Yellowing Pages

Given the sheer number of Australians who own shares in Telstra, the giant’s profit results are closely watched.

This morning the company posted a 23% rise in first half profit to $1.468 billon, with revenue up 1.1% to $12.4 billion.

The profit jump looks good on the surface, but analysts were expecting profit to come in at around $1.518 billion, so it will be interesting to see how the market reacts to the result.

While much of the focus with Telstra concerns the NBN (which the company says will have no material impact on its results in the 2012 financial year), buried away in the results is the sad tale of the performance of Sensis, the division responsible for Telstra’s famous Yellow Pages directories.

Revenue within the division fell more than 24% in the six months to December 31, with earnings before interest and tax down 69%. To be fair, the result was impacted by the later release of the Perth Yellow Pages; Telstra says total income would have declined by 16.5% and EBITDA would have fallen by 38.6%.

The result comes in year one of the three-year digital strategy put in place by Sensis chief Bruce Akhurst in March last year.

As Business Spectator‘s Stephen Bartholomeusz wrote, it was clear in the first half of the 2011 financial year that the wall at Akhurst had tried to build around the Yellow Pages directory has cracked.

Today’s result reveals those cracks are getting bigger – Yellow Pages revenue fell 35.2% to $248 million in the half year.

The question for Sensis is whether its digital strategy – which involve the company doing tie-ups with the likes of Yelp, selling search services such as Google AdWords, offering digital marketing packages and even building simple websites – can be implemented and executed quickly enough.

The commentary in today’s result suggests that the digital tide is moving a lot quicker than Sensis thought it would.

“The advertising and directories market’s shift to digital marketing is occurring faster than we expected. This is having a significant impact on Sensis, with Yellow Pages print revenues declining more than expected,” the company says at one point.

“The market’s shift to digital marketing is occurring faster than expected, caused by higher cancellations and in turn driving declining yields as customers migrate their advertising solutions,” it says later in the half-year report.

Even the good news that Yellow Pages digital sales were up 7% in the half had to be tempered.

“Digital demand is taking longer to monetise than expected due to longer than expected sales completion times,” the company said.

Putting aside the question as to why it took Sensis until 2011 to unveil a three-year digital strategy, it would appear that Akhurst and his team find themselves in a situation where the market has got away from them.

The huge decline in the EBIDTA margin of the Sensis business – down from 41.4% to 24.6% – shows how hard the business is being hit and goes some way to explaining why the group cut 200 jobs last year.

With its digital strategy, Sensis is finally aiming at the right part of the SME market. But today’s commentary suggests Sensis has underestimated the time it has to make its transition from print to online.

Can it win enough of this digital advertising market, quickly enough? The clock appears to be ticking.


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