Nothing to shout about - If only Yell could have changed its balance sheet as easily as its name
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.
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.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.