By Gareth Vaughan
The CEO of Yellow Pages Group (YPG) says there's plenty of life left yet in print directories as he eyes a Lonely Plant style range of books, but acknowledges the group needs to revamp and broaden its online presence.
Bruce Cotterill, YPG’s chief executive officer, told interest.co.nz in a Double Shot interview there are still plenty of opportunities for innovations of its phone books and other directories, although acknowledging the future was online.
Cotterill, whose previous CEO roles have included stints heading up Colliers Jardine's Australasian operations, the New Zealand arm of Kerry Packer's ACP Media and at Canterbury International, says YPG is the biggest challenge he has faced.
“This is difficult for a whole lot of reasons,” Cotterill says.
“You’ve got almost a perfect storm. You’ve got the (fall in) global advertising spend, you’ve got the perception, real or otherwise, of the structural shift away from print and you’ve got the debt issue that the company has.”
“So you’re trying to manage all of those things and hold the business together and keep people in their jobs and all that stuff.”
YPG was sold by Telecom to Hong Kong-based Unitas Capital and Canada’s Ontario Teachers’ Pension Plan in March 2007 for NZ$2.24 billion in a leveraged buyout that included about NZ$1.5 billion of debt. That had swelled to NZ$1.8 billion by June 30 last year, and with revenue falling YPG breached its banking covenants. Its banking consortium, led by BNZ and including ANZ and Westpac, then hired Goldman Sachs to try and sell the business.
But when offers failed to meet expectations, drastically reduced from the price Telecom got for the business, YPG was taken off the market in late September.
The firm's 35 or 36 lenders are now working to restructure the debt, which Cotterill acknowledges will see the subordinated debt, held by the likes of Barclays Capital, ABN Amro and Deutsche Bank, written off, along with some of the NZ$1.2 billion or so of senior debt. Asked just how big a loss YPG’s lenders were likely to crystallize, Cotterill says it's probably premature to say.
“There are discussions going on now on two fronts,” he says.
“One is what is the fair value of the business today and the other is what is the appropriate level of debt to attach to the business given its earnings in the foreseeable future.”
YPG’s large banking syndicate includes lenders with a NZ$5 million exposure and those with a NZ$100 million position.
Although the company is yet to release its June 2010 year results as its capital restructure continues, Cotterill says earnings before interest, tax, depreciation and amortisation (ebitda) came in at NZ$155 million, down from NZ$166.3 million in the previous year. He acknowledges ebitda will “dip” again in the year to June next year, but expects a rebound to levels similar to this year in the June 2012 year.
Small and medium sized businesses, who provide the bulk of YPG’s advertising revenue, are now feeling the squeeze from the downturn.
"I spoke to one of our clients who is a swimming pool builder. He said 'a year ago when you guys talked to me I had 12 pools on the go. This year I’ve got none'.”
Since the sales process was canned YPG has announced a NZ$30 million spend up on upgrading its heavily criticized online presence.
“Our online platform was something that was developed in 2005 through to 2007 when Telecom realised that in order to have a successful sale they ought to at least have a digital strategy,” says Cotterill.
“That strategy was probably adequate for the time but flawed in a whole lot of ways. When you live in a world with companies such as Yahoo and Google and Microsoft and all of those others constantly investing hundreds of millions of dollars in online search, it becomes a very expensive proposition for companies such as ours to be able to invest in search in a way to keep up."
“I think people will find, once we announce and roll out the new strategy, they will see that part of our strategy is to roll out platforms that are very easily able to stay with the marketplace requirements in terms of latest search, online and mobile thinking, etc.”
Cotterill says about 15% of YPG’s revenue is made online now, up from about 5% in 2007, and the target is to double to 30% in five years. The online opportunity was “enormous” but YPG needs to broaden its focus.
“We are very good at name, address, telephone number, doctor, plumber. That is not the search experience that people are looking for in the future,” acknowledges Cotterill.
“In the future people want to know that information, but they also want to know where you are, how I get there, where do I park, what range of products you stock, what do I do if I buy something from you and it breaks down - what’s your after sale service approach, if you’re a business to business operator, who is the decision maker, how do I contact that person etc.”
Then there’s the challenge of global search engine behemoth Google. Cotterill argues YPG and Goggle are complementary.
“If you go and do a typical Google search, in many, many cases you’ll get a Yellow solution,” he says.
“Google is not a developer of content, it’s an organizer of it.”
“What we do, and will continue to do, is develop the content and grow the content, enrich it, present it in a way that works for our advertisers to make sure it drives enquiry through to our advertisers because that’s what we’re there for, and Google is one of the mechanisms that people will use to find that information.”
Reports of print's decline premature
Despite the big online push, Cotterill maintains reports of print’s decline are "misinformed" and "way too" early.
“I absolutely believe that the print directories space has a useful life way beyond probably my working life.”
“There’s 1.3 million people every week using the Yellow Pages, there’s 1.5 million people every week using the White Pages,” says Cotterill.
“It will gradually decline, but it will continue to be a critical part of our business.”
A “whole lot of innovative things” could yet be done in print.
“I see the Yellow Pages of the future not being a regional Yellow Pages and a regional White Pages, or not being limited to that,” Cotterill says.
“I think they’ll still be there for some time yet but it might be like the Lonely Planets that are on your book shelf at home. You might have a dozen books on your book shelf which are Yellow Pages publications and one might be a restaurant guide and one might be an in your car guide and so on and so forth.”
Competition heats up
“We have historically been a monopoly. When we were part of Telecom we were very much part of a monopolistic regime and a lot of the marketplace would probably suggest that we still operate as if we still are,” says Cotterill.
“We’re very conscious that we’re not. We have to perform on behalf of our advertisers and I think bringing competition into our environment is fantastic because it will make us a better business.”
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