Yell shares plunged by nearly 22 per cent this morning after the debt-laden Yellow Pages publisher said it would halve its dividend to help shore up its balance sheet.

The business directory specialist added to the bad news with a downbeat outlook. It promised that underlying profits would be “broadly flat,” with “tougher economic conditions”, particularly in the UK and Spain, holding back progress.

The company will save £68 million by slashing the payout, although this will only make a small impact on its overall borrowings, which increased by just short of £100 million to £3.76 billion on March 31.

Worries about Yell’s debts at a time when the economic environment is softening have hit the shares hard over the past year. The stock has plunged by 57 per cent in the past 12 months, as investors worry about the company’s ability to meet terms attached to its overdrafts.

John Davis, the chief financial officer, said that Yell was “operating well within the terms of our bank facilities” but conceded that “in this current economic environment we believe it is prudent to halve the dividend to give us greater financial flexibility”. Debt remains at 5.1 times underlying earnings of £738.9 million.

The calming words did little to soothe investors, and the shares fell by more than a fifth to 163.25p by 11am. John Condron, the chief executive, added to the pressure with his warning that economic “circumstances have changed quite dramatically” for the worse since the company published its third-quarter outlook.

Profits from Yell UK, the company’s original business, rose 3 per cent to £260.6 million.

In the United States, where Yell is the largest independent directory publisher, the company earned £292.4 million, down 1.5 per cent in sterling terms, but 3.7 per cent ahead on a constant currency basis.

Profits are expected to be in “marginal decline” in 2009, with Yell US starting the year with 3 per cent quarterly revenue growth in what is traditionally its strongest three-month period.

Yell’s Spanish language arm earned £185.9 million in its first full year of ownership. It is the only one of the company’s three divisions that is forecast to increase profits, helped by the translation of sales techniques from other parts of the group to the company formerly owned by Telefonica, the Spanish phone giant.

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