Interim Results

Euromoney

Institutional

Investor PLC

Interim Financial Report 2017

Euromoney Institutional Investor PLC

Interim results

Strategy on track

May 18 2017

· Strategy on track in this year of transition. The recent DMGT sell-down has allowed us to accelerate the strategy.

· First-quarter revenues reflected, as expected, the continuation of the headwinds experienced last year. Second quarter shows some signs of the business turning.

· Total revenues up 5%, underlying1 revenues down 2%.

· Adjusted profit before tax up 5% to £49.1m.

· Results continued to be boosted by a strong dollar compared to last year.

· Statutory profit before tax reflects exceptional items of £24.6m and acquired intangible amortisation of £8.8m.

· Net debt at March 31 of £83.6m, from net cash position at year-end, following the £193.6m share buyback in January.

· Strong 12-month cash conversion of 120% (2016: 107%) continues to strengthen the balance sheet.

· Active portfolio management continues. Four businesses sold and one acquisition made in first half together with two more acquisitions in April, including the US$125m purchase of RISI.

· New dividend policy: interim dividend increased by 26% to 8.8p.

1 Underlying revenues are at constant exchange rates, including pro forma prior year comparatives for acquisitions and excluding disposals and significant event timing differences as reconciled on page 8.

Commenting on the results, Andrew Rashbass, CEO, said:

"The first-half results reflect good progress with our strategy: investing in strategic themes; creating a best-of-both-worlds operating model which combines Euromoney's well-known entrepreneurial culture with the benefits of a more corporate approach; and active portfolio management. DMGT's sell-down has helped us accelerate this strategy. We are already seeing payback from our investments last year. During the first half we continued to invest for growth and to address the drag from cyclically and structurally challenged businesses. Although headwinds remain for our customers and therefore for us, particularly in asset management, the commodities and banking & finance markets are showing signs of improving. The progress we are seeing gives us confidence that we will meet the board's expectations for the full year. It is in this context that the board has changed its dividend policy to increase the dividend to approximately 40% of adjusted earnings each year."

Strategy

Our strategy is to manage a portfolio of businesses in markets where information, data and convening market participants are valued. We deliver products and services that support our clients' critical activities.

In particular, we look to serve markets which are semi-opaque; that is, where there is information which organisations need in order to operate effectively but the information is hard to find. Price discovery is a good example.

B2B 3.0: How information markets are evolving

We characterise the business models of B2B information companies into three generations, which we call B2B Media 1.0, 2.0 and 3.0. Their characteristics are typically as follows:

Euromoney has been successful in becoming a 2.0 business over the past 10 or more years. We are becoming a 3.0 business, pacing the transition to meet and anticipate our customers' needs.

Quadrants: As we manage our portfolio to achieve our strategy, we categorise our businesses into four quadrants:

Three pillars of strategic activity

This analysis results in three pillars of strategic activity:

1. Invest around big themes. These include price discovery, post-trade activities, asset management and telecoms. Some examples from the half year:

a. Price discovery: Following the acquisition of FastMarkets in September 2016 which confirmed Metal Bulletin as a leading metals price reporting agency, we purchased RISI in April 2017 for US$125m. RISI is the leading price reporting agency for the global forest-products market.

b. We continue to invest in new products at, for instance, CEIC, BCA and Institutional Investor.

2. Transform the operating model. There are two aspects to our model. One is our target business model:

The second is what we call a "best-of-both-worlds" operating model. Euromoney is known for its entrepreneurial culture - our people are creative, action-oriented, close to their customers, passionate about their brands, knowledgeable about the industries they serve and accountable for their results. Over the past six months, we have reorganised the business into seven divisions: price reporting, investment research, Institutional Investor, banking and finance, specialist information, events and data. Alongside, we are building strong central functions to support the businesses and to ensure we take advantage of Euromoney's scale, share best practice, operate strategically and create career paths for staff across the whole company.

3. Actively manage the portfolio. Acquisitions have always been, and remain, an important part of Euromoney's strategy. We have a record of identifying good businesses where our ownership adds value. In many cases, we buy founder-run businesses; and those founders often stay and grow their business within Euromoney. So far this year we have acquired the small telecoms events businesses BroadGroup (49% in March 2017) and Layer123 (61% in April 2017), as well as RISI (100% in April 2017)

We also sell businesses where we believe we are not the best owners, and to generate funds (alongside our strong cash-flows and debt capacity) to invest in the themes discussed above. During the period, we sold four businesses: HedgeFund Intelligence (December 2016), II Intelligence (December 2016), Euromoney Indices (March 2017) and LatinFinance (March 2017) for a combined exceptional profit on disposal of £4.8m.

Strategy overall. Our strategy is designed to develop the businesses we own and deliver strategic, timely, and well-executed acquisitions and disposals. We aim to allocate and recycle capital efficiently to good organic and inorganic opportunities via our "best-of-both-worlds" operating model. Our ambition is to generate consistent and meaningful returns for our shareholders at relatively low risk.

Outlook

The outlook for the commodities and banking markets is improving whereas the asset management sector is now facing headwinds. Currency remains a tailwind at the moment and we are seeing good progress from the strategic actions we are taking. Therefore, we expect to deliver a full year performance in line with the board's expectations.

Operating and Financial Review

Trading Review

Total revenue for the six months to March 31 increased by 5% to £203.2m. The group's businesses focused on price discovery, data and market intelligence improved. The commodity events and banking & finance segments, which together accounted for 24% of revenues, declined as we removed unprofitable events in the face of challenging trading conditions, particularly in the first quarter. Despite a tougher market outlook for asset management, the group modestly increased its subscription revenues from this segment, benefitting from the strategic actions initiated last year around new products, pricing and sales.

On a reported basis, the high-margin flow-through from the growth of the Invest quadrant and favourable exchange rates more than offset the drag from businesses in the Disinvest quadrant.

* Figures are 2017 reported revenues and percentages are underlying growth rates.

^ Calculates the growth rate for underlying revenues of £198.5m for the six months to March 31 (i.e. total revenue of £203.2m less sold/closed businesses revenue of £4.7m) over the equivalent six month period in 2016.

Underlying revenue fell by 2% in the period, but with a marked difference in performance between the two quarters. After a 5% decline in the first quarter, underlying revenue increased by 1% in the second, with the return to growth largely due to a recovery in the events businesses, particularly in banking & finance and commodities (see table below).

# At constant exchange rates, including pro forma prior year comparatives for acquisitions and excluding disposals and significant event timing differences.

ῼ Includes other revenues but excludes revenues from sold/closed businesses. Foreign exchange hedging losses restated in prior year at current year level.

Underlying subscriptions and content revenues increased by 1%. Despite the cost and fee pressures facing the asset management sector, subscription revenues from this segment increased by 1% on an underlying basis, with some of the strategic initiatives undertaken in 2016 starting to bring benefits. Pricing, data and market intelligence subscription revenues increased by an underlying 3%, mainly due to a strong performance from Metal Bulletin including the successful integration of last year's FastMarkets acquisition.

Underlying advertising revenues remained weak and decreased by 14%, but advertising now represents less than 10% of revenues.

Underlying event revenues fell by 5% (sponsorship fell by 3% and delegates by 6%), with the banking & finance and commodity events segments providing a significant drag. However, much of this revenue decline comes from strategic actions taken in 2016 to consolidate some of the group's event activities and cut out a significant number of low margin events and unprofitable training courses, which is now starting to improve profitability. There are also signs of a recovery in these segments as a first quarter revenue decline of 14% was followed by growth of 2% in the second quarter. Large events, particularly in the telecoms and structured finance sectors, have continued to perform well.

The adjusted operating margin was 24%, the same as last year, reflecting the benefit from the Invest quadrant businesses and the elimination of unprofitable events training courses, offset by some remaining drag from the Disinvest quadrant and increased costs attributable to the DMGT sell-down and the need to operate as a standalone group. Adjusted operating profit increased by 5% to £49.0m.

Adjusted and statutory results

Adjusted profit before tax increased by 5% to £49.1m, with an increase in financing costs following the share buyback offset by an improvement in profits from the group's equity interest in associates and joint ventures, principally Dealogic. Adjusted diluted earnings per share increased by 9% to 32.7p (2016: 29.9p), largely reflecting the benefit from the reduction in the number of shares in issue following the share buyback.

The statutory profit before tax of £15.6m is lower than the adjusted profit before tax due to exceptional items of £24.6m and acquired intangible amortisation of £8.8m. The exceptional items largely arise from a goodwill impairment charge for one of the group's asset management businesses, following its disappointing financial performance in the face of tough market conditions and recent management changes. 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 21% (2016: 19%). The group continues to benefit from reductions in the UK corporate tax rate and the tax effects of acquisitions. The tax rate in each year depends mainly on the geographic mix of profits and applicable local tax rates. The group's reported effective tax rate decreased to 12% compared to 26% in 2016. A reconciliation of the tax rate and a description of the group's uncertain tax positions are set out in note 6 to this statement.

DMGT sell-down

In December 2016, DMGT announced its intention to reduce its equity interest in Euromoney from 68% to 49% through a combination of a 15% share buyback by Euromoney and a 10% placing with institutional shareholders, which was completed in early January. The sell-down gives Euromoney balance sheet independence from DMGT and will enable Euromoney to accelerate its active portfolio management strategy. The £193.6m share buyback was funded by a mix of cash and new borrowing facilities arranged by Euromoney, and its borrowing facility with DMGT was terminated.

Following the DMGT sell-down, Euromoney has been investing in its operating model, including replacing the functions previously provided by DMGT and building a strong centre to support its growth strategy as a stand-alone entity. Once complete, this investment is expected to increase costs by approximately £4m a year, of which £1m were incurred in the first half.

Net debt and cash flow

Net debt at March 31 2017 was £83.6m compared with net cash of £55.9m at March 31 2016 and net cash of £83.8m at the last year end. The move to a net debt position reflects the share buyback completed in early January at a cost of £193.6m, funded by £75.4m of the group's cash and new bank term-loans of £118.2m. This was partly offset by strong operating cash flows of £73.7m and net cash proceeds of £2.9m from M&A activity in the period. The completion of the RISI and Layer123 acquisitions in April increased net debt by a further £103.3m.

The group's new five-year external borrowing facilities comprise term-loans of US$100m and £40m (total £119m) and a £130m multi-currency revolving credit facility. There is a further accordion facility of £130m should the group wish to request it. The term-loans and drawings under the revolving credit facility bear interest charged at LIBOR plus a margin, the applicable margin being based on the group's ratio of net debt to adjusted EBITDA. At March 2017, the group's ratio of net debt to adjusted EBITDA was 0.7 times and the committed undrawn facility available to the group was £130m. Following completion of the RISI acquisition, the group's net debt increased to approximately 1.5 times adjusted EBITDA.

The group's underlying operating cash conversion for the 12 months to March was 120% (2016: 107%), reflecting better working capital management and an increase in deferred revenue.

Dividend

When the DMGT sell-down was announced in December 2016, the board committed to reviewing the company's dividend policy. Following this review, the board has approved a new, progressive dividend policy with an increase in the dividend pay-out ratio from approximately 33% to approximately 40% (a reduction in the dividend cover from 3.0 to 2.5 times earnings), subject to the capital needs of the business. The interim dividend will be paid at a rate of approximately 33% of the previous year's total dividend. The 15% reduction in the number of shares in issue following the share buyback, combined with the increase in the dividend pay-out ratio, has enabled the board to approve a 26% increase in the interim dividend to 8.8p per share (2016: 7.0p), to be paid to shareholders on June 22.

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 six months to March 31 was $1.25 (2016: $1.48). This improved headline revenue growth rates for the year by approximately ten percentage points and adjusted profit before tax by £6.4m. 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 £0.2m (2016: £1.7m gain).

Further trading updates

Further coverage of these half-year results will be provided to analysts at a presentation starting at 9am on May 18 at the offices of UBS in London. The group intends to provide a brief third-quarter trading update on July 21.

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] 

CAUTIONARY STATEMENT

This Interim Financial Report (IFR) has been prepared solely to provide additional information to shareholders to assess the Euromoney group's results and strategy and the potential for that strategy to succeed. The IFR should not be relied on by any other party for any other purpose. This IFR contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

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-information group covering asset management, price discovery, data & market intelligence, and banking & finance under brands including Euromoney, Institutional Investor, BCA Research, Ned Davis Research and Metal Bulletin. The group also runs an extensive portfolio of events for the telecoms, financial and commodities markets.

Appendix to Interim Statement

Reconciliation of Consolidated Income Statement to adjusted results for the six months ended March 31 2017

The directors believe that the adjusted profit and earnings per share measures provide additional useful information for shareholders to evaluate and to compare the performance of the business from period to period. These measures are used by management for budgeting, planning and monthly reporting purposes. The non-IFRS measures also enable the group to more easily and consistently track the underlying operational performance by separating out the following types of income, charges and non-cash items.

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. The amortisation of acquired intangible assets is excluded to allow an easier comparison of the results of organically developed businesses with acquired businesses. 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 2, 4, 5, 6, 8, 10 and 11 to the Consolidated Condensed Interim Financial Report.

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.

The reconciliation below sets out the adjusted results of the group and the related adjustments to the Condensed Consolidated Income Statement.

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 2017 benefitted from the strengthening of the US dollar relative to sterling. To calculate underlying growth, the prior year comparatives are restated using 2017 exchange rates. Similarly, adjustments are made to exclude disposals from both years. When businesses are acquired, the prior year comparatives are adjusted to include the acquisition. The timing of events can also be a distortion. To give a fair like-for-like comparison when calculating underlying growth, significant timing event differences are excluded from the year in which they were held.

The group's adjusted and underlying measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. The adjusted and underlying measures used by the group are not necessarily comparable with those used by other companies.

The following table sets out the reconciliation from reported revenues to underlying revenues:

Cash conversion

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. For the period ended March 31 2017, exceptional items largely consist of cash payments for the 2016 restructuring costs, legal and professional fees and share buyback costs. The other working capital movements are largely the result of the landlord's one-off contribution to the fit-out of the New York office which will be amortised over the period of the lease. For the year ended September 30 2016, exceptional payments related to the strategic review in 2016 and the development of the group's new strategy. The other working capital movements in prior year related to the rent-free period of the new London offices. At the interim period an underlying 12-month rolling cash conversion percentage is used to eliminate any seasonality.

Condensed Consolidated Income Statement

for the six months ended March 31 2017

A detailed reconciliation of the group's statutory results to the adjusted results is set out in the appendix to the Interim Statement on pages 7 to 8.

Condensed Consolidated Statement of Comprehensive Income

for the six months ended March 31 2017

Condensed Consolidated Statement of Financial Position

as at March 31 2017

Condensed Consolidated Statement of Changes in Equity

for the six months ended March 31 2017

Condensed Consolidated Statement of Changes in Equity

for the six months ended March 31 2016

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

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.

Condensed Consolidated Statement of Cash Flows

for the six months ended March 31 2017

Cash and cash equivalents include bank overdrafts.

Note to the Condensed Consolidated Statement of Cash Flows

Net (debt)/cash