HIBU.L Regulatory News (HIBU)

For Immediate Release 13 November 2012

hibu plc

("hibu" or the "Group")

Interim results for the six months ended 30 September 2012

Financial headlines[1]

·; Group revenue of £660m decreased by 15%

- Digital services revenues grew by 38% to £82m

- Digital directories revenue fell by 15% to £134m

- Print and other directory revenues fell by 22% to £444m

·; EBITDA[2] of £150m was down £80m

·; Free cash flow of £87m decreased £70m

·; Profit before tax of £7m fell by £62m

·; Profit after tax fell by £66m to a loss after tax of £18m

Operational headlines

·; Total digital revenue has increased from 30% to 33% of revenue

·; Digital services

- Customers increased by 6% to 383,000

- Annual digital services revenue per advertiser was £415

- Live customer websites increased by 12% to 347,000

·; Digital directories

- Customers fell by 3% to 857,000

- Annual digital directory revenue per advertiser was £330

- Digital directories visitors declined 13% to 37.3m in September

- Mobile directories visitors increased 63% to 5.2m in September

·; Yellow Pages

- Yellow Pages advertisers reduced by 12% to 474,000

- Yellow Pages revenue per advertiser decreased by 7% to £827

Mike Pocock, Chief Executive Officer, said:

"During the first half, the Group has continued to make significant progress on its four year strategy to build a material new digital business. In June we acquired Moonfruit, an innovative digital company, in order to provide new web site products early next year. Following successful pilots in the US, we began to expand our community magazine (formerly Newsletter) initiative, which is now delivering new orders in excess of £500k per week and rising. We signed partnership agreements with Vantiv in the US and Global Payments in the UK, to support our new Payments product which went to pilot in both markets in early September. We also moved into pilot with our new on-line channel, which will provide a modern, lower cost alternative route to market for our products from early 2013 and we began the first pilots of eMarketplace in Oxford and Chicago.

We have also been working hard to sustain our directories business in the face of very difficult market trends that have not improved. Our supply chain and product offers have been further enhanced, driving for example higher consumer use of our online directory products outside the US. The Group also continues to focus on cost management and over the last 18 months has reduced costs by in excess of £200m, independent of the decline in revenue.

In May we announced that the Group had begun the process of putting in place a new capital structure. This is a complicated exercise that will take some months as we ensure that the interests of all of our stakeholders are properly addressed. I remain confident however that the Group will emerge from that process with a much stronger balance sheet that is appropriate to our future business."

Strategic Update

Since the announcement in July 2011 of the new four year programme to transform the Group, hibu's strategy has been endorsed by various independent third parties as being compelling and well differentiated. Since the initial announcement, the Group has continued to develop and refine the strategy, which has resulted in decisions to launch some new business activities in sequence rather than in parallel.

The Group is in the process of implementing the transformational new strategy necessary to replace its declining legacy directories business with material new digital businesses. Much has been achieved to make that new future a reality.

·; Open to Export, the digital export service, went live in a beta trial in June with a full launch announced in October. The service aims to assist UK based small and medium-sized enterprises to trade internationally by providing access to the guidance and in-depth information they need to take their business overseas. The initiative is a venture launched in conjunction with UK Trade and Investment (UKTI).

·; Following the acquisition of Moonfruit in June, the Group intends to implement a new range of websites with additional functionality and a build-it-yourself capability.

·; hibu commenced payments pilots with Vantiv in the US and Global Payments in the UK. Both partnerships enable hibu to provide local businesses with the ability to accept card payments from consumers for their goods and services.

·; In the US, hibu has entered into a partnership with American Express to launch a six month pilot to offer SMEs the Business Gold Rewards Card. The card is uniquely suited to hibu's clients because of the double Membership Rewards points that can be earned by spending on advertising, including purchases at Yellowbook.

·; The eMarketplace trials in Oxford (market.hibu.co.uk/oxford) and Chicago (market.hibu.com/chicago) continue to inform future product decisions with more marketplaces expected to be launched before year end.

·; As part of extending the life of the directories business, hibu has launched local community magazines (formerly newsletters) in various US markets. This has been a very successful product with over 300 editions published so far. hibu is now rolling out the product among the communities serviced by Yellowbook in the US and has started trialling the product in the UK and Spain.

·; A US Hispanic telesales and field sales team has also been created and deployed to capitalise on this growing market.

This strategy involves not only complementary revenue streams but also looking at different ways to manage the Group's cost base. Over the last 18 months, the Group has reduced costs by in excess of £200m, independent of the decline in revenue and is continuing to identify areas to improve efficiency. The Group is rationalising its technology platforms and property portfolio, consolidating its suppliers and more effectively managing its marketing spend. At the same time, significant focus is being given to more efficiently leveraging the sales force through changes in compensation and channel mix. A key aspect of this is the launch of the online hibu business store that allows customers to buy directly from hibu for the first time.

Capital structure

The majority of hibu's debt matures in April 2014. The Group therefore announced in July 2012 that it was seeking to form a co-ordinating committee of the lenders (the "CoCom") under its facilities agreement dated 30 November 2009 (as amended) to represent the interests of those lenders during the process of determining an appropriate new capital structure. The Group has already taken substantive actions toward that end with the support of the CoCom. The Group remains in active and constructive dialogue with the CoCom.

The substantive actions already taken and the risks associated with successfully addressing the Group's capital structure are discussed on pages 13 and 14. hibu, working together with the CoCom, aims to present a restructuring proposal to its lenders by the end of January 2013 and to complete a successful restructuring of its debt obligations before the end of the first half of calendar 2013. A number of capital structure options are being considered and these are likely to result in little or no value being attributed to the Group's ordinary shares.

Group results

Half year print and other directory revenue declined 21.6% over the prior year[1] with the second quarter declining at a similar rate (22.1% down). Within this, Yellow Pages was down 20.6%, due to a reduction in both customers and average value as advertisers move all or part of their spend to alternative forms of advertising. The print product team is focused on maintaining the life of the print product by enhancing and improving its value but also introducing new, growing products such as direct mail and community magazines. Other revenue declined 28.1%, largely due to the cessation of the White Pages contract in Spain (which is largely EBITDA neutral) and the continued decline of the directory enquiries product.

Digital directory usage increased in all geographies other than the US. 37m unique users used the Group's digital directories to search for local businesses in September with an additional 5m users on mobile devices. Nevertheless, digital directories revenue declined 15.4%[2] over the first 6 months with the trend in the second quarter similar at 14.3%.

Digital services revenues grew 38.3%[2] to £81.9m at the half year, primarily from online search and the 347,000 websites the Group has built. The revenue from the new product trials has not significantly contributed to first half revenue.

Total digital revenue now represents 33% of the Group's revenues. The decline in digital directories more than offset the growth in digital services revenue, to leave total digital revenue down 0.9%. This was primarily driven by digital directory customers reducing their spend due to the highly competitive nature of the market.

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 the Group's earnings. Despite reducing total costs further, EBITDA is down £80m on the prior year at £150m.

Profit before tax of £7m is down £62m on the prior year, largely as a result of the lower EBITDA, partially offset by reduced interest charges primarily due to lower net debt. The writing off of tax assets, due to changes in Spanish tax law and expectations over future performance, results in a net loss after tax.

Free cash flow of £87m is £70m lower than last year, reflecting the lower EBITDA and lower levels of working capital release, being partially offset by lower interest costs, due to the reduced net debt and a tax refund in the UK.

Net debt was reduced by 5% or £110m to £2,090m. The Group had £112m of cash after debt repayments during the half year.

The Board concluded that adoption of the going concern basis in preparing the financial statements is appropriate, because the Group is cash generative and the directors believe that the lenders will achieve a higher recovery on their loans by letting the business continue to operate as a going concern rather than by any other course of action. Therefore, the financial information contained herein has been prepared on a going concern basis. Nevertheless, the directors are making full disclosure to indicate the existence of a material uncertainty, which may cast significant doubt about the Group's ability to continue as a going concern.

The auditors' report on the Group's half-yearly financial information for the six months ended 30 September 2012 includes an emphasis of matter in respect of going concern and the carrying value of assets along with an unmodified opinion on the preparation of the financial information.

Outlook

In September 2012, the Group indicated that it expected to be below published market expectations for the current financial year. There has been no material change to the trading outlook for the current financial year since that announcement.

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, 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 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). hibu undertakes no obligation publicly to update or revise any forward-looking statements, except as may be required by law.

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 helps consumers find local businesses and shop in new, innovative ways. Its dedicated online hibu markets provide comprehensive, convenient access to local goods and services. 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 year ended 31 March 2012, hibu had 1.2m SME customers and total revenues of £1.6 billion.

For further information about hibu, visit 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 rescheduling.

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

[1] Prior year numbers have been reclassified to move £3.1m out of distribution and £4.4m out of administrative costs into cost of sales to ensure consistency with the current year presentation. There is no change to operating profit.

[2] Prior year numbers have been reclassified to move £2.2m receivable out of finance costs into finance income to ensure consistency with the current year presentation. There is no change to net finance costs.

Group statement of comprehensive income

See notes to the financial information for additional details.

Group statement of cash flows

[1] Prior year numbers have been reclassified to move £2.2m receivable out of finance costs into finance income to ensure consistency with the current year presentation. There is no change to net finance costs.

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 30 September 2012 are £298.9m (31 March 2012 - £303.0m gain).

See notes to the financial information for additional details.

Notes to the financial information

1. Statutory disclosures

Basis of preparation and consolidation

hibu operates in the US, UK, Spain, Argentina, Chile, Peru and US Hispanic markets helping 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. The principal activity of hibu plc and its subsidiaries is helping consumers find local businesses and shop in new, innovative ways. Its dedicated online hibu markets provide comprehensive, convenient access to local goods and services. 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.

This unaudited condensed set of financial statements for the six months ended 30 September 2012 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting', as adopted by the European Union.

The unaudited financial information contained herein does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

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 six months ended 30 September 2012 were $1.58: £1.00 and €1.25: £1.00 as compared to $1.62: £1.00 and €1.14: £1.00 for the same period last year.

In the opinion of management, the financial information included herein includes all adjustments necessary for a fair presentation of the consolidated results, financial position and cash flows for each period presented.

The financial statements for the year ending 31 March 2013 are not expected to be materially affected by implementation of new standards, amendments to standards, or interpretations.

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 for the financial year ended 31 March 2012, a copy of which is available on hibu's website at http://www.hibu.com. 

The audit opinion on the statutory accounts for the year ended 31 March 2012 was unqualified and unmodified, and included an emphasis of matter concerning the ability of the company to continue as a going concern. The financial information herein should be read in conjunction with Yell Group plc's 2012 annual report published in June 2012, which was prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006.

The financial information contained herein has been prepared on a going concern basis. The majority of hibu's debt matures in April 2014. The Group therefore announced in July 2012 that it was seeking to form a co-ordinating committee of the lenders (the "CoCom") under its facilities agreement dated 30 November 2009 (as amended) to represent the interests of those lenders during the process of determining an appropriate new capital structure. The CoCom was formed, and with its support, the Group obtained certain waivers in August and September from its lenders to enable, among other things, substantive discussions to take place around a balance sheet restructuring. The Group remains in active and constructive dialogue with the CoCom.

The Group received a waiver on 28 September 2012 deferring the financial debt covenant tests from 30 September 2012 to 30 November 2012 whilst it is consulting with its lenders. On 25 October 2012 the Group 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. This decision affects only the lenders to the Group and in no way affects payments to employees, partners, suppliers, trade or other creditors or any other counterparty. As can be seen in the accompanying financial information, the Group retains a healthy cash balance and therefore this decision is driven by a desire to treat all lenders fairly and equitably, rather than by any liquidity concerns

On 26 October 2012 hibu requested a number of waivers, consents and amendments to credit facilities from its lenders under the 2009 credit facilities agreement to allow the Group to proceed with the restructuring. The CoCom has unanimously agreed, subject to credit committee approval, to support the waivers being sought.

In addition to seeking a series of waivers, consents and amendments from lenders to the 2009 facilities agreement, the Group also sought approval from lenders under the 2006 facilities agreement. The original deadline for the 2006 lenders to vote on the requested waiver and amendments was 9 November 2012. The Group has decided to extend the period of voting for the 2006 lenders until 23 November 2012 to enable time for all 2006 lenders to vote. In the meantime, the Group is formulating a Scheme of Arrangement under part 26 of the Companies Act 2006 which is likely to be launched in November.

At the present time there is no intention to extend the voting deadline for lenders under the 2009 facilities agreement which therefore remains as 21 November 2012.

If the Group were not able to obtain the waivers from its lenders, the lenders' facility agent may, and must if directed by two-thirds of lenders (by reference to debt held) demand immediate repayment of all amounts due to them. The Group is cash generative and the directors believe that the lenders will receive a higher recovery on their loans by letting the business continue to operate as a going concern rather than by any other course of action. The Board therefore concluded that adoption of the going concern basis in preparing the financial statements is appropriate, and the financial information contained herein has been prepared on that basis. Nevertheless, the directors are making full disclosure to indicate the existence of a material uncertainty in regard to the Group's ability to continue as a going concern. The financial information does not include the adjustments that would result if the Group were unable to continue as a going concern.

A number of capital structure options are being considered. The Group confirms that the options being considered are likely to result in little or no value being attributed to the Group's ordinary shares. The Group net assets of £285m include goodwill and other intangible assets totalling £2,488m which is supported by the Group's strategic plans. It is clear that the Group faces challenges and material uncertainties which may affect the carrying value of these intangible assets.

The auditors' report on the Group's half-yearly financial information for the six months ended 30 September 2012 includes an emphasis of matter in respect of going concern and the carrying value of assets along with an unmodified opinion on the preparation of the financial information.

Related Parties

There are no related party transactions in the six months ended 30 September 2012 except compensation for key management. Key management compensation for the financial year ended 31 March 2012 is detailed in note 26 on page 106 of Yell Group plc's 2012 Annual Report. A copy of Yell Group plc's Annual Report is available on hibu's website at http://www.hibu.com.

2. Revenue

3. EBITDA and operating profit[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. This presentation may not be indicative of the presentation for the full year.

Reconciliation of operating profit to 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. This presentation may not be indicative of the presentation for the full year.

[2] The UK amounts include centrally managed costs, including the cost centres in India and the Philippines.

4. Taxation

The tax charge for the six month period is different from the standard rate of corporation tax in the United Kingdom of 24% (2011 - 26%). The differences are explained below:

[1] The prior year adjustments mainly comprise tax assets in Spain, which are no longer considered recoverable due to recent changes in tax law and economic expectations.

The tax on the Group's profit before tax is analysed as follows:

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

5. Earnings per share

The calculation of basic and diluted earnings per share is based on the profit for the relevant financial period and on the weighted average share capital during the period.

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

(2) Other items include amortisation of acquired intangibles and 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:

7. Capital expenditure

Proceeds on the sale of property, plant and equipment were £nil in the six months ended 30 September 2012 and 2011. Capital expenditure committed at 30 September 2012 was £4.4m (2011 - £7.1m).

8. Acquisitions and disposals

In the six months to 30 September 2012, hibu paid £18m for Moonfruit in the UK with recorded net assets of £0.1m. Total costs were provisionally allocated to the acquired assets and liabilities as follows:

(1) Goodwill of £10.6m was attributable to the expected future synergies, the workforces acquired and the expected future growth of the businesses.

In the six months ended 30 September 2011, 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 9 is as follows:

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

9. Goodwill

Goodwill is not amortised but is tested, at least annually, for impairment. The impairment analysis is based on certain assumptions, including future revenue and profit growth, that can change the conclusion on whether goodwill is impaired.

No impairment charges have been required in the periods presented in this financial information, because the assumptions used in valuing the assets at 31 March 2012 have not materially changed. Goodwill intangibles are supported by the Group's current strategy. This however is in its early stages requiring growth, and uncertainty exists about the future outcomes of the strategic plans. 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 require change which could impact materially on the carrying value of goodwill. See the Risk Statement on pages 13 and 14.

10. Other intangible assets

11. Property, plant and equipment

12. Deferred tax assets and liabilities

The elements of deferred tax assets recognised in the financial statements were as follows: