Financial Review
Informa reported 2007 revenues of £1,129.1m, 9% higher than in 2006 and adjusted operating profit increased by 19% to £261.0m. Adjusted operating profit margins increased from 21% to 23%.
These results reflect the increased scale of the Group and the growth rates and opportunities that have arisen from the combination of the Informa, T&F and IIR businesses and most recently the Datamonitor acquisition. The increase in margin reflects the benefit of operational gearing and a continued focus on cost efficiency across the Group.
Recent acquisitions have traded strongly. In particular, Datamonitor has performed ahead of our acquisition model, reporting post-acquisition revenues of £51.1m and adjusted operating profit of £17.6m.
Revenue
In the year to 31 December 2007, we reported revenues of £1,129.1m, up 9% from the £1,039.1m reported in the same period last year. Datamonitor which was acquired on 13 July 2007 contributed £51.1m to revenue and a further £23m was contributed by other acquisitions.
The weakness in the US dollar throughout 2007 reduced reported pounds sterling revenues by £41m relative to 2006. Also affecting reported 2007 revenues were the change to the relationship with the trade association for the 3GSM World Congress which reduced our revenue from this event by £18m compared to 2006, and the quadrennial IPEX exhibition which contributed £21m to 2006 reported revenues.
Operating Profit
Operating profit increased by 20% to £154.0m from £128.3m in 2006. While operating costs benefited from the impact of a weaker US dollar, the absolute increase in operating costs of 7% includes increases in intangible asset amortisation of 21% and staff costs of 7%.
Included in other expenses and employee benefit expenses are in aggregate £7.7m of restructuring costs which include the costs of integrating acquisitions and restructuring costs associated with a Group wide initiative to rationalise our back office teams within Europe and the UK.
Finance Costs
Net finance costs, which consist principally of interest costs net of interest receivable increased by £22.0m from £41.0m to £63.0m, principally as result of the increase in debt in July 2007 to finance the acquisition of Datamonitor.
Acquisitions and Disposals
The Group has spent £599.0m during 2007 on acquisitions with further detail given in note 35. As well as matching the Group's business criteria and strategy, the Group continues to apply its rigorous financial investment criteria which are that acquisitions should pay back their initial investment within seven years, be earnings enhancing in their first full year of ownership and associated cash flows must produce a positive net present value within 10 years when discounted at the Group's weighted average cost of capital plus a suitable premium for risk.
The integration of Datamonitor is progressing to plan and the Group expects to realise annualised cost savings of £3m in line with the acquisition model and expects that the post-tax return on invested capital will exceed Informa's cost of capital in the second full year of ownership.
In February 2007 the Group disposed of its interest in Blackwell Publishing Limited. The proceeds on this disposal were £38.9m and the gain on disposal is included within the £33.4m profit on disposal of available for sale investment which is shown on the face of the consolidated income statement.
Taxation
Across the Group tax has been provided at an adjusted tax rate of 25.05% (2006: 26%). This adjusted tax rate benefits from profit generated in low tax jurisdictions including Dubai and Monaco. The effective Group tax charge was 19.5% (2006: 21.6%).
EPS
Basic and diluted EPS are both 46% ahead of 2006.
Adjusted Results
Adjusted operating profit, which is shown in note 8 to these results, is calculated after removing certain items not related to the underlying trading operations of the Group. Adjusted operating profit increased by 19% from £219.1m to £261.0m.
Adjusted operating profit before tax increased 14% to £202.6m from £178.1m and adjusted profit for the period increased by 15% from £132.1m to £151.9m.
Adjusted diluted EPS of 35.5 pence is 14% ahead of 2006.
The Board believes these adjusted operational figures provide additional information to explain the underlying performance and trends across the Group and further details are provided in note 8.
Dividend
As was reported in the interim report for the six months ended 30 June 2007, the Board has reviewed the Group's dividend policy and given the excellent cash flow characteristics of the business and the resilience of its revenue and profit streams decided to set dividend payouts at a range of 2.0 to 2.5 times adjusted earnings per share.
In line with this policy and in recognition of the continued good trading prospects, the Board has recommended a final dividend of 11.3 pence (2006: 8.9 pence) which together with the interim dividend of 5.6 pence represents a total dividend of 16.9 pence (2006: 12.2 pence). This represents an increase of 39% on the 2006 equivalent. The final dividend which is subject to shareholder approval will be payable on 21 May 2008 to ordinary shareholders registered at the close of business on 18 April 2008.
Balance Sheet
Goodwill increased from £1,124.5m to £1,554.3m, including additions from acquisitions of £415.2m and favourable currency movements.
Other intangible assets increased from £921.2m to £1,154.5m, with £317.3m of the increase being attributable to acquisitions, offset by amortisation and currency movements. Also included within this category is £28m in respect of the investment in a series of developments in our group wide operating systems including finance, sales order processing, contact management and marketing.
Property and fixed assets increased to £24.6m from £23.1m, reflecting additions of £8.3m (2006:£9.7m) and additions from acquisitions of £2.3m offset by depreciation.
The reduction in available for sale investments previously shown under current and non current assets includes a reduction of £38.9m following the sale of the shares held in Blackwell Publishing Limited.
Trade and other receivables rose by £54.7m principally due to acquisitions and growth in trade receivables in line with increased trading.
Share capital has been substantially restructured on 19 December 2007. The authorised share capital was reduced by cancelling 9.90 pence of each 10.00 pence share in issue resulting in a reduction of share capital (£42.0m), a reduction in share premium (£505.1m) and the creation of a distributable capital reserve of £547.1m.
The increase in the hedging and translation reserve of £23.6m relates to the net currency impact from retranslating assets and goodwill offset by the conversion of liabilities (principally loans) also held in those same currencies. Additionally there was a net decrease in the fair value of derivatives held of £11.9m.
The decrease in the revaluation reserve of £26.2m reflects the disposal of the Group's investment in Blackwell Publishing Limited.
Net debt increased by £506.5m from £738.4m to £1,244.9m reflecting inter alia an increase in operating cash flows of £59.8m to £279.2m and disposal of available for sale investments of £38.9m offset by investment in acquisitions of £598.9m (of which £497.1m was in respect of Datamonitor), and higher cash out-flows in respect of net interest, capital expenditure and dividend payments. The level of net debt at 31 December 2007 is also impacted by currency movements of £12.9m and by interest being paid as incurred in the second half of the year rather than being accrued as had been the case in the prior year.
The Group continues to generate excellent cash flows and this is reflected in a cash conversion rate (expressed as adjusted cash generated by operations as a percentage of adjusted operating profit, note 36 of the results) of 110% (2006:103%). In 2007, before taking into account spend on acquisitions or proceeds from the sale of assets, the Group generated free cash flow of £77m.
As was outlined in the interim 2007 financial statements, in support of the Datamonitor acquisition, the Group has put in place a new £1.45bn multicurrency 5 year unsecured credit facility. The syndication of the facility was successfully completed in the second half of the year. The facility is structured as a £500m revolving credit facility and a £950m term loan (including foreign currency sub-tranches). The £500m revolving credit facility is repayable at the end of 5 years and the £950m term loan amortises over 5 years, with 5% payable at the end of 2008, 10% at the end of each of 2009 and 2010, 15% at the end of 2011 and the balance on the final May 2012 maturity date. The principal financial covenant ratios under the facility are maximum net debt to EBITDA and minimum EBITDA interest cover, tested semi-annually. At 31 December 2007 both financial covenants were comfortably achieved. The ratio of net debt to EBITDA at 31 December 2007 was 4.3 times and given the strong cash flow of the Group this is expected to drop below 3.75 times by the end of December 2008.
The Group has also entered into interest rate hedging agreements to the extent that approximately 70% of the projected interest cost is effectively covered at fixed rates through 2009, with the percentage hedged gradually decreasing thereafter in line with expected decreases in gearing levels. Based on current market interest rates the Group is currently paying a blended interest rate on its debt of approximately 6.25%.
Provisions shown under current and non current liabilities have increased from £13.3m to £36.6m. The increase is in relation to the Datamonitor acquisition and is split between £22.0m of contingent consideration and £3.0m of property related provisions. This has been partly offset by utilisation of the opening provisions during the year.
Trade and other payables shown under current and non current liabilities of £195.2m have increased by £25.8m from £169.4m. Acquisitions account for the majority of the increase (£21.5m).
The Group's defined pension liabilities disclosed under "retirement benefit obligations" have reduced by £2.8m compared with 31 December 2006 principally due to additional contributions by the Group of £1.2m and actuarial gains of £1.4m.
Deferred revenue which represents income received in advance was up £56.0m (31%) on the same period in 2006 to £237.4m. Adjusted for the impact of acquisitions, deferred income at 31 December 2007 was 9% ahead of the same date last year.