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European telephone directory market report 2003

The European telephone directory market has undergone a period of dramatic change over the last four years, witnessing unprecedented levels of M&A activity, according to this summary of AMR International's European Telephone Directory Market Report 2003.

The European telephone directory market, worth €6.4bn in 2002, has undergone a period of dramatic change over the last five years.  Many major European directory assets have been sold by their former telco owners either to directory publishing groups (eg, Eniro, VNU) or to private equity groups (eg, Apax, 3i/Veronis Suhler), and Yell has been floated.  Some directory assets remain at least partially in the hands of their telco owners (TDC in Denmark, Wanadoo, France and TPI in Spain). Industry consolidation to date has been limited, leaving much potential for further activity.

This report covers 18 leading directory markets in Europe and provides a detailed understanding of telephone directory markets at a country level as well as an analysis of the future development of the market.

KEY FINDINGS

· The European B2I directory market has undergone a period of dramatic change in the last four years, witnessing unprecedented levels of M&A activity.  The value of private equity transactions alone in the past four years exceeds €11bn.  As yet there has been little consolidation at a European level, although this may begin as private equity investors exit their investments.

· The leading corporates in the sector have also made acquisitions, but these have tended to focus on secondary players.  As yet, none of these corporates, with the exception of VNU, has a market leadership position in more than one country.

· The B2I directory market in the 18 countries covered by this report was worth €6.4bn in 2002, growing at 5% CAGR from 1999 to 2002.  The four largest markets, namely Germany, the UK, France and Italy, account for almost two thirds of the market.

· There is a wide disparity in the relative sizes of European B2I directory markets. Portugal and Sweden are the largest markets relative to GDP, whilst Austria and Poland are the smallest.  This reflects relative levels of maturity, and has implications for the growth potential in each country.

· Growth in the last four years has mostly been driven by increasing spend per advertiser (ARPA), both in printed directories and online.  Total penetration levels have largely remained stable, although online penetration of existing advertisers has grown from almost zero to up to 40% of advertisers for some publishers.

· The largest European directory publishers are Seat PG and Yell, based on their position in two of Europe’s largest directory markets.  Seat PG also has a strong number two position in the UK market.

· Directories remain very profitable businesses, particularly for dominant market leaders; EBITDA levels of 35% to 40% are still the norm. There are few pressures on margins; in fact, the experience curve effect should enable directory publishers to improve margins.

· Despite the development of internet directories, the market landscape has hardly changed over the last four years.  In 14 of the markets covered by this report, the market leader has a market share of over 80%.  There have been few significant market share shifts in any market and few, if any, new entrants.

· Over the next five years, online directories will become even more important.  This report forecasts that in five years time, usage of online directories will have overtaken printed directories.  Revenues will lag this, but there will continue to be a shift of advertising revenues online.  The challenge for directory publishers will be in managing the shift online, so that there is no damage to core print revenues.

· Search engines (SEs) are expected to offer local search in the next two to three years, although they are not expected to provide direct competition to B2I directories.  As a sales force is critical to reach SME advertisers, the likeliest development is a partnership between SEs and directory publishers; this is already happening in some markets.

· The total market covered by this report is expected to grow by 4% CAGR from 2003-2008. The key growth driver will be online ARPA and peneration. Online advertising is expected to grow at 19% CAGR over this period, and will comprise 23% of total advertising revenues by 2008. Print is expected to grow by 2% CAGR over the same period. The growth rate varies by country; The UK is expected to overtake Germany as the largest market by 2008.

Founded in 1991, AMR International (AMR) is a management consultancy, which provides strategic advice to hundreds of large, medium and small business throughout the world within a wide variety of sectors; media and publishing is a key area of specialisation.  AMR has developed an intimate understanding of European directory markets as a result of assignments on a number of major European directory transactions.  Other work for major quoted media groups encompasses strategy reviews, commercial due diligence, benchmarking and performance improvement projects.  AMR has also assisted numerous private equity investors in evaluating management buy-outs and other investments in media.  AMR has its headquarters in London, and additional offices in New York and Hamburg.