RNS Number:7225C
T&F Informa PLC
08 September 2004
8 September 2004
T&F Informa plc
ACQUISITIONS AND ORGANIC GROWTH DRIVE TURNOVER AND PROFITS
MERGER INTEGRATION WELL ADVANCED
6 months to 6 months Growth at
30 June to 30 June Reported Constant
2004 2003 Growth Currency
Turnover £246.3m £209.5m +18% +21%
Normalised Operating Profit1 £46.6m £36.0m +29% +38%
Operating Profit £27.0m £24.1m +12%
Normalised Pre-tax
Profit2 £38.0m £31.7m +20%
Profit Before Tax £0.2m £19.8m -
Normalised Diluted
Earnings Per Share2 9.2 8.2 +12%
Diluted (Loss)/Earnings
Per Share (2.4) 3.9 -
1 Excludes goodwill amortisation of £17.6m (2003: £9.8m) and exceptional items
of £2.0m (2003: £2.1m)
2 Excludes goodwill amortisation of £17.6m (2003: £9.8m), exceptional items of
£2.0m (2003: £2.1m) , merger costs of £15.7m and bank facility fees expensed on
merger of £2.4m
- Businesses acquired in 2003 and 2004 performing ahead of expectations
- Merger integration well advanced
Revenue synergies quantified - £9m in 2005
Greater cost savings identified - 2005 expectations nearly doubled to £9m
- Enlarged Group provides platform to drive further profitable growth
- Balanced product portfolio ideally positioned for recovery in key markets
- Good momentum into second half of 2004
Commenting on the Group's performance and prospects, David Smith, Chairman of T&
F Informa said:
"This was a strong performance during what was a busy period of integrating
acquisitions and the merger. It confirms both the strength of the Group's
portfolio of businesses and its staff as well as the rationale for the creation
of T&F Informa. We are also well placed for the rest of the year and into 2005.
"Although the merger is just four months old, we have already established new
revenue streams of £9 million for next year and nearly doubled our expectations
for cost savings. Central to this is the excellent cultural fit of the
integration teams as they seek to exploit new opportunities within the enlarged
Group. There is good momentum in the business and we look forward to 2005."
Enquiries:
T&F Informa plc Tel: 020 7017 5000
David Smith, Chairman
Peter Rigby, Chief Executive
David Gilbertson, Managing Director
Tony Foye, Finance Director
Financial Dynamics Tel: 020 7831 3113
Tim Spratt / Charles Palmer
Chairman's Statement
Introduction
T&F Informa has had a good first six months of 2004 with turnover up 18% to
£246.3m from £209.5m and Normalised Operating Profit (operating profit before
goodwill amortisation and exceptional items) up 29% to £46.6m from £36.0m.
Normalised Pre-tax Profit (profit before tax, goodwill amortisation, exceptional
items, merger costs and bank loan facility fees expensed on merger) rose 20% to
£38.0m (2003: £31.7m). Normalised Diluted Earnings Per Share rose 12% to 9.2p
(2003: 8.2p) per ordinary share.
These results were achieved despite the adverse effects of exchange rate
movements, which reduced sales by approximately £7.3m and operating profits by
approximately £3.1m compared with the first half of 2003. The adverse currency
impact is predominantly due to the weakness in the US Dollar as around half of
the Group's turnover is US Dollar denominated.
All three divisions, Academic & Scientific, Professional, and Commercial, have
performed strongly during the period, combining solid organic growth with good
contributions from the acquisitions made during the previous 18 months. The
Group has seen an improvement in trading conditions in a number of its market
sectors with particularly pleasing results from the Scientific, Technical and
Medical (STM), Maritime and Finance information businesses.
STM has seen the successful integration of the CRC Press, PJB and Marcel Dekker
acquisitions; the Maritime business has done well in a period of higher freight
rates and oil prices while the Finance information business has performed
strongly as markets recover and the benefits of the MMS acquisition have come
through.
The merger of Taylor & Francis Group plc and Informa Group plc was completed on
10 May 2004. This is therefore the first set of results for T&F Informa as a
combined group. The integration of the two businesses is progressing well and
in the period since the completion of the merger we have brought the central
management of the two businesses together and have confirmed and begun to take
advantage of the significant revenue and cost benefits which the merger brings.
Our detailed analysis has revealed more opportunities and potential synergies
than we had originally anticipated. These include among others a strengthened
publishing programme and 80 new events planned for 2005.
Financial results
The results covered by this review were produced under merger accounting
principles which combine the results of the Taylor & Francis and Informa groups
as if both groups had always been merged. On 1 January 2005 the combined Group
will be required to adopt International Accounting Standards which will
necessitate further material changes to both the bases and format of reports to
shareholders. More information will be provided with the Group's full year 2004
results early in 2005.
Turnover grew by 18% to £246.3m (2003: £209.5m) despite adverse exchange rate
movements which had the effect of reducing turnover by 3% (£7.3m) compared to
2003. The Marcel Dekker acquisition was completed on 2 January 2004 and
contributed £11.6m to first half turnover.
Normalised Operating Profit was £46.6m in the first six months, up 29% over 2003
(£36.0m). Excluding the adverse effect of exchange rate movements of £3.1m,
operating profit growth was 38%. Underlying profit growth, excluding the effect
of acquisitions and exchange rate movements, was approximately 8%.
The Normalised Operating Margin was 18.9%, compared to 17.2% in the first half
2003, reflecting continuing cost control, improving attendances at conferences
and the successful integration of acquisitions.
Operating profit after exceptional items and goodwill amortisation increased by
12% to £27.0m (2003: £24.1m).
Exceptional items
Exceptional costs of £2.0m (2003: £2.1m) were incurred in the period, primarily
in relation to the integration of recent acquisitions as well as initial costs
incurred in respect of the planned relocation, in September, of the Academic &
Scientific division's UK book publishing operations from London to Oxford. We
anticipate spending a further £6m in exceptional costs during the second half of
2004 on completing the UK book publishing relocation, integrating the remaining
acquisitions and establishing a new centralised Academic & Scientific division
warehousing and distribution facility in the US. We also expect to spend a
further £2m in generating the merger synergies discussed below.
Merger related costs
Merger costs of £15.7m represent professional and other fees incurred to effect
the merger between Taylor & Francis Group plc and Informa Group plc which became
effective on 10 May 2004.
Interest
Net interest expense for the first six months of 2004 was £8.6m, an increase of
£4.3m compared to 2003 (£4.3m), as a result of increased debt used to fund
recent acquisitions.
In connection with the merger both groups' existing loan facilities were
terminated and replaced by a new five-year, £440m syndicated bank loan facility,
necessitating the expensing to interest payable of £2.4m in bank loan facility
fees associated with the terminated facilities.
Profit before taxation
Normalised Pre-tax Profit increased by 20%, to £38.0m (2003: £31.7m). Profit
before tax (but after goodwill amortisation, exceptional items, merger costs and
bank loan facility fees expensed on merger) was £0.2m (2003: £19.8m).
Taxation
Across the Group tax has been provided at an underlying rate of 27% (2003: 29%),
which is the rate expected for the whole of 2004. The effective tax rate is
influenced by goodwill amortisation, which in the main does not attract tax
relief, and the partial non-deductibility of certain exceptional items and
merger costs.
EPS
Normalised Diluted Earnings Per Share for the first half increased 12% to 9.18p
per ordinary share compared to 8.19p in the first half of 2003. There was a
basic loss per share of 2.4p for the first half of 2004 (2003: basic earnings
per share of 3.9p).
Dividend
The directors have declared an interim dividend of 2.80p (2003: 2.66p) per
ordinary share, representing an increase of 5% per share. The interim dividend
is payable on 8 November 2004 to ordinary shareholders registered as of the
close of business on 8 October 2004.
Balance sheet
Intangible assets increased by £56.3m, to £539.5m, compared to 31 December 2003.
Of this increase, £81.2m was in respect of the provisional goodwill arising on
the acquisition of the publishing business and assets of Marcel Dekker in
January 2004, offset by ongoing amortisation and exchange rate movements.
Net debt rose £95.0m to £356.2m compared to 31 December 2003 (£261.2m),
primarily reflecting the acquisition in January of Marcel Dekker.
Accruals and deferred income were up £30.1m (25%) compared to June 2003. Within
this increase deferred income relating to the journal publishing business of the
Academic & Scientific division was up 30%, with an organic increase at constant
exchange rates of 11%.
Divisional performance
The following commentary is based on the segmental analysis by class of business
shown in Note 2 to the Interim Statement.
Academic & Scientific
6 months 6 months
2004 2003
£'m £'m
Turnover 111.7 84.6
Normalised Operating Profit 23.8 18.9
Normalised Operating Margin (%) 21.3 22.3
The Academic and Scientific division comprises the Taylor & Francis books and
journals businesses together with the Informa life sciences business, including
PJB Publications. On an ongoing basis this division will be analysed by the key
market segments of STM and Humanities & Social Sciences.
The division's turnover grew by 32% (£27.1m) and Normalised Operating Profit by
26% (£4.9m), largely driven by the acquisitions of PJB, CRC Press and Marcel
Dekker. Underlying sales growth, excluding acquisitions and the effect of
exchange rate movements, was 4%, with the underlying profit growth from
subscriptions and copy sales largely offset by weaknesses in US life sciences
advertising and events.
The STM segment had a good first half overall but was affected by the slowness
in the drug discovery market which particularly affected the advertising revenue
of the Biotechniques publication. Despite this market slowdown, the annual Drug
Discovery Technology event held in Boston during August attracted encouraging
delegate numbers and the event will be replicated for the first time in India
during the second half of 2004. The publication Bio Process International has
also benefited from the large number of biotechnologically derived drugs
approved or in clinical development. PJB is in the process of relocating into
one office from the five in which it currently operates and in the first half of
2004, excluding the effect of adverse exchange rate movements, traded ahead of
the same 2003 period in terms of both revenue and operating profit.
The journals business within STM benefited from the acquisition and integration
of the Dekker journal portfolio, which is performing above expectations. The
STM books publishing business performed well and prospects for the important
second half of the year are good.
The Academic & Scientific division saw good revenue growth from the Humanities &
Social Sciences lists, particularly from the US books division. Journals
benefited from the addition of the Cass list, acquired in July 2003, which has
further growth potential as issues and content build.
Across both the STM and Social Sciences & Humanities sectors renewal rates held
steady, although at the half year there was a slight delay in the publication of
some journal issues compared to the previous first half year.
The book publishing business will in the next six months rationalise its US
books distribution into one warehouse facility, saving costs and increasing
productivity.
There has been much discussion around Open Access publishing which we have been
monitoring carefully. The Group has a number of experimental products of this
type and whilst we are alert to changes in the market model, we have not as yet
seen any significant impact.
Professional
6 months 6 months
2004 2003
£'m £'m
Turnover 44.9 39.0
Normalised Operating Profit 9.8 5.2
Normalised Operating Margin (%) 21.8 13.3
The Professional division comprises the Finance information, Insurance and Law &
Tax business segments. Overall the division's turnover was up 15% (£5.9m) and
Normalised Operating Profit was up 88% (£4.6m). Underlying sales, excluding
acquisitions and the effect of exchange rate movements, fell by 11% reflecting
the elimination of unprofitable products. As a result underlying operating
profits increased by 51%.
Normalised Operating Profit in the Finance information segment, which reflects
the acquisitions in 2003 of MMS and two smaller businesses, Barry Leeds and
NetDecide, was 75% ahead of last year at £8.0m. Almost all this growth was
related to the three acquisitions and masks the adverse effect of exchange rate
movements on this largely US Dollar denominated business. Organic operating
profit was marginally ahead of 2003 in sterling terms despite a 12% decline in
the US Dollar exchange rate.
The MMS acquisition and its subsequent merger with MCM to create the new bond
and foreign exchange information brand Informa Global Markets (IGM) has exceeded
our expectations. The revenue retention of former MMS customers is in excess of
65% which has allowed us also to retain more developmental cost within the
business to ensure we build a strong growth platform for the future, including
the launch of a powerful internet-based suite of new products. The IGM unified
publishing system, which has enabled a significant rationalisation of the cost
base of the combined business, launches later this month. Prospects for the
remainder of the year are positive with demand for our subscription services in
fixed income, bank rates and money management data continuing to be strong.
Other Professional information services profits were well up on last year with
underlying subscription revenue growth in both Insurance and Law & Tax being led
by strong demand for electronically delivered products, masked by the revenue
effect of the elimination of unprofitable products. The key driver of the
segmental improvement, however, was the financial services area with financial
conferences showing 40% higher delegate numbers and a 30% improvement in
sponsorship sales on 2003, reflecting the return to positive trading conditions
in the underlying markets after two years of cutbacks and consolidation. That
recovery has also fed through into improved advertising revenues with
advertising in our Insurance publications some 8% ahead overall, led by a 10%
improvement in the flagship title Insurance Day.
Commercial
6 months 6 months
2004 2003
£'m £'m
Turnover 89.7 85.9
Normalised Operating Profit 13.0 11.9
Normalised Operating Margin (%) 14.5 13.9
The Commercial Division comprises Maritime, Trade & Transport, Telecoms & Media,
Commodities and International Conferences. Turnover was up 4% (£3.8m) and
Normalised Operating Profit up 9% (£1.1m) with acquisitions and exchange rate
movements having a minimal impact on the reported results. Underlying sales,
excluding acquisitions and the effect of exchange rate movements, were flat with
underlying operating profit up by 3%.
The Maritime segment performed strongly in the period, already exceeding the
2003 full year profits. Economic conditions in the maritime trades have picked
up with higher freight rates benefiting the shipping industry at large. This has
been reflected in strong profit rebounds with the leading titles in the
business; Lloyd's List and Lloyd's Loading List, performing particularly well.
Conference and distance learning results were also well ahead in the period with
energy-related themes in particular proving successful against a backdrop of
markedly higher oil prices. In this generally strengthening environment the
division is also benefiting from a programme of close cost control and the
elimination of unprofitable product lines undertaken over the last eighteen
months.
The Telecoms division is also experiencing improving underlying trends with
confidence returning to the mobile sector with the onset of 3G services and
applications. The 3GSM conference in Cannes in February produced profit ahead of
last year though increased royalty payments under a revised agreement with our
event partners exceeded that underlying gain. Under a new agreement with the
telecoms trade association GSMA we are organising an annual Asian version of the
3GSM conference and will hold the first event in Singapore in October. Average
paid attendances at telecoms conferences in the period were significantly higher
than in the prior year period (on a smaller number of events organised) and
event volume is being stepped up in the second half to take advantage of the
firming market conditions. Total delegate registrations at telecoms conferences
to the end of August are some 19% ahead of last year.
International Conferences comprise domestic and regional events held outside the
UK and US and are run from our offices throughout the world benefiting from
group conference themes and formats. The business, which is second half
weighted, saw strong performances in Germany and the Asia Pacific Rim which were
offset by start up losses in Russia, Poland and Hungary and fewer events in
France, Sweden and Brazil.
Merger integration update
Even though the merger was only completed on 10 May, considerable progress has
already been made in securing integration benefits from the combination of
Taylor & Francis and Informa. Initial revenue enhancement expectations have
been reinforced by the work of cross disciplinary integration teams that have
focused on the creation of new publishing and conference product as well as
cross-marketing the existing combined product portfolio. In addition, ongoing
annual cost savings identified to date are expected to be almost twice the £4.6m
indicated at the time of the merger - the full benefits of which will be
substantially realised in 2005.
Revenue synergies
Recurring annual direct merger related revenue synergies of approximately £9m
are expected in 2005, with an average anticipated profit margin of around 20%.
Of this total, half will come from cross marketing of existing products to our
combined customer base. This increased cross marketing will be fully funded by
identified cost savings in the marketing area deriving from improved buying
power and greater capacity utilization of in-house mailing facilities.
We plan to add around 80 new events and distance learning courses in 2005, with
expected first year incremental revenue of some £2.5m. Through our research
with the academic boards of the Group's STM journals and detailed work with the
editors of our major academic publications we have identified a range of
priority areas for new events. These areas include nanotechnology, systems
biology, IT security and forensic science.
In addition, we have opened dialogue with around 30 leading academic societies
to provide event management and marketing services on a fee basis.
New publishing initiatives are expected to contribute revenue of some £2m in
2005. We have identified significant new revenue opportunities in areas such as
bioinformatics, mobile telecoms technology, maritime security and post graduate
education studies and we expect to build these programmes progressively over the
next three to five years.
We are also beginning to identify new advertising revenue opportunities in the
academic and scientific areas.
Cost synergies
Since the completion of the merger we have been able to confirm in detail
operational savings that were not fully transparent at the time of the merger.
As a result, we now expect annual cost savings of some £9m from 2005. In
particular, IT systems and infrastructure have provided significant manpower and
service efficiencies and are expected to deliver £2.6m of savings in 2005.
Office premises rationalisation has been possible in London, Oxford, New York
and Washington resulting in annual savings of some £2.1m in occupancy costs.
Head office savings, margin reductions on bank facilities, staff efficiencies,
lower professional costs and negotiated reductions on print and distribution
costs have also been obtained and are expected to contribute a further £4.5m.
As noted previously, these cost savings will be achieved at an expected one-off
exceptional cost of £2m in 2004.
From a corporate tax perspective we are implementing post-merger tax strategies
which are expected to bring the Group's underlying corporate tax rate down
progressively to below 25% over the next several years. The combined Group's
sustainable underlying tax rate has already been reduced from 28% in 2003 to 27%
in 2004.
Board appointment
We recently announced the appointment of Dr Pamela Kirby, who joined the Board
as a non-executive director with effect from 1 September 2004. Pam brings a
great deal of international business and corporate experience to the Board and
will be a valued addition to the team.
Outlook
T&F Informa has a broad portfolio of high quality information products that it
provides to a number of specialist global markets. The recent merger combines
two different, but complementary, skills sets which will allow the enlarged
Group to grow faster than the component parts and as a result provide real value
for shareholders.
We are already discovering more revenue opportunities than we had originally
anticipated and these will contribute progressively to growth over the next few
years. The opportunity to provide specialist information through a variety of
media formats to a larger customer base offers considerable potential. Allied
to this, the recent acquisitions of CRC Press, Marcel Dekker, MMS and PJB
continue to provide additional revenue enhancement and cost saving
opportunities.
T&F Informa is well placed to grow organically and through selective earnings
enhancing acquisitions at a time where there is evidence that many of the
Group's markets are recovering. As a result, the Board remains confident of a
satisfactory outcome for 2004 and of the Group's prospects for the future, with
the benefits of the merger becoming more apparent in 2005.
These results have been achieved during a period of significant change,
including the ongoing integration of major acquisitions, the rationalisation of
operations and the management of a transforming merger between two major groups.
I would like to take this opportunity to thank the employees of T&F Informa
for their professionalism and enthusiasm in embracing the considerable new
opportunities that the Group now enjoys.
David J Smith
Chairman
7 September 2004
Consolidated Profit & Loss Account
For the six months ended 30 June 2004 - unaudited
2004 2004
6 months 6 months
Before Goodwill
goodwill amortisation
amortisation
and and
exceptional exceptional 2004 2003 2003
operating operating 6 months 6 months 12 months
items items Total Total Total
Note £'000 £'000 £'000 £'000 £'000
Turnover
Continuing operations 234,675 - 234,675 209,521 441,676
Acquisitions 11,598 - 11,598 - -
2 246,273 - 246,273 209,521 441,676
Operating costs before goodwill amortisation 3 (199,653) (2,026) (201,679) (175,599) (373,468)
Goodwill amortisation - (17,624) (17,624) (9,814) (21,310)
Total operating costs (199,653) (19,650) (219,303) (185,413) (394,778)
Operating profit
Continuing operations 44,750 (16,875) 27,875 24,108 46,898
Acquisitions 1,870 (2,775) (905) - -
Total operating profit (a) 2 46,620 (19,650) 26,970 24,108 46,898
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