$338m loss for Yellow Pages

Yellow Pages Group, whose sale for $2.2 billion two years ago marked the peak of the private equity boom, fell with a thud this year.

Results for the year to June 30 show operations in the advertising and media market have been stable.

But the balance sheet for the directory firm was hit with adjustments that hark back to its purchase by CCMP Asia and Ontario Teachers Capital in May 2007.

A $195 million writeoff in goodwill, plus a $155 million adjustment for interest rate changes, removed $350 million from the balance sheet.

That turned a small profit into a $338 million loss for 2009, compared with a $61.2 million loss last year. Operating profits were stable at $166.3 million.

Even in the midst of the private equity boom in 2006 and 2007, the offer for YPG raised eyebrows. The failure of a subsequent bond issue made it a poster boy for bad timing in the global crash that followed last year.

But it emerged that the private equity offer - believed to have been twice Telecom's best expectations - was too generous for even sceptical members of the Telecom board to resist.

It represented a multiple of 14 times earnings before interest, taxation, depreciation and amortisation (ebitda), compared with two or three times for similar deals overseas.

Banking sources have told the Business Herald the $2.2 billion pricetag marked the high-water mark for private equity spending before the economic crash - not just in New Zealand but internationally.

The latest results showed YPG saddled with $1.7 billion of debt and $157 million in interest charges.

The company wrote off $195.5 million in goodwill.

The debt had another impact on this year's results.

There is a charge of $155.4 million from interest rate swaps - as required under IFRS accounting standards. The figure represents losses from moving from a floating to a fixed rate.

Chief executive Bruce Cotterill said the share swap adjustment might be reversed this financial year.

Cotterill - who took over a year ago - focused on operational aspects of the writedown.

He said it followed the softening of the short-term advertising market after the downturn and indicated that there might be a delayed reaction to the change in demand.

"Like all media we are finding the market tough. Yellow Pages advertising is not discretionary - we probably lag the market - but we are delighted to be holding."

Asked how the results would affect owners, he said: "Our investors are here for the long term ... and they will eventually sell for a greater value. The impact of the credit crunch is that the goals they had will take longer."

Yellow Pages confirmed that a $42.6 million bridging loan had turned into equity during the 2009 financial year.

Business commentator Arthur Lim said that after the downturn investors had no choice but to stick with the investment and seek to turn around its finances over the next few years. "They just got caught very, very badly."