Vertis reports loss of $327 million for 2007

The Baltimore Sun

Vertis Communications Inc. reported yesterday a $327 million loss for 2007 and said it has hired a financial adviser to help it reorganize its capital structure, possibly through a merger.

The move is part of a larger turnaround effort begun last year at the Baltimore advertising company, which develops direct-marketing materials and print circulars, including newspaper inserts. Vertis has been burdened by more than $1 billion in debt from a 1999 leveraged buyout that took the company private and, more recently, by declining sales and increased competition from other businesses and new media, including the Internet.

The debt comes due next year, chief executive Mike DuBose said in a conference call yesterday, leading to the decision to hire Lazard Ltd. to develop financing alternatives. He said he expected the review to take several months.

Vertis' loss for 2007 compared with a loss of $48 million for 2006. The sharp rise was due to a year-end decision to write off nearly $247 million in good will, which brought the quarterly loss up to $257 million, from a profit of $18.5 million during the corresponding quarter of 2006.

Revenue for the year was down about 7 percent to $1.37 billion. Fourth-quarter sales were down about 8 percent to $383 million. Direct-mail sales were up about 9 percent, which helped offset the decline of the advertising-insert business.

The financial performance was anticipated, DuBose said, "even though some of the damage and challenges faced by the company were worse than expected."

Over the past few years, the company has cut staff and lost hundreds of customers, some of them large clients. Last year, Standard & Poor's lowered Vertis' corporate credit rating after the business announced plans to buy Tennessee competitor American Color Graphics in a deal that also called for a debt restructuring. The deal fell through, though the lowered credit rating remains.

In an outlook report released late last year, S&P; described the print industry as one "plagued by intense competition, pricing pressures, and overcapacity." Vertis, it said, is feeling the "liquidity pinch."

"We expect liquidity issues to remain a cause for concern given high fixed costs and heavy debt burdens," the report said.

So far, the turnaround efforts have had some results. The company has lured back about 100 customers - about 30 percent to 50 percent of the total lost - and added more than 700 new clients.

"You've done a very good job, it looks like, of kind of getting out and talking to some of the customers and winning those folks back," Todd Morgan, with New York investment firm Oppenheimer & Co., told executives on the call.

But DuBose cautioned that the new and renewed accounts are smaller than the big ones the company lost. And the company has had to spend a fair amount to streamline its processes and develop what DuBose calls a "culture of lean and continuous improvement."

Still, he said he is optimistic about the next phase of restructuring.

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