Interim Results

EUROMONEYINSTITUTIONAL INVESTOR PLC

Interim Results for the six months to March31 2010

Chairman's Statement

A detailed reconciliation of the group's underlying results is et out in the appendix to the Chairman's Statement and note 8

• Adjusted profit before tax up 34% to £40.0m, a record

• Adjusted operating margin improved from 23% to 31%

• Revenues down 8% to £147.8m

• Net debt to EBITDA covenant under 2x

• Interim dividend maintained at 6.25p

• Increased investment in new online information products

• Trading in line with board's expectations and revenue visibility for third quarter is encouraging

Commenting on the record first half profits, chairman Padraic Fallon said: 

"The next challenge is to consistently grow revenues. There has been a gradual recovery in sales since the start of the calendar year, which accelerated in March and April to the point where there are prospects for a return to revenue growth in the third quarter, a little earlier than the board expected. The sovereign debt crisis in Europe and the possible fallout may affect our ability to grow as quickly as we would wish, but the immediate outlook is encouraging".

Highlights 

Euromoney Institutional Investor PLC, the international publishing, events and electronic information group, achieved an adjusted profit before tax of £40.0m for the six months to March 31 2010, against £29.9m for the same period in 2009. Adjusted diluted earnings a share were 24.9p (2009: 18.5p). As the company transitions to its new dividend policy, the board has approved an unchanged interim dividend of 6.25p a share to be paid to shareholders on July 15 2010.

The record first half profits highlight the success of the group's strategy to build a more robust and higher quality information business. The group responded early to the financial crisis, cutting costs and acting to protect its margins. This strategy has continued to drive strong bottom line performance in the first half, in spite of the 8% fall in revenues. The group's adjusted operating margin improved from 23% to 31%, helped by the delayed benefit from the strengthening of the US dollar against sterling in 2009. The group's rigorous debt management and strong cash flows also contributed to the growth in adjusted profit before tax, with net finance costs reduced by £1.9m.

Net debt at March 31 was £178.1m compared to £165.1m at year end. The group's net debt to EBITDA ratio fell from 2.0 to 1.9 times. The increase in net debt is largely due to timing differences on the settlement of a financing derivative and further investments under acquisition earn-out agreements. The group's peak debt levels have now passed and with operating cash flows traditionally stronger in the second half than the first, debt levels and the net debt to EBITDA ratio are expected to improve significantly over the next six months.

Markets are likely to remain anxious for some time over the high levels of sovereign debt and the possibility of an escalation of the debt crisis across the Eurozone, while the general economic outlook points to a slow recovery at best. However, the group's recent trading has been slightly ahead of the board's expectations. Underlying revenues in April increased by 3% compared to a year ago and forward revenue visibility for the third quarter is encouraging, particularly among the group's events businesses for which the third quarter is the most important.

Strategy

The company's strategy has been to build a more resilient and better focused global information business, with a strong focus on emerging markets. 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. 

In the face of the difficult trading conditions in 2009, inevitably the main focus of the strategy was cost control, the management of product margins and debt reduction. The group cut costs early, which helped protect margins in the second half of 2009, and the continued success of this strategy is highlighted by these results. The benefits from last year's cost cuts have continued to flow through into significant margin improvements in the first half, more than offsetting the decline in revenues.

While tight margin management was maintained throughout the first half, the focus of the strategy has shifted to positioning the business for growth, both from existing products as markets recover, and from investment in technology and new products as part of the migration to an online information business.

During the first half the group invested more than £2m in new businesses, all of it from profits, and expects to invest up to £4m in the second half. Examples of recent launches include Euromoney Market Data, an online service that allows users to interrogate and analyse the results of Euromoney polls; iichina.com, a Chinese language website using content and data from Institutional Investor; real-time hedge fund performance data feeds from HedgeFund Intelligence; and Metal Bulletin's Industrial Minerals reinvention as an integrated online information service. There is also a strong pipeline of new product launches for later in 2010 and into 2011.

The strong cash flows of the group have allowed it to maintain the net debt to EBITDA covenant on its borrowing facility below two times. With no significant commitments for acquisition earn-outs or capital investment, and operating cash flows traditionally weighted towards the second half, the group's debt and borrowing covenant are expected to improve significantly over the next 18 months, leaving it with an increasing capacity for acquisitions. The company's preference is to acquire small, specialist information businesses that complement its existing activities and provide scope for strong organic growth, although the opportunities to acquire such high quality businesses have been limited.

The company will continue to pursue its successful strategy in the second half, with an emphasis on investing in technology and new subscription-based electronic information services, to position the business for future growth.

Trading Review

Total revenues fell by 8% to £147.8m. However, the performance of the group's various revenue streams in the second quarter contrasted strongly with the first (see following table). As expected, revenues in the first quarter continued the negative trends seen in 2009 reflecting the tight cost controls imposed by customers during the credit crisis. Customers began to spend more, but very selectively, from the beginning of calendar year 2010 as they started to increase their investment in their own businesses. Since January there has been a gradual recovery in sales which accelerated in March and April, to the point where there are prospects for a return to revenue growth in the third quarter, a little earlier than the board expected at the start of the year.

The group derives nearly two thirds of its revenues in US dollars and movements in the sterling-US dollar rate had a significant positive impact on reported revenues in 2009. In contrast, the average sterling-US dollar exchange rate for the first half of 2010 was $1.60, against $1.58 a year ago, and the impact of exchange rates in the first half has tended to understate the rate of recovery in reported revenues, although not significantly.

As expected, revenues from subscription-based products declined as the lag effect of cuts in headcount and information buying by customers during the first half of 2009 worked their way through into revenues. Subscription revenues fell by 7% to £72.6m, but at constant currency the rate of decline appears to have bottomed out in the first quarter, earlier than expected, and recent trends in renewal rates and new orders have both been positive. Future subscription growth will also benefit from the group's investment in new premium electronic information services.

Advertising, which was the first revenue stream to be hit by the credit crisis, began to show signs of recovery in the first quarter and this was confirmed in the second as customers, particularly global financial institutions, began to increase their marketing spend. 

Revenues from events and training, which comprise both sponsorship and paying delegates, continued to suffer in the first quarter from the tight controls on discretionary spending first imposed by customers at the end of 2008, as well as the group's deliberate strategy to eliminate low margin events. In contrast, there has been a gradual recovery in sponsor and delegate revenues since the start of the calendar year.

Emerging markets, which account for more than a third of the group's revenues, continue to hold up reasonably well, with growth in Latin America and Asia offsetting weakness in Eastern Europe and the Middle East. 

The group has continued to control its headcount tightly. Permanent headcount at March 31, 2010 was 1,847, an increase of just six people since year end. Within this total, there have been some significant increases in headcount in the areas of online publishing and web development as the group increases its investment in these areas, largely offset by further decreases in headcount in some of the businesses still under revenue pressure. However, as revenues show signs of recovery, so the pressure to increase headcount also grows and while group headcount is still significantly less than a year ago, the benefit of the related cost savings is expected to disappear by the end of the third quarter.

Business Review

Financial Publishing: adjusted operating profits increased by a third to £10.9m and cost savings helped the adjusted operating margin improve from 22% to 32%, close to the levels achieved before the financial crisis. Revenues fell by 7% but titles such as Euromoney, EuroWeek and Asiamoney, with their focus on the debt capital markets as well as emerging markets, are already benefitting from a recovery in advertising. Those businesses focussed on the asset management sector, such as Institutional Investor and HedgeFund Intelligence, have been slower to recover, with the notable exception of Institutional Investor Research which has benefitted from increased demand for its analyst rankings.

Business Publishing: in contrast to the volatility experienced in Financial Publishing, the Business Publishing titles have held up well throughout the credit crisis. Subscriptions to Metal Bulletin's products continued to grow through the first half, and the only weak sector was energy publishing. Adjusted operating profits were unchanged at £10.4m and the adjusted operating margin of 41% was also in line with that achieved in 2009. 

Training: the group's Training division predominantly serves the global financial sector and was the hardest hit by the credit crisis and cuts in training spend, headcount and travel budgets. As expected, the sharp decline in delegate revenues continued into the first quarter but the reduction in course volumes in 2009 has helped drive higher margins, particularly in the second quarter when the average attendance per course, the key driver of training margins, has started to recover. Training revenues fell by 25% to £13.7m but adjusted operating profit fell by just £0.3m to £3.2m as the margin improved to 23% against 20% in the second half of 2009. 

Conferences and Seminars: revenues comprise both sponsorship and paying delegates and fell sharply in 2009 as customers cut business travel and event attendance. The group's strategy of cutting event volumes in a downturn, and concentrating on its bigger, must attend events has served it well during the first half. Revenues fell by 10% to £35.2m but the adjusted operating margin recovered from 21% to 30%. Profits improved by £2.5m to £10.7m, partly due to timing differences on a number of events. Growth has also come from outside the finance sector, particularly under brands such as Metal Bulletin and Coaltrans which have been successful in expanding their emerging market events.

Databases and Information Services: subscription revenues, which are mostly US dollar denominated, fell by 6%, partly due to adverse currency movements. Adjusted operating profits fell by £0.6m to £17.9m and the adjusted operating margin was unchanged at 42%. BCA, the independent economic research house, started to see a recovery in sales from as early as summer 2009, one of the first of the group's businesses to do so. Renewal rates are already back to pre-credit crisis levels and revenues are expected to return to growth from the third quarter. ISI, the emerging markets information business, has demonstrated the value of the group's investment in premium data services. CEIC, ISI's provider of emerging market databases for economists and analysts around the world, has continued to experience strong growth in revenues which has helped offset weaker demand for ISI's emerging markets service in Central and Eastern Europe.

Financial Review

The statutory profit before tax of £32.7m compares to an adjusted profit before tax of £40.0m. A detailed reconciliation of the group's underlying and statutory results is set out in the appendix to this statement. The statutory loss before tax of £41.8m in the first half of 2009 reflected certain exceptional restructuring costs incurred in that period and is also set out in the appendix to this statement.

Underlying net finance costs for the group's committed borrowing facility fell to £4.7m (2009: £6.6m), reflecting both lower debt levels and lower interest rates. The average cost of funds for the period was 5.1% (2009: 5.8%).

The underlying effective tax rate for the first half was 27%, unchanged from 2009. The headline effective tax rate of 17% reflects a credit of £5.3m following the agreement of a tax claim in respect of prior years. Net cash taxes paid were just £0.6m reflecting the benefit of tax losses in 2009. Cash taxes payable in the second half will match more closely the underlying tax expense.

The group continues to generate nearly two thirds of its revenues in US dollars, including approximately 30% of the revenues in its UK-based businesses, and more than half its operating profits are US dollar-denominated. The group hedges its exposure to US dollar revenues in its UK businesses using forward contracts to sell surplus US dollars, which delays the impact of movements in exchange rates for at least a year. In the first half, the group benefited from a £2.3m reduction in hedging losses compared to last year.

The group does not hedge the foreign exchange risk on the translation of overseas profits, although it does endeavour to match foreign currency borrowings with investments and the related foreign currency finance costs provide a partial hedge against the translation of overseas profits. The impact of foreign exchange rates movements on the translation of first half profits was not significant.

Net Debt, Cash Flow and Dividend 

Net debt at March 31 was £178.1m compared to £165.1m at year end. The increase in net debt reflects a number of one-off factors: the final payment of £23.9m on a tax equalisation contract under a foreign currency financing derivative (which is offset by reductions in tax paid in financial years 2009 and 2010); further investments in subsidiaries of £10.6m under acquisition earn-out agreements (see note 9); and an adverse currency movement of £6.6m following a decrease in the sterling-US dollar exchange rate from 1.60 at year end to 1.52 at March 31 (approximately 75% of the group's debt is US dollar denominated).

Cash generated from operations increased by £15.3m to £39.9m. Operating cash flows in the first half are traditionally less than in the second due to the payment of annual profit shares each December. The operating cash conversion rate was 88% (2009: 66%). Adjusting for the timing of profit share payments, the underlying cash conversion rate was in excess of 100%.

The group's debt is provided through a $400m multi-currency committed facility from Daily Mail and General Trust plc. The facility is provided in a mix of sterling and US dollar funds over three and five year terms expiring in December 2011 and 2013 respectively.

The net debt to EBITDA covenant on the group's committed facility is subject to a limit of four times, although the group has been managing to a more conservative internal limit of three times since the start of the credit crisis. The ratio at the end of March was 1.9 times EBITDA against just under 2.0 times at year end, and can be expected to decline further in the second half in the absence of any acquisition payments and with traditionally stronger operating cash flows in this period. The group pays the lowest margin on its borrowing when the net debt to EBITDA ratio is below two times.

In 2009, the board decided to increase the company's target dividend cover to three times after-tax earnings. At the same time it announced its intention to adjust the interim dividend so that approximately one third of the expected total dividend was paid as an interim and the balance as a final dividend. As part of the transition to this interim payment policy the board has decided that, in view of the record first half results, it will maintain an unchanged interim dividend of 6.25p a share. The interim dividend will be paid on July 15 2010 to shareholders on the register at May 21 2010. A scrip dividend alternative will again be available to shareholders and the group's majority shareholder, Daily Mail and General Trust plc, has indicated its intention to accept the scrip alternative.

Capital Appreciation Plan (CAP) 

The CAP is the group's highly geared performance based incentive designed to retain and reward those who drive profit growth. It was first introduced in 2004, since when it has been an integral part of the group's successful strategy for delivering above average profit growth.

After satisfying the financial performance test for 2009, the final tranche of CAP 2004 options vested in February 2010 resulting in the issue of 1.5m new shares.

 At the annual general meeting in January 2010 shareholders approved the introduction of a follow on incentive plan, CAP 2010. The structure, terms and cost of CAP 2010 are broadly similar to those of CAP 2004, with the exception that CAP 2010 rewards will be funded by an equal mix of cash and approximately 3.5m new shares, whereas CAP 2004 was funded entirely by equity.

 The performance test under CAP 2010 requires an adjusted profit before tax (and before CAP share option expense) of £100m to be achieved within the four year performance period ending in financial year 2013.

 The total cost of CAP 2010 will be no more than £30m. Amortisation of this cost commenced in March 2010, following the initial grant of CAP 2010 options, and will continue over the remaining life of the plan. The share option expense of £0.7m in the first half includes just one month of CAP amortisation: the expected CAP charge for the second half is £3.4m.

 Outlook

Recent trading has been slightly ahead of the board's expectations and the outlook for the third quarter is improving. Underlying revenues in April increased by 3% compared to a year ago and forward revenue visibility, particularly among the group's events businesses for which the third quarter is the most important, is encouraging. The recovery in advertising revenues is also expected to continue, although against easier comparatives, and the recent improvements in renewal rates and new orders are expected to help subscription revenues return to growth by the end of the third quarter.

The second half is also traditionally the stronger for operating cash flows which help reduce further the group's net debt and finance costs. Against this, margin improvements from the cost cuts in 2009 are largely exhausted and the level of spending on technology and new businesses will increase further in the second half. 

The group is well placed for recovery and will continue to invest in technology and new subscription-based electronic information services to build the business for future growth.

Padraic Fallon

Chairman

May 12 2010 

END

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NOTE TO EDITORS 

Euromoney Institutional Investor PLC (www.euromoneyplc.com) is listed on the London Stock Exchange and a member of the FTSE-250 share index. It is a leading international business-to-business media group focused primarily on the international finance, metals and commodities sectors. It publishes more than 70 titles including Euromoney, Institutional Investor and Metal Bulletin. It also runs an extensive portfolio of conferences, seminars and training courses and is a leading provider of electronic information and data services covering international finance, metals and emerging markets. Its main offices are in London, New York, Montreal and Hong Kong and more than a third of its revenues are derived from emerging markets.

Appendix to Chairman's Statement

Reconciliation of Condensed Consolidated Income Statement to underlying results for the six months ended March 31 2010

The reconciliation below sets out the underlying results of the group and the related adjustments to the statutory income statement that the directors consider necessary in order to provide an indication of the underlying trading performance.

Underlying figures are presented before the impact of amortisation of acquired intangible assets and goodwill impairment, restructuring and other exceptional operating costs, non-cash movements on acquisition option commitment values, foreign exchange losses on restructured hedge arrangements and foreign exchange losses on tax equalisation swap contracts. In respect of earnings, underlying amounts reflect a tax rate that includes the current tax effect of the goodwill and intangible assets.

Further analysis of the adjusting items is presented in notes 4, 5, 6 and 8 to the Condensed Consolidated Interim Financial Report.

Condensed Consolidated Income Statement

for the six months ended March 31 2010

A detailed reconciliation of the group's underlying results is set out in the appendix to the Chairman's Statement on page 8.

Condensed Consolidated Statement of Comprehensive Income

for the six months ended March 31 2010

Condensed Consolidated Statement of Financial Position

as at March 31 2010

A reconciliation of net debt is set out in note 10 to this Condensed Consolidated Interim Financial Report.

Condensed Consolidated Statement of Changes in Equity

for the six months ended March 31 2010

Condensed Consolidated Statement of Cash Flows

for the six months ended March 31 2010

Cash and cash equivalents include bank overdrafts

A reconciliation of net debt is set out in note 10 to this Condensed consolidated Interim Financial Report

Notes to the Condensed Consolidated Interim Financial Report

1. Basis of Preparation

This interim financial report was approved by the board of directors on May 12 2010.

These condensed consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting'.

Accounting policies 

These condensed 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 condensed financial statements as were applied in the group's latest annual audited financial statements except for the following new accounting standards as described below:

- IAS 1 (Revised) 'Presentation of Financial Statements' (effective for annual periods beginning on or after January 1 2009) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented.

- IFRS 8 'Operating Segments' (effective for annual periods beginning on or after January 1 2009) requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes. This has not resulted in a change to the segments reported.

- IAS 27 (2008) 'Consolidation and Separate Financial Statements' (effective for annual periods beginning on or after July 1 2009) requires that, where there is a change in ownership of an existing controlled entity, this is accounted for as an equity transaction, with no adjustment to goodwill or other assets and liabilities. This differs from the group's previous approach whereby goodwill was calculated separately for each transaction and the acquiree's assets and liabilities were fair valued at the date of acquisition. The new requirements have been applied prospectively to the purchase of additional interests in controlled entities during the period.

The information for the year ended September 30 2009 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006.

Going concern, debt covenants and liquidity 

The results of the group's business activities, together with the factors likely to affect its future development, performance and financial position, are set out in the Chairman's Statement on pages 2 to 7.

The financial position of the group, its cash flows and liquidity position are set out in detail in this Condensed Consolidated Interim Financial Report. The group meets its day-to-day working capital requirements through its $400 million dedicated multi-currency borrowing facility with Daily Mail and General Trust plc group. The facility is divided into four quantums of sterling and US dollar funds with three and five year terms with a total maximum borrowing capacity of $310 million (£204 million) and £59 million. The facility's covenant requires the group's net debt to be no more than four times adjusted EBITDA on a rolling 12 month basis. At March 31 2010, the group's net debt to adjusted EBITDA was 1.89 times and the uncommitted undrawn facility available to the group was £76.8 million. The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013.

Trading conditions have improved since September 2009, which has reduced the uncertainty over the level of demand for the group's products. Over the last six months, the exchange rate between sterling and US dollars has been more stable than a year ago although the group remains exposed to the impact on the translation of US dollar profits and losses from its US dollar-based businesses and transactions including the gains or losses from the group's forward contracts used to partially hedge these. Bank credit is becoming more readily available and the group has no pressing requirement to arrange new finance. The group continues to operate well within the limits of its dedicated multi-currency borrowing facility and the first quantum (£65.6m) is not due for renewal for 19 months, in December 2011.

The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level and covenants of its current borrowing facility.

After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing this Condensed Consolidated Interim Financial Report.

Principal Risks and Uncertainties 

The principal risks and uncertainties that affect the group are described in detail on pages 17 to 21 of the 2009 annual report available at www.euromoneyplc.com. In summary, they include:

- Downturn in the economy or market sector

- Major disease outbreak

- Liquidity risk

- Market price risk

- Interest rate risk

- Foreign currency risk

- Credit risk

- London, New York, Montreal or Hong Kong wide disaster

- Publishing legislation

- Circulation

- Acquisition and disposal risk

- Key staff leaving

- Reliance on key brands

- Conferences and events (travel)

- Tax, and

- Technological change and IT infrastructure

These are still considered to be the most relevant risks and uncertainties at this time. A number of these risks and uncertainties could have an impact on the group's performance over the remaining six months of the financial year and could cause actual results to differ from expected and historical results. Where a risk that was disclosed in the annual report is unchanged, or is not expected to have a specific impact in the remaining period, further disclosure in this report is considered unnecessary.

The significance of the travel risk associated with the running of events and training courses, as set out in detail in the 2009 annual report, was illustrated by the recent eruption of the Icelandic volcano which lead to much of Europe's airspace being closed for a week. This closure had minimal financial impact on the group's activities, but the directors believe that any prolonged restriction on international travel could have a significant impact on the group's performance over the remaining six months of the financial year.

The success of the group's events and training businesses relies heavily on delegates' confidence in and ability to travel internationally. While it remains unclear whether further airspace closures may be required as a result of the Icelandic eruption, significant disruptions to or reductions in international travel for any reason could lead to events and training courses being postponed or cancelled. Where possible, contingency plans are in place to minimise the disruption from travel restrictions, and abandonment insurance is in place for certain key events.

2. Segmental Analysis

Primary reporting format 

Segmental information is presented in respect of the group's business divisions and reflects the group's management and internal reporting structure. The group is organised into five business divisions: Financial publishing; Business publishing; Training; Conferences and seminars; and Databases and information services. This is considered to be the primary reporting format. Revenues from Financial publishing and Business publishing consist primarily of advertising and subscriptions. The Training division consists primarily of delegate revenue. Revenues from Conferences and seminars consist of both sponsorship and delegates. Databases and information services consists of subscription revenue. A breakdown of the group's revenue by type is set out below.

Secondary reporting format

The group divides the operation of its businesses across three main geographical areas: United Kingdom; North America; and Rest of World. These geographical areas are considered as the secondary reporting format.

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