Earnings Call: H2 2012

Feb 21, 2013

Summary

2012 brought record profits, a 28.4% operating margin and higher free cash flow despite weak trading. For 2013, the plan is to restore underlying revenue growth across all divisions while margins consolidate and earnings grow.

Okay. Good start. Anyway, just as an aside, and no disrespect to Adam, last time I had to make a speech, I was on first, and it was actually about a month ago at Arab Health, and we had a huge conference. I was doing the introduction. The second speaker was the wife of Sheikh Mohammed. And Sheikh Mohammed's wife is quite short. Not that Adam's short, I don't mean that. But as a result of her being short, she had, so she didn't appear to be short, quite a big step that she stood on in front of the lectern, which was permanent. So when I got up to start the presentation, I stood on this lectern, on the step on the lectern without my glasses on and couldn't see any of the words on my presentation. When I got here today, and this was down here, I still couldn't see very much of it. There isn't a step, so when Adam comes up, he will be a little bit lower than me, but not much. Just as an intro then, that Arab Health show was absolutely great. It was a huge exhibition, bigger than we've ever had within Informa. We had about 80,000 visitors. We ran alongside at about 60 conferences on various health-related issues and medical-related issues, and it was a fantastic event. Not only was it a good event for 2013, but it also rebooked well for next year, too. In fact, we've managed to persuade the World Trade Center in Dubai to build, almost only for us, an extra hall, which is another about 12,000 square meters, which we'll easily fill in 2014. So, a good start. In terms of today, mostly a discussion on 2012 results and prospects. Obviously, as usual, Adam and I will share the duties. So, 2012 was a good year. We delivered on our strategy, which is to build shareholder value and enhance shareholder returns. We had a record year on most counts and finished ahead of the market estimates on earnings. Whilst finishing the year at the bottom end of the net debt to EBITDA range, we spent our free cash flow on value-accretive acquisitions and investments across all three divisions. Important for us, we continue to increase the percentage of revenues which accrue from emerging markets, which, at the end of 2012, amounted to 18% of total revenues. We are on target for our 25% goal of emerging market revenues for three years hence. Adam and I will talk about the work we did on the business during the year. This work included organic initiatives, acquisitions, and also some disposals. In doing so, we have added quality and value, building a better business with higher margins overall and more resilience. I'll come back a bit later on and now hand over to Adam. There is a box here. Morning, everybody. Let's look at the numbers in a little more detail. We've announced this morning a strong set of results. As you've just heard from Peter, and as you've seen in the press release, we're announcing record profits, record operating margins, and record earnings for the group despite a trading backdrop of continued weak economic conditions in 2012. Perhaps more importantly, we believe we have improved the quality of the portfolio in both the publishing and events divisions and are in a strong position to take advantage of better trading conditions when they occur. Operating profits on an organic basis are up nearly 3% to £349.7 million. Margins are up 200 basis points to 28.4%, and earnings are up nearly 8% to 40.7p. It has also been another good year for cash flow. Free cash flow is one of our key metrics, and we generated £237.8 million worth of free cash flow in 2012. Our balance sheet remains strong, with net debt to EBITDA of 2.1 times at the lower end of our range and consistent with the position at the end of 2011. Shareholder returns are, of course, important, and we've increased our dividends for the full year, again, ahead of earnings growth, with a second interim dividend of 12.5p, making a total payment of 18.5p, a 10.1% increase over 2011. Turning to the income statement, the one number I have not mentioned yet is revenue, which, as you know, has reduced year on year. I will talk about that in more detail on a divisional basis shortly. On this slide, let me draw your attention to the other adjusting items of £90.9 million, which is principally the impairment we recorded at the half year against our European conference business. Full details of all the adjusting items are shown in Note 2 of the press release. The interest charge at £30.9 million is significantly lower than 2011, as expected, with the expiry of a number of fixed rate swaps over the past two years. The loss on disposal of £27.5 million will be familiar to you from the half year again, as it relates to the disposal of three of our local language European conference businesses. Finally, tax, where our effective tax rate is 22.6%, a reduction on the 23.4% we achieved in 2011, primarily as a result of the reduced rate of corporation tax in the U.K., which has fallen from 26% to 24%. In the finance review contained within the press release, there is a reconciliation between our effective tax rate and the cash tax we have paid in 2012. In the back of your pack, there is an analysis of the effective tax rate itself. In terms of future rates, I would assume you keep the rate at around 22%-23% in 2013, given that the U.K. corporation tax rate will fall again. Cash tax is always hard to forecast, and we expect cash tax to be about £10 million higher than the effective tax charge for 2013. Turning to the divisional summary, our academic business ended the year well and has grown by over 5% at the top line and has grown its profits by over 8%. This has resulted in another improvement in the margin to 37.1%. The organic revenue is lower at 2.4%, while profits grew by 4.8%. It has been another strong year for our academic business, with a particularly good performance from the book side and a solid result from our journals. Peter will cover in more detail some of the developments in the academic information in 2012. We stick to what we are good at, and this business has delivered again. It has been an altogether much harder year for our PCI division, where revenues have declined by 4%, yet we have seen profit growth of almost 6% to reach GBP 120.7 million. With the product pruning during the course of the year, the benefit of the integration savings from Datamonitor and IBI, and the focus on digital excellence across our subscription portfolio, we have driven the margins higher to 33.8%. Q4 showed a small improvement, but nonetheless, the trading environment remains hard, and better results for 2013 will require some improvement in confidence amongst the large pharma companies and the financial institutions that we serve. As well as removing more marginal revenue streams, we have continued to invest in this division and launch a number of new products, which Peter will talk about in a minute, and which we hope will enable us to return to growth in 2013. As you have seen from the press release, we have decided that as of January 1 this year, we will change the management of our medical and legal books business from Informa Business Information to Taylor & Francis, as we believe more opportunities exist if all of our books are managed in one place. This will result in around GBP 6 million worth of revenue switching between the two divisions, or on an annualized basis, a movement of 2%. Events and Training had a disappointing end to the year, driven in the main by our corporate training business. Excluding training, we did have the benefit of a few events moving from Q3 to Q4, but this was not enough to offset the continued weakness in our European conference businesses. The poor revenue performance at the end of the year was essentially corporate training, which, as you know, is always weighted towards Q4. This group of businesses has been diversified geographically from their original U.S. focus, and our rest of the world operations in this part of the business grew well. We are always going to depend on the much larger U.S. business, and corporate confidence had not returned in sufficient measure to deliver a better result. Perhaps with some of the optimism now emerging from the U.S., as demonstrated by stock market performances so far this year, we will see an improved performance in 2013. Certainly, our pipelines are building well, which is an encouraging sign. Given our decision to run fewer events alongside the disposals that took place earlier in the year, we saw revenue decline in the Events and Training division, but as with the other two divisions, an improvement in operating margins to over 19%. Turning to cash flow, we grew our operating cash flow to GBP 329 million, turning the vast majority of our profits into cash. We continue to invest principally on the publishing side of the business, with new platforms to enhance the depth and quality of the content we provide. The total CapEx number is GBP 25.8 million, and I would expect a slightly higher number in 2013, as we will be investing a little bit in the Agrishow that we've announced separately this morning. With some restructuring and reorganization cash flow, interest payments and tax, the majority of which was paid in the U.K., we grew our free cash flow by 17% to GBP 237.8 million. Operating cash flow and free cash flow will continue to be an area of focus in 2013. Our free cash flow yield is strong, and we know from conversations with shareholders how many of them look at this metric. This next slide reconciles net debt at the start of the year to our final position of GBP 802.4 million. As you can see, we paid out 45% of our free cash flow in dividends and had a net acquisition spend of just over GBP 170 million, which includes deferred considerations from prior year deals. I will talk about acquisitions further in a minute. As I've already said, this leaves us with a net debt-to-EBITDA ratio of 2.1 times at the lower end of our target range. Staying with acquisitions, we have invested across all three divisions in line with our strategic objectives and following strict financial criteria, which is not only beating our cost of capital in year one, but also earnings enhancement and cash payback. On the publishing side, we look for subscription products or book lists which fit within our vertical strengths. On the events side, we look for groups of exhibitions which have geo-cloning potential and fit well alongside our current geographies and verticals. You'll be familiar with the two largest acquisitions that we completed in 2012. MMPI Canada took us into a new geography and brought a highly experienced and highly regarded management team, and they've delivered results over the second half of 2012, in line with our plans at the time of the acquisition. We remain excited by the potential, both within Canada and opportunities to take some of the Informa Canada portfolio elsewhere in the world. Secondly, in October, we acquired the subscription data business, Zephyr, which provides analytical software to fund managers and fits very well with one of our existing businesses, Informa Investment Solutions. Again, this has started very well under Informa's ownership. As in previous years, I have set out our return on invested capital of the acquisitions we have done in recent years, and you can see we have a strong track record of significantly exceeding our cost of capital in the first full year of ownership. We have also announced this morning the latest large exhibition to join the Informa portfolio. In Brazil, we have been awarded a 30-year license to manage Agrishow, which is the largest agricultural exhibition in Latin America and will take place for the 20th time this year in April. It is a huge show, which takes place on farmlands on the outskirts of the city of São Paulo, with 790 exhibitors, over 150,000 visitors, and covers 440,000 sq m, which in terms of size makes it by far our biggest exhibition. This not only boosts our Brazilian exhibition business, which has performed well over the last two years, but also strengthens our leading position and expertise in the food and agricultural sector. The award of this contract will provide a small boost to earnings in 2013. If you believe long-term historic performance is an accurate indicator of future performance, then the next slide will be of interest to you. We have set out here our record on operating margins, earnings growth, dividend growth, and leverage ratios over the past nine years. Informa has come a long way, and those of you who have followed us all the way through that period will know there have been quite a number of significant events along the way. We have achieved a lot financially, particularly over the last five years, which have not been the easiest of times for many businesses. We focus on continually improving the quality of earnings to increase resilience, but at the same time, don't lose sight of the need for growth. We enter 2013 with a very strong business. Three divisions with clear strategic objectives, delivering strong financial results, and with plenty of opportunities to pursue. The importance of shareholder returns is not lost on us. You can see how over a long period of time, we have grown our dividends ahead of our earnings, and the flexibility we have from having a relatively low level of gearing means there are plenty of opportunities in the future, too. To conclude from me, 2012 was another year of progress, with good earnings growth and profits backed by cash. We end the year with a strong balance sheet and have increased our dividends again ahead of earnings with a 10% increase over the full year. It has been a busy year from an M&A perspective. Nothing big, but finding the sort of deals on which Informa can make its best returns. We end the year with revenue growth in one division, profit growth in two, and margin improvement in all three. What about 2013? There has to be an element of caution as the world remains an uncertain place, and in our opinion, corporate confidence has not yet returned to pre-2008 levels. Customers are more discerning, more careful with their spend, and take longer to make decisions. Having said that, our plan will be to return all three divisions to underlying revenue growth in 2013. I would anticipate that 2013 would see a consolidation in our margins after the successful increase in 2012 as we focus on doing all we can to drive top-line growth again, but remaining vigilant on cost management. We will continue with product development in PCI and will run a separate open access division in academic information, which will depress margins a touch. I expect margin expansion in events as the proportion of larger events grows. We have started the year well, with a solid journal renewal within academic, and a very strong performance from the large shows that we have run to date, most notably Arab Health and Middle East Electricity in Dubai. The forward bookings on our large events that are still to come are good. Our key accounts within PCI are starting to spend more money with us, and economic indicators also show some encouraging signs. The decisions we have taken in 2011 and 2012 regarding our portfolio leave us in a stronger position with plenty of upside potential, and we expect another year of earnings growth in 2013. Thank you. Thank you, Adam. A reminder now of our strategy for growing and improving the company. High-quality subscriptions underpin the whole business, and they account for 67% of our publishing revenues. We continue to strive across all three divisions for digital excellence. The most measurable figure is that 74% of all of our publishing revenues are now derived digitally. We continue to build a more resilient events business. Most of the work is done, but as Adam has said, some pruning remains. Since 2007, we have halved the total number of events to 6,500. In particular, we have moved from a training and small conference business to one which is dominated by larger events and exhibitions. They now account for 44% of event revenues. For some parts of the world in recession, it has been important for us to expand geographically, especially into new territories and emerging markets. Some of this has been done through new sales forces, some by geo-cloning product, and some through acquisition. All of those drivers are influenced by active portfolio management, strategic acquisitions, new product development, and evolving the geographic mix. I will cover those individually now. We have been active across all of our three divisions during 2012 in arriving at the best business mix for Informa going forward. As necessary, this work will continue, although we believe at a much lesser pace. Across the divisions, different things have happened. For example, in AI, there has been increased journal digitization with more e-books, and also we have had the benefit of net society wins. In PCI, we have reduced the business we have had from advertising-based periodicals, from consultancy, and from one-off reports. The vast majority of volume reduction, too, in this area has been done, but again, there is a bit of an overhang into 2013. In events, which I will talk a bit more about later on as well, there has been an ongoing reduction in our exposure to small conferences and training courses in local language across most of the geographies in which we operate. As volumes drop, we lose revenue, a bit of margin, but also the associated overheads. There is relatively little profit impact. We have also made selective disposals in the event area with Robbins-Gioia, the businesses we had, and the businesses we had in Austria, the Czech Republic, Hungary, and Online Congress all exiting the group in 2012. With a reduction in discretionary customer spend, it is important to reduce volumes, thus adding value and building a better division. For us, especially in Continental Europe, our actions have been driven by poor economic conditions, and we have had to take a view as to what would happen on an eventual upside. Our belief is that the end result, which we are very close to, of our revamp, will give us a better business with more resilience, more visibility, and higher margins. Going back to the circle, our desire is to add subscriptions, digital products, presence in emerging markets, and larger events, especially exhibitions. As you can see on this slide, we have made such acquisitions across all three divisions using free cash flow, and the most relevant ones are outlined here. We are continuously launching new products, as well as improving and growing existing ones. In academic information, as well as launches, society wins, and publishing some 3,500 new books, the most notable development in 2012 was the finalization and launch of the Southeast Asian Archive, known as SASA. This is a database of some 5 million rekeyed records of original Southeast Asian published material. I think you would find it most interesting to have a look at that particular product on the website. PCI continues to improve its knowledge centers, particularly in the areas of maritime and healthcare. In addition, in 2012, the Verdict product was re-engineered, and towards the end of the year, slightly later than we had hoped, we began to receive output on our China Medical Data project, which whilst highly exciting and unique, to be fair, still does have to be monetized. For Events and Training, we are continuously reinventing ourselves, if only to make sure that the product stays fresh. Whilst Arab Health and Partnerships in Clinical Trials may seem to be the same each year, under the skin, they are very different so that we can attract new customers and visitors. We have made much historically of our ability to take brands and clone them, and Cityscape Qatar and Vitafoods South America, which took place successfully last year, are just two such examples. Without going through the numbers here one by one, the pie charts really do show the business' evolution from 2007 to 2012. The things to particularly note are the growth in subscriptions, copy sales, which are largely books, and exhibition revenues, and the decline in pure delegates, consultancy, and advertising. The bottom half of the slide reflects how that translates in terms of resilient revenues, which are subscriptions, copy sales, and large events. These have grown from 56% of the pie in 2007 to 74% of the pie last year. Historically, most of Informa's revenue has come from developed markets, which in recent times have become low growth or more accurately, no growth markets. Perhaps we have been a bit slow at growing our emerging market revenues, and I think the take home lesson here on this slide is specifically on the bottom half, which shows how the revenue we get from emerging markets has increased so rapidly over the last few years. In recessionary times, it also shows how the U.K. and continental Europe have become much less important to us over the last three years, whilst the rest of the world's percentage has grown rapidly. Looking a little bit at the individual divisions. Academic Information had a fabulous year in 2012, without the major benefit of high margin one-off sales, which have epitomized the last few years. In many ways, and Adam has covered some of these, the numbers tend to speak for themselves. What about open access? We feel slightly less exposed than others in this debate, if only because two-thirds of our revenues come from humanities and social sciences, which is much less research funding than the STM side. Despite the publishing of a number of reports, including the Finch Report, there does still remain a lack of clarity as to the future. As such, we have taken the initiative of investing further in both products and people for open access journals and databases. Whatever happens, we need to be able to deliver to our customers proper peer review content in all journal formats. Currently, two-thirds of our journals have an open access option, and all will have one by the end of 2013. We also have 16 pure open access journals at the present time, and that number too will increase during the next couple of years. Professional and commercial information is a fabulous business, which as Adam has already said, made a profit in 2012 of GBP 121 million, that's a margin of almost 44% with organic operating growth of 4.6%. We did have a tough year on the revenue line, as is obvious, with continuing decline in our global markets bond market information business, some from this building, in advertising-based periodicals, large consultancy projects, and one-off reports. In certain industry verticals, we've also found subscription revenue hard to come by, particularly new subscribers in more depressed areas like maritime, finance, and even from some pharmaceutical companies as they fret about the patent cliff. Nonetheless, we finished the integration of IBI and Datamonitor with consequent improvements to profit and margin, thus continuing to build a top quality digital subscription business. We made a number of major investments during the year, particularly in the digital area and in China. In the digital area, we've allowed our customers to dig deep into our product databases. We had relatively little upside from that investment in 2012, but expect to benefit going forward. Legacy print and advertising products in PCI, at least within Informa, have an uncertain future as our customers demand digital feeds which require a different business model. During 2013, we'll continue to improve this business, delivering what our customers require, which may mean some further changes to the product range. Nonetheless, this business is now a high-end digital subscription business with 90% of revenues from this income stream, and it has great prospects. This was the original IBC business, which goes back to the early 1980s when I came on board. It's much changed though, a bit like me. In particular, it has changed from a volume-based business to one which is dominated by large scale events. Whilst the number of events in 2012 is half that of 2007, you should expect it to drop further in 2013. Of course, this has a revenue effect, but it has practically little effect on profitability, and it actually boosts the margins. In 2012, our large scale events contributed 44% of our total revenues in Events and Training and a much higher percentage of profit. Most of the large events, but not all, are exhibitions, and our 17 new launches in geo clones last year were all exhibitions. For us, the exhibition business has largely centered around emerging markets in the Middle East. Emerging markets account for 27% of all of revenues in Events and Training. The growth of our large scale events, largely in emerging markets, is a major focus for us. Although we cannot describe Canada as an emerging market, even if it suits the story, the acquisition of the leading Canadian exhibition company, MMPI, last summer, fits well with our resilient event strategy, and as Adam said, performed well in its first six months of ownership. Lastly, on events, our corporate training business, which accounts for 25% of events revenue and which forms the vast majority of the North American revenue slice of the top pie chart here, continued to have a really tough time as corporate America postponed discretionary spend, particularly on training. We've no doubt that this will change as the economic and political situation in the U.S. improves. Over the years, I've talked many times about verticals, clusters, cross-selling, and cross-marketing. For those who remember, it was the whole basis behind the merger of IBC and LLP in 1998. The fundamentals of vertical strength are the usage of brands to give legitimacy to a number of different platforms, thus enabling Informa to disseminate information to niche markets in any way our customers desire. Going back 15 years, that was all about how we could use the Lloyd's List brand to grow publications, exhibitions, conferences, databases, awards dinners, and ancillary products in the maritime, energy, and insurance sectors. This remains the case today. Although some of the products have changed, the premise hasn't, and we've gone on to build vertical strengths in agri-food and commodities, healthcare and life sciences, beauty and anti-aging, telecoms and media, and finance, all of which provide us with focus. It's interesting, though, in the digital age, how some of these link together as well, i.e., anti-aging food products and mobile phone applications for the financial and medical markets. Really, I'm going to let you look at these largely on your own. But the next couple of slides do talk about this, as you can see. For example, on the healthcare slide, how we've been able to combine events with publications and also run them in different parts of the world. Many of these are clones or side clones. Arab Health leads to Hospital Build. The clinical trials business has moved as well into publications. We've had a health congress run in Africa as well as in China, as well as in Dubai, as well as in Abu Dhabi, too. So this is the way we think about clusters. This is the way we use brands. This is the way we cross-sell. This is the way we cross-market. Briefly, too, not briefly, actually. Longer. In relation to the acquisition or the opportunity that we've outlined today, just have a look at the agri-food and commodities slide. In 1986, we acquired Agra Europe London Limited, which was a commentary service on the common agricultural policy of the then EEC. Typical of Informa, we still have some of those products today and some of the people. But with the increasing importance of food and worries about availability, security, wastage, finance, production, yields, and food economics, we have built a unique position in this very important vertical. This slide shows some of our current presence in terms of subscription databases, publications, consultancies, and events. Just on the slide, note how we've been able to move from publications about sugar to information about ethanol and biofuels. In 2011, we bought our Brazilian trade show business, which has a leading exhibition in the food technology area. Today, we've announced that we've won a very long-term contract to run Brazil's major food event, The Agrishow. This is incredibly exciting, and certainly, we intend to leverage our product line within the food area and add to it as we are able. Lastly, on my favorite slide, anti-aging and beauty, see how we've been able to combine medical congresses with exhibitions, with peer-reviewed journals and other periodicals, and how all of this goes on to link with events such as Vitafoods Europe, which is our global nutraceutical event. To finish, we've had a good year with record results. We've vigorously attacked weak areas and enhanced others, all of which has improved the quality and value of the business. The downturn has caused us to concentrate on building value, thus enabling us to increase shareholder returns. Although it's only the beginning of the year, we've had a good start to 2013, and we are well positioned for the future. Many thanks for listening. We're now happy to answer any questions. I think we have to use, for the sake of TV or whatever, a roving mic. Would you please announce who you are before asking your question? Thank you very much. Thank you. Good morning. It's Andrea Beneventi from Cheuvreux. A couple of questions, if I may. The first one is regarding your margin outlook. You say that 2013 will be a year of consolidation, which seems to imply flat margins. However, when I do the math, I see that you should see half a percentage point of margin expansion due to the businesses that you sold or closed and the product pruning in 2012. I was wondering what you think will offset that component. My second question, if you could quantify the investments that you mentioned in open access and give us some details of this. There's lots of moving parts as there always are in Informa. I think that to have moved the margins by 200 basis points in a year, which is ahead of our expectations over the full year 2012, we're just trying to temper that a little bit and say that we can't keep doing that. That would be unrealistic. There are investments going back into the business. There'll be some benefit of some of the smaller stuff coming out that you've identified. Going the other way, there's the open access investment. To answer the second part of the question, it's a small investment that will go in. It's really taking what we've been doing on open access within academic information, putting it into a separate part of the business, separately managed. So there's some additional hires that are going in. It's not particularly a capital investment. It's more operational expenditure going in. That'll have a bit of a softening on the academic margins. We talked about 35, 36 being the right sort of margin for the academic business, given that we've got a very big books business. Probably now a slightly bigger books business than we have a journals business for the first time. Therefore, to have hit 37 is a fantastic effort for that business. I just think it's sensible to look at margins as being at a very high level across the group. There'll be ups and downs as we go through the course of 2013. Our expectation is that we won't increase them again this year. There'll be some benefits from pruning. There'll be some investments that go in, and we'll track that during the course of the year. Thank you. Thank you. It is Sami at Exane BNP Paribas. Two questions, if I may, please. If we look at the deferred income, they are down 4% at the end of last year, 8% also for the subscription part of the business. Can you walk us through from that number to the revenue growth you expect? Should we infer from that that the revenue growth may be more second half weighted, or that you may expect revenue growth from non-subscription related revenue sources? Secondly, can you comment on the net sales activity? You said it was hard to find new subscribers. Can you maybe quantify or discuss whether you have seen an improvement in new sales, in particular new subscription sales in Q4 versus previous quarters? Or whether Q4 has continued to mark a negative trend in the new subscription sales, and hence when you may or we may expect this troughing? Deferred income is always just a point in time, and at the end of the year, it was, as you have seen from the pack, down 4%. It has improved at the end of January. So we have seen an improvement from there. Clearly that is a very important indicator. While that is negative, then it implies that the business is not going to grow its top line. So to see that improve from December to January is an encouragement. I think you are right that as we entered the year in a situation where Q4 did not see much of an improvement from where we had been at the IMS in October, the likelihood is that it is going to be towards the second half of the year that we start to see the revenue growth coming through in a bit more sustainable. There has got to be an impact from the economy on that as well. They have got to play their part in doing that. The product development that we did at the back end of 2012 will start to pay dividends as we go into the year. Customers are very excited about some of the things we have done on PCI. They are being able to see and play with those products and trial those products, and that is increasing the interest of coming back and people are subscribing for our content. So I think it is going to be an evolving story as we go through 2013. We track deferred income very closely. It will always move around depending on where in terms of the journal income, all the cash that we received is in line with our expectations. The timing of when those orders get placed and when it turns from being cash into deferred income can vary. Our customers, as you know, have their own funding issues on the academic side, and therefore they won't rush to make those orders. But those orders will come through. They might take a little bit longer. As we move events around, that will all have as an impact on deferred income. But the trend has got to be the most important thing rather than the absolute number, and we're encouraged by the fact that at the end of January, we've got a better trend than we were at the end of December. If I may follow up quickly, in terms of your front list in the book publishing business, we've seen the number of books in the front list increase steadily year after year. Can you continue to do that, especially in 2013? Do you expect to grow again the front list? Yeah. It's probably increased by 5% or something like that on a compound basis over the last four or five years. We've focused on certain areas on the book side, and that's enabled us to attract new authors and new titles, and that's an ongoing process. So yeah, I think if we hit 3,500 last year that we'd expect it to be higher than that in 2013. Thank you, gentlemen. Thank you. Yeah, hi. It's Nick Dempsey from Barclays. Three questions, please. The first one on U.S. training. I'm just wondering what comfort you can give us that it is a function of U.S. corporate confidence, and if that improves, that comes back, and to what extent it may be that corporates have more structurally moved away from using that performance improvement time model. That's the first question. Second question, just wondering about Lloyd's List. That's a big chunk of print still left in PCI. To what extent have you thought about pruning that away, and when would that happen if you did it? The last question is, we saw that non-resilient revenues were 26% of group in 2012. I wonder if you can give us a sense of what that is of EBITDA, because I would guess it would be a bit low. Maybe I'll do the first two if I'm being brave, and Adam can do the last one, particularly on the middle one. The PI training, the corporate training businesses, and Patrick once famously described them as posh training, if he remembers, years ago, are largely U.S.-based. Because prior to 2012, wrongly probably, Robbins-Gioia was included in those, but it obviously isn't anymore. And that increased the percentage that was U.S.-based rather than based in the rest of the world. But we monitor how AchieveGlobal or ESI do compared with the competitors, and they're our competitors. And actually, we've seen, in many cases, us outperforming our competitors in the U.S. corporate training business. And it's still the case that most training, despite computer-based training and online training, it's still mainly a stand-up-and-deliver product. And still, from our perspective, 80-odd percent of our business is that. We are increasing and we're investing in online delivery and computer-based delivery. But we think that from what we can tell in terms of our backlogs for what they're worth, because we monitor our orders, we monitor the backlogs, they're strong, and they have remained strong. In fact, they grew during 2012. And at the beginning of 2013, I believe they're higher than they were at the beginning of 2012. But the key is to turn those backlogs actually into us delivering training courses. I don't think, Nick, if the question is a little bit, is it a dead duck and have corporates moved on? I don't think so. I still think there's a requirement for training. People want to do training, people want to be trained, but it's one of those items of discretionary spend that the U.S. corporates and other corporates as well in other parts of the world, which are less relevant to us, have put on hold at the present time. It's interesting that if you look at the portfolio, there's a soft training business, which is AchieveGlobal, but there's harder businesses like Huthwaite in sales training and Omega in financial bank training, which are more niche and more specialized, and they've done quite well. So it's not as if there's not a requirement for training. It's that people are being choosy and in difficult times, they're looking far more at real on-the-job, how do you sell, which is important. How do you deal with credit swaps and credit options and stuff like that, as opposed to presentation skills and customer service skills and stuff like that. I think we and the managers of those businesses expect them to come back. Lloyd's List was first published in 1734 at Mr. Lloyd's coffee house somewhere near here. It's a brave man to say that it won't be published as a publication in the future. For us, Lloyd's List as a newspaper is part of a business that includes shipping movement databases, insurance information, energy information, economics on the shipping markets, et cetera. Already, most of the subscribers to Lloyd's List newspaper are actually subscribers to a Lloyd's List information business or a Lloyd's information business that incorporates the newsletter, incorporates the newspaper, and incorporates it being delivered both on a soft copy and also on a digital basis. For now, that's the way I think it will stay. You're spot on. The proportion of non-resilient profits will be lower than 26%. I think it'd be about 10%, Nick. Good morning. It's Ruchi Mulye from Citigroup. Firstly, Adam, you mentioned that there's plenty of opportunities in the future given your low gearing levels. Could you just talk us through again your cash usage priorities between acquisitions, dividends, and perhaps buybacks? Secondly, one of your competitors yesterday talked about open access margins being higher than their traditional businesses. I know you've talked about investment in open access, but over time, do you have any thoughts on margin levels? Thanks. I think we have got plenty of opportunities. We've worked very hard on reducing the leverage over time. We drive the free cash flow very hard. We don't set out at the beginning of the year with a number for M&A, but I think we've talked in the past about bolt-on acquisitions being part of the CapEx for Informa. Our free cash flow of over GBP 250 million, if 45% of that goes to our shareholders in dividends, there's a balance left for M&A. It doesn't mean we'll spend all of that. We've got to find the right opportunities, and we anticipate that we do that across all three divisions in the areas that I've talked about. The board thinks very hard about shareholders. We talk to our shareholders on a regular basis about what they would want from us, and the decision that we've taken this time is to increase our dividend again and reduce our cover marginally. I think there's more scope to do that in the future. I think we've said that if we get below 2x, then that really does bring into question what we're going to do with our free cash flow. This year we haven't managed to do that, but we're only just above that. If we de-lever during the course of 2013, then I think that debate comes more prominently amongst the board than it has done at the moment. We look at buybacks. I think that there are a number of people writing about buybacks around us when we were at GBP 3.50. There are less so when we're at GBP 4.80. That's maths. I think it's a relevant topic. It's a topic that's been used or a mechanism that's been used in our sector recently, as you know, and it's had a good impact on some shares. I think you've got to do it for the right reasons. As Peter said, this is a portfolio of products. We've sold things during the course of this year. I'm sure we'll sell things in the future as well. That is another trigger whereby if we've sold something, maybe that would look at an increase in returns to shareholders, whether that's through a buyback or another means. So lots of flexibility and lots of opportunities, and I think we're in a very good position in 2013 to be able to really enhance our returns again for shareholders. I'm not sure, because I missed that, which one of our- It was Wolters. Wolters. Was it? Who are not quite in the same position as us. The Finch report, which was published last July, basically recommended the gold open access, with the paid for publishing, if you like, model for articles. The problem with making a statement on profitability and margins just now is that neither within the Finch report or the universities or the publishers, has anybody actually concluded exactly how it will work. The problem, of course, is that even if you took our business, only maybe 7% or 8% of our journal revenues come from the U.K., similarly, only about 5% or 6% of the articles that we publish actually originate in the U.K. They originate all over the world, of course, increasingly, they originate from where there's new research in emerging markets such as India and China. Therefore, if you put that into the mix, it's quite hard to say, okay, well, how does the gold open access work? Do you end up with two journals? Is a cardiovascular journal that's gold open access that's available in the U.K. because the research is funded there, then is there a completely different one? Which doesn't seem to be a great result because you end up with two peer-reviewed journals, et cetera. The U.K. is not going to pay for the research funding or the publishing of articles for the rest of the world, nor the Wellcome Foundation out of the United States. I think there's some way to go to this. What's happening are the various stakeholders, the government, the libraries, the publishers, and the researchers are meeting, we're part of that process, to work out exactly how that might happen. If you follow through the logic of there being two separate products, a gold open access product that encompasses some of it, then another different journal, you could end up with higher margins. I'm sure that's not what the goal of this is at the end of the day. I think there's some water to flow under the bridge yet. Thank you. Good morning, guys. Alex DeGroote at Panmure. Question relates to the interest charge last year, maybe one for Adam. The sharp fall in interest charge, although I think average debt was largely unchanged. I suppose my suspicion that that can't be sustained going forward. A follow-on or a linked question is, at the bottom of the outlook statement, you talk about another year of earnings growth. Last year's earnings growth was 8%. A fair chunk of that came from this falling interest charge. How should we think about the interest charge and also the implications for earnings expectations into this year? Thanks. The interest charge is more that in 2011, we were carrying a high level of fixed debt, so we were paying a higher rate on that than we are at the moment. During the course of 2011, a number of fixed rate swaps expired. The final fixed rate swaps that we put in at the time of the Datamonitor acquisition in 2007 expired in this year, in the 2012 year. All of those have gone, and that's what drove the overall interest charge down. We now have a fixed rate of interest relating to the private placement that we put in place, about 4.3%, and then the rest of our debt is sitting on a floating basis, clearly at a lower rate. The blended rate is around about 3.9% at the moment, and that's what's driven the interest charge down. On that basis, on the same level of debt in 2013, we'll have a smaller interest charge again. Not as big a reduction, but we expect a reduction in interest charge again in 2013. I think consensus was sitting around about 41.7p this morning for 2013. We've beaten the 2012 consensus by about 2% or 3%, and certainly from conversations this morning, I think people are ticking that number up so that we're going to end today, I don't know, somewhere around about 42.2, 42.3. Currency's having an impact for us on a favorable basis at the moment. We're not saying that the market is 8% up, and we're not saying earnings should be 8% up in 2013, because we're not going to get the benefit of the interest, and the profits and the revenues aren't in that sort of a range. We'll be looking at the market ending around about low 42s. There was a bigger range than that going into today. I'm sure things would have tightened a bit. Great. Thank you. Good morning. It's Patrick Wellington from Morgan Stanley. We're just staying with that, Adam. Currency probably adds, I know, 1.3, 1.5 p to earnings. So what does that tell us about your expectations for underlying growth? Just on PCI, can you just walk us through some of the components of why that should see organic revenue growth this year? Is that wishful thinking and a target rather than a realistic expectation? So maybe give us two or three factors there. Then thirdly, in answer to Sammy's question, do you want to give us the deferred income at the end of January? Is it a positive number? How much has that moved? It's a better number than December. It's in the right trend to getting towards a positive position. Unfortunately, when I was discussing guidance, I hadn't realized that we were going to end up at 151 this morning. So I'm quite happy for everybody to move their numbers based on today's mark to market, as long as they change them tomorrow when it goes the other way. I think we say this every year. It's always February, the whatever, when we announce. It's very early in the year, and we've got some benefit of a deal that we've announced this morning. We've got a benefit of currency as we go into the full year. But there's a lot to do. We do have a lot of visibility. We are a resilient business. We have strong cash flows. But you know where the delta sit within the Informa business, what happens on the corporate training side, what happens on the smaller conferences as we go through the full year. On the PCI side, is there an element of hope in that? Hope in terms of, we hope we have a better economic year in 2013 for the world generally. We hope we get the recognition that the growth products that we've got and the top management we've got get the recognition, and they can see the growth coming through in that business. We're doing the right things in that division. We've looked at that portfolio. We are focusing on the verticals where we have the strengths. One of the things that Datamonitor brought to us in 2007 was a number of new verticals to go into. But they were verticals whereby you could make money on them in 2006 and 2007 in a very good high-growth period, but less so in more challenging times, because we have not got that critical mass and we have not got that quality of content. So where we are in PCI at the moment is we have got quality of content. We have got analytics. It is all proprietary. If people are writing opinions about what is happening in the world today, and that is valuable content. Therefore, we are confident this is a quality business with 33.8% margins, and it will come back and grow. When it will grow, we do not know. We are doing everything we can. We are improving the products, but we do need the end markets to play their part as well and for people to feel more confident in their markets. So we would expect to see an encouraging trend as we go through 2013. I think it is an important area. It is one that everyone focuses on, and we will be very clear as we go through the year, how we stand with each of the updates that we do for you. Sorry, just to confirm, the sort of 42 of earnings does not include the most recent movement in sterling from, say, 157 to 152.3. It has an element of that. It certainly has it down to sort of 153, 154, maybe not down as far as 151 as it was this morning. Hi. Hi. Sam Wittker from Liberum. Just two questions. First of all, again, just following on from that currency issue. If take your net debt figure at year-end, it benefited from a EUR 26 million boost, as it were, from the FX impact. The bulk of your private placement notes are in dollars. There's a chunk in euros as well. Given where we stand at the moment with the currency movements, that obviously will sort of increase, as it were, the sterling value of that net debt. So can you give us a sort of idea of where the net debt would stand today on the current FX rates? Then, I guess second of all, just following on from Patrick's question on the sort of like for like and with PCI. If you were to sort of rate your divisions in sort of the confidence that you have in returning to positive organic revenue growth in 2013, could you just talk about PCI, but maybe talk about the sort of degree of confidence you have for academic information and also events. I think you start the year with half of your academic business on the journals with clear visibility over it. So I guess in terms of where the confidence sits across the divisions of the growth and the academic side. I think ranking division sounds. We're very proud of all three of our divisions. They are fantastic businesses, and they stand up against their peers in the market. I don't think either of us would say that one of them is better than the other and rank them differently. We have a quality exhibition business, and where we have the visibility on those because of the nature of the products, we can see the revenues and we've got strong forward bookings. As we've talked about this morning, the businesses that we've run have done exceptionally well and booked strongly into 2014. We're very proud of our products within PCI, and that has been a tougher area. We're coming on the back of we've got a drag from some of the product pruning we did in 2012 into 2013. We've got a movement, which isn't on a group basis, but we've got a movement of revenue between two divisions. So the academic starts with a bit of a boost and PCI starts with a bit of a drag from that, which is just an internal allocation. So on an underlying basis, when you back all of that out, you've got to say that PCI, based on its run rate in 2012, is going to be the tougher one to come back. But it's also a high-quality business with some great products, and that can turn very quickly. And we're working hard on getting new subscribers, and as I said, our key accounts, which are people that are spending more than GBP 100,000 with us, have started to grow. I think that's an encouraging sign. I'd like to answer a financial one because I noticed I wasn't allowed to answer the other one. It's less than a few days since the currency world has started to turn upside down. Maybe it's too early to say whether it'll be 158, 160 or 151 or 140 to the dollar. I suppose more interestingly, that if that's what happens on the debt side, then there'll be a commensurate effect on the profit and the revenue side. Which makes a little bit of a farce of some of these other questions because it means that currency could change the revenue and the profits by a lot more than it will change the level of the debt. I think let's see where it settles down. I know different people have different views, and we certainly in the days of getting ready for today, haven't redone where we expect the year-end debt to be because we don't know that it'll be at 151 and 115 to the euro to the pound either. Is that okay as a non-financial answer? Absolutely. Hi, Mark Palio, Deutsche. Just one question. Coming back to PCI, you've given us a number of average renewal rate, 80%. I suppose what strikes me about this business is actually you've got to go out every year and sell quite a lot of new revenue. Yet, at the same time, the margins are a pretty impressive 34%. Without trying to draw you on the individual verticals, are you disproportionately earning from the larger verticals, i.e., health, finance, industrial, and are some of the smaller verticals in there significantly lower margin and perhaps candidates for pruning themselves at some point down the line? No. I think there will be a variance of the margins across some of the verticals. But within the verticals, there will be areas that are lower margin and higher margin. There will still be one or two advertising-based products within a vertical, which will naturally have a lower margin than a pure data subscription business within the same vertical. Across those verticals, then we are committed to those verticals. We have got strength in those verticals. But within the vertical, there may well be the odd product here and there that we would look at and see what we would do with that as it performs during the course of the year. Yeah, and even if you took, you mentioned finance. Well, finance, we have got six different products in there, and some of them have got, as they have in the IBI business, very high margins, way above 33, and very high renewal rates, way above 80. But you have got a bond market product in the form of global markets, which is basically based on banks, bums on seats, which will be beneath the 80%. And try as we might, and that is a big drag there, to be fair, and if you like, it is what they might call a cash cow. It is a business that until there is re-hiring, until there is more activity, then we will not get new subscribers. With that 80, that 20 that we do not get in that area is impossible to get, whereas in commodities or in pharma, where the renewal rate might be in the 90s. Citeline, I think the renewal rate is probably 98% or 97% or something like that. Then getting the extra 3% or 4% is much easier. Thank you very much. It is Paddy from Goldman Sachs. Sorry to harp on about PCI. But Adam, in your definition of underlying growth in 2013, how are you treating that EUR 6 million transfer, the EUR 6 million pruning, and the Zephyr acquisition? Should we look at underlying X net all out? Yeah, so the underlying is after we have taken account of moving the EUR 6 million from one division to the next and after the drag that comes in as well. So we are looking for underlying growth. So I guess that, as I say, academic starts at +2 and you have got to grow from there, and PI training starts at -4, and you have got to grow from there. Zephyr won't be treated in the underlying for- No. No. Okay. Thank you very much. Hi, it's Joson Asalati from Espírito. Just one question, please. It nearly looks to me like over the last four years, we have gone through a totally different journey for the story of Informa, which was all about improving margins, cutting down debt, et cetera. We start as of today, January maybe, or Q4 last year, on a new journey again, which is difficult in terms of economic environment, and with a very different business mix. What is the one thing you are going to change to strategy going forward from now on, given that margins are now not going to be able to give you much leverage, and you have regained, in terms of financial leverage, maybe a little bit of strategy? We are looking at a new era of acquisitions? Firstly, I am not sure that we are at the stage that we now have to change and have a different strategy. The strategy, to some extent, especially in terms of reducing the volumes of training courses and conferences, has been forced on us. Nonetheless, by the economic conditions, particularly in consumer, it was the right thing to do. It is right for us to continually continue to reduce those volumes and to add 30% margin exhibitions and larger conferences, and we will continue to do that. So there is a bit of reshaping to do. Traditionally, whether it has been on the publishing side or the information side now or on the events side, there has always been a cyclical effect within B2B businesses, and Informa is no different to that. We would hope that we are, at worst, along the bottom of the cycle now and that there is an upside. We have still got 24% or whatever that percentage is of less visible, less resilient revenue that will grow through the cycle. We will always have an element of that, and we always want to have an element of that, and you should want us to have an element of that. But it is our job is to manage that and to manage the earnings and the margins underneath. So we think we have got the right shape of the business. We can talk a little bit about volume reduction because we could run another 3,000 conferences a year easily and have loads and loads and loads of revenue. We could have a revenue growth. But we would have a lower margin. We would probably make less money. That is not a good strategy. A good strategy is to have a business that we think is of the right shape for today, the right shape for tomorrow, and incremental, which is the answer to the last bit of the question, M&A, bolt-on acquisitions, just to make sure that that is our CapEx. We do not need a car plant or a bottling plant or an R&D unit, but we do need to spend some money on renewing our portfolio, moving into new areas. We have highlighted a little bit, or I have, food. We had a meeting two years ago in my office, and I said, I am not being smart, but it is obvious that food is going to be a really big topic for the world going forward. We are spending a lot of effort looking on how we can add to our portfolio of food. So being niche specialists is what we have always done. I do not think today for sure there is no inclination to change that strategy, to do anything that is more outrageous. We are exactly where we want to be. We like the three divisions. They play against one another, or play with one another. It has been worthwhile, and we will continue to do that. Thank you. We will take one more, because there is only one hand up. I actually had three, if I can. I will be quick. The first one is on your definition of healthy earnings growth. We are used to 11% EPS growth, and I would find 7% EPS growth as healthy. I was wondering if you share this view. Second point, on Events and Training, I was wondering if you have noticed any improvement at all or not in North America. We see some indicators pointing north in that area. Finally, on government-related revenues, how much government-related revenues you have within Events and Training, how much is left after Robbins-Gioia? Is government the reason behind the weak-ish performance of this part? If we take the last one first. Within ESI, which is the project management business, and a little bit within AchieveGlobal, there is some U.S. government business. It is only U.S. government. Other than things throughout the world that there will be government attendees at conferences and government byproduct, but it is relatively low overall. It is definitely a contributory factor to the PI business. I think the first question was why is it eight and why is it not 11? The answer to that is why is GDP minus rather than GDP plus? You take Continental Europe, take U.K., where we have been in recession, maybe still are, then that must have a-- if still 82% of our revenues are coming from the developed world, then we are going to be affected by lack of growth. When growth comes back, we would expect to benefit from that, whether it is on the publishing side or it is on the events side. What was the second one, André? It was about training. It is because I forgot that. Apologies. If you are seeing an uptick in trading in North America for events in general, apart from training, as you have already detailed. I'd say that during last year, we had times that it looked slightly better than times that it didn't. It was an election year, which had an impact on it, and then they had the fiscal cliff, which, of course, continues. I think overall I'd say no. No particular improvement. Thank you. Thank you. Great. Well, thank you very much, everybody, for coming. Adam and I will be happy to answer any individual questions, of which I'm sure there'll be a rush.