PARIS (Reuters) - Yellow-pages company Yell <YELL.L> took a 1.3 billion pound writedown on Yell Publicidad, mostly for its Spanish operations, and forecast a 20 percent drop in core profit this quarter, knocking its shares.
The heavily leveraged directories group, struggling with a steep decline in the local classified advertising on which it depends, said the writedown was driven by the severity of the recession in Spain. It also wrote down assets in Latin America.
Yell said its cashflow should be strong enough to meet interest payments and pay down some of its 4.2 billion pounds debt this year. It said it was actively looking at all options for refinancing the debt, most of which falls due in April 2011.
In its fiscal year to March 31, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 1.8 percent at constant currencies to a better-than-expected 816 million pounds, more than twice Yell's current market value.
Sales fell 4.6 percent at constant currencies to 2.40 billion pounds, and the company said it expected the revenue decline to slow to 12 percent this quarter from 11 percent last quarter, although it was too early to call a bottom.
Shares in Yell fell as much as 10 percent in early trading after almost quadrupling in value in the last two months on a rally driven by increased appetite for risk. By 10:55 a.m., they were trading down 0.5 percent at 45.75 pence in a flat market.
"The stock will remain extremely volatile with equity representing less than 10 percent of enterprise value, and it is effectively a binary call on the successful refinancing," UBS analyst Polo Tang wrote in a note on Wednesday.
"We would expect to see some profit taking today given the recent strong run and concerns over Q1 EBITDA trends."
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Yell, which like its peers was caught out by tough credit conditions in the middle of an expensive migration from print to digital, renegotiated its loan covenants last year. It expects to have 14 percent headroom on those covenants by end-June.
Italian peer Seat Pagine Gialle <PGIT.MI>, similarly laden with debt, raised 200 million euros through a rights issue last month. U.S. competitor Idearc <IDARQ.PK> filed for bankruptcy protection at the end of March.
Yell had previously said it expected EBITDA to fall 2 percent. It had been expected to report EBIDTA of 778 million pounds and sales of 2.37 billion pounds, according to the average of 12 analysts polled by Reuters Estimates.
Net debt is now 4.7 times EBITDA, down from 4.9 times a year ago, and the company said it aimed to reduce that ratio further this year, although it did not give targets.
Yell said it would be providing guidance only on a quarterly basis for the time being. "In this uncertain world, a quarter ahead is all we can see," Chief Financial Officer John Davis told Reuters in a telephone interview.
He said he did not envisage further writedowns or plan further cost cuts, after the company slashed its cost base by 20 percent over the last 18 months.
Yell said last week it had become an authorised reseller of Google's <GOOG.O> AdWords in Britain, in an expansion of the properties on which it can sell advertising as it transforms itself into a lead-generation from a publishing business.
It is already a reseller of AdWords in the United States.
(Reporting by Georgina Prodhan; Editing by Dan Lalor and Simon Jessop)