August 4, 2011 / 11:43 AM / 7 years ago

UPDATE 3-S&P, investors punish Yellow Media for div cut, pulling outlook

* Cut annual dividend to C$0.15 from C$0.65

* Pulls FY outlook and says will no longer give forecasts

* Q2 loss C$0.05/basic shr vs profit of C$0.09/basic shr yr ago

* S&P cuts corporate credit rating to ‘BB+’

* Shares tumbles 50 pct to new life-low (Adds S&P downgrade, more analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, Aug 4 (Reuters) - Yellow Media Inc slashed its annual dividend as its struggles with a C$2.16 billion debt load, and had its credit rating cut by Standard & Poor’s, sending its shares tumbling to a life-time low.

The Canadian telephone directory publisher also withdrew its outlook for the year saying it was uncertain when its transition to a digital platform would start compensating for falling print revenue.

Standard & Poor’s Ratings Services cut its long-term corporate credit rating on the company to ‘BB+’ from ‘BBB-‘.

“We believe that secular pressures on the company’s print revenue are poised to accelerate in the next couple of years,” said S&P’s credit analyst Madhav Hari.

“Yellow Media will be challenged to offset such losses through growth in online and digital offerings where competition is intense and new online channels are quickly evolving.”

S&P’s Hari expects the company’s profitability and cash flow to be weaker-than-expected as advertisers scale back from higher-margin premium print revenue and costs to launch new services escalate.

Yellow Media cut its annual to 15 Canadian cents from 65 Canadian cents and said it would pay dividend quarterly instead of monthly from now on.

“While this cut will reduce market speculation about the company’s short- to medium-term financial sustainability, we believe that unless EBITDA is stabilized this move will provide only temporary relief,” analyst Maher Yaghi of Desjardins Securities said in a note to clients.

The company’s second-quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) fell 13 percent. Margins fell to 51.5 percent from 56.6 percent mainly due to falling print revenue.

Yellow Media shares slumped by more than half to a new life-low of 95 Canadian cents, and were the top percentage loser on the Toronto Stock Exchange, with more than 22 million shares changing hands.


The company gets about three-quarters of its revenue from selling advertisements in its Yellow Pages and related business directories, but the number of advertisements in its printed directories has been falling at a fast clip.

To offset that, the company plans to sell advertisements and charge for priority placement on its mobile platform, but face stiff competition from wireless carriers, payment processors and social media sites.

But while print revenue declines have been in the 9-10 percent range, its online business appears to have slowed to 15 percent in the second quarter, Canaccord Genuity analyst, Aravinda Galappatthige said.

To offset the print decline, Galappatthige reckons that Yellow Media needs to maintain an online growth rate similar to the 25 percent it notched in first quarter.

Second quarter revenue fell 5 percent to C$342.7 million. Online revenue rose by a third and accounted for a fourth of total revenue compared to 18 percent a year ago.

Yellow Media expects online revenue to account for half of total revenue and EBITDA margins to stabilize at about 50 percent in the next three years.

For the April-June quarter, Yellow Media reported net loss from continuing operations of C$20.7 million, or 5 Canadian cents per basic share, compared with a net profit of C$53.0 million, or 9 Canadian cents per basic share, a year ago.

On an adjusted basis, it earned 17 Canadian cents a share from continuing operations.

Analysts on average were expecting 18 Canadian cents a share, on revenue of C$353.4 million, according to Thomson Reuters I/B/E/S. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Savio D’Souza)

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