HIBU.L Regulatory News (HIBU)

For Immediate Release 25 July 2013

hibu plc

("hibu" or the "Group")

Financial information for the twelve month periodended 31 March 2013

Financial headlines(1)

·; Group revenue of £1,347m decreased by 16% (three months decreased by 17%)

- Digital services revenues grew by 34% to £174m (three months grew by 31%)

- Digital directories revenue fell by 12% to £271m (three months fell by 11%)

- Print and other directory revenues fell by 22% to £902m (three months fell by 24%)

·; EBITDA(2) of £283m was down by £178m

·; Free cash flow of £217m decreased by £82m

·; Exceptional pre-tax gain of £39m on below par settlement of 2006 debt

·; Loss after tax increased by £629m to a loss after tax of £1,818m

·; Profit after tax and before legacy issues(3) decreased by £296m to a loss of £27m

Operational headlines

·; Total digital revenue has increased from 29% to 33% of revenue

·; Digital services

- Customers increased by 35%(4) to 443,000

- Annual digital services revenue per customer declined by 10.4% to £437

- Live customer websites increased by 41%(4) to 452,000

·; Digital directories

- Advertisers fell by 11% to 754,000

- Annual digital directory revenue per advertiser declined by 8.9% to £338

- Visitors declined 14% to 43.7m in March

·; Yellow Pages

- Advertisers reduced by 16% to 868,000

- Revenue per advertiser decreased by 6% to £923

(1)The financial information in this document is for the twelve months to 31 March 2013, is unaudited and is compared with the same period in the prior year. Changes in revenue, revenue per advertiser and EBITDA presented on pages 1 through 6 are stated at constant currency. Revenue percentage changes are also adjusted for rescheduling, changes in bundled revenue allocation in the US and acquisitions.

(2)EBITDA is profit before interest, tax, depreciation, amortisation and exceptional items.

(3) Profit after tax and before legacy issues excludes non-cash after tax charges of £1,790m (2012 - £1,306m) to write down intangible assets and £nil (2012 - £152m) to write off capitalised directories in development costs.

(4)Customers increased by 13% and websites increased by 18% excluding the 72,000 Moonfruit customers that were acquired during the twelve month period.

Mike Pocock, Chief Executive Officer, said:

"The market remained difficult for all of our directories businesses. Despite growing or maintaining our market share, industry wide declines have continued to drive significant earnings pressure and further reduction in the value of our print brands.

"The Group made good progress in implementing its transformational strategy. Digital services revenues continued to grow strongly. Major developments included the acquisition of Moonfruit, the launch of new products into pilot, the full US roll out of Community Magazines, the start of a major overhaul of our digital directories and launch of the hibu business store. I remain confident that the new strategy will provide a viable new business for hibu over the medium term.

"We have also worked hard to streamline and improve the Group's supporting infrastructure with cost reduction programmes and foundation IT projects. Costs have now been reduced by more than £300m over the last two years, over and above the reductions due to lower volume.

"After a year of negotiating with our lenders, we have today separately announced the principal terms determined by the Co-ordinating Committee of the Group's lenders for the proposed restructuring of the Group's debt. As part of this process, the listing of hibu's shares and the trading of those shares on the London Stock Exchange have today been suspended. Formal schemes of arrangement to implement the restructuring will be proposed to lenders in due course and the restructuring is expected to complete in the fourth quarter of the current calendar year. On completion of the restructuring, the listing of hibu's shares will be cancelled."

Trading and strategic update

hibu has made significant progress with its strategic transformation to a digitally focussed business. This is despite the continued difficult economic environment and revenue shift from directories to other forms of media which caused total revenue to decline 16% over the year (17% in the three months).

During the twelve month period, hibu gathered strong momentum in developing its digital business with digital services revenue growing 34%(1) (31% in the three months) to an annual run rate of over £190m. hibu is uniquely placed to help small and medium-sized enterprises (SMEs) take advantage of the evolving digital opportunity. The acquisition of Moonfruit in June 2012 means the Group now has an even stronger platform from which to grow its 452,000 live customer websites and provide additional digital marketing capabilities. hibu's 6,000 strong sales force is increasingly offering small businesses sophisticated digital marketing solutions, ranging from being found more effectively on the large search engines to enabling sites for mobile functionality.

(1)The digital services revenue percentage for the twelve month period is adjusted to exclude a £10m reduction related to the timing effect on revenue recognition of changes in bundle allocations in the US.

The Group has also identified the need to help small businesses transact online and operate more efficiently. The technology provided by the Znode acquisition has allowed the Group to trial services such as the eMarketplace and offer sophisticated online stores to allow SMEs to sell direct to their end consumers. Partnerships with companies such as American Express, Global Payments and Vantiv were agreed in the twelve months enabling hibu's salespeople to offer attractive credit card and payment processing capabilities in the US and UK. The opportunity to expand the market through a wider choice of offers and address a larger base of customers is central to hibu's new strategy.

Digital directory revenue declined 12%(1) in the twelve months (11% in the three months) as competition and the difficult economic environment continue to drive fewer customers and a reduction in their average spend. The product is now managed centrally to leverage economies of scale and share best practice. As a result, there has been significant focus on improving the merchant offer and consumer user experience which are expected to improve run rates in the coming twelve months. Usage remains resilient with users in March 7% up on December to 43.7m, although this was 14% down on the prior year as hibu concentrates on organic usage and on purchasing fewer but higher quality users in the US.

(1)The digital directory revenue percentage for the twelve month period is adjusted to exclude a £14m reduction related to the timing effect on revenue recognition of changes in bundle allocations in the US

Print and other directory revenue declined 22% over the prior year(2) with the three month decline of 24% reflecting the tougher trading environment, particularly in the US, and the publication of poorer performing, larger metro books in the period. The decline reflects both fewer customers and lower revenue per advertisers as SMEs are reducing their Yellow Pages expenditure and moving to other forms of advertising. During the twelve months, the Group successfully launched the Community Magazine product in the US (with trials in all other countries). Over 800 magazines are now being sold-in with over 400 of these now in publication. At an average weekly sales run rate of £0.6m, this new product has recorded significant levels of forward sales and contributed £3m of revenue in the three months ended 31 March 2013.

(2)The print revenue percentage changes for the twelve month period are adjusted to exclude a £16m benefit related to the revenue associated with directories delayed into FY13 in Argentina and other rescheduling. Other directory revenue consists of White Pages, Magazines, direct mail and directory enquiries.

The transformation of the Group into a predominantly digital business required it to adopt a modern new brand to help its customers and consumers find, and identify with, its new products. As a consequence, during the twelve months, the Group launched its new brand, hibu and formally changed its name in July, following shareholder approval at the AGM.

Following a successful pilot phase, hibu business stores went live in the UK and US at the end of March. These stores allow small businesses to purchase a new suite of hibu products online, helping them compete strongly for mobile and online customers. At the hibu business store, SMEs can create a website or online shop that is fully optimised for mobile and start selling and advertising to prospects within ten minutes. This launch is an important step to open up a wider market, reduce sales costs and allow a more efficient approach to selling hibu products year round.

Developments such as launching and promoting a successful online channel support the Group's efforts to reduce costs and operate more efficiently within the context of its multi-channel strategy. The Group continues to consolidate its suppliers, rationalise its technology platforms and property portfolio and improve the efficiency of its sales channels. As a result, over the last 24 months, the Group has reduced costs by more than £300m, independent of the decline in revenue, and expects the cost base to benefit further from headcount reductions in the three months ended 31 March 2013. However, the relatively fixed nature of the Group's cost base means that the decline in print and digital directory revenue has a very significant effect on earnings, leaving EBITDA £178m down on the prior year at £283m.

Operating losses have increased by £392m reflecting both the fall in EBITDA and the £222m increase in exceptional costs that are mostly from cleaning up legacy issues.

Underlying net interest fell £25m largely as a result of lower debt (9.7% lower in the twelve months at constant exchange rates) as hibu has taken action to significantly decrease its debt over recent years by settling and buying back debt and managing its working capital whilst further reducing interest costs by not renewing interest rate hedges. The early settlements and buy backs have also provided additional financial income of £39m and £253m in 2013 and 2012, respectively.

Profit after tax is affected by all the factors listed above and from the relative weighting of taxable profit from different tax jurisdictions. Exceptional tax credits were also £91m lower in 2013 than in 2012.

Free cash flow of £217m decreased £82m on the prior year due to the lower EBITDA and despite the suspension in interest payments in August, a tax refund in the UK and continued working capital release.

Net debt reduced £151m to £2,050m due to the £217m of free cash flow and the £39m gain on the December settlement with the 2006 lenders despite £15.4m of fees incurred in respect of the refinancing. If sterling had not weakened against particularly the dollar over the twelve months, net debt at March 2013 would have been £63m lower at £1,987m. At the end of March, the Group had £211m of cash in the bank.

In March, the Group made a £2,008m one-off, non-cash write off of goodwill, brands and other assets acquired in previous directory acquisitions. In addition, there were £32m of one-off exceptional costs related to restructuring the organisation and delivering the new strategy.

Accounting reference period and share suspension

As noted in other RNS announcements made by the Group today, the Group is at an advanced stage of negotiations regarding its financial restructuring. The financial restructuring will not result in any payment being made to shareholders or leave hibu shares with any value. The Group has therefore decided to suspend the listing of hibu's shares and the trading of those shares on the London Stock Exchange with effect from 07:30 BST today. The Board of Directors has given consideration to both the implications of the share suspension and the significant effect of any financial restructuring on the future shape of the Group, including the fact that hibu plc, which is the Group's ultimate holding company, is expected to be placed into administration as part of the financial restructuring. As a consequence, the Board has concluded that it is not in the interests of either the Group or its stakeholders to publish audited accounts and issue an Annual Report that does not reflect the expected effect of the financial restructuring.

The Board of Directors of hibu has therefore today given notice to the Registrar of Companies that it is changing its accounting reference date to 30 September. As a consequence, the accounting period that commenced on 1 April 2012 will now cover the 18 months ending on 30 September 2013.

Forward looking statements

This news release contains forward-looking statements regarding hibu's intentions, beliefs or current expectations concerning, among other things, hibu's results of operations, revenue, financial condition, liquidity, prospects, growth, strategies, new products, the level of new directory launches and the markets in which hibu operates. Readers are cautioned that any such forward-looking statement is not a guarantee of future performance and involves risks and uncertainties, and that actual results may differ materially from those in the forward-looking statement as a result of various factors. These factors include any adverse change in regulations, exchange rates, unforeseen operational or technical problems, the nature of the competition that hibu will encounter, wider economic conditions including economic downturns, the final outcome of addressing hibu's capital structure and changes in financial and equity markets. Readers are advised to read the Risk Statement below. hibu undertakes no obligation to update or revise publicly any forward-looking statements, except as may be required by law.

Risk statement

hibu's risks and uncertainties include strategic and operational risks faced by hibu's businesses; debt and financing risks faced in funding Group operations and the financial reporting and related risks faced in reporting hibu's results. Readers are advised to read pages 22 to 29, page 116 and notes 1 and 16 to the financial statements included in Yell Group plc's 2012 annual report (Yell Group plc changed its name to hibu plc on 27 July 2012) for the financial year ended 31 March 2012, a copy of which is available on hibu's website at http://www.hibu.com. 

The majority of hibu's debt matures in April 2014. The Group has been in negotiations with a co-ordinating committee of the lenders (the "CoCom") under its facilities agreement dated 30 November 2009 (as amended) (the "2009 lenders") to represent the interests of the 2009 lenders during the process of determining an appropriate new capital structure. The Group obtained certain waivers, with CoCom support, from the 2009 lenders to enable, among other things, substantive discussions to take place around a balance sheet restructuring.

The Group is currently in default under the 2009 facilities agreement. The lenders' facility agent may, and must if directed by two-thirds of lenders, demand immediate repayment of all amounts due. The default can only be waived by the unanimous approval of all 2009 lenders. As this is not considered likely in the current circumstances, a waiver request for this default is not being made. As announced today, the principal terms for the restructuring of the Group's debt have been agreed in principle with the CoCom subject to clearance from the UK Pensions Regulator. The members of the CoCom together represent approximately 32.8 per cent of the Group's financial debt. The restructuring will be implemented through schemes of arrangement that will require the approval of lenders that hold at least 75 per cent of the debt. Closing of the transaction is expected to take place in the fourth quarter of the current calendar year.

The restructuring will not attribute any value to the existing ordinary shares of hibu plc, and the listing of hibu's shares will be cancelled upon completion of the restructuring. The restructuring will also result in a Group reorganisation that will require hibu plc and some other Group holding companies to be placed into administration. The Group is cash generative and the directors believe that the lenders will receive a higher recovery on their loans through a restructuring that allows the business to continue to operate as a going concern rather than by any other course of action. Therefore, the financial information has been prepared on a going concern basis and does not necessarily include all adjustments that would be required if the business were unable to continue as a going concern.

The Group net liabilities of £1,486m include goodwill and other acquired intangible assets totalling £485m which is supported by the Group's strategic plans. It is clear that the Group faces challenges and material uncertainties that may affect the carrying value of these intangible assets.

About hibu

hibu helps communities thrive by facilitating millions of connections each year between consumers who want to find products and services locally and the merchants who provide them.

hibu enables consumers to find local businesses and shop in new, innovative ways - whether online, on the move or in store. hibu helps merchants compete in the digital world with a broad range of marketing and commerce solutions delivered online and through hibu's direct sales teams. Building on its heritage as a premier directories provider, hibu continues to offer a full range of print- and distribution-based marketing services.

hibu operates in the UK, US, Spain, Argentina, Chile, Peru and US Hispanic markets. In the twelve months to 31 March 2013, hibu had one million SME customers and total revenues of £1.3 billion.

For further information about hibu, visit corporate.hibu.com.

Enquiries

hibu - Investors RLM Finsbury

Andrew Clatworthy Andrew Dowler or Charles Chichester

Tel: +44 (0) 118 358 2838 Tel: +44 (0) 207 251 3801

hibu - Media

Jon Salmon

Tel: +44 (0) 118 358 2656

Key operational metrics for hibu plc

(1) Revenue growth rates are at constant currency and are also adjusted for the change to the bundle allocation in the US in fiscal year 2012 and acquisitions.

(2) US data on advertisers / customers and average revenue per advertiser / customer is under review and subject to change.

(3) Growth rates for average revenue per advertiser / customer are at constant currency but not adjusted for changes in bundle allocation in the US or acquisitions.

(4) Excludes mobile visitors. US figures include visitors to the Yellowbook.com network.

(5) UK digital services customers, total digital customers and website counts in FY13 include 88,000 Moonfruit website customers who were not included in the prior year. UK digital services and total digital average revenue per customer in FY13 fell because these customers generate significantly lower average revenues.

(6) Excludes non-revenue generating sites.

(7) The prior year US digital customers have been restated (previously reported: 416,000). Customer data remains under review and subject to change.

(8) The prior year US average revenue per customer has been restated (previously reported: £455). The data remains under review and subject to change.

(1) Revenue growth rates are at constant currency and are also adjusted for rescheduling.

(2) Revenue per unique advertiser growth rates are at constant currency but not adjusted for rescheduling.

(3)  This includes £14.6m of Direct Mail and magazine revenues.

(4) £14m of the decline in Spanish White pages and other directory revenue is due to the cessation of the Telefonica contract to produce the White Pages which is broadly EBITDA neutral

Financial information for hibu plc and subsidiaries

All of the following financial information is unaudited except the comparative information for 31 March 2012, which was presented in the Yell Group 31 March 2012 Annual Report.

Group income statement

Group statement of comprehensive income

See notes to the financial information for additional details.

Group statement of cash flows

See notes to the financial information for additional details.

Group balance sheet

See notes to the financial information for additional details.

Group statement of changes in equity

(1) Cumulative foreign currency gains attributable to owners at 31 March 2013 are £309.1m (31 March 2012 - £303.0m gain).

See notes to the financial information for additional details.

Notes to the financial information

1. Nature of report

This document does not constitute an annual financial report, half year report, second interim report, preliminary announcement or interim management statement (as defined in the Listing or the Disclosure and Transparency Rules) in respect of the twelve month period to 31 March 2013 or any part of that period. The unaudited consolidated financial information contained herein does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

As noted in RNS announcements made by the Group today, hibu plc will be placed into administration if the restructuring takes place as agreed with the CoCom. The directors therefore are not able to make any assertions regarding the basis of the presentation of the financial information for the twelve months to 31 March 2013. The financial information does not include all adjustments that would be required if the businesses or the Group in its current structure were unable to continue as a going concern. The financial information is not audited and only serves as a detailed trading update of the businesses on a like-for-like basis in comparison with the year ended 31 March 2012, presented in such a way that stakeholders can understand the results.

The preparation of the consolidated financial information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of income and expenditure during the period. Actual results could differ from those estimates. Estimates are used principally when accounting for doubtful debts, depreciation, retirement benefits, acquisitions, impairment testing and taxation.

Where change at constant currency is stated in this document it states the change in the current period compared with the previous period as if the current period results were translated at the same exchange rates as those used to translate the results for the previous period. Figures reported at constant exchange rates are stated at the same exchange rates as those used to translate the comparative figures for the previous period. Exchange impact is the difference between the results reported at constant exchange rates and the results reported using current period exchange rates. The average effective exchange rates for the twelve months to 31 March 2013 were $1.58: £1.00 and €1.23: £1.00 as compared to $1.59: £1.00 and €1.16: £1.00 for the same period last year.

Readers are advised to read the Risk Statement beginning on page 5.

2. Revenue

3. EBITDA(1)

(1) EBITDA and operating profit are presented on the basis of where revenues and costs are managed and may not reflect the legal location of revenue and costs.

4. Taxation

The tax credit for the twelve months is different from the standard rate of corporation tax in the United Kingdom of 24% (2012 - 26%). The differences are explained below:

(1)The effective tax rates in 2012 and 2013 have been significantly affected by non-tax deductible impairments of goodwill and intangible assets.

Taxation (charged) credited directly to equity is as follows:

5. Adjusted earnings

(1) Details of exceptional items are set out in note 6.

(2) Other items include amortisation of acquired intangibles and in 2012 the fair valuation charge for the time value of interest rate caps taken directly to the Income Statement.

6. Exceptional items

Exceptional items are transactions which, by virtue of their incidence, size or a combination of both, are disclosed separately. Exceptional items comprise the following:

(1) Capitalised sales costs in directories in development were written off as the transformation to the digital model means the deferral of sales costs is less appropriate and more difficult to reliably calculate.

(2) Net tax credits primarily arose on exceptional charges listed above and are net of tax charges on the debt settlement/buybacks and derecognised deferred tax assets.

7. Impairments

Goodwill is not amortised but is tested, at least annually, for impairment. The value of each cash generating unit is determined and compared with its carrying value to determine whether the carrying value is impaired. The valuation is based on certain assumptions, including future revenue and profit growth, which can change the conclusion on whether carrying value is impaired. The impairment loss is firstly applied against goodwill and, if it exceeds the amount of goodwill, then secondly the excess is allocated to other long-lived intangible assets followed by an allocation across other assets if required.

During the twelve months to 31 March 2012 and 2013 the Group recognised the following net impairment losses:

In accordance with IAS 36, future financial results expected for all group operations were reduced period on period in the calculation to reflect the difficult economic outlook in all of the Group's markets, the latest revenue trends for the legacy directory products and the fact that the expected revenue effect of the new strategy is delayed and not yet confirmed. At 31 March 2013 the fair values of the operations in the US, UK, Spain, Argentina and Chile equalled their carrying values and consequently, any adverse change in a key assumption with all other assumptions held unchanged would cause recognition of further impairment losses. The carrying value of the operations in Peru has not been written down, because the estimated recoverable amount of operations in that country exceeded that carrying value.

If the expected benefits in the strategic plan, including significantly higher revenues than the Group has historically achieved, either run later or in aggregate deliver less new value than currently expected, then the directors may need to include further impairment charges. However, at this stage it is uncertain and cannot be quantified. The value of goodwill is also dependent on the Group's refinancing and the current strategy may have to change, which could materially affect the carrying value of each cash generating unit.

8. Capital expenditure

Proceeds on the sale of property, plant and equipment were £nil in the twelve months to 31 March 2013 and 2012. Capital expenditure committed at 31 March 2013 was £3.0m (2012 - £5.9m).

9. Acquisitions and disposals

In the twelve months to 31 March 2013, hibu paid £18.0m for Moonfruit in the UK with recorded net assets of £0.1m. Goodwill of £10.6m was attributable to the expected future synergies, the workforces acquired and the expected future growth of the businesses.

In the year ended 31 March 2012, hibu paid $19.4m (£12.1m) for Znode in the US with recorded net assets of £0.6m. Goodwill of £4.4m was attributable to the expected future synergies, the workforces acquired and the expected future growth of the businesses.

Cash flow

A reconciliation of cash paid on acquisitions, including deferred payments for prior year acquisitions, to the cash flow on page 10 is as follows:

hibu did not make any disposals in any of the periods presented in this financial information.

10. Goodwill

Goodwill is not amortised but is tested, at least annually, for impairment. See note 7.

11. Other intangible assets

12. Property, plant and equipment

13. Trade and other receivables

(1) The Group's trade receivables and accrued income are stated after deducting a provision of £140.1m (March 2012 - £149.8m) for bad and doubtful debts.

(2) The Group's prepayments include £18.2m (March 2012 - £nil) in respect of fees relating to the ongoing refinancing of the extended 2009 debt facility.

14. Loans and other borrowings, net debt

(1) Balances are shown net of deferred financing fees of £32.9m (March 2012 - £62.0m).

On 25 October 2012 the Group cancelled the revolving credit facility and announced that it would be suspending all further payments of principal and interest to lenders until such time as a restructuring of its balance sheet can be concluded. As a result, the amounts due for payment under the old 2006 lending were settled for less than face value and amounts due under the 2009 lending facility have not been paid. This is an event of default and all amounts due under the extended 2009 lending facilities became, and are presented, as current.

hibu has been in negotiations with a co-ordinating committee of the lenders (the "CoCom") under its facilities agreement dated 30 November 2009 (as amended) (the "2009 lenders") to represent the interests of the 2009 lenders during the process of determining an appropriate new capital structure. See the Risk Statement beginning on page 5.

The movement in net debt for the Twelve months to 31 March 2013 and 2012 arose as follows:

Amounts outstanding under the extended 2009 debt facilities at 31 March 2013 were as follows: