Informa plc (LON:INF)

Earnings Call: H2 2014

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Feb 12, 2015

Summary

FY14 delivered adjusted EPS of 40.3p, free cash flow of £232m and a 2% dividend increase despite currency and Business Intelligence headwinds. 2015 priorities include underlying earnings growth, targeted investment and recovery in Business Intelligence.

I think we will get started. Good morning, everybody. For those of you who are here in the room, thank you very much for coming in person, and welcome to the Informa Group 2014 annual results. Also thank you to those people who have dialed in or who are watching it on a live stream. I am joined today by my colleague, Gareth Wright, the Group Finance Director, who will be presenting alongside me, and also on the stage, Richard Menzies-Gow, who will not be presenting, but who will be taking all the difficult questions in the open session. For those of you who were with us 12 months ago, we were very much, as a company, in what I would call taking stock. It was a change in not just the management, but actually the leadership of the company after a significant period of time. Certainly at the time that I was presenting what were really historical results, we were doing that with some sense of work to be done. We were taking stock is how I would describe it. We will give a little bit of a sense of how that year has played out. You will have read the release, and indeed many of you were at the investor day that we ran at the end of last year. We very much approached 2014 through the lens of measured change. We did that very consciously. That was because we firmly believe, and certainly the mandate from the board, was that the company needed change. Not because all was bad, but because the markets that we operate in, the knowledge and information markets, were themselves facing some significant change. This was an opportunity to refresh the company. But measured change because not all was wrong. This was a business that had some fundamental strengths. Not least one of its great strengths was its culture, its sense of purpose, its sense of passion for entrepreneurial innovation and commercial success. We wanted to get that balance right between change and refresh, and doing it in a measured fashion. We also importantly had our shareholders very firmly in our mind's eye from the beginning, which was that change programs, particularly in people-based businesses, can be very damaging short term to shareholder value. What we were trying to avoid was a situation where shareholders had to wait two to three years before they could see acceptable returns. We stepped into that program with a very clear view that at a minimum, the dividend was an important part of the investment proposition from Informa. Indeed, the cash features of the business would remain a priority, if not become more of a priority. Gareth will talk to that in a second. I would say as we look back on the last year, I would self-describe the company as work in progress. That is how I would describe where we are. It has been a very busy year. Much change within the company, and I will talk about some of that. In headlines, these are the headlines of the results. We saw our revenue at the organic level grow just a nudge, but not insignificant given the level of surgery that we undertook in our business intelligence business to try and clean out the revenue line in that business. We maintained our profit position pretty much on a constant level to the previous year. We managed to do what we said we set out to do, which was to deliver an increase in earnings at the adjusted level. Indeed, I think it is fair to observe that last year the power of, or the negative effect of currency tailwinds would have given us a stronger performance at the earnings line if currency had gone with us. But sometimes it does not, and maybe this year it might. We said in November that it was our intention as part of the Growth Acceleration Plan to ensure that shareholders would see not just an underpinning, but a minimum level of increase in the dividend over the period of the investment program. So we confirm today the dividend per share increase to a full year payout at 19.3 pence. A very strong performance on free cash flow and indeed on deferred income, and I will let Gareth talk to that in some detail. I think it would be fair to say, sparing Gareth's blushes, that one of the many strengths that he has brought to the position of Group Finance Director is that he was very much the architect of the financial operating model in the center, and now he has had the chance to let that begin to bite across the rest of the group. But I will let him expand on that. We were very clear at the beginning of the year that we would continue to be an acquisitive company, but we would do that perhaps in a slightly more targeted way. Targeted in the sense of geography and verticals. We were explicit that we wish to take the company in more depth into the U.S., and we have done that. We were explicit that we wish to build more of a platform in our exhibitions business, and we have done that, and will continue to do that. At the same time, we wanted to just put a little bit more security into the balance sheet, both on the refinancing. We increased the quantum of our revolver facility. We slightly reduced the price, so we took advantage of the markets. At the same time, we did a small placing, which puts us in a position to go into 2015 with some ability to take advantage of opportunities when we see them. So that is the summary of where last year took us and where it leaves us as we go into 2015. Those were the things that we said we would try and do last year. If I was being entirely candid, when we stood up here a year ago, I was not quite as certain as I am now, but that is the benefit of hindsight, that what we set out to do, we would be able to do. An enormous amount of that is a testament to the fundamental inherent strength in Informa, which is we have an outstanding group of people distributed around the business in our businesses. Our job is to give that business some leadership, some purpose, and a plan. That is why I would describe it as work in progress. If I just step out of our own business a little bit and look at the markets, what were some of the highlights of 2014 for us? Well, one of the things we're seeing generally, I'm sure for those of you who follow other businesses like ours, you will see this as well, is that discoverability, particularly in knowledge markets, is a main driver of growth. The level of inquisition and inquiry for the relevant piece of information or the connected piece of information or the relevant piece of data that allows either an academic or a teacher or a business or an individual or a seller or a buyer or indeed an individual to advance their particular position or knowledge is in growth. As indeed, self-evidently is digital working and digital workflow and workflow integration. That's very relevant to what we're doing on the investment side in business information. We are fortunate, not entirely by accident, that our markets that we are in the main, are broadly robust. The U.S. market, where we have expanded our presence, I'll come on and talk a bit about this in more depth later, feels strong and looks like it has a reasonable forward trajectory. The U.K. market feels strong, although interestingly, the U.K., even though we've re-domiciled the business back here, is just over 10% of our revenues now. So Informa is becoming, and will continue to become, an increasingly international business in revenue and profit source. The Middle East and Africa, very big markets for us, growth markets, and very strong. I'm old enough to have been in the media business for long enough to know that one of the interesting things is the power of face-to-face in the digital world that we live in as a media proposition actually has become more valuable rather than less valuable. We're not all sitting at our desk with augmented reality glass optical capability, engaging in every decision we make. Actually, what we discover, and we see it in real time in our exhibitions and trade show business, is that the desire for face-to-face engagement, face-to-face transactions, face-to-face understanding is growing double digit. We see that particularly in our more powerful brands in those markets. On the performance side, we did a positive performance in our two strongest businesses. Double-digit growth in exhibitions, even at the organic level. When you add on the acquisitions, really quite a significant year. I'd caution those people who are very bullish on that market that we had some significant biennial and triennial benefits in 2014 that will not repeat in 2015, so that growth level will come off just a nudge. Nevertheless, it remains a powerful driver of growth for the group. Academic publishing, a very good year in my judgment, particularly given the previous year comparables. In business intelligence, we really have made a lot of change, and I'm not going to dwell on this now because I'm conscious that many of you have questions around this. So in my section after Gareth, I'm going to give you a little bit more of a reveal on that. We're focusing our knowledge and networking business, our old training, learning, and conferencing business, on some very specific geographical hubs and key markets. Gareth will talk about the shared services. On the business side. Last year was an exciting year on the business side. First year, we published 5,000 new books in the year. So we're powering the quality and depth of our content offer in that market. We've also now topped the 2,000 level on the journal side of the business. We feel in both those sides of the academic business, we have real scale and actually a machine that is very adapted to the markets that are growing. In business intelligence, and I will come back to that, our real focus is on subscription. The management of subscription, value, renewal, pricing, and timing. I will talk a bit more about that in depth. Exhibitions I have touched on, and we have made some consolidation changes in our conference business just to make it a little bit more efficient. This hopefully by now, for those of you who follow the company regularly, is becoming somewhat familiar. For those people in the room who are inside the company, it is becoming strikingly familiar because we spend a lot of time talking about it. The Growth Acceleration Plan is how we are managing the company. The structure, the operating structure for the business is largely in place. Although in some areas, there are still some further tweaks to make. The management model is definitely in place. We run the business four clean divisions as opposed to 26 separate operating units, four divisional chief executives, four management teams, and a fifth support division providing cross-functional services across the group. We reviewed the portfolio, and you see some of the consequences of that in the impairment charges, which Gareth will talk about. We are reviewing the ownership of some of the less core assets, which we will do throughout 2015. Acquisitions, we have been very clear. We will continue to do that. In particular, in global exhibitions, we are both building and buying a global business of scale, and we will continue on that path. On investment, I think we have laid out very transparently the investment program over the next three years and where that will fall, and we have also indicated how we will fund that. In our forward guidance for 2015, there is the absorption of the investment costs for 2015 as part of the GAP. With that, I would like to hand over to Informa’s very own Christian Gray to talk about financial discipline and how we are running the business. Thank you, Stephen. Good morning, everyone. Thank you for coming along today. I am going to start by talking you through the financial results for 2014. The 2014 results deliver on our promise made this time last year to begin to reposition the group whilst delivering a solid trading performance in line with expectations. This has been delivered against a backdrop of currency headwinds, particularly from the U.S. dollar, which represent around half of group revenues, challenging trading conditions, especially for our business intelligence division, and a degree of uncertainty in our business as we have undertaken the strategic review process that we outlined in November. I am pleased to report that we have delivered earnings of 40.3p and earnings result a touch ahead of consensus. As reported, the year-on-year increase in earnings is half a percentage point. But if you adjust for the currency headwinds, the increase is 4.5%. The full-year dividend has increased by 2% to 19.3 pence per share, which delivers on the minimum commitment that we made at the time of our investor day in November, and results in comfortable dividends earning cover of 2.1 times. The ability to turn profits into cash is a key strength of the group, and this has been demonstrated again in 2014, with the group delivering a 12% increase in free cash flow. The group's balance sheet is robust, healthy, and positioned for growth. The ratio of net debt to EBITDA is 2.2 times at the year-end, well within the 2 times to 2.5 times range that we outlined at the investor day, even after completing a series of targeted acquisitions in 2014. Moving into the income statement, I'll start by talking you through the revenue and adjusted operating profit results by division. We're reporting on a four-division basis that we introduced you to in 2014. This format is consistent with our going-forward operating model, and it's consistent with the financial data that we gave you at the time of the investor day. Starting with academic publishing, the full-year organic revenue growth of 3% is consistent with where we were at the time of the Q3 results. This is a good performance, because if you remember this time last year, we had a very strong result in Q4 2013. So we're pleased to report that the academic publishing team has maintained their year-on-year growth in the face of such a strong comparative. Business intelligence has had a tough 2014 by any measure. The full-year organic revenue decline is 8.5%, which is broadly in line with the decline we reported at the time of the Q3 results. This has clearly been a year of significant change in the business. But we now have a clear design in place through the Growth Acceleration Plan to return business intelligence to revenue growth in the future. Global exhibitions has delivered an excellent result for 2014. The strong organic revenue growth was assisted by the quadrennial IPEX as well as the biennial ForMóbile in Brazil. But even after stripping out timing differences, the year-on-year percentage revenue growth was double digits. The portfolio has performed really well, and particularly driven by a strong performance from the top 20 events that make up its core. Knowledge & Networking has made a solid start to its growth, its life independent of the exhibition division. The full-year organic revenue decline of 3% is driven by the performance of the businesses in mainland Europe and in Australia. However, the performance of the major hubs in the U.K., the U.S., and the Middle East has been more robust and represents a strong core around which the business can be built in the future. Turning to the income statement as a whole, we can see the group has generated GBP 334 million of adjusted OP, which is effectively pre-exceptional EBITA. This represents an operating margin of around 29.5%, broadly consistent year-on-year. The academic publishing margin shows a small year-on-year decrease because of the Cogent OA startup costs and because the weakening US dollar has had an impact on the margin with the costs mainly being denominated in UK sterling. The margin pressures in business intelligence and Knowledge & Networking reflect the revenue pressures in both of these businesses. And global exhibitions has benefited from the strong gross profit margins, which are a characteristic of established scale exhibitions. Moving down the income statement, there are around GBP 240 million of other adjusting items that arise from our process of operating, portfolio, and investment discipline. Before we get into the detail on these points, I would like to emphasize that only a small element of these 2014 charges has led to incremental cash flows in 2014. At an operating level, we have invested in the consolidation of our group management functions back into one location, which is now based in the U.K. We have also invested in a process to simplify the group's operations with a clear four-division operating model and four divisional management teams in place, restructuring the existing management teams to achieve that. At a portfolio level, we have completed a review of the BI assets. As a result, we have decided to reduce the carrying value of certain Datamonitor assets acquired in 2007. This includes the consumer assets, whose future we are now reviewing, but it also includes certain ex-Datamonitor pharma assets as well. We have also taken the opportunity to review the performance of smaller events activities and closed a number where we do not believe we can enjoy scale advantages going forward. We will still target trading opportunities in these geographies, where we will look to exploit them from our larger operating hubs. Finally, we have provided for the loan receivable from the historic Chinese pharmaceutical data investment. The group started to advance funding to this investment in 2010, but revenue generation originally intended for 2013 has not been delivered. As a result, we have taken the decision to fully provide for the loans advanced to date, reflecting uncertainty around the future prospects for this investment, but also reflecting our intention to focus BI management on the delivery of the Growth Acceleration Plan. As I said at the top of my piece, the ability to turn operating profits into cash is a key strength of Informa. The headline cash conversion rate of 97% for 2014 is broadly in line with what we achieved for 2013. However, the 2014 result is particularly pleasing because of the situation with Swets that we briefed you on at the time of the Q3 IMS. In previous years, the group has received around GBP 20 million of journal subscriptions through Swets, an aggregator in the academic publishing industry, which went into liquidation in the autumn. In reality, our full-year cash conversion in 2014 has been achieved primarily through the receipt of sales for exhibition space relating to 2015. Around GBP 15 million of the Swets income is still outstanding at the year-end, and we believe will be received in 2015. Actual free cash flow was just over GBP 230 million, as you can see at the bottom of the slide there. A 12% increase year-on-year. One of the reasons our free cash flow improves is because of a GBP 27 million reduction in our tax payments in the year. If you look back to the 2011 balance sheet, you will see that current tax liabilities from Informa were GBP 141 million. In the 2014 balance sheet, this liability is GBP 27 million. The reduction of over GBP 110 million has been achieved through a series of negotiated settlements with a number of tax authorities around the world. With the only material cash flow payments amounting to around GBP 25 million over the last couple of years. This process has therefore substantially reduced the liability profile of the group's balance sheet. Turning to the Growth Acceleration Plan, we are exercising real discipline over the investments being considered. I chair the design authority, which allocates capital and improves the investments in specific projects before those investments commence. The project teams have to return to design authority on a regular basis as the projects pass through stage gates, to demonstrate to the design authority that the projects are achieving the desired intentions that led to their approval. We are encouraged by the profile of our deferred income at year-end. Year-on-year deferred income increases by 5% on a constant currency basis, with Global Exhibitions increasing over 7% after you strip out the benefit of the acquisitions. Business Intelligence deferred income increases by GBP 1 million year-on-year, which is only a 1% decline on a constant currency basis. Clearly, that looks like a positive development compared to recent times, but it is also something that I would not get too carried away with at this stage, as we have to see how the revenue evolves over 2015. Finally, in headline terms, deferred income in Academic Publishing is down around GBP 12 million year-on-year, but you need to take into account the GBP 15 million of Swets income that we believe is a timing difference across the year-end at the end of 2014. The strong free cash flow generation of GBP 232 million in the year has covered our dividend payments more than twice, and still left substantial cash flow for investment. The year-end financial position is strong, with net debt EBITDA around 2.2 times, calculated as per our bank agreement. This is on the basis of average exchange rates for EBITDA, and includes, on a pro forma basis, a full year of EBITDA for acquisitions made during the year. This leaves us within the 2 to 2.5 times range that you would have been expecting and gives us headroom on our facilities of almost GBP 450 million at year-end, providing real flexibility as we go into 2015. Turning to the rest of the balance sheet. Net assets at 31 December are around GBP 1.2 billion. We are focused on improving returns in the business. At the 2014 year-end, our post-tax return on capital employed stands at about 8.8%, compared to a cost of capital over recent years in the range of 7%-7.5%. Driving an improvement in return on capital employed is a key objective of the Growth Acceleration Plan. At the November Investor Day, we briefed you on the Growth Acceleration Plan and specifically on the data presented in this slide. We have since completed the budget process for 2015, which has laid out in more detail the investment program for this year. In conjunction with a wider review of the project as a whole, we can confirm that our expectations remain unchanged with regards to the profile of investments and the profile of returns that we forecast from this program. To summarize the themes that I am focusing on. At a portfolio level, it is about being focused and disciplined. We will continue to review the small assets within the portfolios to test that they remain core, and we will continue to drive cash management. We're increasing our focus on the returns that we deliver through the dividends with the 2% dividend commitment that we made this year, through targeted acquisitions, and through maximizing the efficiency of our existing operations. We're funding the group to achieve these objectives. We will maintain a balanced approach to funding, to provide flexibility, and to remain within our stated financial parameters. I'm now going to hand you back to Stephen. Thanks, Gareth. Maybe to just spend a little bit of time looking forward. Hopefully, that gives you a pretty clear snapshot on 2014. Looking forward, what is the Growth Acceleration Plan focused on trying to achieve? I'll just talk a little bit about that, and then we'll throw it open to questions. In the first instance, this is just the way we think about our company. I think it is relevant for investors to have a sense of how our business is run because then that's kind of how the products and the profits flow. We are now very clearly operating a divisional structure. For those of you who are longtime Informa watchers, that's a non-trivial change in operating model for our company. We have made some changes in the way in which businesses are operated to increase the scale of our academic publishing business, because we took our medical journals business and put that into academic publishing. So it gives us more scale in the journal side, which is the more profitable side of that business. Business intelligence, which was a sort of whole series of independent fiefdoms, is now a unitary business focused on a key set of verticals, and I'll talk about that in some depth. Global exhibitions, we're building a global platform. We now have place positions in all the major markets, France, the U.S., the U.K., Middle East and Africa, and China. Knowledge and networking, which really was not so much a neglected business, but a business that had been sort of slightly put to the sidelines as we focused on growing our position in exhibitions. As Gareth said, we've kind of put it on its own two feet in order to refresh that business, and we believe there are some growth opportunities there, particularly in training and learning. On the right-hand side of the chart, we have the support functions. Largely run in the center, talent. We're a people business, so the management of our talent is critical. Operational transformation, we're doing a lot of that, so that's critical. Strategy and business planning, which includes corporate finance and M&A and how we approach acquisitions, critical, because that's a core part of our operating model. How we engage with our investors, how we communicate about our company, how we get people to understand our business better than maybe they have done historically, and what brands do we have that we want to grow and develop. Brand expansion, brand development, you will see as a bit of a hallmark of the development of the business, I think, over the coming years. Then last, but by no means least, our general counsel, who keeps us all honest, legal, decent, and truthful most of the time. Just to look at the way the business is changing, what I would call the internationalization of Informa. By definition, this is something that is going to continue to develop. It is the case that in the knowledge and information economy, the U.K. benefits from having a large number of companies who are really very good at doing this. We are very good at operating in these markets. We can have a philosophical debate about why that is. Is it a function of language? Maybe. Is it a function of time zone? Maybe. Is it a function of the financial markets? Maybe. Is it a function of the education system? Maybe. So all of those things are macro trends that help us. But the U.K. has strong businesses in this market. We believe that we can be one of those. We believe we can grow our position. But we are very conscious about doing international expansion in a measured fashion so that we learn as we go. Because when you are taking your proposition into new international markets, you have to adjust and ensure that you can operate in those different places and spaces. The two that are most noticeable are, of course, the U.S., where we have seen our revenue there increase by nearly 150, 160 million over the last three or four-year period. In the Middle East and Africa, where we have seen our revenue double. The net consequence of that is that the proportion of the revenue contributed to the group from the United Kingdom is coming down, not because the U.K. is not doing well. We have a good business in the United Kingdom. But over time, you are only going to see that number get smaller as the business grows and internationalizes. Then you look at the four businesses and what really are the, if you like, the key things that if I were sitting in your shoes, I would be looking at to think about where should these businesses be focused in the future. Well, in academic publishing, start there. I am going to do this at speed with the exception of global exhibitions, where we invested quite a lot of acquisition capital, which I will dwell on. Business intelligence, we are investing a lot of time and investment money, which I will also dwell on. But in academic publishing, the headlines are sales internationalization. English, for now, is the language of international education, learning and development. That is a huge advantage, and we intend to take maximum advantage of that. To do that, as well as the way in which you internationalize sales and distribution capability, you also have to make maximum use of your platform capability, because that is oftentimes a cheaper way of taking your product to market than putting boots on the ground. You need to have both, but if you can get both of them together, then you are in a prime position. Ultimately, however, you are selling content. You have to have a content engine that is increasing your backlist and your frontlist with innovative, new, discoverable content. If you can do those three things, we believe we can drive consistent, predictable, at or above market growth in that business. We particularly believe that combining our journals businesses will give our journals business a little bit of an uptick, mainly on the cost side in 2015, but then beyond that on the growth side. It is the way we think about our academic publishing business. On global exhibitions, we quite rightly took some significant feedback post the placing that we did at the end of last year. One of the things that we got was that some people got it very clearly what we were seeking to do in the exhibitions market. Other people felt we were less than clear. To avoid being less than clear, let me try and be very clear. We are building and buying a global exhibitions business. Historically, Informa was a conference business. We intend to be a major global player in the exhibitions market. If you went back four or five years ago, we probably had a business with a revenue line of around GBP 60 million to GBP 70 million. Pro forma for this year, we will have a business with a revenue line of GBP 260 million. We intend to continue to grow that. That business is growing at double-digit growth rates organically. We expect this year to come off a little bit, but we still think it will be in the high single digits. We believe there are markets we can get further scale in by targeted acquisitions, and we intend to continue to deploy our acquisition firepower in that market as we see opportunities. As we do that, we will also simultaneously focus on geo-cloning our businesses and our existing brands, and I will talk a little bit about how we will do that. We see further expansion available to us in those markets. To do that, we will identify the verticals where we believe we have strength and where we can grow. That has been our approach to acquisitions. This is very out of the textbook, but I think it is worth reprising. We have spent time last year in the portfolio review identifying those verticals that we believe are right for us. Not all of them are. We have spent time looking at those markets that have a fit for us. The definition of a fit is markets where we can create value. Not all of them are. We have also spent quite a bit of time, and it was one of the reasons for separating out our exhibitions business from this slightly blurred events group, was to make sure people in the market understood we were a player. When assets came to market, people came to us to say, "Are you interested?" Because historically, that was not always the case. We have been very disciplined about when we will and will not acquire. We looked at the Advanstar business last year. That was not a fit for us. We looked at the Clarion business last year. That was not a fit for us. We looked at the Hanley Wood Exhibitions construction business. That was a fit for us. We looked at the Virgo Ingredients and Healthcare business. That was a fit for us. We are making very deliberative decisions about when those assets are right for us and when they are not. Then of course, the question is, once you've made those decisions, how do you then acquire, integrate, and operate? There we are trying to improve the way in which we do that operationally. The Hanley Wood transaction, which we did at the end of last year, which was to build our position in construction and real estate, which we believe is not a top-of-the-cycle market. We believe, particularly in the U.S., that there is trajectory of growth there. If you look at the statistics, you will see that this is a market that has got some runway to go to go back to its peak point. It brought us 17 very significant brands, 4 of which are in our top 20. It brought us a very strong management team who we believed would stay with the business and grow, and that's another key criteria for us. If you're building a business, you want to build capability, not just buy teams that then leave. It also brought us actually some capability in systems, technology, and innovation. So it gave us strength in a market that we were already strong in. If you look at the market indicators in construction and real estate, particularly through pretty strong. New housing starts, architectural billings fees, and the overall global construction output. We have, in the first quarter of this year, had 2 of the 17 shows that have run that came with that portfolio. Both of them are up in the high single digits year-on-year in top-line bookings, and both of them are actually up on our own budgeted targeted performance. Our rebooking rates or the forward pacing rates are also up into 2016, so you get very good forward visibility into the following year. So we feel good about this as a vertical, construction and real estate. It is a market in which we have a significant number of brands in addition to the ones that we acquired alongside Hanley Wood. We have brands that operate strongly in the Middle East, in Africa, in Canada, and in the United Kingdom. In addition, we also have strong brands in health and nutrition, and that was part of what was behind the Virgo acquisition. We have built, actually, in the last 3 years, quite an interesting little portfolio in what we call pop culture. That we have done through a combination of acquisition and geo-cloning. We now, to give you a little bit of color for that portfolio, we have about 150 major exhibition brands. Actually, within that, there's really about 100 brands, what I would call a brand. Within that, if you look at our top 20 brands, 9 of our top 20 were in double-digit growth in the last couple of years. So we feel we are building and buying, not just buying, but building and buying a powerful long-term business for the group. To talk a little bit about business intelligence, which is the area where obviously there has been, as Gareth said, if you like, the least impressive performance in revenue and profit in 2014. Part of that was because it was time to call time on that business. It had been in decline for four of the previous five years. Some of that was to do with end market challenges, some of it to do with in-company performance and operating model. We have engaged in pretty significant surgery within that business. We have reviewed the portfolio of those things we wish to keep. We have reassessed the carrying values for those things that were bought some time ago. We have materially introduced additional management talent to the talent that we already have to bring some fresh leadership in some key areas, particularly around sales, management, and distribution. We have focused our business around the verticals you see on the slide, and short term, we are putting quite material focus around two things. In the first instance, sales operating subscription management discipline, and secondly, product technology and new product development. But in that order. In the first instance, we are trying to make sure we look after our customers and we cherish the products and the brands that we have got. Then in the second instance, we are looking to build a platform for growth. That is why we have said it is our intention to return this business to growth by the end of 2016. This gives you a sense of that journey from 2010 to 2014. You will know these numbers. This business declined at a compound negative annual growth rate of 3% and about 8.5% last year on the revenue line. There was a whole set of reasons for that, some to do with the product, some to do with how we approached the market, and some, indeed, to do, frankly, with the way in which the business was operated. In 2014, we made a lot of change. I will not reprise that. We have set the team an objective of halving the decline rate as we get to the year end in 2015. We have restructured in the way we have talked about, and we focused the sales teams around those four areas, and with an intention of taking the business into 2016 with a platform for growth. If you look at that business, how should you think about the revenue? Where does the money come from? This is how we think about it. It comes from those verticals, and we are focused on those verticals. It comes in the main in subscription, but it is not entirely a subscription business. About 85% of the revenue is subscription, so that is a superior form of revenue if you can get your subscription management model right, and that is why we are focused on that in the near term. But we still do have $0.15 on the dollar of revenue that comes from copy sales, sponsorship, advertising, and other project consulting. That is nontrivial and will also be an area where we think over time we could get an upside if you get your platforms and your brands and your customer relationships correct. Actually, we have a pretty good spread, and not surprisingly, we have an exposure to the U.S. market, but actually it is only 50% of the revenue. If you look at the market overall, about 75% of the business information market is U.S.-based. So actually, we index below the market in our exposure to the U.S. revenue, and I think that is something that we might want to change over time. These are the metrics to take you inside the management meeting rooms. These are the metrics that we use to look at how the new management team are running the business. At a headline level, we definitely want to secure, if not grow, the percentage of revenue from subscriptions for obvious reasons. Within that, we are very focused on something we call the annualized contract value, which is the recurring value in the subscription relationship and when that falls in the calendar. Not just how much of our business is subscription, but when it renews, what does it renew at? So what is the renewal rate? Are you renewing at 100%? Are you renewing at 90%? Are you renewing at 75%? Currently, it is around 75%-80%. We would be more comfortable if that was around 85%-90%. Then, of course, there is the question, if I did a bit of a straw poll, hands up, those of you who are members of clubs, societies, have subscriptions. Of course, the key question is: When is the pre-expiry contract renewal activity happen? Does it happen the day after your subscription has ended, or does it start three months before it is due to end, by which point you have already renewed for another two years because of a keen deal or a sense as a customer that you are being loved by the client management team sitting on the other side of your subscription? That is an area where we are currently at around 50%-55%, and we believe we can make some significant progress in improving that because that makes the sales team's job materially easier and actually changes the nature of the sales teams you need. Because actually what you need is client management rather than just sales renewal. That is a different approach, and you need to blend those together. Then, of course, on a going forward basis, to kick this business back into the growth we believe we can, you obviously want to increase your new business value rate and what your future pipeline is. So that is the way we think about the business and where the revenue falls. Finally, and not unimportantly, our K&N business, the old conference and training business. Here, this will be a journey. We think we can shift this a little bit from what you might call a spot engagement, will I go to that conference, to a more continuous engagement relationship in some communities and some customers. We have it in some places. We actually have it in pharma. We have it in some aspects of financial services, but we do not have it everywhere all of the time, and that is an ambition for that business. We are going to focus on three core geographic hubs for that business, the U.K., the U.S., and the Middle East. We are going to prioritize those three verticals that you see on the slide, and we believe there is quite an opportunity for us, given the rest of the portfolio we have in the group, to further develop our training and learning business, where we are a very small player right now. I do not mean corporate training. I mean training and learning business on an individual basis or by contract. That, I think, could be another opportunity for additional growth in 2017 and beyond. To summarize, for 2014, we set out to just up the pace of what we called operational fitness within the company and the focus and discipline in the management of the various moving parts in the business. We launched the portfolio review under Alex Roth' stewardship. We completed that. That allowed us to launch the Growth Acceleration Plan, and we've laid that out, I hope, transparently to investors. We did invest shareholders' money very purposefully and very specifically in some key areas for the reasons I hope are now clear. We have been measured about the change, but that doesn't mean we've been inactive or slow. There's much that's been going on in the company. But we've done that in a way that hopefully balances the pace of change with the negative disruptions of change. We sought to provide shareholders with some improvement in earnings, a reassurance and an increase in the dividend, and also a discipline around cash flow for all the reasons that Gareth summarized. What are our ambitions for 2015? As I say, my description of where the company is right now is, it's work in progress. There's work to do. We've made some progress, but we've got a lot still to do. We are going to be very focused, and I think there is now universal clarity across the company about what we're trying to do and why we're trying to do it. We have launched the investment program under Gareth's stewardship, and that is underway in a very targeted and gate-staged fashion. We will continue to do acquisitions, but we will also look at some selective disposals as we rebalance the portfolio. We might up the pace a little bit of change as we judge that the company can deal with that. We would hope from a shareholder point of view, what we would deliver in 2015 is a similar level of predictability on earnings with a little bit of increase, improvement in cash flow, and reassurance on the dividend. Thank you very much for your attention. I know it's a long presentation to listen to. We'll be very happy to take as many questions as people have. Gentleman over there. Thank you very much. Azeem Whittaker from Liberum. Couple of questions. Just coming back, first of all, Stephen, on your comment, a little bit of increase in earnings. Would that be an underlying increase in earnings when you adjust for currency? Because obviously you're benefiting from the dollar strength at the moment. The second thing is just in terms of how we should think about margin progression for 2015, just given the extra investment, on a group level. Then third of all, if perhaps you could talk a little bit about the tax rate moving forward as well and how we should think about that. Thank you. Do you want to do the tax rate and the margin? I'll come in on the earnings. Yeah, sure. Taking them in reverse order. The tax rate, as you noted, is about a percentage point lower in 2014 than it was in 2013, which benefits both from the reduction of the U.K. tax rate, on U.K. earnings, on the growth of businesses like the Middle East, where we have a lower tax jurisdiction, and on some targeted U.S. tax legislation work that we've been able to employ on our manufactured goods in the publishing businesses. We believe it's a sustainable level of effective tax rate, in terms of what we've delivered in 2014, that's sustainable into the future. That would be our starting point for 2015. In terms of 2015 margin guidance, we've talked about the Growth Acceleration Plan costs, which come on stream in 2015. You really start to see the benefits from 2016 onwards. We've talked about a peak margin impact of around 150-250 basis points from the costs acceleration program. The 2015 impact is probably towards the lower end of that scale, with the full effect in 2016. I think we would reiterate that guidance today, in terms of what we said in November. On your question on earnings, to be honest, I'm not completely oblivious to currency for obvious reasons, but I'm the last thing you're going to meet from a foreign exchange trader. We're alive to it. But I was talking about the adjusted earnings performance of the company. Obviously, individual people will make their own adjustments for currency. At the moment, you can make your own prediction for that. But I would hope we would see, again, as we said this time last year, a continued increase in the adjusted earnings of the underlying business. Then currency will be one way or t'other. Hence the phraseology, I think in the press release. Hi, it's Will Packer from Exane BNP Paribas. Couple of questions from me, please. Firstly, in terms of your recent renewal cycle of business intelligence, when we spoke, I think it was in November at the last Investor Day, you talked about 75% renewal rate. Has that improved in the most recent renewal cycle? Have you seen any benefits from the work your new CEO is doing in that division? Secondly, in terms of the improvement in performance of business intelligence over 2015, could you talk about where you see that? Is it within pharma, financial? Which kind of vertical would do better? Lastly, maybe we could have an update on the progress of asset disposals there, including the consumer and bit of the business which you had previously flagged. Thanks. I think I'll take those. On asset disposals, we have really nothing further to say. Sorry to be unrevealing, but we're in process. When we're in a position to disclose, we'll disclose. On the renewal cycle, I'm looking at you, but out of the side of my eye, I'm looking at Richard, who's very keen that I get this right. We have seen an improvement, but one swallow doesn't make a spring, as they say. It's very early days. In the way in which our business works, I'm sure you know well, the December-January period is quite critical for obvious reasons. Partly because you're then renewing for a whole period. We've put a particular focus on it. It is therefore not necessarily predictive. Straight answer to your question, we have seen some improvement. We'll update people at the Q1 as to whether that's a repeatable trend or a one-off. On your sectoral question, actually, there is no particular sectoral bias in that, although there does seem to be some stabilizing in both pharma and financial services with the particular exception of the mortgage market in the U.S., where we have a particular business which has got its own issue. In terms of quantifying that improvement. Okay. Thank you. Even Richard is saying no. The lady there. Good morning. It's Ruchi Malaiya from Bank of America, Merrill Lynch. A couple of questions on exhibitions. Could you give us a sense of how much growth is coming from volumes expanding the existing events as well as geo-cloning them versus pricing? More specifically, just on China, you've obviously got a foothold now in that market, but any comments you might be able to make on how competitive that market is and whether you think to expand there through acquisition or organically? Just a question on the funding of the investment projects. Are there any examples you can give us on the types of targets that each project needs to meet in order to get the next stage of funding? Is it that you need to see progress in the number of customers or subscriptions, or is it as simple as getting some positive market feedback on a product through surveys or just any examples there? Thanks. First question, you come in on the second? Yeah. On exhibitions, it's both. Absolute volumes are definitely up. Attendance levels are up. I am sure other players in the market would validate that. I think I am now getting consistent in saying this. For anyone looking at an exhibitions business you always need to look at it through the lens of it's great until something stops people traveling, because inherent in face-to-face is you've got to be there. Putting that to one side, attendance levels in the main are up. I think if you unpick that a little, there are some fundamental underlying benefits there because what we are seeing, certainly in our bigger brands, in our bigger businesses, is that the importance of those moment in time major calendar events, either for product launches or for major sales engagements or for major contract announcements, is going up. They are becoming pivot points in the calendar. If you can get that right, then what that also has the effect of meaning is that the universe of people who can drive your attendance level goes up. Let me give you a live case in point. I was in Dubai for our Arab Health Conference. You'd be forgiven for thinking, because I can assure you, before I got involved with Informa, I thought that Arab Health was a meeting of people who were interested in health in Arabia. Actually, it's a very, very broad community now of people who regard that as a calendar meeting point. There's a whole ecosystem of communities who now regard that as an essential location to attend. As you broaden the ecosystem, by definition, the attendees go up. Oftentimes what you find as you broaden the ecosystem, your ability to price changes as well because people have different price expectations and different sponsorship ambitions and different transaction levels depending upon which ecosystem they belong to. To make it personal for the audience in the room, if you can bring the financial community in as a member of an ecosystem for a vertical, they have a very different view of value than perhaps other communities do. I think you'll find if you look at the exhibitions business that both attendees volumes, the categories of attendees and pricing, they're all changing. That's, I think, one of the very interesting things about that as a business. Geo-cloning we are absolutely focused on, particularly in relation to China. We believe we have two or three major brands that we can take to the Chinese market. We have enough of a platform there. We've centralized our headquarters in China in Shanghai. In fact, we've centralized our headquarters in Asia in Shanghai. We've put the whole of Informa in one location. We've chosen Shanghai because actually that is the center really of the exhibitions business. They've got the previous exhibition venue and they've also got the new venue, which is, I believe, the largest in the world. We think there are opportunities there and we're in discussion with both the teams that run our existing brands and some partners in China about how we might do that. Gareth, do you want to talk about return rates on Growth? Yeah. On the Growth Acceleration Plan, as we've talked about previously, there's around 30 headline projects that make that up with a whole series of work streams underpinning those projects. What we did at the planning stage was we went through and looked at the outputs from the strategic review, and looked at where we could drive returns and improve the business performance. That's what came up with the list that we started with in terms of the program. We challenged that and got an initial understanding of it, and that's what we presented at the November Investor Day. What we've done subsequent to that is we've gone away and started planning each of the projects on a case-by-case basis, and they have to come back to the design authority and present their project plans in a degree of detail. At that point, we challenge them on the, first of all, the feasibility of the project. Is it deliverable? Can we do it with our resources and our talents and our capabilities? And we reconfirm the costs and the benefits from the project, thereby testing the returns that we thought were attainable and that make up the return figures we've given you previously. If we believe all that works, then we move on to the next stage, which is a map out of the project, with stage gates as you go through the progression, and they have to come back at each of those stage gates and reconfirm that the costs are in line with expectations, the benefits are still achievable, and that the feasibility is still proceeding as we expected. It's a quite rigorous process to start, and it's not once they've started, they go away and we never see them again. They've got to come back and reconfirm that progress is proceeding as they expected. You choose. Timothy. Thank you. It's Paddy from Goldman Sachs. I got a couple of questions. Firstly, on events, you in 2014 had the benefits of IPEX and ForMóbile. Can you give us a sense of the organic growth from what's the underlying rate of organic growth? For 2015, do those falling out impact the margin? Were they a higher margin than average in 2014? So do the margins dip in 2015 for events on an underlying basis? My second question on Knowledge & Networking. The margins I thought were slightly disappointing at sort of roundabout 17%. How should we think about the margins there in 2015? Do your actions, closing the Melbourne and Johannesburg office, et cetera, help with the margins in 2015? Okay. I'm going to bring Richard in. Yeah. I think on the first one, on IPEX and ForMóbile, I think if you strip them out, you still have an underlying low double-digit growth on that. So pretty good going forwards. I guess when you go into 2015, I think Stephen said we'd expect sort of high single digit. You just got to make sure in the organic number, we don't split out the biennial, so you've obviously got the comp against that just to be aware of. On a margin basis, IPEX would be lower margin than the division. It was a broadly sort of break-even type. Because I was struggling with. Business the benefit of IPEX. Yeah. But there we have it. We got some revenue, but it was broadly break-even. ForMóbile would be a good margin exhibition, so that definitely would've helped the margin. So you'll get a sort of a balance, I think, between the two dropping out going into 2015. Gareth, do you want to talk about K&N? Go and do the K&N margin. Yeah. I think the K&N margin was slightly lower in 2014 as a result of the revenue drop through and the operating gearing. I think the European and Asia Pac regions were particularly responsible for that. Europe being Germany, Netherlands as the main functions of that, and in Asia Pac, primarily being Australia. I think as we focus on the core of those businesses going forward, which are our growth businesses, the operating gearing will work back in our favor. And I think the margin should therefore improve in 2015. There are also things we are doing in terms of the cost base around the Growth Acceleration Plan, but they may be more 2016 weighted in terms of that business. But I definitely think that business has got good opportunities in its margin going forward. I am going to leave you to choose because Morning, Steve Liechti from Investec. Just Gareth, on the GBP 30 million or GBP 40 million spend for GAP in the current year, can you just split that roughly or give us any guidance in terms of where that might be skewed from a divisional perspective? And then also on an OpEx to CapEx type ratio as well for this year? Yeah. Certainly. I think in terms of the OpEx, CapEx, we have talked about 70/30, 70% OpEx, 30% 70% CapEx, 30% OpEx previously. And having been through the budget process, I do not think we are coming out massively different from that. So I think we would stick with that sort of guidance for your modeling. And in terms of the 2015 distribution on it, again, I think the overall weighting of the projects across the program gives you a good indication of how the 2015 spend is weighted. So it is definitely a weighting towards business intelligence, and products in that space. But the weighting that is in the bar charts in the slides we presented this morning gives you a good feel of how the 2015 weighting will play out. Okay. Just to reiterate what you said there, it feels to us as though, or feels to me that business information is probably where the biggest surgery is required, but that's not front-end loaded within your mix. I get what you're saying about the split that you gave us, but there's no particular shift in the current year as well? Yeah, in the current year, I think that the weighting is about a third business intelligence, as we'd expect. Okay. Thank you. Second question. Just in terms of events where you said you want to grow and you want to be big, which is great. Lots of people seem to want to do the same thing, and it feels like prices are going up in the sector. There seems to be a weight of money. There's cheap money in private equity and in trade. What do you feel about pricing, and what does that make you or is there any guidance you can give us in terms of what's an acceptable multiple or how you're thinking about that, please? Look, you're definitely correct. I think there are a number of people who are interested in that market, more on the sponsor side in terms of volume of players. It sounds trite, so apologies, but you do just have to be quite disciplined about what your criteria are, both financial and non-financial. We have quite strict criteria. The board, particularly on acquisitions of the sort of size and scale we've been talking about, are very involved in those. Where we make a decision that effectively the return isn't going to come in the first year or two years, there have to be very clear long-term return benefits that would justify that. I can't remember off the top of my head, but I think on looking at the 2015 numbers, because the great thing about these businesses is you have quite good forward visibility. We were just over 10 times, maybe between 10 and a half on average multiples. Absolutely. Those are prices at the top, the higher end of the range. I would say this, I certainly don't feel we were anything other than disciplined in the way in which we approached those. In other cases, we have walked away if we felt that for us the price was not right and the returns couldn't come. That's the way we think about it and continue to do so. Yeah. Hi, it's Nick Dempsey from Barclays. I've got three left, please. Number one, you had a pretty heavy restructuring charge below the line in 2014. I know by definition that it's hard to predict that line, but any comments on what you expect there in 2015? Second question, when you talked about halving the decline in BI, just to understand what you mean, do you mean by November, December, the year-on-year run rate should be roughly minus 4%? Or do you mean by the end of the year, you should be looking out for the next six months or so to be minus 4%? The third question, when you sold corporate training, there was a vendor loan, and I think the interest steps up a lot during this year. So can you expect them to pay that back this year? Okay. Let me maybe take some of those and Gareth come in on some of those. My comments on the restructuring charge are, Gareth is pretty disciplined about what qualifies as a restructuring charge. We've had a lot of change in the business this year. We're certainly planning, Nick, that we won't have a new chief executive this year. So hopefully the level of change in restructuring won't be at the same pace and rate as it was last year. Also we re-domiciled the company last year, which was a bit of a chunk of that. We're planning on being here to stay for a while. So you'll see continued discipline, maybe a little bit less change activity certainly driven by me, although there'll still be some to be clear. On your question on BI, I meant the latter, looking out into 2016. On the vendor loan, it does step up and certainly our expectation is that we feel comfortable about recovering that loan. Do you want to talk in a little bit more depth about the restructuring charge? Yeah, we certainly see the restructuring charges as an investment. We want to see returns from the businesses that present restructuring charges to us. We want to see what the payback's going to be. And we challenge them quite hard on why it's a restructuring, what they're getting out of it, how is the business changing, and how is it consistent with the business model changes and where we want the business to go overall. There's quite a lot of rigor put around the application for a restructuring charge, which has to be approved by group businesses can't approve restructuring charges. There's quite a lot of rigor around the investment in that space. And on the PIK loan note, as Stephen said, the interest rate steps up markedly in September from a below market interest rate to a well above market interest rate. And so you suspect at that point in time, from their point of view, it would make sense to look at repaying it. But there's no obligation for them to repay it at that point in time. Thanks, chaps. Alex DeGroote here at Peel Hunt. Just on the outlook for earnings then into FY 2015. A number of moving parts. But just to be clear, it's probably going to be the full year impact of the acquisitions last year, which is going to be the main driver there. Just to recap on what you said, Stephen, you said, did you say 10 times multiple-ish? That's- On that GBP 370 million of acquisition spend, you brought in about GBP 37 million of EBIT for this year. Is that? I will leave you to work that out. You have then got depreciation going against you, interest going against you, and 7%-8% more shares in issue. It is going to be flattish, isn't it, in terms of earnings? This feels like a modeling question. I just really want to get. Well, I think if you combine where we think we can go on sort of underlying momentum with the impact of the acquisitions, and you are right, obviously on the Hanley Wood, the increase in shares broadly offsets the profit benefit you get through that. I think certainly we feel with currency, I think in the statement we put it sort of 152, 153, that that should imply your 40.3p this year nudges up. From what I am seeing this morning, people are ending up around 41p, those who have done that. And that feels fair given all those things. Thanks. Thank you. Good morning, gentlemen. It's Andrea Beneventi, Kepler Cheuvreux. I have two questions, one on Knowledge & Networking. You target organic growth by year-end, despite Europe being still very weak and very strong inertia usually in this business. Is there any data point you can share with us to explain how you get to that target? Secondly, if I remember well, you saw 200 basis points of transactional ForEx headwind in 2013 at Academic Publishing. Can it revert in 2015, please? In terms of the FX headwinds, the academic business has roundabouts 40% of its revenue in U.S. dollars. But the cost base is substantially in U.K. sterling. So that's what we mean by a headwind there, is that as the 2014 revenues have been slightly weaker as reported because of the U.S. dollar weighting compared to 2013, the cost base hasn't changed. So there's a reduction in the margin of a couple of 20, 30 basis points, and that is partially that cost headwind and partially the half and half cost headwinds and also the open access investment in Cogent where we've invested in staff, but the revenues don't start until 2015. So two dynamics there around the FX headwinds. In terms of the K&N data points, I think the key thing there is the performance of the business in Europe and Australia, without which the business would have performed reasonably well in 2014. We've got action plans on those businesses that we're looking to deliver in the year, and we'll be keeping a close watch on the prospect for those businesses. So I don't think it'll be straight back into growth in Q1, but as you said, on a run rate basis, by the end of the year, we're confident the actions will get us back into a position of growth overall. I think it's the lady actually with the scarf who's had her hand up for some time. Sorry. Hi, it's Natasha Brilliant from Citi. Just taking it back to business intelligence and the consumer business. I know you can't comment on the process, but could we get a sense of maybe what the revenue contribution or profit contribution is from those businesses? Secondly, on the macro, and I know in the press release you said that your budgets were based on no pickup in the macro. I guess if things were to be better, Exhibitions would be the bit that's most highly geared. But are there any other bits of the business that you think would benefit from a pickup in the overall macro? Finally, on the medical journals, you talked about some cost savings. I wonder whether we could get a better idea of what they may be. Why don't I start? Maybe Gareth can come in on the. Look, a benign macro climate helps us generally, I think in our business. We don't have a major exposure to Russia, for example. But we do have a nice Russian business under the Adam Smith brand. If that market were to become more open to trading, that would help us. We have quite a big energy and gas vertical in the conference and business. Again, that would be a change in macro circumstances there, it would be beneficial. I think the same would apply to pharma and financial services in BI. I don't think it's just limited to Exhibitions, but I think you're correct to say that where you might immediately feel those benefits would be in our Exhibitions business. That's why I think based upon what we know today, we feel slightly to go back, I think to the gentleman's question from earlier, high single digit growth in the year hopefully is a target we can aspire to. You asked a question about the consumer businesses. I don't know if we've actually been public about what that revenue number is. Have we? I think all we've said is that profit-wise, it's sort of low to mid-single digits. Yeah. On the profit side, it's low. I don't think we've been public on the revenue number. No. But on the profit side. The margin's decent, but not at the level of the division. But it's decent. Which is why we're not really being drawn on what we might do because there are options for us there. We're very clear that it's not going to be an area. It's certainly not going to be an area of investment focus under GAP. We don't necessarily believe that. But it's possible that a disposal might be an option, but there are other choices for us. We're not being coy for the sake of it. We want to retain that flexibility. Gareth? There was a question on. Medical cost savings. Yeah, medical cost savings. It is mainly around combining teams and production. I do not think we will put a number on it, but we think we can take some benefit there in 2015. But really, we did not do it for the cost savings, although sensible to do it. We did it because it gives us a single go-to-market on the journal side, and we actually had a relatively small portfolio of medical journals having a discrete conversation with the corporate side of the market. Actually, it is a lot easier to be able to bundle those together and then be able to have a full portfolio conversation with both sides of the market, the academic and the corporate side. Even though I did refer to a cost benefit in 2015, actually, the main reason to do it is to give you a platform for growth in 2016 and 2017. The gentleman there actually also has had his hand up for quite some time. Over on the other side. Good morning. It is Johnathan Barrett from Singer. I think I have three questions. The first one is just going back to your guidance on EPS, just want to make sure we understand this clearly. Your guidance is for growth in EPS, including the benefits of currency. You are not saying X, because otherwise we would have a much bigger number. That is right, yeah? Just to confirm. Yes? Okay, thank you. Just moving on to BI. I guess it is quite a complex question now, in that I think you talked about deferred revenue growth being just down 1% in BI, if I heard that right. Please correct me if I did not, at the year-end. That does imply obviously some drastic improvement in the sales rate. I think you slightly cautioned on that, but there is a big gap between that and the 13% decline rate in BI in Q4. You are obviously trying to give us a corridor in terms of getting to half the rate of decline, that annual rate of decline at year-end going to 2016. I wonder if you can try and just sort of square that with what is dropping out in terms of product closures and what is actually improving in there so that we can understand getting from that sort of minus 13 to minus four-ish in that period. It looks at the moment like it is obviously coming down quite hard, and it points to some sort of sharp inflection, even excluding any product closures. So it looks a little bit confusing from where I am sitting at the moment, but I, of course, may be missing something. You had three questions. I know there were about five in that one, but I mean I have a sense you had another one as well. This is much simpler. It is read slide 30, again on BI. You highlighted that you felt you were missing out in the U.S. Is that because you simply are not selling enough of your existing products in the U.S., are you missing out? Or is it because you have not got the right products for the U.S. market, i.e., it is just a factor of your vertical mix that you are only getting that percentage mix effect from the U.S.? Let me maybe come in a little bit, and then Gav come in a little bit. Just on your first point, and I am— Sorry, did you want to say something else? On the- In relation to what are we saying about our earnings ambition for 2015? Currency is a question for people to make their own judgments on. We've said what we've said about currency. Our ambition in 2015, much like our ambition in 2015, is to deliver earnings growth in the business. We're not putting a number around that or a quantification around that, but it's to deliver some underlying earnings growth in the business whilst funding for investment for future growth in 2016. Just to be clear on that. On your last question around, oh God, I'm having an embarrassing senior moment. It's my birthday, so I'm allowed to have an embarrassing senior moment on my birthday. What was your last? Yes On your last question on the U.S., I think there's a combination of reasons there which are worth thinking about. The first is just at an absolute level, the shape of our portfolio index is low to the market. That was really the point I was making at a headline level. That's just kind of function of where we are. What that might mean is at the point at which you believe the business is in full repair, you would probably be quite alive to opportunities to acquire in the U.S. if you could find brands and businesses that were materially fitting with the verticals you've chosen. Secondly, I do think we have found the end market challenges in pharma and financial services most acute in the U.S., and as they level out, back to the lady's question about macro, as they level out, you might see some benefit there in the U.S. That's I think a second point. Then I think if we were being honest about our own business, and it was part of what encouraged us to expand in the U.S. in exhibitions. I think the truth of the U.S. market today, in many markets, is it is a more technologically advanced operating environment in many markets. It's more data-led, platform deployment, device usage, workflow integration. The U.S. is just a kind of sweet spot for those, and therefore, our underinvestment in our product is, if you like, a little bit more visible when you're looking at it against comparisons in that market. That gives us a benchmark against which to improve to. I think you have a kind of combination of reasons there in the U.S. market. Do you want to come in on the deferred income trajectory? Just a further point on the BI improvement. I am not disputing your maths, which I am sure are correct, but from where I saw it, the sort of performance in Q4 was not perhaps as negative as, I think, if I heard you correctly, as you were saying. The performance in Q4, I think, was only a touch worse than the 8.5% for the full year. Therefore, the sort of improvement to the point that Stephen is outlining is not perhaps quite as marked a step if you use those numbers as perhaps some of the numbers you were saying. But as I say, I cannot see your maths, so I am not sure quite how you have gone about that calculation. In terms of the deferred income, the deferred income is a point in time calculation. As I think we said before, we have taken that in the past as being sufficiently slightly better than the numbers have presented, also sufficiently slightly worse than the numbers have presented. I think in terms of this point in time calculation, we are a percentage point down year on year. It is a solid start and something we will obviously be more pleased about that than we would be if we were 10% down. But in terms of where it leaves us for 2015, I think it is too early to say that this is a complete turn of the corner. It is just bringing it in on a trajectory, as Stephen outlined, to be in a good position by the end of 2015 to deliver on our commitment, and by the end of 2016, we will be in run rate of growth. Are there any final questions? The gentleman on the far left there has had his hand up, then the gentleman with the red tie. Can you hear me? Yes, thanks. Yes, it is Matthew from Nomura. First question is, does the Springer merger make much difference to the academic performance? Second question is on cash tax. When you look at your free cash flow, as you mentioned yourself, you had quite a big benefit in tax. In fact, if it had been at the same level as last year, then there would not have been any growth in free cash flow. Was there anything that made 2013 abnormally high, and what can we expect for 2015 in terms of cash tax rate? If you could talk about the exhibitions, you mentioned the high single-digit possibility for organic for this year, for 2015. When you think about the biennials or any kind of events coming back, does that mean that we can expect a double-digit growth rate in exhibitions in 2016? Cor, you do not hang about. You want predictions for 2016 already. Or 2017 if you have it, I do not mind. Do you want to take the tax question, Gareth, and I will come back on this one? In terms of cash tax, in 2013, we made a one-off payment of GBP 15 million to the U.K. authorities in relation to some of those tax settlements that I outlined earlier. If you take that out of the 2013 number, you get quite close to the 2014 number, which gives you an indication of where we think we'll be going forward. Also in the press release, I point you to a little tax rec there that reconciles you from the income statement numbers to the cash flow numbers and shows you how the cash tax tends to be lower than the income statement tax. It is principally because you get a deduction for intangible amortization in the U.S. of sort of GBP 10 million to GBP 15 million per annum, which we would consider as a structural benefit and therefore something that would continue in the future. On your two other questions, not my place really to comment on what the strategy behind the Springer-Macmillan deal is. We've obviously looked at it as it relates to our business. The short-term answer, certainly for the purposes of 2015, is we don't think it has an immediate impact on our business. Looking at it more through a kind of what does it do to the landscape lens, if you put it that way, you might see over time some increased competitive pressure on pricing in books. That's possible. You might see a further acceleration in open access, because Springer has a powerful open access business, as you well know, and proposition. You might see another scale player increasing the level of competition in tenders and bids for society contracts. I think our assessment of that, sitting here now, is you've got to have differentiated content on the book side, and that's very much our strategy, and we are accelerating that strategy. So you need to be competitive on price, but you've also got to be differentiated on content. That's very much our approach to the market, which is a different approach. On open access, we're building a platform to give us the ability to be able to compete and offer, and we feel comfortable with that. On the society contract side, price of course, is relevant, upfront payments, royalty payments, but societies also have other criteria, and on the other criteria, we actually feel we score rather well. In the academic market, those other criteria are very relevant in the decision matrix for customers. I think it will change the landscape, but certainly as it relates to 2015, we don't think it would change our view of our business. But we'll keep an eye on it as it relates to the landscape. On forecasting for 2016 and beyond, I think the consensus is that in 2016, we'd be in sort of mid single-digit growth. I certainly don't feel knowledgeable enough to be able to give you a retake on that. We are, of course, as we do well year on year, upping the comps. I think if we can keep that business growing in the high single digits, I'd be very comfortable with that. The only thing so didn't have a lot of profit, but it adds a bit of revenue. But in 2016, if you like it- Say that again, Alan. But the next biennial year is a mini biennial year, if you like, rather than a maxi biennial year. If I was Martin Searle, that's how I'd describe it, much. That's a big statement. It is. We might end on that. Gentleman with the red tie. Thank you. Simon Baker, Soc Gen. Two questions, please. One for Gareth, one for Stephen. Gareth, thank you for the guidance in terms of the 150-200 basis points margin impact, and it will be towards the lower end this year, higher end next year. Just to be clear on the scenario that that includes, Stephen mentioned that you might up the pace of the investment depending on whether the business can cope with it this year. Does that include upping the pace, or is it sort of on an as-is basis? The second question was more for Stephen, really, in terms of where we are with the LTIP review, and the extent to which that might evolve from just sort of an EPS focus to something a bit more balanced, EPS, ROIC, TSR, organic revenue growth. Where are we with that, please? Thank you. If we kick off on the Growth Acceleration Plan, no, those margin comments are in relation to the plan as it currently stands, as it was budgeted. We are certainly looking at the potential to up the pace if we think we have got the capacity to deliver the programs faster, and we think we can get to the returns faster, then definitely we will consider that. But making sure that we have the capacity to deliver everything at the pace we are going at is one of the key tests the design authority puts on the program as a whole. So we have got to have the capability to deliver everything at the same time. If we can deliver it faster, we will, but the guidance that we have given is based on the existing program of work in 2015. On compensation, I think a couple of points or maybe two or three points to make on that because I think it's a very relevant question, so I'm glad you raised it. As it relates to the executive team, we are shifting the long-term compensation mix from being singularly focused on total shareholder return to being a mix of total shareholder return, compound EPS and ROCE. So you'll see that balance scorecard. Final knock-ins of that are being confirmed in consultation at the moment. But in essence, that's what it'll be for the period of the plan. I think that's one point. Second point is we are also extending that in a reasonably meaningful way into a deeper portion of the management team within the business in order to, if you like, further connect the broader management team with the performance of the equity. The third point to make is that we actually, as part of last year's change plan, introduced, I think, a reasonably meaningful all-company-wide equity scheme, where I think we're now at nearly 20% take-up. We were at 4% historically. So that's the way we're trying over time to further increase the connection with the performance of the equity, not just at the executive level, but through the company. If there are no further questions, then can I thank people very much for their time and their attention. For those people who are listening, that is the end of the call. Thank you very much.

Data Source: Quartr Last updated: Feb 12, 2015

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