truvo and the parent
company does not foresee giving such consent at
the balance sheet date; and
(iii)
the joint venture of Truvo cannot distribute its profits
until it obtains the consent of Truvo and the parent
company does not foresee giving such consent at
the balance sheet date.
The income tax receivable and payable position were as follows as at December 31, 2008 and 2007, respectively:
in € thousands
Income tax payable
Income tax receivable
Total
2008
2007
287
3,124
-
-
287
3,124
See for the provision for tax exposures note 25
“Provisions”.
13. Discontinued operations
In March 2008, we agreed to sell our operations in The
Netherlands, Gouden Gids B.V. (the entity formed by a
demerger of Truvo Nederland B.V.) and ClearSense B.V.,
to a subsidiary of European Directories S.A. The
completion of this sale was subject to antitrust clearance
and finalisation of the works council consultation process.
Accordingly and pursuant to IFRS requirements, we
classified our operations in The Netherlands, as such
activities were significant to the Company, as
discontinued operations (held for sale) as of October 31,
2007, since the carrying value will be recovered
principally through a sale transaction rather than through
continuing operations.
On August 29, 2008 the Dutch competition authority
(NMa) approved the proposed transaction with European
Directories in The Netherlands. The granting of a license
by the NMa allowed the sale of our operations in The
Netherlands to proceed and the sale transaction was
completed September 16, 2008.
The profit/(loss) of Gouden Gids B.V. and the Dutch activities of ClearSense B.V. for the year are presented below:
in € thousands
2008
2007
2006
R evenues
7,957
83,010
122,942
Operating costs and expen ses
9,456
77,445
102,666
Operating profit before amortisation and
impairment of intangible assets
A mortisation of other intangi ble assets
Impairment of intangible assets
Results from financial income and expense
Other income/(expenses) incurred
(1,499)
(116)
5,565
20,276
(14,423)
(17,153)
(144,407)
-
-
(326)
2,497
1,951
2,500
(1,707)
-
Loss before tax from discontinued operations
Income tax gain/(loss)
(143,848)
(1,349)
(8,068)
45
5,074
4,817
P rofit/(loss) for the year from discontinued operations
(145,197)
(8,023)
9,891
The major classes of assets and liabilities of Gouden
Gids B.V. and ClearSense B.V. (partial), classified as
held for sale as at October 31, 2007, are as follows:
97
Notes
in € thousands
2008
2007
A ssets
Goodwill
14
-
213,327
Other intangible assets
14
-
116,676
P ro perty, plant and equipment
15
-
6,612
Other non-current assets
-
25,999
Non-current assets
-
362,614
Inventories and directories in progress
17
-
14,399
Trade and other receivable s
18
-
31,165
Other current assets
-
2,424
-
16,462
Current assets
-
64,450
Assets classified as held for sale
-
427,064
Cash and cash equi valents
21
Notes
in € thousands
2008
2007
Liabi lities
Financial liabilities
23
-
P ro visions
25
-
7,784
Deferred tax liabiliti es
12
-
28,599
-
40,056
Non-current liabilities
3,673
Financial liabilities
23
-
800
P ro visions
25
-
1,083
Trade and other payables
27
-
26,864
Other current liabilities
28
-
45,570
-
74,317
-
114,373
Current liabilities
Liabilities directly associated with the assets
classified as held for sale
Intangible assets
A ctuarial gains and losses
22
-
20,774
Deferred tax assets on actuarial gains and losses
22
-
(5,297)
-
15,477
Amount recognised directly in equity relating to assets held for sale
In the statement of income 2008, an additional
impairment related to the Dutch operations is included
amounting to €144,407. We recognised this additional
impairment loss to bring the valuation of the discontinued
operations in line with the net proceeds from the sale.
This additional goodwill impairment was mainly due to
U.S. corporate income tax related to the realised gain, the
waiver of a loan to ClearSense B.V., the valuation of a
loan to the purchaser, European Directories, the write-off
of a deferred tax asset related to Dutch net operating
losses and an update of the costs of disposal.
The loan to the purchaser, amounting to €10.0 million, is
interest free and the repayment is dependent on certain
actions of the purchaser.
The net cash flows incurred by Gouden Gids B.V. and ClearSense B.V. (partial) are as follows:
98
2008
in € thousands
2007
2006
Net cash flows from operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
17,103
192,547
(18,282)
33,105
(21,963)
(14,904)
Net increase/(decrease) in cash and cash equivalents
191,368
(3,762)
675
2008
2007
in € thousands
A ssets classified as held for sale before goodwill impairment
Liabi lities directly associated with the assets classified as held for sale
A mount recognised directly in equity relating to assets held for sale
Net assets sold before goodwill impairment
Goodwill impairment - reclassification from intangible assets
Goodwill impairment
434,140
(114,373)
(15,477)
434,140
(114,373)
(15,477)
304,290
304,290
(7,076)
(144,407)
Net assets sold
22,800
(1,682)
(20,443)
(7,076)
152,807
297,214
2008
2007
1,119,205
1,330,427
14. Intangible assets
The intangible assets include goodwill and other
intangible assets.
Goodwill - the movements of goodwill are as follows:
in € thousands
At January 1
Goodwill recognised in connection with the Acquisition (see note 3)
(2,400)
Goodwill acquisition of YelloYell o B.V.
2,642
A ssets classified as held for sale
1,119,447
Goodwill impairment - reclassification to assets classified as held for sale
Impairment
At December 31
7,076
(651,759)
474,764
13,648
(213,327)
1,130,748
(11,543)
1,119,205
Goodwill is tested annually for impairment. For the purpose of impairment testing, the goodwill has been allocated to the
following cash-generating units:
2008
2007
B elgium
899,436
901,836
Ireland
217,324
217,324
11,588
11,588
2,642
-
in € thousands
R omania
Y elloYello B.V.
To tal
As at December 31, 2008, we tested goodwill and other
intangible assets, as included in the balance sheet, for
impairment. The lower fair value of the cash-generating
units, caused in turn by lower market multiples of
comparable companies (Truvo’s peer group companies),
1,130,990
1,130,748
resulted in a goodwill impairment charge amounting to
€654,159 for our consolidated subsidiaries: Belgium
€506,212, Ireland €140,826 and Romania €7,121.
With respect to our operations in The Netherlands and
Romania, we recognised in 2007 an impairment loss of
99
•
€7,076 and €4,467, respectively, due to the disappointing
development of the businesses and the increased
discount rate based on changed market conditions.
EBITDA and EBIT margin rates – EBITDA and EBIT
margin rates are based on average values achieved in
the three years preceding the start of the budget period
and the expected business model evolution.
The recoverable amounts of the cash-generating units
are determined based on a fair value calculation using
cash flow projections from financial budgets approved by
senior management covering a three-year period. For
value in use calculations, the post-tax discount rate
applied to the cash flow projections was 8.9% (2007:
between 8.34% and 8.95%) and cash flows beyond the
three-year period are extrapolated for a further period
using a 1% growth rate (2007: 2.5%). For fair value
calculations market multiples of selected peers were
applied to the 2009 budget figures (EBITDA / EBIT).
Discount rates – Discount rates reflect management’s
estimate of the risks specific to each unit. This is the
benchmark used by management to assess operating
performance and to evaluate future investment proposals.
Growth rate estimates – The growth rate used to
extrapolate cash flows beyond the budget period are
based on the actual and budgeted growth rates and in
general are lower than these rates.
We determined the recoverable amounts on the higher of
the value in use (DCF calculations) and the market value
(fair value calculated using multiples), resulting in using
the market value for 2008.
Sensitivity to changes in assumptions
With regard to the assessment of the value in use or fair
value of the different cash-generating units, management
believes that no reasonably possible change in any of the
above mentioned key assumptions would cause the
carrying value (after impairment loss calculation) of the
cash-generating unit to be materially different from the
recoverable amount. Parameters adopted deemed to be
the most reasonable.
Key assumptions used in the recoverable amount
calculations
The calculation of the value in use is most sensitive to the
following assumptions:
•
EBITDA and EBIT margin rates;
•
Discount rates;
Growth rates used to extrapolate cash flows beyond
the budget period.
Other intangible assets - The other intangible assets can
be summarised as follows:
Trademarks
Customer
relationships
At December 31, 2006
136,627
552,945
32,635
722,207
Additions
Disposals
Assets classified as held for sale
(48,774)
(115,230)
25,427
(1,119)
(2,673)
25,427
(1,119)
(166,677)
87,853
437,715
54,270
579,838
in € thousands
Other
intangibles
Total
Costs:
At December 31, 2007
Additions
Disposals
Assets classified as held for sale
At December 31, 2008
87,853
437,715
8,973
(806)
(7)
62,430
8,973
(806)
(7)
587,998
100
Trademarks
Customer
relationships
Other
intangibles
(14,233)
(143,839)
(12,960)
(171,032)
(4,391)
(2,033)
-
(54,714)
(12,003)
-
(10,265)
(387)
(1,588)
7,116
42,011
1,118
874
(69,370)
(14,423)
(1,588)
1,118
50,001
(13,541)
(168,545)
(23,208)
(205,294)
Additions
(4,391)
(54,714)
(11,413)
Impairment
Disposals
(2,306)
-
(6,709)
-
(91)
805
(70,518)
(9,106)
805
A t December 31, 2008
(20,238)
(229,968)
(33,907)
(284,113)
At December 31, 2006
At December 31, 2007
At December 31, 2008
122,394
74,312
67,615
409,106
269,170
207,747
19,675
31,062
28,523
551,175
in € t housands
Total
Accumu lated amortisatio n and impairment:
At D ecember 31, 2006
Addit ions
Discontinu ed operations - additions
Impairment
Disposals
Assets classified as held for sale
At December 31, 2007
As mentioned earlier, we tested goodwill and other
intangible assets, as included in the balance sheet as at
December 31, 2008, for impairment. The lower fair value
of the cash-generating units resulted in an impairment of
other intangible assets of €9,106 (Romania).
Other intangibles include the following captions:
•
Software with a book value of €13,911 (2007:
€13,538).
•
Publishing rights with a book value of €14,281
(2007: €17,126). In June 2006, Truvo Ireland Ltd., a
wholly owned subsidiary of the Company, entered
374,544
303,885
into an exclusive agreement with eircom, the
incumbent Irish telephone operator, under which it
secured the rights to publish certain directories and
databases as well as providing business advertising
services in the Republic of Ireland through 2013.
•
Deferred financing costs on the revolving credit
facility with a book value of €331 (2007: €398). The
impairment charge recognised in 2007 relates to the
deferred financing costs as a consequence of the
refinancing, which took place in May 2007.
15. Property, plant and equipment
in € thousands
Land and
buildings
Plant and
equipment
Total
6,047
19,563
25,610
3,068
(2,671)
(3,996)
3,453
(2,738)
(11,075)
6,521
(5,409)
(15,071)
2,448
9,203
11,651
1,437
(1,454)
-
1,937
(633)
(254)
3,374
(2,087)
(254)
Costs:
At December 31, 2006
Additions
Disposals
Assets classified as held for sale
At December 31, 2007
Additions
Disposals
Ot her
At December 31, 2008
2,431
10,253
12,684
101
in € thousands
Land and
buildings
Plant and
equipment
(3,708)
(13,348)
(17,056)
(382)
(741)
2,735
(1,240)
(1,077)
2,651
(1,622)
(1,818)
5,386
986
7,473
8,459
(1,110)
(5,541)
(6,651)
(673)
(545)
(1,381)
-
(2,054)
(545)
Total
Accumulated depreciation:
At December 31, 2006
Additions
Discontinu ed operations - additions
Disposals
Assets classified as held for sale
At December 31, 2007
Additions
Impairment
Disposals
Other
At December 31, 2008
At December 31, 2006
At December 31, 2007
At December 31, 2008
1,398
15
(915)
2,339
1,338
1,516
578
242
1,976
257
(6,102)
(7,017)
6,215
3,662
4,151
8,554
5,000
5,667
Land and buildings consist of leasehold improvements.
16. Other financial assets
in € thousands
Guarantee for liabilities indemnified by The Nielsen Company B.V.
S ubordinated loans to pension fund The Netherlands
Long-term receivables with related parties
Long-term receivables with discontinued operations
Total other financial assets
The guarantee for liabilities indemnified by The Nielsen
Company B.V. relates to certain provisions recorded by
the Company in its financial statements and for which the
Company enjoys a guarantee from The Nielsen Company
2008
2007
9,372
36,315
-
591
3,000
300
-
4,373
12,372
41,579
B.V. since the Acquisition (see also note 25 “Provisions”).
The loans with related parties (the pension fund of Truvo
The Netherlands) are subordinated.
17. Inventories and directories in progress
in € thousands
Inventories
2008
2007
1,145
788
D irectories in progress
25,373
22,732
Total inventories and directories in progress
26,518
23,520
Inventories and directories in progress are stated at cost.
No write-down has been recognised in the consolidated
statement of income in 2008 and 2007. Directories in
progress include incremental costs associated with the
unpublished print directories and direct costs associated
with Internet products with remaining contractual service.
102
18. Trade and other receivables
in € thousands
Trade receivables
Cheques
Unbilled receivables
Receivables from joint ventures and discontinued operations
Receivables from associates
Total trade and other receivables
Trade receivables are non-interest bearing and are
generally on 30 - 90 days’ terms. As at December 31,
2008, trade receivables at nominal value of €7,874 (2007:
€9,194) were provided for.
2008
2007
81,233
96,815
212
272
14,207
18,905
9,792
30,422
791
255
106,235
146,669
For terms and conditions related to related parties, refer
to note 30 “Related parties”.
The following table explains the changes of the provision for doubtful accounts:
in € thousands
2008
2007
P rovison for doubtful accounts as of January 1
(9,194)
(10,833)
A dditions (recognised as operating expenses)
(4,176)
(4,126)
A dditions (recognised under disconti nued operations)
Uti lised
A ssets classified as held for sale
P rovision for doubtful accounts as of December 31
-
991
5,496
6,349
-
(1,575)
(7,874)
(9,194)
2008
2007
1,804
1,482
302
348
2,106
1,830
in € thousands
2008
2007
Receivable from The Ni elsen Company B.V.
1,964
-
182
158
19. Prepayments and accrued income
in € thousands
P re payments
Deposits
Total prepayments and accrued income
20. Other current assets
Loans from third parties
Interest to be received from third parties
1,342
5,114
I nterest to be received from rel ated parties
11
16
Interest to be received from discontinued operations
13
13
Other current assets
4,344
2,652
Total other current assets
7,856
7,953
The receivable from The Nielsen Company B.V. is in
connection with indemnities included in the SPA
regarding the Acquisition.
103
21. Cash and cash equivalents
in € thousands
Cash at banks and on hand
S hort-term deposits
Total cash and cash equivalents
2008
2007
211,856
29,339
18,292
6,700
230,148
36,039
one day and three months, depending on the immediate
cash requirements of the Company, and earn interest at
the respective short-term deposit rates.
The cash and cash equivalents are held at high quality
banks of internationally acknowledged standing. Shortterm deposits are made for varying periods of between
22. Equity
Share capital and additional paid-in capital
in € thousands
2008
Issued share capital
2007
-
-
Additional paid-in capital
199,995
199,995
Total
199,995
199,995
Other reserves - Other reserves consist of the following:
in € thousands
At December 31, 2006
Currency translation differences
A ctuarial gains/losses on d efined
benefit pension plans
A ncillary costs on defined benefit plans
Tax effect on actuarial gains/losses
Movement on cash flow hedges
Tax effect on movement
of cash flow hedges
Liabi lities directly associated with the
assets classified as held for sale
A ssets classified as held for sale
At December 31, 2007
Currency translation differences
A ctuarial gains/losses on d efined
benefit pension plans
A ncillary costs on defined benefit plans
T ax effect on actuarial gains/losses
M ovement on cash flow hedges
T ax effect on movement
of cash flow hedges
Discontinued operations
At December 31, 2008
Cash flow hedge
reserve
Actuarial gains
and losses
6,273
12,306
-
-
-
15,466
(249)
366
(84)
(4,049)
-
Actuarial gains
and losses associates
Foreign
currency
translation
reserve
(228)
(37,067)
(360)
(13,212)
-
-
-
-
-
-
(20,774)
-
-
-
5,297
-
-
6,390
8,162
-
-
(7,387)
2,231
1,234
(6,102)
(563)
1,669
(1,455)
1,711
(588)
(1,071)
-
Total other
reserves
(18,716)
(13,212)
15,106
(84)
(4,049)
(249)
366
(20,774)
5,297
(50,279)
(36,315)
(31,418)
(31,418)
-
(7,173)
(563)
1,669
(7,387)
-
-
2,231
-
-
(1,455)
(1,659)
(81,697)
(80,411)
104
Foreign currency translation reserve
The foreign currency translation reserve is used to record
foreign currency exchange differences arising from the
translation of the financial statements of foreign
subsidiaries, joint ventures and associates.
Actuarial gains and losses
The reserve for actuarial gains and losses is used to
record the actuarial gains or losses on defined benefit
pension plans arising from changes in actuarial
assumptions.
Cash flow hedge reserve
The cash flow hedge reserve is used to record the
effective portion of the change in the fair value of the
derivative financial instruments (interest rate swaps or
cross currency rate swaps), designated as hedging
instruments in cash flow hedge relationships.
Amount recognised directly in equity relating to assets held for sale
in € thousands
2008
2007
Actuarial gains and losses
-
20,774
Deferred tax assets on actuarial gains and losses
-
(5,297)
Amount recognised directly in equity relating to assets held for sale
-
15,477
2008
2007
207
1,266
Minority interests
in € thousands
B alance at January 1
Minorities’ share in profit/(loss) for the year
-
311
Dividends paid
-
(238)
A cquisition of minority interests
-
(1,112)
Ot her
-
(20)
B alance at December 31
207
207
23. Financial liabilities
The financial liabilities can be summarised as follows:
Within a year
1-5 years
Exceeding
5 years
Total
2008
S enior bank facil ities - term B
-
-
935,000
935,000
S enior euro notes
S enior dollar notes
-
-
395,000
395,000
-
-
143,160
143,160
S enior notes
P IK facility
-
-
538,160
538,160
-
-
152,667
681,934
152,667
681,934
in € thousands
S hareholders' loan
Financial liabilities gross
Transaction costs
(2,662)
(12,699)
2,307,761
(2,875)
2,307,761
(18,236)
Financial liabilities
(2,662)
(12,699)
2,304,886
2,289,525
105
Within a year
1-5 years
Exceeding
5 years
Total
2007
S enior bank facil ities - term B
-
-
935,000
935,000
S enior euro notes
S enior dollar notes
-
-
395,000
395,000
-
-
135,860
135,860
S enior notes
P IK facility
-
-
530,860
530,860
33,000
-
137,144
619,940
-
137,144
619,940
33,000
-
2,222,944
2,255,944
in € thousands
S hareholders' loan
Loan from discontinued operations
Financial liabilities gross
Transaction costs
33,000
(2,436)
(11,780)
Financial liabilities
30,564
(11,780)
(6,417)
2,216,527
(20,633)
2,235,311
The table above summarises the maturity profile of the
Company’s financial liabilities at December 31, 2008
based on contractual undiscounted payments. This
liability is partially mitigated by cash and cash equivalents
(€230.1 million as at December 31, 2008 and €36.0
million as at December 31, 2007).
revolving credit facility can be made available in the form
of a multicurrency advance up to a maximum aggregate
amount of €50,000 or in the form of ancillary facilities,
letters of credit and/or bank guarantees. As of December
31, 2008, no amounts were drawn under the revolving
credit facility.
Senior facilities
Senior notes
At December 31, 2008, the senior facilities consisted of:
Truvo Subsidiary Corp., our direct subsidiary, issued
1
€395,000 8 /2% senior notes due December 1, 2014 and
3
$200,000 8 /8% senior notes due December 1, 2014.
i.
a term facility 1 in the principal amount of €648,000
repayable in full on May 31, 2014;
ii.
a term facility 2 in the principal amount of €287,000
repayable in full on May 31, 2014; and
iii.
a multicurrency revolving credit facility in maximum
principal amount of €50,000 available until
November 30, 2013.
The total proceeds of facility 1 and facility 2 were used to
prepay all outstanding borrowings under the 2004 senior
facilities as of May 29, 2007.
The interest rate on each advance under the senior
facilities is EURIBOR or Libor plus a margin of 2.00% per
annum. A commitment fee of 0.50% is payable on unused
amounts available under the revolving credit facility.
The above margin may be:
i.
increased by mandatory cost of the lenders because
of compliance with minimum reserve requirements of
the European Central Bank or certain rules of the
Bank of England and/or the Financial Services
Authority, as applicable; and
ii.
reduced or increased in accordance with the ratio of
senior indebtedness (less cash and cash equivalents
free and clear of any liens) to EBITDA (as defined
therein) and the thresholds for the relevant facility
set out in the Senior Facility Agreement.
Accordingly, the margin has been reduced to 1.75%
from August 29 till December 1 and to 1.5% from
December 1, 2008.
The revolving credit facility is available to Truvo Services
& Technology B.V. (before the merger Truvo Services
B.V.). Any amount drawn under the revolving credit
facility may be used to finance the general corporate
purposes of Truvo Acquisition Corp. and its restricted
subsidiaries including working capital requirements. The
The senior notes are senior obligations of Truvo
Subsidiary Corp. and rank equal in right of payment with
all of the Truvo Subsidiary Corp.’s existing and future
senior debt. The senior notes rank senior to any of the
Truvo Subsidiary Corp.’s existing or future indebtedness
that is expressly subordinated to the senior notes.
PIK facility
A €130,188 facility was made available to Truvo
Intermediate LLC pursuant to the PIK Facility Agreement.
The PIK facility is due for repayment on November 29,
2015. The total proceeds from the PIK facility have been
used to prepay all outstanding principal of the PIK notes
as of May 29, 2007.
The interest rate of the PIK facility is EURIBOR plus a
margin of 6%. After March 31, 2008, this margin may be
retroactively (to the beginning of the relevant interest
period) increased by a ratchet margin of 1% if the ratio of
all net (external) borrowings to EBITDA of the Company
is above certain thresholds at the end of a six-month
interest period. Interest is payable semi-annually in
arrears and will be payable, at the Company’s option: in
cash or through an addition to the principal amount of the
PIK facility.
Shareholders’ loan
The Company has received €415 million plus an
additional €47.5 million under an intra-group loan from
Truvo Parent Corp., the parent company of the Company,
which is subordinated to the senior facilities, the senior
notes and the PIK facility. Such intra-group loan mirrors
the terms of an original shareholder note issued by Truvo
Parent Corp., as borrower on which all interest is rolledup. Therefore, such intra-group loan will accrete at a rate
of 10% per annum, compounded annually on each
anniversary. The maturity date of such intra-group loan is
106
2104. The funds received by the Company have been
loaned to other group companies in various amounts, in
each case pursuant to an intra-group loan mirroring key
terms of the original shareholder note (with the exception
of the principal amount of the original shareholder note).
24. Derivative financial instruments
The Company’s principal financial instruments consist of
bank loans, notes and shareholders’ loans. The Company
also utilises trade receivables and trade payables in the
normal course of business. The main purpose of these
financial instruments is to provide adequate financing for
our operating activities and to optimise cash
management. In principal, we only employ basic
contracts, that is, without options, embedded or
otherwise. In addition, it is our policy not to trade in
financial instruments.
The main risks arising from the Company’s financial
instruments include interest rate risk and currency risk.
Risk management policy
The Company’s policy regarding market risk consists of
the following:
•
•
monitoring on a regular basis the activities and the
level and value of the current market risk exposures;
and
evaluation of the credit quality of counterparties to
minimise the risk of non-performance.
Exposure to market risks
Fluctuations in the price or availability of paper could
materially adversely affect the Company
The group is dependent upon suppliers for all of its raw
material needs and, therefore, is subject to price
increases and delays in receiving supplies of such raw
materials. Significant increases in paper prices may have
a material adverse effect on the Company’s results of
operations. Long-term agreements for most of paper
needs reduce partially the risk of price fluctuations and
supplier shortage.
The Company is exposed to country risk
Operating results, cash flows and financial condition may
be affected as a result of possible political, economic and
regulatory conditions in South Africa and Puerto Rico
such as high inflation and interest rates, political instability
and a difficult regulatory environment.
The Company is exposed to credit risk
We are geographically diversified with revenues and
EBITDA contributions coming from six countries
(Belgium, Ireland, Romania, Portugal, South Africa and
Puerto Rico) in different stages of development and with
different economic profiles. Our international presence
provides diversification and the ability to leverage our
know-how across various countries and development
cycles.
The group invoices and collects revenues directly from its
customers except for Páginas Amarelas invoicing almost
all its customers indirectly via Portugal Telecom. Portugal
Telecom generally passes on the collection risk of
outstanding invoices under a set-off mechanism. In the
ordinary course of our business, we extend credit to
small- and medium-sized businesses to purchase
advertising and listings. SME tend to have fewer financial
resources and higher financial failure rates than large
businesses. We believe these limitations cause some
customers in any given year not to pay for their
purchases promptly or at all. In addition, full collection of
late payments can take an extended period of time and
consume additional resources. Generally we provide for
reserves in the amount of approximately 2% of our
revenues in connection with bad debt collection.
The Company is exposed to translation currency
exchange risk
The reporting currency of the Company is the Euro. A
portion of the Company’s assets, liabilities, revenues and
costs are denominated in various currencies other than
the Euro, including the Dollar and, with respect to Pagini
Aurii, Romanian Leu. In addition, the share of result after
tax of associates in South Africa and Puerto Rico are
translated from the South African Rand and the US Dollar
respectively to Euro and recorded in the consolidated
statement of income.
Translation risk is not hedged
In addition to currency translation risks related to the
preparation of the consolidated financial statements, the
Dollar business is also affected by exchange rate
transaction risks to the extent the production costs,
including raw material purchases, are incurred in
currencies other than the Euro.
Another exchange rate risk exposure has been created
by the $200.0 million senior notes. This exposure has
been fully hedged until December 1, 2009.
The Company is exposed to transaction currency
exchange risk
Transaction risk is the risk from which the value of the
transactions to be settled at a future date in a foreign
currency will fluctuate relative to the functional currency of
the subsidiaries. This risk exists to the extent production
costs, including raw material purchases are incurred in
currencies other than the local currency. Thus, if the
value of the local currency depreciates with respect to the
transaction currency, the relative cost of the production
will increase. This exposure is minimal since a natural
hedge exists, as operating units generate revenues and
incurs costs within the same country with minimal cross
currency transactions.
Further, the Company’s debt is denominated in the
functional currency of the borrower. At December 31,
2008 and December 31, 2007, all the loans were held in
Euros with the exception of the US Dollar 200.0 million
senior notes fully hedged until December 1, 2009.
Transaction risk is not hedged.
The Company is exposed to interest rate risk
The Company has defined interest rate risk as the risk
that interest rate movements have a negative impact on
its results. The Company’s objective is to protect its
earnings from material adverse movements in interest
rates by controlled management of interest rate structures
in its borrowings. The Company does this through a
mixture of fixed and floating rate debt.
Exposure to changes in interest rates relates primarily to
the Company’s debt obligations at floating interest rate
risk. For example, a 0.125% increase in EURIBOR would
have resulted in our interest expense increasing by
approximately €1.4 million in 2008. However, the
borrowers under the Senior Facility Agreement entered
into interest rate swap contracts. During 2007 on average
approximately 60% of the floating rate was hedged
107
through these interest rate swaps and during 2008
approximately 30%, until November 28, when the swaps
matured. The interest rate hedging strategy will be
periodically reviewed and adjusted if and when required.
change in foreign exchange rates or interest rate yield
curves.
Financial instruments are dealt only with high-level credit
rated banks.
Liquidity risk
Interest rate risk hedging strategies
The Company is highly leveraged and has significant debt
service obligations. On December 31, 2008, the
Company had €1,625.8 million of external indebtedness
(including the PIK facility), of which:
Interest rate swaps and cross currency swaps are used to
translate the floating interest rate debt to a fixed interest
rate debt. They qualify as cash flow hedges.
–
€935.0 million is term indebtedness under the senior
facilities;
–
€538.2 million of indebtedness under the senior
notes;
–
€152.7 million of indebtedness under the PIK facility.
Net cash interest-bearing debt as at December 31, 2008
amounted to €1,473.2 million (excluding the PIK facility).
The revolving credit facility allows us to increase the debt
by €50.0 million.
Liquidity risk also arises from hedging instruments used
to protect the statement of income against any adverse
The Company’s exposure to changes in interest rates
relates primarily to the debt obligations. The Company will
not have any cash flow exposure due to rate changes on
the senior notes because they bear interest at a fixed
rate. However, the Company will have cash flow
exposure on the senior facilities and PIK facility due to the
variable interest rate pricing. During 2008 on average
30% of the floating rate exposure was hedged through
these interest rate swaps until November 28, and during
2007 approximately 60%. The interest rate hedging
strategy will be periodically reviewed and adjusted if and
when required.
Derivatives mark-to-market valuations are provided by the
respective financial institutions with which swaps were
entered into.
Fair value
Cash flow reserve - timing occurrence of the hedged cash
flows
Positive
Negative
Within a year
1-5 years
Interest rate swaps
Cross currency swaps
5,737
-
(10,832)
5,737
-
3,307
-
5,737
3,307
Cash flow hedges
5,737
(10,832)
5,737
3,307
-
9,044
Interest rate swaps
Cross currency swaps
-
(5,182)
1,658
-
-
1,658
Cash flow hedges
-
(5,182)
1,658
-
-
1,658
in € thousands
Exceeding 5
years
Total
December 31, 2007
December 31, 2008
The cash flow hedges of the expected future interest
expenses are assessed to be highly effective as the
critical terms of the debts and the hedging instruments
match. Net unrealised gains or losses are recognised in
the cash flow hedge reserve. The following table details
the movements in the cash flow hedge reserve over 2008
and 2007 (before deferred tax impacts):
in € thousands
2008
2007
At January 1
9,044
9,293
Gains/(losses) recognised in the consolidated statement
of recognised i ncome and expense
At December 31
(7,387)
1,657
(249)
9,044
108
As at December 31, 2008
Balance sheet
Category in
accordance with
IAS 39*
Statement of incom e
Amounts recognised
Carrying
amount amortised costs
fair value in
equity
Fee income
and expense
not included in
Fair value
the EIR
Total interest
income/
(expense)
From subsequent measurement
At fair value
Currency
translation Net gain/(l oss)
in € thousands
Assets
Cash and ca sh equival ents
LaR
230,148
230,148
-
230,148
-
-
-
-
4,202
Trade receivables
LaR
106,235
106,235
-
106,235
-
-
-
-
2,512
CFH
-
-
-
-
-
26,125
-
-
26,125
Derivative financial a ssets
with a hedging rel ationship
Liabilitie s
Trade payables
FLaC
15,651
15,651
-
15,651
S enior bank facilities
FLaC
935,000
935,000
-
397,375
(150)
Revolving credit facility
FLaC
-
-
-
-
(254)
O ther long-term liabilities
FLaC
-
-
-
-
S enior notes
FLaC
538,160
538,160
-
176,848
(17)
(44,952)
P IK facility
FLaC
152,667
152,667
-
8,397
(20)
(15,549)
-
-
(15,762)
S hareholders' loan
FLaC
681,934
681,934
-
681,934
-
(61,994)
-
-
(61,994)
CFH
5,182
5,182
-
-
(20,554)
-
(27,394)
Derivative financial a ssets
with a hedging rel ationship
LaR
Loans and receivables
CFH
Cash flow hedges
FLaC
EIR
-
-
-
-
-
-
-
(63,844)
-
-
-
(67)
-
-
-
-
6,840
(62,482)
-
(38,932)
(5,182)
(6,840)
Financial liabilitie s at amortised cost
Effective interest rate
109
A s at December 31, 2007
Statement of income
Balance sheet
Cat egory in
accordance with
I AS 39*
Amounts recognised
Carrying
amount amortised costs
fair value in
equity
Fee incom e
and expense
not included in
Fair value
the EIR
Total interest
income/
(expense)
From subsequent measurement
At fair value
Currency
translation
From derecognition Net gain/(loss)
in € thousands
A ssets
C ash and ca sh equival ents
LaR
36,039
3 6,039
-
36, 039
-
-
-
-
-
734
T rade receivables
LaR
146,669
14 6,669
-
146, 669
-
-
-
-
-
1,799
CFH
5,737
-
5, 737
5, 737
-
39,418
-
-
-
39,418
D erivative financial a ssets
with a hedging rel ationship
Li abilitie s
T rade payables
F LaC
25,093
2 5,093
-
25, 093
S enior bank facilities
F LaC
935,000
93 5,000
-
885, 010
(150)
(453)
-
-
-
-
(14,658)
(80,843)
-
-
(1,588)
(2,361)
-
-
-
(45,883)
-
14,140
-
(63,448)
-
-
R evolving credit facility
F LaC
-
-
-
-
O ther long-term liabilities
FLaC
-
-
-
-
S enior notes
FLaC
530,860
53 0,860
-
499, 474
(21)
P IK facility
FLaC
137,144
13 7,144
-
137,144
(11)
(16,004)
-
-
S hareholders' loan
FLaC
619,940
61 9,940
-
619,940
-
(56,358)
-
-
-
(56,358)
CFH
10,832
-
3,307
10, 832
-
(30,370)
-
-
(44,510)
-
-
(1,746)
(32,497)
(17,799)
Derivative financial a ssets
with a hedging rel ationship
LaR
Loans and receiv ables
CFH
Cash flow hedges
FLaC
EIR
(14,140)
Financial liabilitie s at amortised cost
Effective interest rate
110
Additional disclosures
The fair values of the senior bank loans, the senior notes
and the PIK facility are based on the market quotations as
at December 31, 2008 and December 31, 2007.
The fair values of other long-term liabilities and
shareholders’ loans are assumed to be equal to the
carrying value as the interest fluctuations does not have a
material impact and there is no market where these are
regularly traded. In calculating the fair value, the accrued
interest on the current coupon has not been taken into
account, because accrued interest is reflected under
current liabilities.
The carrying value of cash and cash equivalents, trade
receivables and trade payables approximate their fair
value, as they are short-term maturities.
The net interest income on derivatives qualified as cash
flow hedges was €5.6 million and €9.0 million for 2008
and 2007, respectively.
Defaults and breaches
As at December 31, 2008 and 2007, there has been no
default or breaches of loan agreement terms. But our
ability to make payments on and to refinance our debt
and to fund working capital and capital expenditure
depends on our future operating performance and ability
to generate sufficient cash inflows. This depends, to
some extent, on general economic, financial, competitive,
market, legislative, regulatory and other factors, many of
which are beyond our control, as well as the other factors
discussed in “Risk factors”, included elsewhere in this
annual report.
We cannot assure you that our business will generate
sufficient cash flows from operating activities or that
future debt and equity financing will be available to us in
an amount sufficient to enable us to pay our debt when
due, including the notes, or to fund our other liquidity
needs.
However, we performed a stress test on our financial
forecasts to determine the available liquidity. Based on
this test we concluded that the cash flows from operating
activities generated by our business together with the
already available cash is sufficient to fund our liquidity
needs for the coming year.
Please see the section entitled “Operating and financial
review and prospects” for a discussion of our cash flows
and liquidity.
If our future cash flows from operating activities and other
capital resources (including borrowings under the
revolving credit facility under the senior facilities) are
insufficient to pay our obligations as they mature or to
fund our liquidity needs, we may be forced to:
•
reduce or delay our business activities, capital
expenditure and research and development;
•
sell assets;
•
obtain additional debt or equity capital; or
•
refinance all or a portion of our debt, including the
senior notes, on or before maturity.
We cannot assure you that we would be able to
accomplish any of these alternatives on a timely basis or
on satisfactory terms, if at all. In addition, the terms of our
debt, including the senior notes, the PIK facility and the
senior facilities, limit, and any future debt may limit, our
ability to pursue any of these alternatives.
25. Provisions
Provisions consist of the following:
in € thousands
2008
2007
P ensions
12,244
5,134
P ro vision for early retirement and o ther post-employment benefit pl ans
10,283
11,863
P ension and other post-employment benefit plans
22,527
16,997
P ro vision for tax exposures
12,968
47,972
Restructuring
151
1,600
4,696
4,083
Other provisions
17,815
53,655
Total provisions
40,342
70,652
Current provisions
1,297
4,437
39,045
66,215
Other
Non-current provisions
Pensions and other post-employment benefit plans
The Company has defined benefit pension plans for its
employees in Belgium, The Netherlands and Ireland and
a defined contribution plan for employees in Belgium. The
Company has also set up a provision for the Belgian early
retirement plan, which is in substance a post-employment
benefit and not a termination benefit.
The following tables summarise the components of net
benefit expense recognised in the consolidated statement
of income and the funded status and amounts recognised
in the balance sheet for the respective plans.
111
in € thousands
Current service cost
Other non-operat ing costs
Interest cost on ben efit obligation
Expected return on plan assets
Net benefit expense
Pers onnel costs
Other non-operating costs
Financial expense
Financial inc ome
Con solidated statement of income
in € thousands
Current service cost
To tal
2008
Belgium
The
Netherlands
Ireland
3,134
537
4,516
(4,129)
1,741
537
2,696
(1,935)
323
618
(680)
1,070
1,202
(1,514)
4,058
3,039
261
3,134
537
4,516
(4,129)
1,741
537
2,696
(1,935)
323
618
(680)
4,058
3,039
261
Total
2007
Belgium
The
Netherlands
758
1,070
1,202
(1,514)
758
Ireland
6,479
2,602
3,163
7,619
(8,187)
2,383
(2,084)
4,197
(4,655)
Net benefit expense
5,911
2,901
2,705
305
P ersonnel costs
Financial expense
3,751
4,003
2,602
2,383
435
581
714
1,039
(4,176)
2,333
(2,084)
-
(644)
2,333
(1,448)
-
5,911
2,901
2,705
Interest cost on benefit obligation
E xpected return on plan assets
Financial income
Discontinued operations
Consolidated statement of income
in € thousands
Current service cost
Interest cost on ben efit obligation
Expected return on plan assets
Past service cost
Net benefit expense
Personnel costs
Financial expense
Financial income
Discontinu ed operations
Consolidated statement of income
714
1,039
(1,448)
305
Total
2006
Belgium
The
Netherlands
Ireland
8,156
7,757
(8,537)
113
2,590
2,244
(2,051)
-
4,100
4,525
(5,083)
113
1,466
988
(1,403)
-
7,489
2,783
3,655
1,051
4,688
3,929
(4,237)
3,109
2,590
2,244
(2,051)
-
632
697
(783)
3,109
1,466
988
(1,403)
-
7,489
2,783
3,655
1,051
112
in € thousands
Total
Belgium
The
Netherlands
Ireland
Reconciliation of the defined
benefit liability/(assets)
At December 31, 2006
32,718
18,996
13,220
Net benefit expense
Contributions by employer
5,911
(7,493)
2,901
(1,862)
2,705
(4,525)
(851)
(851)
(15,466)
2,178
(1,453)
-
At December 31, 2007
16,997
17,731
(438)
(296)
Net benefit expense
Contributions by employer
Benefits pai d directly by the Company
Income/(expense) charged to the
consolidated statement of recognised
income and expense
Discontinu ed activities
4,058
(3,471)
(1,006)
3,039
(2,003)
(1,006)
261
(324)
-
758
(1,144)
-
6,102
(153)
3,222
-
654
(153)
2,226
-
At December 31, 2008
22,527
Benefits pai d directly by the Company
Income/(expense) charged to the
consolidated statement of recognised
income and expense
Discontinu ed activities
Starting January 1, 2009, Truvo accommodated the pension scheme of the (after the sale of the Dutch operations
remaining) Dutch employees in the industry pension fund
PGB (Pensioenfonds voor de Grafische Bedrijven). This
is a collective average pay plan for employees, employed
by several employers, which fund is treated administratively as if it is a defined contribution plan. Based on the
agreement, the associated entities do not have any
502
305
(1,106)
-
-
(14,016)
2,178
20,983
-
3
-
1,544
obligation to make up possible deficits. The participating
entities also do not have rights on any possible surplus of
the pension fund assets. The industry pension fund is not
able to provide us with all necessary information to include the pension liabilities as defined benefit obligations,
based on the IFRS guidelines. Therefore the pension plan
has been recognised in the financial statements as a
defined contribution plan.
(1 )
Total
2008
Belgium
66,147
(43,620)
46,671
(25,688)
-
19,476
(17,932)
Actuarial (gains)/losses recognised
in equity
Unrecognised past service costs
22,527
20,983
-
1,544
-
-
-
-
Benefit liability
22,527
20,983
in € thousands
Defined benefit obl igation
Fair value of plan assets
in € thousands
Total
2007
The
Netherlands
-
Ireland
1,544
(1)
Belgium
The
Netherlands
Ireland
Defined benefit obligation
82,072
51,290
8,726
22,056
Fair value of plan assets
(65,075)
(33,559)
(9,164)
(22,352)
A ctuarial (gains)/losses recognised
in equity
Unrecognised past service costs
16,997
17,731
(438)
(296)
-
-
Benefit liability
16,997
(1)
17,731
(438)
(296)
Does not include the discontinued operations.
113
The changes in the present value of the defined benefit obligation were as follows:
Total
in € thousands
Defined benefit obligation
at December 31, 2006
Company current service costs
Belgium
The
Netherlands
183,372
56,096
105,438
Ireland
21,838
6,350
2,602
3,034
Interest costs
E mployee contribution
A ctuarial (gains)/losses
7,472
1,640
(19,569)
2,383
(3,516)
4,049
1,179
(14,416)
1,040
461
(1,637)
714
B enefits paid di rectly by the Company
Liabi lities classified as held for sale
(8,098)
(89,095)
(6,275)
-
(1,463)
(89,095)
(360)
-
82,072
51,290
8,726
22,056
3,671
4,516
608
2,278
2,696
-
323
618
159
1,070
1,202
449
(10,451)
(4,987)
(9,282)
(5,045)
(4,548)
-
(516)
(28)
(9,282)
(4,890)
(411)
-
66,147
46,671
-
19,476
Defined benefit obligation
at December 31, 2007
Company current service costs
Interest costs
E mployee contribution
A ctuarial (gains)/losses
B enefits paid di rectly by the Company
Discontinued operations
Defined benefit obligation
at December 31, 2008
The changes in the fair value of plan assets were as follows:
in € thousands
Fair value of plan assets
at December 31, 2006
E xpected return on plan assets
Contri butions by employer
E mployee contribution
B enefits paid
Other
A ssets classified as held for sale
Fair value of plan assets
at December 31, 2007
E xpected return on plan assets
Total
Belgium
The
Netherlands
Ireland
150,654
37,100
92,218
21,336
5,154
7,493
1,640
194
1,862
-
5,151
4,525
1,179
(191)
1,106
461
(7,537)
(173)
(92,156)
(5,424)
(173)
-
(1,753)
(92,156)
(360)
-
65,075
33,559
9,164
22,352
(12,425)
(6,333)
(490)
(5,602)
Contri butions by employer
E mployee contribution
B enefits paid
Discontinued operations
3,472
608
(3,980)
(9,129)
2,004
(3,541)
-
324
159
(28)
(9,129)
1,144
449
(411)
-
Fair value of plan assets
at December 31, 2008
43,621
25,689
-
The Company expects to contribute €2,703 to its defined
benefit pension plans in 2009.
17,932
The major categories of plan assets as a percentage of
the fair value of total plan assets are as follows:
114
2008
2008
Equity securities
Debt securities
Real estate
Other
2007
Equity securities
Debt securities
Real estate
Other
There are neither financial instruments of the Company
nor property occupied by the reporting Company in the
pension plan assets.
Belgium
The
Netherlands
Ireland
37.9%
32.0%
63.0%
51.5%
2.5%
8.1%
68.0%
0.0%
0.0%
30.7%
5.1%
1.2%
Belgium
The
Netherlands
Ireland
46.1%
42.8%
64.8%
44.9%
3.6%
5.4%
52.4%
0.0%
4.8%
29.2%
6.0%
0. 0%
The overall expected rate of return on assets is
determined based on the market expectations prevailing
on that date, applicable to the period over which the
obligation is to be settled.
The principal assumptions used in determining pension obligations for the Company’s plans are shown below:
2008
2007
Belgium
(1)
The Netherlands
Ireland
6.0%
6.0%
6.0%
5.5%
5.7%
5.5%
Expected rate of return on assets:
Belgium
(1)
The Netherlands
5.9%
5.8%
5.9%
5.8%
Ireland
6.6%
6.5%
Future salary increases:
Belgium
(1)
The Netherlands
Ireland
3.0%
3.0%
4.3%
3.0%
3.0%
4.3%
0.0%
0.0%
2.0%
1.5%
2.0%
1.5%
Discount rate:
Future pension increases:
Belgium
The Netherlands (1)
Ireland
(1)
Does not include the discontinued operations as at December 31, 2008.
Other provisions
The other provisions can be analysed as follows:
Provision for tax exposures
Under the existing accounting policies the Company has
established liabilities for possible assessments by tax
authorities resulting from known corporate income tax
exposures.
Such amounts represent reasonable provisions for
corporate income taxes ultimately to be paid. The amount
recognised for these income tax uncertainties may be
adjusted as more information become available in future
periods.
Restructuring
The personnel restructuring costs mainly relate to the
continuing workforce reduction programs in our back
office functions in line with our best practices
implementation on cost reduction initiatives.
Other
The Company has agreed to provide certain additional
post-employment healthcare benefits to senior employees
in the United States and some employees in Belgium.
These benefits are unfunded. The Company has also
provided costs related to the social security charges and
taxes related to the Belgium pension funds.
115
Provision for tax
exposures
Restructuring
Other
Total
35,725
14,905
737
-
7,943
9,465
(70)
(14,635)
4,293
685
(2,303)
-
47,961
25,055
(1,636)
(14,635)
Liabi lities classified as held for sale
Revaluation and other
(3,395)
(1,083)
(20)
10,730
(9,322)
-
10,730
(10,405)
(3,415)
At December 31, 2007
47,972
1,600
4,083
53,655
Current 2007
Non-current 2007
-
1,600
2,837
4,437
47,972
-
1,246
49,218
in € thousands
A t December 31, 2006
A ri sing during the year
Unused amounts reversed
Uti lised
Contri bution received
A t December 31, 2007
47,972
(6)
-
1,600
6,798
-
4,083
2,292
(210)
53,655
9,084
(210)
Uti lised
Revaluation and other
(38,354)
3,356
(8,247)
-
(1,763)
(1,967)
2,261
(40,117)
(10,214)
5,617
At December 31, 2008
12,968
151
4,696
17,815
Current 2008
Non-current 2008
12,968
151
-
1,146
3,550
1,297
16,518
A ri sing during the year
Fair value adjustment
Unused amounts reversed
During the third quarter of 2006, Truvo Nederland (after
the demerger Gouden Gids B.V.) entered into a real
estate lease for new premises in Amsterdam for a term of
10 years, for which it received an incentive of €11.1
million (€10.7 million in 2007 and €0.4 million in 2006) to
be amortised over the terms of the lease after deduction
of costs incurred during the move. In 2007, the balance is
included in the liabilities held for sale.
26. Other long-term liabilities
The other long-term liabilities consist of the following:
in € thousands
2008
2007
P ublishing rights eircom contract
4,200
9,200
Other long-term payables
1,137
1,245
Total liabilities
5,337
10,445
865
6,245
4,472
4,200
Less: current portion included in other current liabilities
Total other long-term liabilities
In June 2006, Truvo Ireland Ltd., a wholly owned
subsidiary of the Company, entered into an exclusive
agreement with eircom, the incumbent Irish telephone
operator, under which it secured the rights to publish
certain directories and databases as well as providing
business advertising services in the Republic of Ireland
through 2013. The initial consideration was payable in
three instalments (2007 and 2008).
116
27. Trade and other payables
2008
2007
Trade payables
7,759
15,321
Payables to joint ventures and discontinued operations
7,076
9,146
816
626
15,651
25,093
in € thousands
Invoices to be received
Total trade and other payables
Terms and conditions of the above mentioned liabilities:
•
Trade payables are non-interest bearing and are
normally settled on 60-day terms.
•
For terms and conditions relating to related parties,
refer to note 30 “Related parties”.
28. Other current liabilities
2008
in € thousands
2007
Personnel costs
17,400
22,216
Deferred revenues
37,950
46,893
Interest payable to third parties
10,967
12,570
Provision for allowances
1,364
1,999
Other taxes and social premiums
4,802
1,593
Payable to The Nielsen Company B.V.
-
5,891
Other current liabiliti es
13,058
13,191
Total other current liabilities
85,541
104,353
The payable to The Nielsen Company B.V. corresponded
to the final consideration, which had to be paid based on
the settlement in February 2008.
29. Commitments and contingencies
Legal proceedings and contingencies
We are involved in a number of legal proceedings and
commercial disputes, the following of which is substantial
in nature and may potentially adversely affect our
business.
•
Van Remmerden Beheer B.V. and its subsidiary Just
Voice B.V. have started a summary proceeding
against Truvo Nederland claiming approximately
€3.7 million for breach of contract. Truvo Nederland
entered into a data license agreement with Van
Remmerden Beheer B.V. for the Gouden Gids
database and a memorandum of understanding with
Just Voice B.V. of voice automated directory
services. The data license agreement is conditioned
upon the signing of a call option agreement and the
memorandum of understanding has a non-binding
clause, which says that parties are free until an
agreement has been negotiated and duly signed.
Truvo Nederland won the summary proceedings.
Van Remmerden Beheer B.V. and Just Voice B.V.
have now started a full proceeding and another
summary proceeding that Truvo Nederland initially
lost but won in appeal in 2006. The proceedings
continued through 2007.
In 2008 in the case on the merits Truvo Nederland
won the Van Remmerden Beheer B.V. case but was
found liable towards Just Voice B.V. The amount of
damages however was not set by the Court but was
instead referred to separate proceedings. These
proceedings will commence in 2009. Truvo
Nederland has meanwhile filed an appeal in the Just
Voice B.V. case.
We believe that no other proceedings that we are
involved in as part of our business activities, either
individually or in the aggregate, are likely to have a
material adverse effect on our business, financial
condition or results of operations.
Lease and other commitments
The Company has entered into operating leases with
respect to real estate facilities, computers and other
equipment used in the conduct of its business. Such
leases expire at various dates and may include renewals
and escalations. Rental and lease expenses under these
operational leases for each of the years ended December
31, 2008 and 2007 were €11,311 and €9,866
respectively. Rental and lease expenses under
operational leases included under discontinued
operations were €6,023 for the year ended December 31,
2007.
At December 31, 2008, the approximate minimum annual
rental expense for real estate, computer and other
equipment that have remaining non-cancellable terms in
excess of one year, net of sublease rentals, is as follows:
117
in € thousands
2008
2009
9,861
2010
8,315
2011
7,040
2012
4,119
Thereafter
15,060
44,395
Supplemental indenture agreement
Securities
The Company has entered into a supplemental indenture
among the Company, Truvo Subsidiary Corp., Truvo
Belgium Comm. V, Truvo Services B.V. (1), Truvo
Technology B.V. (1), and Truvo Corporate CVBA, among
others, whereby it agrees to become a parent guarantor
and to unconditionally guarantee all of Truvo Subsidiary
Corp.’s obligations under the senior notes.
Senior Facility Agreement
Obligations under the Senior Facility Agreement have the
benefit of first ranking security as follows:
•
Truvo Subsidiary Corp. grants a pledge of 65% of its
shares in Truvo Acquisition Corp., a lien in respect of
all personal property (excluding shares in group
companies) inclusive (but on a second ranking basis
as regards among others the Truvo Proceeds Loan)
of any intercompany loans and certain security in
respect of its bank accounts;
•
Truvo Acquisition Corp. grants a pledge of 65% of its
shares in Truvo USA, Inc., a lien in respect of all
personal property (excluding shares in group
companies) inclusive of all intercompany loans and
its bank accounts;
•
Truvo USA, Inc. grants certain security in respect of
all personal property (excluding shares in group
companies); security over all intercompany loans,
certain security over its intellectual property, its bank
accounts, and a pledge of 65% of its shares in Truvo
Belgium Comm. V;
•
Truvo Corporate CVBA grants certain security over
its bank accounts, its receivables (including
intercompany loans and insurance claims), and on
certain other business assets;
•
Truvo Belgium Comm. V grants certain security over
its bank accounts, its receivables (including
intercompany loans and insurance claims), its
intellectual property rights and on certain other
business assets and 65% of the shares in Truvo
Services & Technology B.V. (1);
•
Truvo Services & Technology B.V. (1) grants a
pledge of 65% of the shares in Truvo Dutch Holdings
B.V. and over its shares in Truvo Curaçao N.V.,
certain security over its bank accounts, its
receivables (including intercompany loans and
insurance claims), and on certain other movables;
•
Truvo Dutch Holdings B.V. grants a pledge over its
shares in Truvo Nederland Holdings B.V. and Truvo
Ireland Holdings B.V. and certain security over its
bank accounts and its receivables (including
intercompany loans and insurance claims);
•
Truvo Nederland Holdings B.V. grants a pledge over
its shares in Truvo Nederland B.V.;
•
Truvo Ireland Holdings B.V. grants a pledge over its
shares in Truvo Ireland Ltd. and certain security over
its bank accounts;
Guarantees
Senior bank facilities
Truvo Acquisition Corp., Truvo Belgium Comm. V, Truvo
Curaçao N.V., Truvo Services B.V. (1), Truvo Corporate
CVBA, Truvo Technology B.V. (1), Truvo Dutch Holdings
B.V., Truvo Nederland Holdings B.V., Truvo Ireland
Holdings B.V., Truvo Nederland B.V., Truvo Ireland Ltd.
and Truvo USA, Inc. are guarantors under the Senior
Facility Agreement. Each guarantor, subject to certain
limitations set out in the Senior Facility Agreement,
irrevocably and unconditionally jointly and severally
guarantees to each lender the performance of each other
obligor’s obligations thereunder and indemnifies each
lender immediately on demand against any cost, loss or
liability suffered by that lender if any payment obligation
thereunder is or becomes unenforceable, invalid or illegal.
The amount of the cost, loss or liability shall be equal to
the amount, which that lender would otherwise have been
entitled to recover.
Such guarantee is a continuing guarantee and will extend
to the ultimate balance of sums payable by any obligor
under its obligations thereunder, regardless of any
intermediate payment or discharge in whole or in part.
However, to comply with local laws, the obligations of
each U.S., Dutch, Dutch Antilles, Belgian and Irish
guarantor are subject to limitations under local laws as
specified in the Senior Facility Agreement.
Senior Notes
The senior notes are guaranteed, subject to certain limits
imposed by local law, on a senior subordinated basis (the
“subsidiary guarantees”) by the following subsidiaries of
Truvo Subsidiary Corp. (together, the “subsidiary
guarantors”): Truvo Acquisition Corp., Truvo USA, Inc.,
Truvo Belgium Comm. V, Truvo Services B.V. (1), Truvo
Technology B.V. (1), and Truvo Corporate CVBA.
The subsidiary guarantees given by the subsidiary
guarantors may be released in certain circumstances,
including upon the sale of a subsidiary guarantor, if
certain conditions are met. The obligations of each of the
subsidiary guarantors are limited as necessary under the
respective guarantee to prevent such guarantee
constituting a fraudulent conveyance under applicable law
or otherwise to reflect limitations under applicable law.
118
•
Truvo Curaçao N.V. grants certain security over its
intercompany loans and its bank accounts;
•
Truvo Nederland B.V. grants certain security over its
bank accounts and certain IP; and
•
Truvo Ireland Ltd. grants certain security over all of
its properties and assets (including real properties,
plant and equipment areas and other securities
(other than shares in group companies), intellectual
property rights, receivables and bank accounts).
(1) As of January 1, 2009 Truvo Services B.V. and Truvo Technology B.V.
merged into Truvo Services & Technology B.V.
Senior notes
The senior notes are secured by a second-ranking pledge
of certain shares of Truvo Acquisition Corp. and a firstranking pledge of certain of Truvo Subsidiary Corp.’s
assets.
The subsidiary guarantee of Truvo Acquisition Corp. is
secured by a second-ranking pledge of certain assets of
Truvo and Truvo Acquisition Corp.
The subsidiary guarantee of Truvo is secured by a
second-ranking pledge of certain assets of Truvo Belgium
Comm. V and Truvo.
The security interests in favour of the senior notes and
the subsidiary guarantees of Truvo and Truvo Acquisition
Corp. are subject to release under certain circumstances.
In addition, in the event any of Truvo Acquisition Corp,
Truvo or Truvo Belgium Comm. V is sold pursuant to an
enforcement action, any shares in such companies not
subject to the respective pledge arrangements must also
be sold to the prospective purchaser of Truvo Acquisition
Corp., Truvo or Truvo Belgium Comm. V.
Off-balance sheet arrangements
Pursuant to the agreement between Truvo USA, Inc. and
Portugal Telecom establishing Páginas Amarelas, if the
profit for the year of Páginas Amarelas falls below 8% of
its net sales attributable to insertions and advertising,
Truvo USA, Inc. will contribute an amount equal to
approximately 22% of the shortfall up to a maximum of
5% of annual net sales attributable to insertions and
advertising in that year and Portugal Telecom will
contribute an amount equal to approximately 78% of the
shortfall up to a maximum of 18% of the annual net sales
attributable to insertions and advertising. If these
contributions are not sufficient, both parties will be
required to make additional contributions to support
Páginas Amarelas’ profit, such additional support being
an amount of not more than 5% and 18%, respectively of
Páginas Amarelas’ net sales attributable to insertions and
advertising.
Long-term purchase contracts
To reduce risks, the Company has concluded long-term
agreements for most of its paper needs as from 2006.
30. Related parties
The financial statements include the financial statements
of Truvo and the subsidiaries listed in the following table:
Related parties
% equity interest
Name
Country of incorporation
2008
2007
Truvo Intermediate LLC
USA
100.0%
100.0%
Truvo Subsidiary Corp.
USA
100.0%
100.0%
Truvo Acquisition Corp.
USA
100.0%
100.0%
Truvo USA, Inc.
USA
100.0%
100.0%
Truvo Information Holdings LLC
USA
100.0%
100.0%
Truvo Media Holdings LLC
USA
100.0%
100.0%
Truvo Curaçao N.V.
The Netherlands Antilles
100.0%
100.0%
Truvo Corporate CVBA
Belgium
100.0%
100.0%
Truvo Belgium Comm. V
Belgium
100.0%
100.0%
Truvo Dutch Holdings B.V.
The Netherlands
100.0%
100.0%
Truvo Services B.V. (1)
The Netherlands
100.0%
100.0%
Truvo Nederland B.V.
The Netherlands
100.0% (3)
(2) (3)
Truvo Technology B.V. (1)
The Netherlands
100.0%
100.0%
Directory Systems Europe B.V.
The Netherlands
100.0%
100.0%
Truvo Nederland Holdings B.V.
The Netherlands
100.0%
100.0%
Truvo Ireland Holdings B.V.
The Netherlands
100.0%
100.0%
Truvo Portugal Holdings B.V.
The Netherlands
100.0%
100.0%
ClearSense B.V.
The Netherlands
0.0%
(2)
119
Related parties
% equity interest
Name
Country of incorporation
2008
2007
YelloYello B.V.
The Netherlands
100.0%
0.0%
Truvo Ireland Ltd.
Ireland
100.0%
100.0%
Yellow Pages Ltd. (dormant)
Ireland
100.0%
100.0%
WD Servicios Técnicos Desenvolvimento Lda
Portugal
100.0%
100.0%
Truvo Technologies SRL
Romania
100.0%
100.0%
Pagini Aurii S.A.
Romania
99.2%
99.2%
Truvo Services South Africa (Pty) Ltd.
South Africa
100.0%
100.0%
The Company holds investments in the following associated companies, which are accounted for under the equity
method:
Company
Country
Páginas Amarelas S.A.
Portugal
75.0%
% of capital held
75.0%
Axesa Servicios de Información, Inc.
Puerto Rico
40.0%
40.0%
Axesa Servicios de Información, Inc., S. en C.
Puerto Rico
40.0%
40.0%
Trudon (Pty) Ltd.
South Africa
35.1% (4)
35.1% (4)
(1)
As at January 1, 2009 Truvo Services B.V. and Truvo Technology B.V. merged. The name of the new company is
Truvo Services & Technology B.V.
Discontinued operations - classified as assets held for sale.
(3)
In 2008, as a result of a demerger, assets and liabilities of the operations of Truvo Nederland B.V. were transferred to a new entity,
Gouden Gids B.V., which entity was sold.
(4)
Economic interest through Truvo Services South Africa (Pty) Ltd. 33.3% till July 31, 2007.
(2)
The following table provides the total amount of
transactions, which have been entered into with related
parties for the relevant financial year (for information
in € thousands
E ntity with significant influence over the group:
Discontinued operations
Amounts
Amounts
from
owed by
owed to
related
related
related
related
parties
parties
parties
parties
138
-
1,860
1,115
6,612
7,095
5,759
4,651
2008
917
7,808
18
962
20,621
1,752
6,020
6,249
-
791
590
-
8,269
9,915
-
3,181
2,706
1,317
4,328
2008
2007
Joint ventures
Purchases
Sales to
2008
2007
2007
A ssociates
regarding outstanding balances at December 31, 2008
and 2007, refer to note 18 “Trade and other receivables”
and note 27 “Trade and other payables”:
2008
2007
120
Loans to/from related parties can be summarised as follows:
in € thousands
E ntity with significant influence over the group:
Interest received
2008
2007
Discontinued operations
2008
2007
J oint ventures
2008
2007
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are
made at normal market prices. Outstanding balances at
the year-end are unsecured, interest free and settlement
occurs in cash. There have been no guarantees provided
or received for any related party receivables or payables.
For the year ended December 31, 2008, the group has
not recorded any impairment of receivables relating to
Amounts owed Amounts owed to
Interest paid by related parties
related parties
30
21
61,994
56,358
3,024
316
681,934
619,940
307
187
1,100
4,373
33,000
37
-
-
-
amounts owed by related parties (2007: €nil). This
assessment is undertaken each financial year through
examining the financial position of the related party and
the market in which the related party operates.
Compensation of key management personnel of the
Company (seven (2007 and 2006: six) employees):
in € thousands
2008
2007
2006
Short-term employee benefits
2,324
2,802
2,394
Post-employment pension and medical benefits
282
155
137
Termination benefits
275
-
-
2,881
2,957
2,531
7
6
6
Total compensation paid to key management personnel
Number of employees
31. Guarantor financial information
The senior notes are guaranteed, subject to certain limits
imposed by local law, on a senior subordinated basis by
the following subsidiaries of Truvo Subsidiary Corp.
(together, the “sbsidiary guarantors”): Truvo Acquisition
Corp., Truvo USA, Inc., Truvo Belgium Comm. V, Truvo
Services B.V., Truvo Technology B.V., and Truvo
2008 in € thousands
Truvo Acquisition Corp.
Truvo USA, Inc.
Truvo Belgium Comm. V
Truvo Services B.V.
Truvo Technology B.V.
Truvo Corporate CVBA
2007 in € thousands
Truvo Acquisition Corp.
Truvo USA, Inc.
Truvo Belgium Comm. V
Truvo Services B.V.
Truvo Technology B.V.
Truvo Corporate CVBA
Corporate CVBA. The following supplemental information
is showing total assets, revenues and EBITDA, for each
of the subsidiary guarantors on an unconsolidated basis
indicating amounts that would be eliminated in the
consolidated financial statements:
Total assets
Revenues
EBITDA
556,086
64,616
533,103
349,764
7,707
13,234
56
238,807
4,803
3,659
14,885
4
1,169
126,212
533
240
5,052
Total assets
Revenues
EBITDA
1,638,531
481,206
981,778
658,356
8,562
7,638
256,169
10,015
4,078
16,108
-203
-278
127,368
1,433
575
4,338
121
2006 in € thousands
Truvo Acquisition Corp.
Truvo USA, Inc.
Truvo Belgium Comm. V
Truvo Services B.V.
Truvo Technology B.V.
Truvo Corporate CVBA
Total assets
Revenues
EBITDA
1,701,012
685,019
1,053,939
929,807
10,290
5.485
245,066
10,914
2,362
11,128
-100
398
114,826
144
-1,330
1,287
32. Events after the balance sheet date
There are no events after the balance sheet date to mention.
122
Auditor’s Report
INDEPENDENT AUDITOR’S REPORT TO THE
GENERAL MEETING OF SHAREHOLDERS OF TRUVO
INTERMEDIATE LLC ON THE CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 2008
In accordance with the legal requirements, we report to
you on the performance of our mandate as independent
auditor. This report contains our opinion on the
consolidated financial statements as well as the required
additional comments and information.
Unqualified opinion on the consolidated financial
statements with an emphasis of matter paragraph
We have audited the consolidated financial statements of
Truvo Intermediate LLC and its subsidiaries (collectively
referred to as ‘the Group’) for the year ended December
31, 2008, prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the
European Union, and with the legal and regulatory
requirements applicable in Belgium. These consolidated
financial statements comprise the consolidated balance
sheet as at December 31, 2008, and the consolidated
statements of income, changes in equity and cash flows
for the year then ended, as well as the summary of
significant accounting policies and other explanatory
notes. The consolidated balance sheet shows total assets
of € 1,348,008 thousands and the consolidated statement
of income shows a loss for the year, share of the Group,
of € 992,251 thousands.
Responsibility of the board of directors for the preparation
and fair presentation of the consolidated financial
statements
The board of directors is responsible for the preparation
and fair presentation of the consolidated financial
statements. This responsibility includes: designing,
implementing and maintaining internal control relevant to
the preparation and fair presentation of consolidated
financial statements that are free of material
misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the
circumstances.
Responsibility of the independent auditor
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We
conducted our audit in accordance with the legal
requirements and the auditing standards applicable in
Belgium, as issued by the Institute of Registered Auditors
(Institut des Réviseurs d’Entreprises/Instituut van de
Bedrijfsrevisoren). Those standards require that we plan
and perform the audit to obtain reasonable assurance
whether the financial statements are free of material
misstatement.
In accordance with these standards, we have performed
procedures to obtain audit evidence about the amounts
and disclosures in the consolidated financial statements.
The procedures selected depend on our judgment,
including the assessment of the risks of material
misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk
assessments, we have considered internal control
relevant to the Group’s preparation and fair presentation
of the consolidated financial statements in order to design
audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group's internal
control. We have evaluated the appropriateness of
accounting policies used, the reasonableness of
significant accounting estimates made by the Group and
the presentation of the consolidated financial statements,
taken as a whole. Finally, we have obtained from the
board of directors and the Group’s officials the
explanations and information necessary for executing our
audit procedures. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a
basis for our opinion.
Opinion
In our opinion, the consolidated financial statements for
the year ended December 31, 2008 give a true and fair
view of the Group’s financial position as at December 31,
2008 and of the results of its operations and its cash
flows in accordance with IFRS as adopted by the
European Union, and with the legal and regulatory
requirements applicable in Belgium.
Emphasis of matter paragraph
We want to draw the attention to note 2.2 to the financial
statements which describes that the current economic
conditions have, and continue to create uncertainty in the
markets in which the Group operates and indicates that
the Group is showing a significant deficit on its retained
earnings as of December 31, 2008. Note 2.2 identifies
that management is currently investigating possible
measures to remediate this negative equity situation. The
remediation of the negative equity situation will depend
on the outcome of the measures under investigation. Our
opinion is not qualified in respect of this matter.
Antwerp, April 23, 2009
Ernst & Young Reviseurs d’Entreprises SCCRL
Independent auditor
represented by
Patrick Rottiers
Partner
09PR0197
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