Three pillars of strategic activity

This analysis results in three pillars of strategic activity:

1.     Invest around big themes. These include price discovery, post-trade activities, asset management and telecoms. Some examples from the half year:

a.     Price discovery: Following the acquisition of FastMarkets in September 2016 which confirmed Metal Bulletin as a leading metals price reporting agency, we purchased RISI in April 2017 for US$125m. RISI is the leading price reporting agency for the global forest-products market.

b.     We continue to invest in new products at, for instance, CEIC, BCA and Institutional Investor.

2.     Transform the operating model. There are two aspects to our model. One is our target business model:

The second is what we call a "best-of-both-worlds" operating model. Euromoney is known for its entrepreneurial culture - our people are creative, action-oriented, close to their customers, passionate about their brands, knowledgeable about the industries they serve and accountable for their results. Over the past six months, we have reorganised the business into seven divisions: price reporting, investment research, Institutional Investor, banking and finance, specialist information, events and data. Alongside, we are building strong central functions to support the businesses and to ensure we take advantage of Euromoney's scale, share best practice, operate strategically and create career paths for staff across the whole company.

3.     Actively manage the portfolio. Acquisitions have always been, and remain, an important part of Euromoney's strategy. We have a record of identifying good businesses where our ownership adds value. In many cases, we buy founder-run businesses; and those founders often stay and grow their business within Euromoney. So far this year we have acquired the small telecoms events businesses BroadGroup (49% in March 2017) and Layer123 (61% in April 2017), as well as RISI (100% in April 2017)

We also sell businesses where we believe we are not the best owners, and to generate funds (alongside our strong cash-flows and debt capacity) to invest in the themes discussed above. During the period, we sold four businesses: HedgeFund Intelligence (December 2016), II Intelligence (December 2016), Euromoney Indices (March 2017) and LatinFinance (March 2017) for a combined exceptional profit on disposal of £4.8m.

Strategy overall. Our strategy is designed to develop the businesses we own and deliver strategic, timely, and well-executed acquisitions and disposals. We aim to allocate and recycle capital efficiently to good organic and inorganic opportunities via our "best-of-both-worlds" operating model. Our ambition is to generate consistent and meaningful returns for our shareholders at relatively low risk.

Outlook

The outlook for the commodities and banking markets is improving whereas the asset management sector is now facing headwinds. Currency remains a tailwind at the moment and we are seeing good progress from the strategic actions we are taking. Therefore, we expect to deliver a full year performance in line with the board's expectations.

Operating and Financial Review

Trading Review

Total revenue for the six months to March 31 increased by 5% to £203.2m. The group's businesses focused on price discovery, data and market intelligence improved. The commodity events and banking & finance segments, which together accounted for 24% of revenues, declined as we removed unprofitable events in the face of challenging trading conditions, particularly in the first quarter. Despite a tougher market outlook for asset management, the group modestly increased its subscription revenues from this segment, benefitting from the strategic actions initiated last year around new products, pricing and sales.

On a reported basis, the high-margin flow-through from the growth of the Invest quadrant and favourable exchange rates more than offset the drag from businesses in the Disinvest quadrant.

* Figures are 2017 reported revenues and percentages are underlying growth rates.

^ Calculates the growth rate for underlying revenues of £198.5m for the six months to March 31 (i.e. total revenue of £203.2m less sold/closed businesses revenue of £4.7m) over the equivalent six month period in 2016.

Underlying revenue fell by 2% in the period, but with a marked difference in performance between the two quarters. After a 5% decline in the first quarter, underlying revenue increased by 1% in the second, with the return to growth largely due to a recovery in the events businesses, particularly in banking & finance and commodities (see table below). 

^# At constant exchange rates, including pro forma prior year comparatives for acquisitions and excluding disposals and significant event timing differences.

^ῼ Includes other revenues but excludes revenues from sold/closed businesses. Foreign exchange hedging losses restated in prior year at current year level.

Underlying subscriptions and content revenues increased by 1%. Despite the cost and fee pressures facing the asset management sector, subscription revenues from this segment increased by 1% on an underlying basis, with some of the strategic initiatives undertaken in 2016 starting to bring benefits. Pricing, data and market intelligence subscription revenues increased by an underlying 3%, mainly due to a strong performance from Metal Bulletin including the successful integration of last year's FastMarkets acquisition.

Underlying advertising revenues remained weak and decreased by 14%, but advertising now represents less than 10% of revenues.  

Underlying event revenues fell by 5% (sponsorship fell by 3% and delegates by 6%), with the banking & finance and commodity events segments providing a significant drag. However, much of this revenue decline comes from strategic actions taken in 2016 to consolidate some of the group's event activities and cut out a significant number of low margin events and unprofitable training courses, which is now starting to improve profitability. There are also signs of a recovery in these segments as a first quarter revenue decline of 14% was followed by growth of 2% in the second quarter. Large events, particularly in the telecoms and structured finance sectors, have continued to perform well.

The adjusted operating margin was 24%, the same as last year, reflecting the benefit from the Invest quadrant businesses and the elimination of unprofitable events training courses, offset by some remaining drag from the Disinvest quadrant and increased costs attributable to the DMGT sell-down and the need to operate as a standalone group. Adjusted operating profit increased by 5% to £49.0m. 

Adjusted and statutory results

Adjusted profit before tax increased by 5% to £49.1m, with an increase in financing costs following the share buyback offset by an improvement in profits from the group's equity interest in associates and joint ventures, principally Dealogic. Adjusted diluted earnings per share increased by 9% to 32.7p (2016: 29.9p), largely reflecting the benefit from the reduction in the number of shares in issue following the share buyback.

The statutory profit before tax of £15.6m is lower than the adjusted profit before tax due to exceptional items of £24.6m and acquired intangible amortisation of £8.8m. The exceptional items largely arise from a goodwill impairment charge for one of the group's asset management businesses, following its disappointing financial performance in the face of tough market conditions and recent management changes. A detailed reconciliation of the group's adjusted and statutory results is set out in the appendix to this statement.

Tax

The adjusted effective tax rate based on adjusted profit before tax and excluding deferred tax movements on intangible assets, prior year items and exceptional items is 21% (2016: 19%). The group continues to benefit from reductions in the UK corporate tax rate and the tax effects of acquisitions. The tax rate in each year depends mainly on the geographic mix of profits and applicable local tax rates. The group's reported effective tax rate decreased to 12% compared to 26% in 2016. A reconciliation of the tax rate and a description of the group's uncertain tax positions are set out in note 6 to this statement.

DMGT sell-down

In December 2016, DMGT announced its intention to reduce its equity interest in Euromoney from 68% to 49% through a combination of a 15% share buyback by Euromoney and a 10% placing with institutional shareholders, which was completed in early January. The sell-down gives Euromoney balance sheet independence from DMGT and will enable Euromoney to accelerate its active portfolio management strategy. The £193.6m share buyback was funded by a mix of cash and new borrowing facilities arranged by Euromoney, and its borrowing facility with DMGT was terminated.

Following the DMGT sell-down, Euromoney has been investing in its operating model, including replacing the functions previously provided by DMGT and building a strong centre to support its growth strategy as a stand-alone entity.  Once complete, this investment is expected to increase costs by approximately £4m a year, of which £1m were incurred in the first half.   

Net debt and cash flow

Net debt at March 31 2017 was £83.6m compared with net cash of £55.9m at March 31 2016 and net cash of £83.8m at the last year end. The move to a net debt position reflects the share buyback completed in early January at a cost of £193.6m, funded by £75.4m of the group's cash and new bank term-loans of £118.2m. This was partly offset by strong operating cash flows of £73.7m and net cash proceeds of £2.9m from M&A activity in the period. The completion of the RISI and Layer123 acquisitions in April increased net debt by a further £103.3m.

The group's new five-year external borrowing facilities comprise term-loans of US$100m and £40m (total £119m) and a £130m multi-currency revolving credit facility. There is a further accordion facility of £130m should the group wish to request it. The term-loans and drawings under the revolving credit facility bear interest charged at LIBOR plus a margin, the applicable margin being based on the group's ratio of net debt to adjusted EBITDA. At March 2017, the group's ratio of net debt to adjusted EBITDA was 0.7 times and the committed undrawn facility available to the group was £130m. Following completion of the RISI acquisition, the group's net debt increased to approximately 1.5 times adjusted EBITDA.

The group's underlying operating cash conversion for the 12 months to March was 120% (2016: 107%), reflecting better working capital management and an increase in deferred revenue.

Dividend

When the DMGT sell-down was announced in December 2016, the board committed to reviewing the company's dividend policy. Following this review, the board has approved a new, progressive dividend policy with an increase in the dividend pay-out ratio from approximately 33% to approximately 40% (a reduction in the dividend cover from 3.0 to 2.5 times earnings), subject to the capital needs of the business. The interim dividend will be paid at a rate of approximately 33% of the previous year's total dividend. The 15% reduction in the number of shares in issue following the share buyback, combined with the increase in the dividend pay-out ratio, has enabled the board to approve a 26% increase in the interim dividend to 8.8p per share (2016: 7.0p), to be paid to shareholders on June 22.

Currency

The group generates approximately two thirds of both its revenues, including approximately a third of its UK revenues, and profit before tax in US dollars.  The exposure to US dollar revenues in its UK businesses is hedged using forward contracts to sell US dollars, which delays the impact of movements in exchange rates for at least a year.  However, the group does not hedge the foreign exchange risk on the translation of overseas profits.    

The average sterling-US dollar rate for the six months to March 31 was $1.25 (2016: $1.48). This improved headline revenue growth rates for the year by approximately ten percentage points and adjusted profit before tax by £6.4m.  Each one cent movement in the US dollar rate has an impact on profits on translation of approximately £0.6m on an annualised basis. The group also benefitted from the revaluation of non-sterling denominated balance sheet items resulting in a gain of £0.2m (2016: £1.7m gain). 

Further trading updates

Further coverage of these half-year results will be provided to analysts at a presentation starting at 9am on May 18 at the offices of UBS in London. The group intends to provide a brief third-quarter trading update on July 21.

END

For further information, please contact:

Euromoney Institutional Investor PLC

Colin Jones, Finance Director:                                +44 20 7779 8666; cjones@euromoneyplc.com 

FTI Consulting

Charles Palmer:                                                       +44 20 3727 1400; euromoney@fticonsulting.com 

CAUTIONARY STATEMENT

This Interim Financial Report (IFR) has been prepared solely to provide additional information to shareholders to assess the Euromoney group's results and strategy and the potential for that strategy to succeed.  The IFR should not be relied on by any other party for any other purpose.  This IFR contains certain forward-looking statements.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

NOTE TO EDITORS

Euromoney Institutional Investor PLC (www.euromoneyplc.com) is listed on the London Stock Exchange and is a member of the FTSE 250 share index. It is an international business-information group covering asset management, price discovery, data & market intelligence, and banking & finance under brands including Euromoney, Institutional Investor, BCA Research, Ned Davis Research and Metal Bulletin. The group also runs an extensive portfolio of events for the telecoms, financial and commodities markets.