Business News

Yellow Pages Income Fund Reduces Level of Cash Distributions and Adopts Measures to Position the Company for an Economic Recovery

Monday 11. May 2009 - - Providing clarity on path to conversion from an income trust to a corporation - Protecting the company for the longer term - Continuing to lead the directory industry globally

Yellow Pages Income Fund (TSX:YLO.UN) announces that its Board of Trustees has authorized earlier today a reduction in cash distributions per unit to unitholders from $1.17 to $0.80 annually. A monthly cash distribution of $0.0667 per unit will be paid on June 15 to unitholders of record at the close of business on May 29, 2009. YPG is also adopting a more conservative financial policy that will result in lower financial leverage.

“We are in the midst of challenging economic times and cannot predict how long these conditions will continue. Difficult times call for difficult but important decisions,” declared Marc P. Tellier, President and Chief Executive Officer of Yellow Pages Group. “The decision to reduce the level of our payout will help us secure additional financial flexibility and strengthen our capital structure while still providing an attractive source of income for our investors. These measures are in the best long-term interests of all of our stakeholders.”

Despite the impact of the current environment, YPG continues to outperform its industry globally with Directories’ Adjusted Revenues increasing by 4.7% (0.9% organically) and Adjusted EBITDA by 3.2% in the first quarter of 2009 compared to the previous year. The Company continues to invest in market coverage and new product introduction to capitalize on growth opportunities as the economy recovers. For example, in recognition of the ever-evolving consumers’ adoption of digital devices, YPG introduced a YellowPages.caTM application on Facebook last year and has recently launched a new application for Blackberry and iPhoneTM.

YPG is confident that a disciplined approach to capital investment combined with robust cost containment and tight management of liquidity and capital resources will protect the company through this economic cycle.

With these measures in place, YPG is able to provide guidance regarding the expected level of dividends when the company converts from an income trust to a corporate structure in the first quarter of 2011. After careful consideration, YPG has established a preliminary dividend policy, targeting a payout of 60% to 70% of cash earnings per share. “The articulation of a preliminary dividend policy at this time is intended to provide clarity to investors as we look to the transition period from an income trust to a corporation,” said Mr. Tellier. “We believe this expected level of payout should provide sufficient financial flexibility to YPG as we convert while we aim to grow returns to shareholders.”

Liquidity and Capital Resources

In the context of difficult credit market conditions, YPG has been proactive by adopting a prudent approach to managing its liquidity and capital resources. During the period from May through December 2008, committed credit facilities were increased to $1.15 billion. Current liquidity and capital resources are sufficient to fund potential investment in both businesses.

YPG remains committed to its investment grade corporate ratings. The Company expects to achieve stronger credit protection measures through sustained cash flow generation and de-leveraging of its balance sheet. The ongoing low level of capital expenditures combined with limited opportunities for external growth should also enable the Company to markedly improve its credit protection measures over time.

“Given the prevailing economic environment, we believe that our focus at the present time must be safety. Our working assumption is that there will be no sustained economic recovery for the balance of the year and going into 2010. Consequently, our best and most cost effective source of equity capital at this time is the retention of earnings to augment our financial flexibility,” mentioned Christian M. Paupe, Executive Vice President and Chief Financial Officer.

As a result of a lower payout effective June 2009, the Company anticipates to retain an incremental $300 million of pre-tax earnings from now to the end of 2010. It also expects to generate between now and the end of 2012 more than $1.3 billion of pre-tax free cash flow (in excess of cash distributions and future common share dividends).

Strong free cash flow generation and a higher level of retained earnings should place YPG in a position to self-finance its business plan and meet liability maturities through 2012 without having to access capital markets. Mr. Paupe added: “We expect free cash flow generation in excess of cash distributions will be principally applied to paying down debt and other obligations. We also expect sufficient liquidity from operations to fund cash income taxes as they become due and payable.”