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Nothing to shout about - If only Yell could have changed its balance sheet as easily as its name

21/08/2013

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

No doubt management could have come up with a number of plausible reasons why the company rebranded as Hibu in May last year, but none would have been as convincing as the simple fact it was not Yell – a name that had become synonymous with debt and failure. In the end, however the name was irrelevant and Hibu has subsequently failed under the burden of its debts.

Rather than a the normal perfunctory note, chairman Bob Wigley did take the unusual step of writing a nice letter to shareholders, explaining what had happened and thanking them for their support, but the end result was still the same – the shares were worthless. The company had limped along with significant debt that had reached a peak of £3bn in 2009 and now the chickens had finally come home to roost.

The final numbers do not make for happy reading for anyone involved. At the end, Hibu owed its banks £2.2bn of debts – about a third of which the banks must write off immediately while £900m of the balance is in the form of a ‘payment in kind’ note. This effectively means the banks have accepted Hibu cannot even service the interest on that £900m, but they’re willing to continue kicking the can down the road in the hope of a miracle, rather than face up to their losses today.

In the year before it failed, Hibu’s earnings before interest, tax, debt and amortisation were just £283m so this was clearly an absurd amount of debt for the business to have had. It had actually managed to stagger along under the weight of this millstone for the best part of a decade but, as you’ll have heard us say many times before, debt has a habit of catching up with a company. If only Yell could have changed its balance sheet as easily as its name.

Author

Andrew Lyddon

Andrew Lyddon

Fund Manager, Equity Value

I joined Schroders as a graduate in 2005 and have spent most of my time in the business as part of the UK equities team. Between 2006 and 2010 I was a research analyst responsible for producing investment research on companies in the UK construction, business services and telecoms sectors. In mid 2010 I joined Kevin Murphy and Nick Kirrage on the UK value team.

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