Directory business Yellow negotiating with bankers as losses continue

Yellow's directors required forward waivers of its loan covenants to allow its accounts to be signed off as a going concern.
Written by Rob O'Neill, Contributor

Days after announcing a trading profit and describing the business as “strong” it has emerged New Zealand's Yellow directories business has been given forward waivers of its loan covenants and is in negotiations with its bankers.

A possible beach of banking covenants is mentioned in accounts (pdf) filed yesterday and the company has received waivers in advance for its quarterly loan covenants to the end of 2014.

The forward waivers were required to allow the directors to sign off Yellow’s accounts as a going concern, the company’s chief financial officer, Michael Boerson, said.

However, Boerson said trading profits and cash flows make the company's debt manageable.

“We can service the debt quite easily with significant operating profit and cash,” he said.

Auditors PWC, in an unqualified report, note the directors have disclosed "uncertaintly regarding the ability of the company and the group to meet long-term debt covenants" and to refinance.

"These condition indicate the existence of material uncertainty that may cast significant doubt on the company and group’s ability to continue as a going concern,” PWC writes.

The fact the company’s lenders are also now its owners gives increased confidence of ongoing financial support, Boerson said. Discussions with Yellow’s bankers to renew the debt facility after August 2015 have been very positive, he said.

Yellow Pages was sold by Telecom New Zealand for $2.2 billion to a consortium of CCMP Capital and the private investment arm of the Ontario Teachers' Pension Plan in 2007.

Declining sales, massive write-downs and mounting interest costs followed.

Yellow is now owned by a consortium of its bankers after its bank debt was converted to equity three years ago.

Yellow’s directors say in a note to the accounts that they have been prepared on a going concern basis in part because the directors have formed a view that the company’s bankers will continue to support the business.

$500 million of senior debt will expire in August 2015 and Yellow has begun refinancing discussions. It is also aiming to address its gearing ratio (debt as a proportion of equity) which grew in 2013.

That is despite Yellow having repaid $86 million in debt since its bankers took ownership.

As part of renegotiating its bank facilities Yellow is now looking at its business projections for the next few years, Boerson said. An expected decline in print revenues needs to be offset by increases in digital revenues.

Interest costs took Yellow’s announced trading profit of $14.7 million to a net loss of $12.5 million (after tax). Interest costs on over $400 million in debt during the year were $32 million, down from $39 million in 2012.

The company also reported net liabilities of $193.4 million, up from $180 million in 2012 after an impairment charge on goodwill of $41 million and amortisation of $22 million.

Over the past two financial years under its new ownership, Yellow has reported accumulated amortisation and impairment charges of $592.8 million.

Yellow took its online platforms back in-house late in the 2013 financial year and boosted its technology staff from 15 to 90. It relaunched a new, device-responsive yellow.co.nz in November, after its year-end.

Capital expenses were $9.4 million, with 70% of that being spent on the company’s new IT systems, Yellow said.

New software rollouts are now happening at least once a week, a company spokesperson told ZDnet.com

Any real payoff from its technology investment, however, will not be seen until the release of Yellow’s financials to the end of June 2014.

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