Yellow's debt woes continue to mount

RICHARD MEADOWS
Last updated 05:00 09/01/2014

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Directory company Yellow has narrowed its annual loss to $12.5 million, but it trades only at the pleasure of its bankers after being forced to seek covenant waivers.

It last month reported a $15m operating profit for the year to June 30, but that figure excluded tax and interest payments. Financial statements filed with the Companies Office show Yellow incurred $32m in financing costs.

After accounting for an income tax benefit, it came out $12.5m in the red, an improvement from the previous year's $78m loss. That was largely due to impairment charges more than halving to $41m, which compensated for a $29m drop in sales revenue.

In recent years the company has slashed more than $2 billion off the value of its goodwill, brand and customer relationships. It is in the middle of a major transition from printed phonebooks to digital services.

It went bust in 2010 after being overloaded with debt by private equity owners, and was then taken over by a consortium of lenders. The new owners wrote off more than $1b of debt in exchange for shares in the company, and $500m of senior notes.

The latest financial statements warned there were still "material uncertainties" that could cast significant doubt on its ability to continue as a going concern. Those related to its ability to meet its debt covenants, or refinance the debts once they expired.

However, Yellow has received a waiver for covenants to the end of 2014, allowing it to focus on its operations.

It has also begun talks with its lender-owners over refinancing, with the original facility expiring in mid-2015.

Its debt position continued to deteriorate in the year to June 30, with total net liabilities rising from $181m to $193m.

Its gearing ratio, which measures total debt compared to equity, increased from 175 per cent to 202 per cent.

Yellow has poured most of its cash surplus into repaying debt, with $86m of senior notes repaid since the 2011 restructuring. Despite the upheaval in the print industry, chief executive Chris Armistead last month emphasised his confidence in Yellow's future.

It was earning $15m of revenue from products that did not exist two years ago, and had more than 22,000 digital customers, he said. "We're bigger and better in digital than most people would think."

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