Yell is a company drowning in a sea of debt. In 2018, Yell’s investors attempted to recoup some of their £4bn investment by offloading Yell to a third party.
However, as sales declined and customer cancellations went up, the business sale fell through. In 2018, Yell was losing money fast and came close to shutting down.
To buy some time, Yell issued a corporate bond (similar to an IOU) in which the bondholders would receive a return of 8.5% by 2023. They sold bonds worth £225m giving Yell some breathing space to try and turn things around.
The directors of Yell were then under a huge amount of pressure to improve the figures. The directors, in turn, put pressure on their managers who then applied pressure on Yell’s sales agents to hit targets fast.
How were they going to achieve this when The Yellow Pages (their biggest cash-cow) was now out of print? They had to find a way to generate more sales but without increasing costs.
The solution was to partner up with companies offering white-label marketing services and then sell those services on at a profit. Yell had an enormous database of small business owners and a regular flow of new businesses registering for a free listing on their (now redundant) directory.
Fortunately for Yell, these small business owners were also being disrupted by the web. They struggled to understand how to market themselves online and couldn’t afford to hire people who did.
Yell positioned themselves as a trusted brand who could advise small businesses on how to promote themselves online by offering websites, Google Ads and listing tools such as Reputation Manager.
To provide these services at scale and without increasing costs, Yell use automated platforms that require very little human intervention or expertise to manage. Anything that did require manual work was outsourced to developing countries where labour was cheap.
While this did have a short-term positive impact on sales, it also caused significant damage to the Yell brand. Business owners were paying their hard-earned profits to Yell on monthly subscriptions but seeing poor results. These small business owners were now locked into 12-month contracts from which Yell would refuse to let them cancel.
The sales agents were incentivised to push inappropriate products on naïve customers and use unethical (possibly illegal) practices to massage the figures. As a result, Yell was being flooded with customer cancellations, staff resignations and investors breathing down their neck.
In late 2019, Yell appointed a new CEO, Claire Miles. Several other members of Yell’s senior management were also replaced.
By 2023, Yell’s bondholders will need to be fully repaid with 8.5% interest. If Yell is unable to repay the bonds, issue more bonds, or sell the business; the company is likely to be shut down.
Yell bonds are now being traded on the secondary market at a yield of 42.5% to maturity. If you’re not familiar with how bonds work, this effectively means that those people who bought the bonds in 2018 now consider their value to be worth a fifth of the price they paid at launch. In other words, the bondholders now consider it increasingly unlikely that their bonds will be paid at maturity.
Moody’s (the credit rating agency) have downgraded Yell to a Caa2 rating, classified as a “ Poor quality and very high credit risk”.
Miles has three more years to come up with an innovative strategy to return the company to growth, increase profits and restore Yell’s damaged reputation.
So, what is Miles’ Grand Plan? Why, to sell more useless third-party products at inflated prices of course!
Miles plans to sell business owners Facebook ads and an online messenger services from GotU and LivePerson respectively. Services that any small business could quite easily purchase and manage themselves at a lower cost.
Yell bondholders would be well-advised to stop panic-buying toilet paper and use their bond certificates instead. The toilet paper is far more valuable.
I am posting this update in the second week of the Coronavirus lockdown. Most of Yell’s staff have been furloughed and will, no doubt, remain so for quite some time.
Those hardest hit by this lockdown are the smallest businesses who make up the vast majority of Yell’s customers. A large proportion of these small businesses will either never re-open or have money to waste on Yell’s useless products.
Most of Yell’s customers are now past the first year of their contract. This means they can cancel by giving just one month’s notice.
I have learned from a reliable source inside Yell that their customers are now cancelling in droves. Yell’s staff are financially incentivised only to generate new customers, and not to retain existing customers. We therefore now have a sinking ship, run by a skeleton crew with no incentive to pump out the water.
On top of this, Yell is facing a large number of in-contract customers cancelling their contracts and Direct Debit payments. Over £300,000 has been refunded to Yell customers by their bank. Several Yell staff members are saying that they don’t expect the company to see out the year.
Yell’s board are naturally trying to put a positive spin on the situation. Presumably, happy in the knowledge that any personal liability they may face has been temporarily reprieved by the UK Government.
If I were a Yell bondholder, creditor or staff member, I would be feeling extremely anxious right now.