Earnings Call: H2 2011

Feb 23, 2012

Summary

FY2011 revenue reached £1.27bn and operating margin a record 26.4%, with strong cash flow and lower leverage. Trading began in line with expectations; resilient subscriptions, event bookings and integration savings supported the 2012 outlook.

Good morning, everybody. It's a shame you missed the previous five minutes because James, who's just walking at the back, had this fantastic video of our telecoms event in Cape Town, which you've now missed. But if you want to watch it again at the end, you can, I think. Thank you very much for coming. Adam and I are going to share the presentation this morning and take questions at the end. If you ask a question, please give your name and organization. I also like to, as well as welcoming you and saying thank you to everybody for coming, say that Derek Mapp, our Group Chairman, is sitting next to the back row, not quite in the back row where the naughty boy sits. Welcome, Derek, too. We're very pleased with our results for 2011. It's a strong financial performance, which shows how our organic strategy and related investments have made us more resilient, as well as opening up new growth opportunities. All up, we have delivered high-quality earnings and ended up where we said we would be 12 months ago, despite the Arab Spring, the Mediterranean autumn, and the Aegean winter. Let's hope we have an Indian summer. We've seen growth across all of our three divisions, an improvement in our margin, both in total and also in each division, a reduction in our overall debt while still fully investing in the business. I thought I might remind you now of what we do, although there'll be some more detail later. Firstly, we publish proprietary and niche information. We have few big products, but numerous market-leading ones. It is this content which has great resilience, evidenced by renewal rates, due to the customer's reliance on the information. Secondly, we are organized as an archipelago of small trading units. The units are interconnected, both between themselves and also to the center, creating an environment whereby we are very close to vertical markets, close to our geographical markets too, and able to move quickly, if appropriate, with low capital investment. Such an organization allows us to create new products and new models according to the needs of the market quickly and efficiently. Thirdly, since way back in 1998 when Informa was established, our goal has been to be the best of breed. Through high quality, one can establish resilience and visibility. In our case, this has been through building a digital media business underpinned by subscriptions, mostly annual, ongoing book series, site licenses, and very high renewal rates across the piece. On the event side, resilience and visibility of earnings comes from market-leading repeatable annual events. Sometimes they're a conference, and sometimes an exhibition. Four, we're a global company and certainly not specifically a U.K. or European one with the U.S. as our biggest single market. We also have major activities in emerging markets and not just the BRICS. With a network of offices and flat management structures, not only do we get a geographical spread, but also the ability to move products and people to hot areas, many of them are hot areas, quickly and efficiently. Lastly, we have very good cash flows and cash conversion percentages throughout our business. Typically, we convert about 100% of our profits into cash, and for a group our size, have relatively low CapEx requirements. Our financial strength, certainly much improved from some years ago, allows us great flexibility going forward, evidenced by our decision to pay a total dividend for 2011 of 20% on the previous year. Over a period of time, we've built a high quality, high value business which has done well in demanding economic times due to many of the elements on this slide. Namely, high quality subscriptions delivered to customers' own sites digitally on a need to have basis. From an old-fashioned print publisher, we are well on the way to digital excellence across the business, not only in databases, but also through e-books and our e-training platforms. Thirdly, strategically, we've reshaped our events business, radically reducing volumes in low margin areas where there is a high preponderance of discretionary spend, and replacing that profit, but not necessarily all of the turnover, with larger events at higher margins, with greater resilience and more visibility, be they trade shows or conferences or a mixture of both. Fourthly, with some of the world markets going backwards or with low economic growth, then we are not alone in looking to expand geographically. 2011 showed good progress in this direction, but it's not just the BRICS. It's also other emerging markets such as Turkey, Qatar, Saudi Arabia, various parts of Africa, Thailand and Vietnam. Before I hand over to Adam, I thought I'd just share with you a few facts which are relevant to us delivering on strategy. In total, 67% of our publishing revenues come from subscriptions and 36% of our total revenue. All of our subscription revenue is delivered digitally along with other products, especially e-books, which push total digital revenues up to 74% of our total publishing revenues. On the event side, we have seen a 22% increase in the number of large events alongside a big reduction in the number of smaller, more marginal events. We've also seen the revenue we receive from emerging markets grow to 14% of total revenue with our Brazilian trade show acquisitions a relevant driver in this. Other important successes in the year have been the combination of Datamonitor and IBI, of which more later, and brand-new content platforms for academic information and professional and commercial information. Whilst these platforms are new to us, they're relatively inexpensive to build but do require regular maintenance to ensure that they offer the customer what they want. Lastly from me for now, we've made a number of acquisitions during the year, of which the largest was Brazilian Trade Shows. These were all fill-in and incremental in the way we outlined last year. These acquisitions are in all of our divisions and have benefited from being part of a larger group, especially in terms of cost efficiencies and the ability to geo-clone, taking advantage of our network. Now I'd like to hand over to Adam. Thank you, Peter. Good morning, everybody. Let's look at the story behind the set of results from a financial viewpoint. We have grown revenues organically by 3.9%, adjusting for IPEX, which as you know, we ran in 2010. We have grown profits on a similar basis by 7.9%, leading to an increase in the operating margin to 26.4%, the highest the group has ever achieved. Our cash flow remains strong, generating free cash flow of over GBP 200 million, which has reduced our net debt to EBITDA ratio to 2.1 times at the lower end of our target range. Our earnings have increased by over 8% to 37.8p, and as a result of the board's confidence in the group's prospects, not least our strong free cash flow generation, the second dividend in 2011 has been increased by 24% to 11.8 pence, making a full year payout of 16.8p, a 20% increase for the second year running. Looking at the actual numbers, we generated GBP 1.27 billion worth of revenue, 4% up on 2010. From that, we generated GBP 336.2 million worth of profits, the highest in the group's history, up 7.3%. We have some adjusting items this year between the statutory and the adjusted results, which are itemized in the back of your pack as well as in the press release. One of the largest of these is we have taken a GBP 50.7 million impairment against Robbins-Gioia. Robbins-Gioia came to the group as part of the IIR acquisition in 2005, and it is a consulting company primarily to the U.K. government. To stress, Robbins-Gioia only contributes around 3% of group revenues and is a positive contributor to the group's results. You will also see in the back of the pack the overall return on investment of the IIR acquisition that I have just referred to is 14.3%, well above the group's WACC. Further down the income statement, we have incurred interest costs of GBP 41.8 million, which I will talk about in a minute, and a statutory tax charge of GBP 14.3 million. The adjusted tax rate is 23.4%, which is a 100-basis point reduction on 2010. Turning to the divisional performance, academic had a strong year with organic revenue growth of 6%, reducing to 4% on an actual basis from the weakening US dollar. This growth helped generate an 8% increase in profits. You will no doubt ask why this is higher than we achieved at the half year. Both parts of the business performed well, and we did have a particularly strong end to the year, unexpectedly receiving monies from Greece and securing a large content deal in the Russian market. We saw a strong performance in the U.S. books market, made further progress in emerging markets, and with investments in new platforms alongside a few society wins, albeit at a lower margin, the division remains in rude health. We would expect further growth in 2012, albeit at lower levels than we achieved this year. Looking at PCI, the top line grew by 2.6%, reducing to 1.5%, again, primarily because of the US dollar. This division grew its profits by 4.5%, helped in part by the first cost savings generated from the Datamonitor and IBI integration. More of which to come later. As you know, advertising, which is only 2% of group revenues, is within this division, and it remains tough. Growing the top line across the rest of our revenue streams remains the focus, and we have invested in new platforms and new content to try and accelerate this process. Providing the pharmaceutical and financial sectors don't suffer major turbulence during 2012, we anticipate similar levels of growth at the top line. Margins, which will be boosted by the cost savings generated by Datamonitor, will increase again in 2012. Events and training grew by 3.6% on a like-for-like basis, with better growth being seen across our larger, more resilient events. Although it was pleasing to note a 6% growth across our corporate training business once you strip out Robbins-Gioia. This revenue growth helped deliver an 11.7% increase in profits as our margins increased to over 18%. To remind you, when comparing this margin with other quoted groups, our events and training portfolio comprises around 7,500 events, from our largest, Arab Health, down to a small training course. As Peter will outline in a minute, our ongoing strategy for events should lead to a further increase in operating margin next year. The outlook in events and training is always less certain than the publishing divisions, but we have good visibility over our large events, which account for around two-thirds of the profits, but less so on training and the smaller conferences. Trading to date doesn't give us a clear steer on how the year will play out. The larger events are doing well and growing, but we haven't run enough of the smaller events yet to get a clear trend. More to discuss on this one at the trading update in May. Turning to cash flow, it has been another strong year. With a slight imbalance between CapEx and depreciation and amortization and an outflow of working capital, we achieved a 93% cash conversion. If we add back the two items that we highlighted at the half year, we would be at 99%. Over the past four years, the group's cash conversion has averaged around 103%, and I remain confident that with growth in 2012, we will achieve this level again this year. The funds flow statement highlights the cash cost of the restructurings that took place in 2010 and 2011 and interest on tax payments, which leave free cash flow over GBP 200 million. This year, we have spent over half of this on acquisitions, with the balance on dividends to leave a small net inflow. Net debt at the year-end is GBP 784 million. If we spent nothing on acquisitions in 2012, we will de-gear to well below the lower end of our target range of two times. The interest charge has been a focus in the past, so let me help you with the profile for 2012. In April 2011, we refinanced the group with a new five-year facility priced in line with the group's solid credit profile. There were no changes to the covenants in this facility, and the covenants are broadly in line with those agreed at the time of the private placement issue. To remind you, the effective rate of the private placement notes is 4.3%. We have a number of out-of-the-money fixed-rate swaps, which were originally taken out in 2007, that expired towards the end of 2011, and the final ones expire this year. Having these fixed swaps in place reduced the upside of the funding secured in the PP and the bank market. As they now have almost expired, the interest charge will significantly reduce in 2012, and the estimated cost of debt for the group in 2012 is 4.1%. As you will see in the back of the pack, we have incurred a charge of GBP 15.2 million relating to restructuring and redundancies. Two-thirds of this relates to the integration of Datamonitor and IBI, as highlighted at the half year. There were two principal integration processes. The first, to collapse the Datamonitor back-office structure into our U.K. shared service center, and second, to integrate the front office and management teams within IBI. We estimate now that the annualized savings from this integration will be GBP 12 million, of which GBP 4 million was achieved in 2011. As you have seen from the cash flow, we have spent more money on acquisitions in 2011 than we did in the previous three years combined. This reflects a slight improvement in the M&A market, and in particular, vendor expectations, but also reflects our success in reducing the group's net debt and increasing its acquisition capacity. We have not relaxed the financial criteria we need when assessing potential acquisitions. As we've said in the past, we are proud of our acquisition history and the returns on historic acquisitions, as well as the group's overall return on capital employed, shows another improvement this year, and they're set out in the back of the pack. We will continue to pursue acquisition opportunities in 2012. Across our publishing division, this means we look for subscriptions, we look for paid-for digital content, data, all within our key verticals. Many of these will be bolt-ons, where we can increase the returns by eliminating distribution costs and overhead. On the events side, we want to increase the number of exhibitions we run and are particularly focused on continuing the expansion across emerging markets. Last year, the two biggest acquisitions were both in Brazil, and we highlighted them at the half year. BTS had a successful second half of the year, running the remainder of its portfolio, and the shows have rebooked strongly into 2012. Its one biennial takes place this year, which will boost the revenues. You should not forget that by buying the business in June, as the first shows of the year run from that date, we avoided five months of operating costs in 2011, which will be in this year's results. ebra Expo, which is the Serigrafia print show that we ran in July last year, was a great success and has also booked extremely well this year. We will also be running our first geo-cloned events in Brazil in 2012. Each year, the board analyzes the returns on the most recent acquisitions we've undertaken. The acquisitions that we completed in 2010 achieved a 12.5% return on investment in their first full year, again, well above the group's Weighted Average Cost of Capital. As you are aware, around 40% of our revenues are generated in the U.S. or in countries whose currency is pegged to the US dollar. The US dollar average rate weakened by 6 cents in 2011, which had an annual impact on our profits of GBP 8.4 million, or put it another way, would have increased our profit growth on an organic basis to around 10% if the dollar had remained where it was. Offsetting this, it should be acknowledged that we had a small benefit of the euro strengthening during the same period. The calculations behind this are again set out in the appendices to your pack. Europe, of course, remains a key focus for global stock markets, and although we generate around 20% of our events and training revenues from customers located in Europe, this includes such highly successful market leading shows like the Monaco Yacht Show or our Anti-Aging Congress, which also takes place in Monaco, as well as our large German and Dutch conference and training businesses. Only 3% of our events and training revenues are generated from those countries in Southern Europe, commonly referred to as the PIGS. Peter will talk in a minute about the progress we have made around our four key strategic drivers. Before then, I thought I would look at the group's progress from a financial standpoint over the past four years. These years, of course, have been extremely tough from an economic perspective. Interestingly, the group's revenue is flat over that period, with the drop in events and training covered by an increase across our publishing divisions. We are only at 87% of our peak events revenue, and we're still GBP 19.5 million down in terms of profits in that division. Over this four-year period, we have increased our operating margin by 350 basis points to 26.4%, an 11% increase. We have reduced our net debt by over GBP 550 million or 42%, including, of course, the rights issue, which, as I've just mentioned, means our net debt at the end of 2011 was 2.1 times compared to 3.8 times four years ago. The more resilient part of our business, which I've called our subscription revenues, our copy sales, and our larger events, has grown as a proportion of group revenues from 62% to 70% in 2011. We've taken our tax rate down by 270 basis points or 10%. With today's announcement of an increased dividend, we have raised our dividend over this four-year period by 68%. All the while throughout this four-year period, we've increased our return on capital employed. To conclude, we think this is another set of strong results. Of course, a lot of attention will now focus on 2012 and whether we can achieve the earnings growth that is projected. Consensus has us growing another 8% in terms of earnings, which, of course, is well above the average for the market. Trading has started in line with expectations, with our deferred income giving us, as usual, comfort and visibility over around a third of group revenues. Forward bookings across our larger events are strong. Renewal rates are in line with expectations, and as I've highlighted, the cost savings from the Datamonitor integration as well as the reduction in the interest charge should give the market comfort towards how we achieve that 8% growth. Finally, use of cash is always a key question for highly cash generative companies. We've worked hard on reducing our net debt, and this gives us the flexibility, underpinned by our confidence in the group's future prospects, to increase the final dividend by 24%. Our intention is to grow dividends in line with earnings, but should we not be able to find the right acquisitions at the right price, then there is more scope to look at other ways of increasing shareholder returns in the future. Thank you. Thanks, Adam. I'd now like to talk a little bit about our strategy and how we have moved on from 2008. Quickly, firstly, to remind you that this slide shows the sort of business that we have and where we are placing emphasis. Taking the subscription revenue stream first. This has moved from 30% of group revenue in 2008 to 36% in 2011 across academic information and PCI. Individually, subscriptions comprise 55% of AI revenue and 78% of PCI revenue. In both divisions, we have purposefully taken out unprofitable and marginal product, which, of course, has had a revenue line effect, while at the same time improving margin. The other major change here, admittedly going back beyond 2008, has been the substitution of single copy subscriptions to site licenses, again in both PCI and AI. Certainly, the delivery digitally of valued content to a server has helped us maintain, and in some instances, increase our renewal rates. This content is not discretionary. It is a need to have, and especially today, if it's not need to have, it's probably not to have at all. Overall, advertising revenue is a small percentage of group revenue, and it is in fact now only 3% of publishing revenues. Nonetheless, it's still important to us, especially as it tends to be advertising in our quality subscription products rather than in controlled circulation, hard copy magazines. Professional and commercial information, which is predominantly in the seven vertical sectors shown on the slide, had a good year. Its strengths are to focus on companies' information requirements in a niche and specialist way rather than an all-you-can-eat approach. Here, digitization, which accounts in total for 89% of all revenues, has pursued the goal not only of integration into a corporate's requirements, but also to do it in a two-way manner. There's nothing more certain than if you don't find out what the customer wants these days, you'll eventually be sending them the wrong content and maybe you will end up a customer less. Of course, as we said before, a major thrust in this area during 2011 was the successful integration, both from a front and back office perspective, of Datamonitor, which is now totally complete. If we do have a concern in this area, it's obviously around our financial information businesses. Certain of these will find it difficult to grow in the current banking environment. I could have selected hundreds of examples here of what we do in PCI. We are a niche specialist business. However, I've chosen two very different ones. We acquired a tiny business, F.O. Licht, which actually is in Germany, in the early 1990s, which at the time specialized in news and commentary on sugar, coffee, and molasses. Pretty niche. Putting the business into Agra, it started to add new data sets using its own internal expertise, covering a number of the topics mentioned on this slide. We quickly realized that this rich data is very valuable, especially when allied with analysis. Whilst pure news, with the development of the internet, whilst part and parcel of many of our products, is much less valuable. Quite separately, the sugar element of F.O. Licht has taken us squarely into subjects like ethanol and biofuels, where we have become market leaders in providing data, not only in terms of published information, but also associated events. Second example is very recent and arises from the tragic Costa Concordia incident. Historically, Lloyd's List has always covered maritime events using a network of agents throughout the world. However, in this case, as you can see from the map, not only were we able to chart in red the tragic path of the liner this year, but in pink, if that's right, its path last August, which seems to be even closer to the island. This example shows how deep our data is, especially historical data, which of course will be helpful to any investigation, but is also important from an insurance perspective. With the publicity we gained through our coverage, Lloyd's List Newspaper and Lloyd's List Intelligence both also received a timely boost. We merged Taylor & Francis with Informa, which is by and large A&I, in 2004. From an Informa perspective, not only has this been an incredibly value-enhancing merger, but it's also helped us to do a number of things which flow through our strategy. It added a high percentage of resilient subscription revenue. It gave us a lead into digitization. It helped our growth in emerging markets, and it provided some scale from which the whole business has benefited. In particular, though, with high annual calendar renewals and consequently great cash flow, A&I then underpinned the business. You can see the A&I statistics here, to which I would only add that 30% of our journals now are society journals, and that 57% of all the academic information revenue is digital. Over the last 8 years, this business has grown as well as any other parts of our business. We've grown the number of titles, of course, but more particularly, we've completely digitized the subscription side, and as you can see, have available as e-books almost 50% of our total list. In addition, the business has grown well into emerging markets, with 13% of A&I's revenue now arising there. It's simply a very robust, high quality, valuable business, but obviously it goes much deeper. Everybody speaks about challenging markets, and particularly academic cutbacks in the developed world. Obviously, our academic business is not immune to this, but we've achieved growth nonetheless. We've pushed our e-content sales and achieved sales of journal content into emerging markets such as Russia, Asia, and the Middle East. Some of these deals continue through into 2012. Like elsewhere in Informa, we needed to fuel future organic growth with some M&A activity, and during 2011, the acquisitions of Architectural Press and Earthscan, which on their own were quite small, were fully integrated into the business. During 2011, taking into account society wins and losses, new launches and acquisitions, we actually added a net 75 journals to our portfolio. Lastly, we launched our new delivery platform, Taylor & Francis Online, which will help enable us to dovetail book and journal content. We've also continued to create new models according to customer requirements, including our T&F Open program, which allows authors and their sponsors flexibility and variety when they choose to publish research with Taylor & Francis. This is really a reminder of what has gone before, with a commitment to delivering what the customer wants digitally. Trying not to be a volume all-you-can-eat supplier, but one which provides rich, deep data, providing customers with the knowledge and information that they require. Digitization certainly enhances the utility of our products, and our product line is now unrecognizable from the original hard copy product. Whilst we're obviously in a good place here now, the pace of change is still accelerating, so wherever we are, it's absolutely still work in progress. When Informa was much smaller and a B2B company in the main rather than a professional information provider, which we are today, our growth inevitably was through the events business. Since 1983, albeit with a few downturns, we effectively played a volume game. Our profitably grew effectively by how many delegates we had over breakeven in our conference and training businesses, and how many events we ran. Following the acquisition of IIR, and particularly after the global financial crisis, we determined to change the mode. If we wanted Informa overall to be a higher quality business and still have events, then these events had to have increased resilience, manifesting in a higher margin and with better visibility. Over the last five years, we've gone a long way to achieving this successfully, but we've not yet got the finished article. We have trimmed 3,500 of our more marginal events over this period, and at the same time, changed the remaining mix through a combination of organic growth and through acquisitions. The acquisitions have largely been in the trade show area and in emerging markets, which we've already covered. In 2011, we launched 19 new large events and acquired 28. A large event for us is one with revenue of over GBP 200,000, of which we had 256 last year, which contributed 38% of the total events revenue at a high industry margin. The difference with these large-scale events typically is that they're market leaders and as such, much less volatile than the smaller ones through the cycle. Particularly, they're characterized by a preponderance of revenue from exhibitors and sponsors, with delegate revenue probably only accounting for 24% of the total, whereas in the smaller events, all the revenue comes from delegates. I think you can see from the chart here what progress we are making in this important strategic area for Informa. With the rationalization of the portfolio, as described earlier, and a concentration on our larger events, geo-cloning is an important part of what we do. As you can see, 20% of our larger event volume is now from geo-cloning, which in itself has been accelerated through acquisitions. Looking at the logos here, you can see real strengths in certain areas. Finance through SuperReturn, GAIM, which is for the hedge fund market, and Fund Forum are run throughout the world. In fact, I can sell you a ticket today for our main SuperReturn event, which is in Berlin next week, and which has a record amount of sponsorship and exhibition revenue attached to it. Also, we have our Cityscape Construction series, which also includes events on future cities and which is predominantly, again, in the Middle East. This year, we run our Cityscape series in Dubai, Abu Dhabi, in Qatar, in two cities in Saudi Arabia, and also for the first time in Egypt, and that event's actually running today. As a group, we've been traditionally strong in the telecoms area, and you will see on the slide that we have a global series of events, which we've shown earlier on, called the Comms World Series, which has its largest outing in Cape Town in December. In addition, though, in recent years, we've acquired the Broadband World Forum and the IPTV World Forum, which we significantly geo-cloned out of Europe into the rest of the world, specifically Asia. Lastly, given the strength we have on health and healthcare information, we benefit synergistically with also having a very successful medical events business. The largest of these is, in fact, our largest event, Arab Health, which ran in Dubai in January. But we also run a successful Africa Health and other events in areas such as hospital build, clinical trials, aesthetics and anti-aging, medical tourism, et cetera. These typically have originated in one place and then been rolled out across the world. In 2011, our revenues from emerging markets were 14%, compared with 12% in 2010. This is even more pronounced on the events side, where 20% of our revenue comes from emerging markets, now boosted significantly by our strengths in the Middle East and by our acquisition in Brazil and the Far East. None of this should be a surprise, though, because our products are global products, and our worldwide infrastructure, including shared service centers, allows us to operate with relatively low investment costs and very efficiently. We targeted Brazil during 2011 to acquire an appropriate business, which we did with BTS and Serigrafia. Through last year and the beginning of this, we continue to look to build on our emerging market position via organic means, both in events and information, and through acquisition, but only if the opportunity arises. One last point here is that we don't feel at all confined by the BRICS. There are lots more opportunities, and our organizational structure allows us to operate quickly in Indonesia, Vietnam, Nigeria, or even Angola if there's a clear opportunity. I'm sure you've gathered that we're pleased by our performance in 2011. In particular, despite the challenging environment, we delivered on our expectations, and all divisions grew their bottom lines. Whilst we are not transformed into a completely different business than we were five years ago, and that was never the intention, we are today a much higher quality business. Looking forward into 2012, the profits remain underpinned by subscription revenues and our larger events. Certainly, our resilient revenues are much higher now as a percentage of the total than they were five years ago. As you have already heard, our academic journal renewal process was a success. The PCI integration will release cost savings, and our events forward bookings are in good shape around the large events. Accordingly, despite the uncertainties around, we have made a strong start to the current year, and trading remains in line with our expectations. Thank you very much for listening and for adding part, and we would be very pleased to answer any questions that you have got. Yeah. Hi, it is Nick Dempsey from Barclays Capital. Two questions, please. Beyond 2012, I just wonder what kind of revenue growth you think you need to drive further margin improvement from these good levels? The second question, looking at PCI, it looks like 30% is copy sales, and it looks as though that is going backwards. What are the prospects there, and what happened this year in copy sales? We will do them in reverse order. PCI is copy sales, and they have a books element to the business, and there are some one-off reports that were done primarily in the Datamonitor area. We want to turn this business more into a subscription model, and the success of Datamonitor has been around long-term subscriptions rather than one-off copy sales or one-off reports. So there has been a strategic change over the last couple of years to remove or reduce the amount of revenue that is generated from that part of the business. So I would not read that as a change in the market or trading environment. It is more strategic and moving more into subscriptions. You can see from the large proportion of subscription revenue we get in PCI, across both parts of the business and the financial bit. That is where we want to go. Beyond 2012, I think so much depends on where the market is going to be and what the global forecasts for growth are going to be around the world. We, at the moment, are going to be dependent on the U.S. more than any other market. But as I hope we have outlined this morning, we are trying to push into different markets, look for some higher growth markets. The margins overall, I think, sitting on the academic side of the business are pretty much at the top of where they are going to be. The more society journals we do, which is an important strategic part of the business to get close to societies, means that the margins will come down. Those contract wins are done at lower margins than our wholly owned journals. On the PCI side, I think there is more scope to go once we have got the integration savings. If we can get growth back in PCI, as we talked about at the PCI day last year, then those margins have got some scope to get closer towards where the academic margins are. The more we can do on the events and training side, the closer we will get to some of our peers' margins in that area, not forgetting that we still have a long tail of events, so we're never going to be a complete comparable to some of the larger exhibition groups or even some of the smaller exhibition groups. Do not forget with exhibitions, launching them, we consider a success to be if it makes a small contribution. It will be probably a 3-year mature model before a newly launched exhibition or a geo-cloned exhibition would reach a mature margin up in the 30% that we would anticipate and expect to get and indeed do get from our larger exhibitions. Thanks. You choose. Thank you. It's Samik Shah at Exane BNP Paribas. Good morning. Within PCI, can you comment on the new sales activity you've seen and to what extent you're seeing sales cycle getting either longer or shorter? It differs a little bit from activity to activity. The hardest part of the sales is the advertising revenue that is still part of PCI. As we said earlier on, that is tough. As regards the rest of the business, again, it depends a little bit of the sector that you are in. So the healthcare and the pharmaceutical sector is a stronger sector than the financial sector. So perhaps obviously. There is no doubt that the, and I do not know what it is in weeks or months, but the actual sales cycle is a longer cycle than it used to be. All businesses have managed through the downturn by getting to be much more efficient when that includes sometimes a slowing down of that process. Having said that, we are in a number of different sectors, and all those sectors behave rather differently, and I think we are in a good position. Advertising is not an important percentage of revenue, but it sits in our business, and while the world is a tough place, that will be a hard revenue stream to maintain. But on the subscription side, and on the one-off sales, we feel pretty confident. At the Investor Day, you argued that PCI was a mid-cycle, mid-single digit top-line growth business through the cycle. We have seen peers of competitors guiding for numbers that are above 5%, 6%, rather than below. Has your view of the world changed in particular because of your exposure to the financial information industry? Or do you still think PCI can achieve 5% plus? No, I do not think that the view has changed. I think where we are different to other professional publishers, some of the much bigger ones, is that they are operating in slightly different ways. As Peter said, we are a niche publisher, and though that gives you the benefit of being market leading, it often constrains the size of the market that you can go for. So, the maritime sector is clearly not as big a sector as some of the others. Although we are the market leader there, and we have got some great products, we probably see that the growth potential there might be less than it could be elsewhere. But no, we have not changed our view. I think the corporate world remains tough. That is our view. It is certainly tough in the financial services sector, and there has been lots of change and job redundancies announced in the pharmaceutical sector. There was some big M&A which took place over the last couple of years in that sector, all of which will have an impact. But ultimately, we will, I guess, live or die by the strength of our content, and we are very comfortable with the team we have in place in that part of the business and the investment we have put into content, and we listen to our customers, and we deliver what they want. And through the mid-cycle, wherever that is, that is where we still will hold the view we had in May last year. Lastly, could you please split up the A&I growth between books and journals? Over the full year? For full year. Yeah. It was pretty much even. We did have a better end to the year on books, so books came in slightly ahead than the journal side of the business. But broadly across that 6%, it was pretty even. Thank you very much, gentlemen. Morning. Simon Davis from Collins Stewart. A couple of questions, if I may. Just on events. You used to define the top 200 events as generating 70% of events profits. Can you update us to where that now is? On the smaller scale events, what has been happening in terms of trends on average delegate numbers and margin? Secondly, on the dividend, obviously, a significant hike. Can you give us a feel for where you think dividend cover should settle in the medium term? I will do the first bit, perhaps Adam could do the second bit. On the event side, I tried to lead you into this a little bit by telling you that the larger events account for 38% of the revenue at something like the industry margin. Perhaps it would be better you did it that way around. As regards the smaller events, and some of these are conferences, Simon, and some of them are training courses, but it varies a lot geographically. To be honest, the last quarter of 2011 was tough for small events in parts of Europe, but other parts of the world, it was fine, including those events that we run in the U.K. and in Singapore or in Asia and in Australia. I guess that is still the case, but those events that are small conferences and courses that we run in continental Europe, local language, local topics, are a very small percentage of our total business now. So although, yes, they would give a bit of a bounce or a bit of a down, the actual quantum is minimal, really. The dividends, as you see from the maths, is now the 2.25 cover. The intention this year would be to grow the dividend in line with the earnings growth. But as I said, if we are in a situation where we have not utilized any of the free cash flow and acquisitions, and we are sat in 12 months' time, we will be probably under a bit more pressure that we are lowly geared at that point, and that gives us more scope to look at whether it is the dividend or other means of returns for shareholders. You can have a go, mate. I go. Thanks. It is Mark Bradley at Deutsche Bank. Just to follow up on the conferences, just a very basic question about the calendar. In terms of your conferences business in Germany and the Netherlands, can you remind us of what are the big months and what are the big quarters? I know you do not have visibility on the business, so I am wondering when you will know that you have got enough of the profit in the bag. It is quite seasonal. In Holland, for example, they have a good first quarter, typically a weaker second quarter because of holidays and Easter and things like that, a long summer holiday, and they make a lot of the money in the second half of the year. To the extent that they were affected by the problems last autumn, of course, it hit their second half of year numbers a little bit. Germany's probably not dissimilar to that, although unlike Holland, because of the size of the German economy, we have more large-scale market-leading events there. So we have a big energy event and a big IT event and a big savings and municipalities event, which just like the rest of the business, underpin it. So, it is a seasonal business. This first half is quite important. We do nothing for a quarter, and then the last quarter of the year is very important. What happened in 2011 in the smaller events, in very broad terms, is it started well, and the first half of 2011 was better than the first half of 2010, and the last quarter was a weaker quarter. You can see that by looking at the comps. Thank you, gentlemen. It's Andrea Beneventi from Cheuvreux. To start from Academic Information, you said that 13% of revenues come from emergings and 12% from e-books. Broadly, what is the overlapping between the two and what is profitability level for e-books, please? I don't think we really track the overlap between the two. The e-book strategy will be to make them available to all of our customers, and I would guess, and I am guessing, that the proportions would be the same. That across all of our e-books, we'll sell the vast majority into the developed markets and around the 13% into the emerging markets. Profitability, we try and keep the pricing identical, in terms of hard copies and e-copies. It's the same on the journal side. We try not to have any differential. Clearly, there's less distribution costs on the e-books, which does help a little bit in terms of the margins. But, we're trying to make the pricing very transparent for customers and make it simple. The second question on events and training. You mentioned SuperReturn in Berlin. Could you highlight the trends at SuperReturn for the franchise in general? Do you see weakening demand, and how big is it as a share of events and training, please? Well, no, it's not weakened. Overall, as a series, it's a growing series. I think there are a dozen SuperReturns now, or some of them are called SuperInvestor, in the U.S., both coasts, in Continental Europe, in the Middle East, in Africa, and actually in Asia too. Maybe it's sometimes slightly counterintuitive in terms of what you read and stuff, but the private equity world, which is what it covers, is alive and well and we have the market-leading events in all the parts of the world in that. Thank you. Finally, regarding the exposure to government customers in PCI, is there anything on the top of the 3% at Robbins-Gioia that you mentioned, like for instance, at Chief Global, and how are these contracts developing, please? Within PII, the old PII. There is a little bit in ECI. They do some government work, but it's a very different form of Robbins-Gioia is a consultant, and they project manage or program manage big contracts for the U.S. government. ESI is a management training company, and they will look at corporates or the U.S. government. So it's a different model, less exposure, and no change to the way their revenues are performed under the new administration. Thanks a lot. Thank you. Thank you. Richard Menzies at Merrill Lynch. Just one question with different bits. Just focus on events a bit. I noticed in the deferred income split, events is up 15% constant currency, which seems a very strong number. I just wonder if you could generally comment around that, and I'm thinking in terms of what new launches you have in 2012, because presumably you've got some new stuff that impacts that. Also, I think there's a biennial sort of in Brazil that comes in that probably helps. Then I guess related into all that is just Reed made some comments around some softness in their European exhibitions. I just wonder whether you had any sort of comment around that too. I think that just proves the danger of a deferred income number, which I've been trying to say for a number of years. I think we look at deferred income as ensuring that the business is in rude health and it continues to trade well, and we'd expect to see a little bit of growth. In any one point in time, that deferred income number can be changed both up and down by timing and when events fall or how things have renewed on the publishing side. You're right, that some of that increase is driven by some shows taking place in the first half of 2012, which didn't take place in 2011. Some of the geo-cloning that we've talked about, new events going into Brazil that we hadn't run before from across the group. But also how hard we've worked on trying to bring cash into the business and recognizing cash earlier and getting contracts signed up earlier. We're very cognizant of the ability for the group to generate its cash and to bring those receivables in. The points in time in which we can recognize that income certainly comes forward a little bit, depending on how we structure the contracts. Some of that will be driven by the strength of Arab Health, which as we said, was up 6% when we ran that in January this year over 2011, and a large chunk of that deferred income sitting in the balance sheet will have related to that. We have got more events in the first quarter. I just think it shows how strong that part of the business remains across events and training. As regards the. We've seen no effect on our European exhibitions. You heard what I said about European training courses, which there was an effect. Our European conferences, so our European exhibitions and trade shows are strong and they've not been affected. We don't, to be honest, we don't have that many. They include things like some of our top series and the big telecoms events that might be held in Europe and the Monaco Yacht Show. None of those have been affected. Thank you. Hi, it's Vinesh Padhiachy from Goldman Sachs. Just a question on the academic side. Did I understand correctly that some of the one-off deals will flow into next year? Will there be some benefit there? Can you also talk about the margin profile going forward? You've alluded to the fact that there's more societies, but were you actually saying the margin should dip from the 2011 level? There is an impact of the Russian deal into 2012, and there'll be a little bit in 2013 as well, so we recognize some income this year. There is another chunk in 2012 and a bit more in 2013. It's an archive content deal across a wide range of subjects, and it represents the one-off nature of it is because it's very hard to see the visibility of it sometimes. It represents what we've done over the last number of years of getting our archive back cataloged, digitized, and being able to sell it. The margin profile is impacted a little bit by currency, so it will depend where the dollar is, in terms of the overall visibility on the margin. I think the more we do on the society journals, which is an important focus for us, it will have a dampening impact on the margin. We anticipate this year that the margin within academic information will probably soften a little bit, subject to what currency does over the course of the year, because of the greater amount of society journals that we have got. We had a strong year in 2010, a strong year in 2011, and that will impact in 2012. I think it is a positive thing overall for the academic business. Thank you. It is around. Yep. Okay. It is Ruchi Malaiya from Citigroup. It does not sound as if you are terribly excited about doing a buyback and were more focused on the bolt-on acquisitions as a priority. Maybe you can just remind us of your criteria for investment and what you look for in terms of returns on those bolt-ons, and why at this stage that might be preferential to a buyback. Also, on the academic information side, could you give us a little bit more color on how the developed markets versus the emerging markets are performing in terms of growth rates? Thank you. Yeah. I suppose without being flippant about a buyback, we feel we are here to build a business for medium long-term. The important thing about a business like Informa, which is relevant and relies on its content, is you have got to keep refreshing that content. The criteria that we apply is that acquisitions need to beat the group's weighted average cost of capital in the first full year. They need to be earnings enhancing in the first full year, which I accept is not particularly hard in this world. Also look at a cash payback within seven years. We have maintained that criteria over the last four years. Yet the returns we got on our 2009 acquisitions in 2010 were 18.9%. The returns that we had on our 2010 acquisitions last year were 12.5%. You will see next year that the returns on BTS and Serigrafia were well ahead of WACC, when we have got those results into the full year for 2012, when we look at those. We are very proud of what we achieved. Certainly on the publishing side, the ability to take out distribution costs and overheads means that you are really buying in gross profit, and the returns on them are very good. You think we can generate good returns for our shareholders, and I hope we demonstrated this morning the progress we have made financially as well as operationally across the group over the last four years. A buyback is an instant return, and we are trying to build something longer term. We are also aware that if we reach a point where we are well below two times net debt to EBITDA, then that will call into question the capital structure, and maybe we would look at something that utilizes capital a bit more permanently or quicker than the dividend. I think the dividend increase, which hopefully will be well received by shareholders, is longer term. The board would not have gone to that level unless it felt confident that that level can be maintained, if not improved. I think that shows the confidence we have in the group going forward. On the AI emerging markets question, I think there is about a 6%, 7% increase year on year. It more or less mirrors the overall increase on the AI side. The reason that is that the one-off deals that Adam spoke about have largely typically been in the emerging markets. Last year, those of you who remember, there was a very large Saudi Arabian deal, and it was much bigger, per se, than the actual Russian and the Asian deals that we did this year. Last year, in 2010, there was an Indian and Saudi Arabian deal. It is not that we are not still pushing hard there. We are growing commensurately with how the rest of the business is growing. Someone asked a question. Thanks. It's Matthew Walker from Nomura. Two questions, please. First one's on CapEx. You mentioned T&F Online. CapEx I think is about 2% of sales at the moment. It's pretty low. Do you anticipate that sort of creeping up as you do more digital, or is that about the level we should expect going forward? The second question is on the books business, particularly academic books. What do you think the impact of the Apple iBooks and iBooks Author announcement is going to be on the academic books business? I'll do the second one first. I think that I think this will end up as being another model alongside existing models. Overall, what academic information is about, at least from our perspective, is to produce in a very efficient way, deep research and content. I think the ability for people to self-author is a new option. It doesn't necessarily replace what already exists. I think that some people will do it, like some people have used Open Access. Open Access has grown, but it's not grown as quickly as the rest of the businesses have grown. I've looked at it quite closely. I've got it as an app as well. I think some people will choose to use it, some people will not. I just think from our perspective and what has always been our viewpoint, is that we have to be able to be flexible to offer the content how our readers want to receive the content. Some of that will be e-books. You know what? E-books is still whatever 12%, 13% of our total book sales even now because people still want to choose to receive a hard copy or a paperback book. CapEx, yes. Think about it as 2%, 2.5% of group sales. There's not been any under-investment over the last four years. I guess the flip side of the earlier question on PCI and the growth is because we're a niche publisher operating in a number of niches, we don't have a big platform that we have to build and that we have to spend tens or hundreds of millions of GBP on. We are well invested. All the businesses get the investment they need. You should think going forward at maintaining it at similar sorts of levels. Hi, William Packer from Exane BNP Paribas. In the context of weak academic book markets where the AAP data is down, it is weak or declining at Wolters Kluwer, Cengage, Elsevier, could you please provide some commentary on your 6% or better number and how you are achieving that? Is it through a strong front list in 2011 or strong prices and volumes? Let us say it is through a very strong front list because everybody will be listening to this back at the ranch. Our book business has actually done well for a number of years. It is very specialist in certain areas. We have added to that, which helps the numbers with some small acquisitions of relevant titles, so in certain disciplines. I think we have worked hard at making sure that our emerging markets distribution, as well as the distribution in the U.S. and out of the U.K., is strong, too. We have built a very successful Indian book business, but at full price rather than at discounted prices. I think it is a combination of a number of things, including the fact that, of course, that exposure to Amazon and the ability for people to more readily buy off the back list than you can do in a bookshop is helpful. The bookshop historically could obviously only show a short front list. We have got now the option of both. We have benefited not just in 2011 from that, but over the last few years, too. Would you say there would be a discernible difference in the emerging market and developed market growth in books? No, not particularly. I think we have done well across the board on it. On a separate issue, in the PCI division, excluding copy sales and advertising, in the subscription business, what kind of organic growth do you see there? Going forward? Yes. I think in this current market, somewhere around 3% for that part of the business. The year-end result will depend on what happens in advertising, which is a small revenue stream but clearly matters, and what happens in the financial services sector. Thanks very much. And thank Oh, one more. Sorry. Hi, it's Jason Asalati from Spirit Santo. I'm just looking a little bit more at CapEx and how we split down acquisitions. Could you give us better understanding of what is in purchase of other intangibles, which went up to EUR 26 million? Is that an acquired business or should we look at that as CapEx? Secondly, from the strategy in academic, I take you're quite happy to go for faster growth, even if that comes at the expense of margins with the society journals. When I look at the strategy and events, I get the exactly opposite message that we have been cutting back on low profitability, but I understand still profitable smaller events in favor of larger, higher events. If I take that right in the press release, there is a direct comment to this saying that this might penalize growth in an upcycle. I think I'm quoting that pretty much word by word. Maybe I misunderstood. Those events we have been cutting were all loss-making, not lower profitability? What is the rationale there, please? Let's go back to 2008 where we might have had 11,000 events. The choice to cull 3,500, those were marginal events. Some of them would have been loss-making by now. They weren't necessarily the same ones because we launched new events and new training courses through the year. Some of them were where we decided to run one training course in a particular discipline rather than four during the year. So we just ran one to actually get more delegates at that one and make a profit. But the margins on them were tiny margins, and they were so small that given a very poor economic environment, they could easily flip. Now, we've gone from 11,000, which is very much a peak or very nearly the peak, still to 7,500. We've taken out margin events whereby we've also taken out some of the people to protect the profitability of the business. It's counterintuitive just now to suggest that the right thing to do would be to put those 3,500 events back on, and all the commensurate associated overhead and make more profit about it. We just don't believe that that's the way the market is. If one day in the future, we believe that that's the market, then we'll change that. But currently, we see our benefit from having more sponsorship, more exhibition revenue on larger events with more visibility, with renewals year on year and robustness. On the event side, the conference and training course side, more delegates as the world improves, and more profit and more margin at the end of the day. I think it's an interesting link. I don't think there's a link at all. We're talking about an academic business with a 30-odd percent margin. We're talking about society journals, and we've always had society journals, and everybody else has society journals. So Springer and Wiley and Elsevier Science is a society journal. It's part and parcel of what you do. Typically, just the acquisition of a society journal contract for four years actually helps your business as a whole because it attracts authors, and attracts other articles, and it helps your other journals because you might be in diversity or you might be in obesity or whatever area you are, and having more product helps that from a publishing perspective, too. So I think it's a misconnection. It's certainly not part of the plan. You raise an interesting point on the CapEx, because I think some of our shareholders at the top of the register would view M&A as the CapEx of a business like Informa, but I don't think that was the point you were trying to make. The purchase of other intangible assets is basically where we bought assets rather than shares. So if you add that number with the 83, you get to the acquisition number. So the number that's in acquisition of subsidiaries is when we buy shares, and the number that's in other intangible assets is when we do an asset deal. That's simply what it is. But I think that it's interesting that a number of shareholders understand that to buy businesses and do M&A is equivalent to CapEx for lots of other industries. Just to follow up on both, maybe. In terms of amortization going forward, what number are we looking at? It will stay roughly where it is at the moment in this sort of. 2011? Yeah. Where just perhaps in line with or just maybe slightly behind where the CapEx number is. Across depreciation and amortization, depending whether you are doing hard assets or soft assets, around in the mid-20s. I apologize, I know I have a tendency to see the glass always half empty. Your comment on events means that the margins we are seeing now, let us call them peak margins, are recession margins, and that should the economy pick up, the additional of the go back to lower profitability events would actually have a depressing effect on margins. No. Okay. Thank you. These are recession margins, and going through the cycle, margins would increase as would profitability. Good. Well, thank you very much. I know a number of you will come and crowd around here now, so you are very welcome to. For the rest of you, have a nice day. Thanks very much.