Euromoney Preliminary Statement

Euromoney

Institutional

Investor PLC

Preliminary Statement

September 30 2016

Euromoney Institutional Investor PLC

Preliminary Statement

November 24 2016

A detailed reconciliation of the group's adjusted and underlying results are set out in the appendix to this statement.

Headlines

· Strategy on track

· Performance in line with Board's expectations despite continuing tough trading conditions for some businesses

· Benefits from a strong dollar allowed accelerated investment in strategy

· Strategy delivering a return to robust subscription growth

· Total revenues flat on last year, underlying 4% down

· Adjusted profit before tax down 5% to £102.5m

· Decrease in statutory profit before tax due to exceptional charge of £37.3m (2015: exceptional gain £33.4m)

· Underlying operating cash conversion of 105%. Net cash at September 30 of £83.8m.

· Final dividend unchanged at 16.4p

Commenting on the results, Andrew Rashbass, CEO said: "The strategy we unveiled in March is working. It's a tough environment for our customers, and therefore for us, but we are beginning to see the results of the strategy, for instance in the acceleration in subscription growth, which constituted a record 58% of our business in 2016, and in the flow of successful product launches. Focusing the company on delivering growth through investing in areas of opportunity and disinvesting from areas that are structurally and cyclically challenged remains my priority. Our return to acquiring excellent businesses, like FastMarkets, after a break from acquisitions in 2015, also increases my optimism about the future. Despite lower year-on-year profits, our strong balance sheet means that we are recommending to shareholders that we maintain the dividend at 2015 levels. This is a mark of our measured confidence about the future."

Strategy

At the Investor Day in March 2016, we presented the new strategy for Euromoney. We categorise our businesses into four quadrants depending on the position in the business cycle of their customers and the strength of their business model and take necessary actions in each quadrant as follows:

This leads to three pillars of strategic activity:

1. Investing around big themes such as the information and services to support the asset management industry, price discovery and others.

2. Ensuring an effective operating model that marries the best of the company's entrepreneurial culture (closeness to customers, passion for brands, knowledge of products and accountability for revenue and profit) with, for example, modern marketing techniques, group-wide talent management, seeking economies of, and opportunities from, scale and adopting a strategic approach to developing each business.

3. Actively managing the portfolio, disinvesting in businesses where the market is weak and the business model structurally challenged and investing where the businesses are structurally strong and there are market tailwinds.

Progress with implementing the strategy has been good, partly because the organisation has adopted the strategy more effectively and more quickly than we had assumed and partly because we have been able to use the benefits of the strong dollar compared with sterling to accelerate investment while still delivering results in line with Board's expectations. This is despite tougher trading conditions than we had expected during the year and our bottom-left businesses performing worse than we had forecast 12 months ago.

Our three-pillar and four-quadrant strategy helped to identify the businesses that were dragging us backwards and the businesses where we have the greatest opportunities. We began to deal with the former and invest in the latter. We have removed the bottom-left profit drag from Gulf Publishing and Petroleum Economist (which we sold) and from Euromoney Learning Solutions (which we restructured). In addition, we began to reduce any operational deficit (as we call it) to get as many of our businesses as possible performing better (introducing, for example, sophisticated pricing policies and market-led product development techniques).

With this new focus on market-led product development, we launched numerous new products. Some examples:

· BCA research reports and analysis on US equities, US Equity Trading strategy and US Technology sector strategy;

· Institutional Investor RIA and European Alternative Investment Institutes created;

· Institutional Investor Research All-America Trading Team survey and rankings;

· Ned Davis Research research data solutions with access to all NDR's data and charts and Explorer which provides interactive content distribution; and

· Airfinance database and fleet analysis tools for Airfinance Fleet Analyst.

As well as disposals, we have become more active once again in our search for excellent businesses to add to our existing ones but with a greater focus on their strategic fit than before. During the year, we acquired FastMarkets, a metals news and prices platform which becomes part of the Metal Bulletin Group and accelerates its strategy of becoming the leading metals price reporting agency. We also bought Reinsurance Security, which rates reinsurance companies, and which now sits alongside, and complements, Insurance Insider. We also acquired a fleet database which now sits at the heart of our fleet-valuation toolset.

The continuing strong cash generation - conversion of adjusted operating profit to cash in the year at 105% continues our decades-long record - shows that, in the face of tough market conditions, the business can be both strategic and tightly and effectively managed.

Priorities for 2017

In the year ahead we expect to continue to implement the strategy, investing in our big themes, making sure we have an effective operating model which combines Euromoney's entrepreneurial culture with a more strategic approach, sharing best practice and achieving economies of scale. We will continue to manage the portfolio actively, buying where we see value-creating and strategically sensible opportunities to do so and selling when we believe a business is more valuable to someone else than to us.

Outlook

We do not expect markets to improve in the year ahead and our plans are built around them not doing so. We said at the Investor Day, that our strategy would not change the trajectory in 2016; that we expected, subject to the usual caveats, to return to growth in 2018; and that 2017 would be a year of transition. This remains our view.

Operating and Financial Review

Trading and business review

Total revenue for the year of £403.1m was in line with 2015. The pressures on banking and finance and on commodity events, which together constituted 26% of revenue, continued to offset the improving performance in the group's businesses focused on price discovery, data and market intelligence and those serving the asset management sector. Trading conditions have remained challenging throughout the year, but the group is starting to reap the benefits from strategic initiatives focussed on new products, pricing and sales. On a reported basis, the drag from businesses in the disinvest quadrant has been offset by favourable exchange rates. Underlying revenue decreased by 4%.

* Figures are 2016 reported revenues and percentages are underlying growth rates.

Underlying subscriptions and content revenues increased by 1%. Asset management subscription revenues were up an underlying 2% largely from the strategic initiatives undertaken for new products, pricing and sales. Institutional Investor's subscription-based memberships performed strongly throughout 2016, while BCA and NDR ended the year on a positive note with Q4 performance showing encouraging signs of returning to growth. Pricing, data and market intelligence subscription revenues were up an underlying 2% reflecting strong performances from the group's insurance and financial data businesses together with the emerging market information and data provider, CEIC.

Underlying advertising revenues remained weak and declined by 11%. The largest decline was felt by the group's banking and finance businesses, reflecting the cost pressures on global investment banks.

Underlying event revenues fell by 9%, with the banking and finance and commodity events segments creating a significant drag on revenue growth due to the structural and cyclical headwinds in those markets. The steep first half decline of 13% was followed by a lower rate of decline of 4% in the second, reflecting easier comparatives after the commodities crisis in the first half of 2015. Underlying event sponsorship was down 2%. Large events, particularly in the structured finance and telecoms sectors, remained robust but smaller events fared less well. Underlying delegate revenues fell by 14%, largely due to weakness in the financial training business. Following a strategic review, the decision was taken to focus on in-house training and reduce significantly the number of public training courses held. Revenue from event delegates (excluding the drag from training) fell by an underlying 2% in the second half after a 13% decline in the first.

The adjusted operating margin fell from 25.8% to 25.2% due to the accelerated investment in the strategy. The drag from the bottom-left-quadrant businesses was offset by the favourable currency mix. Adjusted operating profit fell by £2.8m to £101.4m.

Adjusted and statutory results

Adjusted profit before tax decreased by 5% to £102.5m, consistent with the fall in adjusted operating profit and the adjusted diluted earnings per share also fell by a similar amount. Underlying adjusted profit before tax fell by 13%.

The statutory profit before tax of £43.9m is lower than the adjusted profit before tax due to exceptional items of £37.3m and acquired intangible amortisation of £16.7m. The exceptional items mostly arise from goodwill impairment charges, an overseas sales tax dispute and restructuring costs associated with the group's strategic review in 2016, partly offset by profits realised on businesses sold during the period. A detailed reconciliation of the group's adjusted and statutory results is set out in the appendix to this statement.

Tax

The adjusted effective tax rate based on adjusted profit before tax and excluding deferred tax movements on intangible assets, prior year items and exceptional items is 18% (2015: 18%). The group continues to benefit from reductions in the UK corporate tax rate and the tax effects of acquisitions made prior to July 2015. The tax rate in each year depends mainly on the geographic mix of profits and applicable tax rates. The group's reported effective tax rate increased to 29% compared to 14% in 2015. A reconciliation is set out in note 5 to this statement.

Net cash, cash flow and dividend

Net cash at September 30 2016 was £83.8m compared with £55.9m at March 31 and £17.7m at last year end. This balance sheet position reflects the group's strong operating cash flows, as well as the £14.4m proceeds from the redemption of preference shares as part of the Dealogic transaction and the £10.8m cash consideration from the disposal of Gulf Publishing and Petroleum Economist. This was offset by acquisition spend of £14.3m for FastMarkets and Reinsurance Security. The underlying operating cash conversion rate was 105% (2015: 104%).

In April 2016, the group extended its $160m multi-currency borrowing facility from DMGT, the group's parent, to November 2018 (see Consolidated Statement of Cash Flows). The group has no significant outstanding acquisition commitments payable in 2017.

The company's policy is to distribute a third of its adjusted after-tax earnings by way of dividends. Although adjusted earnings have declined, the company's strong balance sheet means the board is able to recommend an unchanged final dividend of 16.4p a share to be paid to shareholders on February 9 2017, giving a total dividend for the year of 23.4p a share (2015: 23.4p).

Currency

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

The average sterling-US dollar rate for the year to September 30 was $1.41 (2015: $1.55). This improved headline revenue growth rates for the year by approximately five percentage points and adjusted profit before tax by £6.7m. Each one cent movement in the US dollar rate has an impact on profits on translation of approximately £0.6m on an annualised basis. The group also benefitted from the revaluation of non-sterling denominated balance sheet items resulting in a gain of £1.9m (2015: £2.5m loss).

Further trading updates

Further coverage of these full-year results will be provided to analysts at a presentation starting at 9am on November 24 at the offices of UBS. The group intends to provide a brief 2017 first-quarter trading update on January 26.

END

For further information, please contact:

Euromoney Institutional Investor PLC

Colin Jones, Finance Director: +44 20 7779 8666; [email protected]

FTI Consulting

Charles Palmer: +44 20 3727 1400; [email protected]

NOTE TO EDITORS

Euromoney Institutional Investor PLC (www.euromoneyplc.com) is listed on the London Stock Exchange and is a member of the FTSE 250 share index. It is an international business-to-business media group focused primarily on the asset management, banking and commodities sectors under brands including Euromoney, Institutional Investor and Metal Bulletin. It is a leading provider of economic and investment research and data under brands including BCA Research, Ned Davis Research, and the emerging market information providers, EMIS and CEIC. The group also runs an extensive portfolio of events for the financial and commodities markets. Its main offices are in London, New York, Montreal, Hong Kong and Sofia, and more than a third of its revenues are derived from emerging markets. 

Appendix to Preliminary Statement

Reconciliation of Consolidated Income Statement to adjusted results for the year ended September 30 2016

The directors believe that the adjusted profit and earnings per share measures provide additional useful information for shareholders to evaluate the performance of the business. The group's non-IFRS measures are intended to remove from reported earnings volatility associated with the following types of one-off income and charges:

Adjusted figures are presented before the impact of amortisation of acquired intangible assets (comprising trademarks and brands, databases and customer relationships), exceptional items, share of associates and joint ventures' acquired intangibles amortisation, exceptional items and tax, and net movements in deferred consideration and acquisition commitments. In respect of earnings, adjusted amounts reflect a tax rate that includes the current tax effect of the goodwill and intangible assets. Many of the group's acquisitions, particularly in the US, give rise to significant tax savings as the amortisation of goodwill and intangible assets on acquisition is deductible for tax purposes. The group considers that the resulting adjusted effective tax rate is therefore more representative of its tax payable position. Further analysis of the adjusting items is presented in notes 3, 4, 5, 7, 9 and 10 to the Preliminary Statement.

The group has consistently applied this definition of adjusted measures as it has reported on its financial performance in the past and it is the group's intention to continue to consistently apply this definition in the future.

Underlying results

When assessing the performance of our businesses, the board considers the adjusted results. The year-on-year change in adjusted results may not, however, be a fair like-for-like comparison as there are a number of factors which can influence growth rates but which do not reflect underlying performance.

When calculating underlying growth, adjustments are made to give a like-for-like comparison. For example, the adjusted results in 2016 benefitted from the strengthening of the US dollar relative to sterling. To calculate underlying growth, the prior year comparatives are restated using 2016 exchange rates. Similarly, adjustments are made to exclude acquisitions and disposals from both years. The timing of events can also be a distortion. To give a fair like-for-like comparison when calculating underlying growth, biennial events are excluded from the year in which they were held.

The reconciliation below sets out the adjusted and underlying results of the group and the related adjustments to the statutory Income Statement that the directors consider necessary to provide useful information about the group's trading performance.

Cash conversion measures the percentage by which cash generated from operations covers adjusted operating profit. The underlying basis is after adjusting for significant timing differences affecting the movement on working capital and exceptional items. Exceptional items are the payments relating to the strategic review including one-off acquisition and integration costs, the major reorganisation of certain businesses and other professional fees relating to development of the group's new strategy. The other working capital movements relate to the favourable effect of the rent-free period in the London offices. The 2015 underlying cash conversion has been restated for the impact of exceptional items.

Consolidated Income Statement

for the year ended September 30 2016 

A detailed reconciliation of the group's statutory results to the adjusted results is set out in the appendix to the Preliminary Statement on page 5.

Consolidated Statement of Comprehensive Income

for the year ended September 30 2016

Consolidated Statement of Financial Position

as at September 30 2016

Approved by the board on November 24 2016. 

Consolidated Statement of Changes in Equity

for the year ended September 30 2016

Consolidated Statement of Changes in Equity

for the year ended September 30 2016

The investment in own shares is held by the Euromoney Employees' Share Ownership Trust (ESOT) and Euromoney Employee Share Trust (EEST). The trusts waived the rights to receive dividends. Interest and administrative costs are charged to the profit and loss account of the trusts as incurred.

The other reserve represents the share premium arising on the shares issued for the purchase of Metal Bulletin plc in October 2006.

Consolidated Statement of Cash Flows

for the year ended September 30 2016

Cash and cash equivalents include bank overdrafts.

Note to the Consolidated Statement of Cash Flows

The group's access to debt funding is provided through a committed multi-currency revolving credit facility from Daily Mail and General Trust plc (DMGT). The total maximum borrowing capacity is US$160m (£123m). The facility was extended during the financial year and is available to the group until November 28 2018. Interest is payable on this facility at a variable rate of between 1.35% and 2.35% above LIBOR dependent on the ratio of adjusted net debt to adjusted EBITDA. The facility's covenant requires the group's net debt to be no more than three times adjusted EBITDA on a rolling 12 month basis. Failure to maintain the covenant requirement would result in the group being in breach of the facility, potentially resulting in the facility being withdrawn or impediment of management decision making by the lender. Management regularly monitors the covenant and prepares detailed forecasts to ensure that sufficient headroom is available and that the covenants are not close or potentially close to breach. At September 30 2016, the group's net cash to adjusted EBITDA was (0.76) times and the committed undrawn facility available to the group was £123m.

There is a risk that the undrawn portion of the facility, or that the additional funding, may be unavailable or withdrawn if DMGT experiences funding difficulties themselves. However, if DMGT were unable to fulfil its funding commitment to the group, the directors are confident that the group would be in a position to secure adequate external facilities, although at a higher cost of funding.

The group's strategy is to use excess operating cash to deposit with DMGT or pay down its debt. As at September 30 2016 the facility was undrawn and has not been utilised during the financial year (2015: £nil). The group generally has an annual cash conversion rate (the percentage by which cash generated from operations covers adjusted operating profit before acquired intangible amortisation and exceptional items) of 100% or more due to much of its subscription, sponsorship and delegate revenue being paid in advance. The group's operating cash conversion rate was 102%. The underlying operating cash conversion rate is 105% compared to 104% in 2015.

Notes to the Preliminary Statement

1 Basis of preparation

While the financial information contained in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.

The information for the year ended 30 September 2016 does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006. A copy of the accounts for the year ended 30 September 2015 has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006. These accounts will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting.

The directors have restated the segmental information to more accurately reflect the operations and the group strategy. The group is organised into four business divisions: Asset management; Pricing, data and market intelligence; Banking and finance; and Commodity events.

Accounting policies

The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

The same accounting policies, presentation and methods of computation are followed in these financial statements as were applied in the group's 2015 annual audited financial statements, except as described below.

· IFRS 9 'Financial Instruments' - subject to EU endorsement, the expected mandatory effective date of implementation is January 1 2018

· IFRS 15 'Revenue from Contracts with Customers' - subject to EU endorsement, the expected mandatory effective date of implementation is January 1 2018

· IFRS 16 'Leases - subject to EU endorsement, the expected mandatory effective date of implementation is January 1 2019

· Amendments to IAS 38 on Intangible Assets

· Annual Improvements 2012-2014 Cycle

Going concern 

Having assessed the principal risks and the other matters discussed in connection with the viability statement, the directors consider it appropriate to adopt the going concern basis of accounting in preparing this Preliminary Statement.

2 Segmental analysis

Segmental information is presented in respect of the group's business divisions and reflects the group's management and internal reporting structure. The directors have restated the segmental information to reflect the changes in the group's operations following the implementation of the new group strategy. The group is organised into four business divisions: Asset management; Pricing, data and market intelligence; Banking and finance; and Commodity events.

Asset management and pricing, data and market intelligence consist primarily of subscription revenue. Banking and finance consists mainly of both sponsorship income and delegates revenue. Commodity events consists primarily of delegates revenue. A breakdown of the group's revenue by type is set out below.

In April 2016, the group disposed of 100% of the equity share capital of Gulf Publishing Company, Inc. (Gulf) and The Petroleum Economist Limited (PE). As a result segment information from the disposal of Gulf and PE has been reclassified as sold/closed businesses and the comparative split of divisional revenues, revenue by type and operating profits have been restated.

Analysis of the group's three main geographical areas is also set out to provide additional information on the trading performance of the businesses.

Inter-segment sales are charged at prevailing market rates and shown in the eliminations columns.

1. Operating profit before acquired intangible amortisation, long-term incentive credit and exceptional items (refer to the appendix to the Preliminary Statement).

2. Acquired intangible amortisation represents amortisation of acquisition-related non-goodwill assets such as trademarks and brands, customer relationships and databases (note 9).