Below are the sections entitled ‘Highlights’, ‘Strategy’ and ‘Outlook’. To read the full report, please click here.
Commenting on the results, chairman Padraic Fallon, said:
"We're looking ahead again, beyond a tough start to 2010, to opportunities emerging in a changed landscape. We concentrated on quality, focused on subscriptions, cash flows and costs, and our people responded magnificently. That gives us confidence in our strategy whatever the conditions."
Euromoney Institutional Investor PLC, the international publishing, events and electronic information group, achieved an adjusted profit before tax of £63.0 million for the year to September 30 2009, against £67.3 million in 2008. Adjusted diluted earnings a share were 40.4p (2008: 44.4p). The directors recommend a final dividend of 7.75p giving a total for the year of 14.00p (2008: 19.25p).
Group revenue fell by 4% to £317.6 million (2008: £332.1 million). After a strong first quarter when revenues increased by 15%, the group experienced a sharp fall in sales from January 2009 as customers imposed tight cost controls from the start of their new budget year in response to the global credit crisis. This immediately translated into falling revenues, although the year-on-year rates of decline in advertising, sponsorship and delegate revenues in the second half were no worse than those experienced in the second quarter. Subscription revenues proved more resilient, increasing by 24%, but the rate of growth has declined in the second half as the lag effect of customer cuts in headcount and information buying gradually work their way through into revenues.
The group acted quickly and early to restructure the business, cut costs and protect margins, and the adjusted operating margin improved from 24.5% to 25% despite the fall in revenues.
The adjusted profit before tax of £63.0 million compares to a loss before tax of £17.4 million in the statutory results. The statutory loss is stated after charging: exceptional restructuring costs of £10.7 million, most of which was charged in the first half, which generated annualised cost savings of approximately £17 million; an exceptional impairment charge of £23.2 million, again most of which arose in the first half; acquired intangible amortisation of £15.9 million; a foreign exchange loss on tax equalisation contracts of £19.9 million which is matched by a tax credit and has no effect on earnings a share; and a foreign exchange loss of £7.9 million on restructured hedging arrangements included in net finance costs.
Foreign currency movements have had a significant impact on both revenues and net debt. The group is exposed to foreign exchange risk on the US dollar revenues in its UK businesses, which are hedged, and on the translation of the revenues and profits of its US dollar-denominated businesses, which are not hedged. The reported 4% decrease in group revenues would have been a 16% decrease at constant exchange rates, while the net benefit to adjusted profit before tax from foreign currency movements, after hedging, was approximately £6 million.
The board announced its decision to increase its dividend cover at the time of its half year results. The proposed reduction in the final dividend reflects this decision, which arose after reviewing possible debt and cash flow outcomes in the light of events in world financial and commodities markets from 2007 onwards. This review suggested that volatility in these markets had increased sharply, particularly in the wake of the Lehman collapse. The board concluded that such volatility may persist for some time, in spite of the recovery in parts of the financial markets, and that the dividend cover should be rebased to a sustainable level for the longer term. In future, the board intends to maintain a policy of distributing one third of its after-tax earnings to shareholders while delivering long-term dividend growth in real terms.
Net debt at September 30 was £165.1 million compared to £214.7 million at March 31 and £172.0 million the previous year end. Approximately 80% of the group's debt is US dollar-denominated and the increase in the sterling-US dollar rate since March 31, combined with the group's traditionally strong operating cash flows in the second half, helped reduce net debt by nearly £50 million. The group's net debt to EBITDA ratio, which is calculated on an average exchange rate basis, was little changed at just under two times.
The group continues to trade in line with the board's expectations. It has a clear, well established strategy which it is executing successfully to build a more robust, high quality earnings flow. This strategy, combined with the strength of its brands and the diversity of its sectors, customers, and geographic markets, means the group is well positioned to return to growth as soon as markets improve.
The company's strategy has been to build a more resilient and better focused global information business. This strategy has been executed through increasing the proportion of revenues derived from subscription products; accelerating the online migration of its print products as well as developing new electronic information services; investing in products of the highest quality that customers will value in tough times as well as good; eliminating products with a low margin or too high a dependence on advertising; maintaining tight cost control at all times; retaining and fostering an entrepreneurial culture; and generating strong cash flows to fund selective acquisitions to accelerate that strategy.
The success of this strategy continues to be highlighted by these results.
Subscription revenues increased by 24%, in sharp contrast to the declines in other revenue streams, and now account for 47% of total revenues against 37% in 2008. Similarly, the profits from databases and information services, which include some of the highest margin products in the group and are derived mostly from subscription products, accounted for 36% of the group's adjusted operating profits compared to 21% a year ago.
The tight control of costs and focus on high quality, high margin products was critical to the group's success in 2009. The adjusted operating margin improved to 25% as cost cuts were implemented early in the year, low margin products were eliminated quickly, and continued product investment ensured the growth in higher margin electronic publishing products was maintained.
The group remains keen to acquire small, specialist information businesses that complement its existing activities and provide scope for strong organic growth, although it does not expect to complete any significant transactions in the next six to 12 months and its excess cash flows will be applied to investment in new products and reducing debt.
The group's strategy is robust and suitable for a wide range of trading conditions. While the outlook for economic recovery remains uncertain, the board will continue to focus on managing costs, protecting our margins and reducing debt levels. At the same time, we have stepped up our investment in technology and new subscription-based products and the group is well positioned to take advantage of the recovery when it comes.
Generally markets seem to have stabilised after an exceptionally volatile and difficult period and the outlook among our customers is more positive than it has been for some time, although this has not yet translated into improved revenues. The broad sentiment is that global markets will continue to recover in 2010, but slowly: the risks of further banking failures and a correction to the recent recovery in financial markets remain; the prospects for economic growth in Europe and the United States are likely to be weak for the foreseeable future; and the threat of increased regulation of financial markets will continue to restrict capital availability.
The return to profitability of most global financial institutions should be a positive factor for trading in 2010. However, the cuts in headcount and the restrictions on discretionary spend on marketing, training and information buying applied throughout 2009 are not expected to be relaxed quickly, and not before the start of our customers' new budget year in 2010. This means that the board expects that the group's revenues will continue to decline in the first quarter, a view which is supported by current levels of sales and forward bookings.
The group continues to trade in line with the board's expectations. The first quarter of the new financial year is expected to be the toughest: the board expects the decline in year-on-year revenues to continue and profits to fall despite the benefit of cost savings implemented in 2009 and favourable exchange rates. October's revenues fell by 18% compared to a year ago. From the second quarter, the year-on-year revenue comparatives should become easier but the point at which revenues start to grow again is dependent entirely on the timing and scale of any recovery. The focus on maintaining margins and reducing net debt will therefore be maintained, although the group has also stepped up its investment in new products and electronic publishing to take advantage of the recovery when it comes.
The group has a clear, well established strategy which it continues to execute successfully to build a more robust, high quality earnings flow. This strategy, combined with the strength of its brands and the diversity of its sectors, customers, and geographic markets, means the group is well positioned to return to growth as soon as markets improve.