New presentation of figures
The new categorisation of the component portfolio businesses should make it easier to follow the underlying trends in demand and margin within division and by geography. The new segments are Asset management, Pricing, data and market intelligence, Banking and finance and Commodity events. Within each segment, the revenues are broken down both by geography and, separately, by business type, ie Subscriptions and content, Advertising, Sponsorships, Delegates and Other.
The splits are shown below.
Exhibit 1: New divisional revenue split FY16
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Exhibit 2: New divisional operating profit split FY16
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Exhibit 1: New divisional revenue split FY16
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Exhibit 2: New divisional operating profit split FY16
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Across the business, 65% of revenues are earned in US$, with 57% of PBT earned in that currency. This is ahead of the 51% of revenues declared as generated in the US, as many other territories in which the group transacts business are dollar-denominated.
The largest segment is clearly Asset management, which includes the brands BCA, Ned Davis Research and Institutional Investor (which includes its memberships and institutes, new surveys and rankings, as well as the eponymous magazine). Reported revenues here were up 9.1%, with the underlying improvement at 1% and margins dipping slightly from 34.5% to 34.0%. Advertising continues to fall away, but now represents only 9% of divisional revenues. The dominant element at 80% is derived from Subscriptions/Content, which was ahead by 2% on the previous year.
Pricing, data and market intelligence includes brands such as Metal Bulletin, TelCap, CEIC and EMIS. Markets where price discovery is partly opaque are ideal for ERM brands to carve out positions falling into the B2B Media 3.0 category, making this an attractive area for expansion both within existing brand structures and for acquisition opportunities. FY16 revenues were up by 4.6%, flat on an underlying basis as the business transitions and with advertising (11% of the division) still under pressure. Subscriptions/Content was again ahead by 2%.
The other two segments are those where external pressure on volumes and pricing are having the greatest impact. Banking and finance includes the brands Euromoney, Global Capital, IMN and LatinFinance. Segmental revenues were reported down by 7.5%, 13% underlying, reflecting the twin impacts of a very weak advertising market and lack of confidence affecting events. Sponsorship and Delegates are the largest elements of the Banking and finance segment at 40% and 31% respectively. The group has ceased doing external financial training and has concentrated its efforts here on delivering in-house training, where margin can be more effectively managed. Commodity events, covering Mining Indaba and Global Grain among others, reported revenues down just 1%, but this masks an underlying decrease of 18%, itself a reflection of the poor markets in the exhibitors’ industries. The phasing of this cycle, though, means that comparatives eased as the year progressed and H2 declines were considerably lower than those reported in H1.
A slight embarrassment of cash riches
Euromoney is naturally a high cash-generation business, with limited requirement for capital investment. Conversion in the year just reported was 105% (FY15: 104%; the 10-year average is 102%). Net cash at the year-end date was £83.8m, compared with £17.7m at the end of September 2015. This has provided sufficient comfort for the group to recommend a maintained dividend of 23.4p, despite this bringing the level of cover down to 2.8x versus the declared target cover of 3.0x.
There were acquisitions in the year; FastMarkets and Reinsurance Security, but there were also the disposals of Gulf Publishing and Petroleum Economist. This more active management of the portfolio will continue under the CEO, Andrew Rashbass.
We would expect to see a more substantial acquisition spend in the coming year or two, although timing is inevitably uncertain. The phrase used in the results presentation is “Strong acquisition pipeline especially Telecoms”. This market has particular attractions because of the number of new entrants in the market from non-traditional sources such as content streaming, data centres and cloud-based services. There are also ongoing issues around price transparency, availability and reliability where an independent voice is of considerable potential value. The group is also quietly investing in China, where there is increasing appetite to interact with the rest of the world. ERM’s opportunity is advanced by its being unsullied with any political associations.
Net effect on numbers minimal
Having rebuilt our model to reflect the new structure, the aggregated numbers are little changed from those previously presented.
Exhibit 3: Minor adjustments to numbers
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EPS (p) |
PBT (£m) |
EBITDA (£m) |
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Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
2016 |
64.2 |
66.5 |
+4 |
100.5 |
102.5 |
+2 |
102.3 |
104.2 |
+2 |
2017e |
65.8 |
67.0 |
+2 |
103.0 |
103.3 |
u/c |
104.8 |
109.7 |
+5 |
2018e |
69.8 |
69.7 |
u/c |
109.3 |
109.3 |
u/c |
111.1 |
115.8 |
+4 |
Source: Company accounts, Edison Investment Research. Note: 2016 ‘old’ is actual.
While the FY15 numbers included a substantial exceptional gain of £33.4m, including the one-off profit from the Dealogic transaction, FY16 numbers bear a negative exceptional item of £37.3m. The largest element of this is a £28.7m impairment on goodwill and intangibles, including charges against a couple of businesses now identified as being for sale, coupled with a £7.9m tax provision and a £7.8m restructuring and other charge, offset by a £7.1m profit on disposal.
