Euromoney Institutional Investor PLC Group Statement of Changes in Equity Notes to the Unaudited Interim Report Auditors' Independent Review Report
Chairman's statement
HIGHLIGHTS Euromoney Institutional Investor PLC, the international publishing, events and electronic information group, reports an increase in operating profit before goodwill impairment and share option expense to £17.6 million for the six months to March 31 2006, a record, against £15.0 million for the previous year. Diluted earnings a share were 10.8p, against 10.5p in 2005, and the board has approved an interim dividend of 5.4p, against 5.2p, to be paid to shareholders on June 23 2006. Revenue in the first half exceeded £100m for the first time and strong organic growth helped drive record first half results. Encouragingly, all divisions increased operating profits†, and subscription revenues from the group’s print and electronic products increased at their highest rate for some time. The adoption this year of International Financial Reporting Standards (IFRS), together with a first time non-cash expense of £2.3 million for the group’s Capital Appreciation Plan (CAP), restricted the increase in profit before tax to 5% to £13.5 million. These items were in line with management expectations, and consistent with the comments and guidance that the company has provided to shareholders. Commenting on the results, Padraic Fallon, Chairman, said: “Although the first half is usually less significant than the second for the year’s results, we're pleased with a record performance in both revenue and operating profit†. This reflects further progress towards the target of growing profit* to £50m by 2008, against £21m reported in 2003. We hope to drive continued growth through new and existing products; diversify our revenue base while improving the operating margin†; and invest in acquisitions to strengthen the Company’s market position.” TRADING BACKGROUND First half revenue increased by 18% to £103m against a background of strong financial markets, positive economic indicators and further periods of record profitability for global financial institutions. All of the group’s divisions increased revenues and operating profits†. Trading has followed a similar pattern to 2005, with revenue growth coming predominantly from the event businesses, and only limited growth in advertising. † Before goodwill impairment, share option expense and joint venture profit as set out in the group income statement. Consistent with management’s strategy, most of the 17% growth in operating profit† has been generated organically. On the events side, the growth has come from both volume and margin improvements with a number of successful new events launched, particularly in the hedge fund, real estate and legal sectors. Publishing profits† also improved significantly due to a combination of the profit flow through on additional advertising and the reward from past investment in subscription marketing. The operating margin† was unchanged at 17% reflecting the increased investment in new products, particularly in the conference and training businesses. BUSINESS REVIEW Profits† from Financial Publishing increased by 36% to £4.5 million. After a slow first quarter, advertising revenues picked up in the second with titles such as Euromoney and Euroweek performing well. While advertising markets remain tough despite the favourable trading conditions, the outlook for subscription products has improved and the group continues to invest heavily in subscription marketing. As a result, total revenues from Financial Publishing increased by 9%. Business Publishing achieved similar increases in advertising and subscription revenues, with legal and energy the strongest sectors. Profits† improved by 38% to £2 million, again benefiting from the operational leverage on the additional revenues. Profits† from Conferences and Seminars increased by 33% to £10.2 million with improvements across all the event businesses. Euromoney Conferences, Euromoney Seminars and Institutional Investor Conferences all achieved significant revenue growth through the launch of new events, while the strategy of investing in building existing events continued to help drive margin improvements. Member numbers and renewal rates hit record levels at Institutional Investor Memberships, helped by the recent launch of new institutes for hedge fund executives and European institutional marketing directors. The Training businesses achieved strong revenue growth (+22%), largely as a result of an increase in the number of courses offered. However, new courses are invariably less profitable and this, combined with an increase in the cost base at the beginning of the year following the significant revenue growth in 2005, reduced the operating margin†, and first half operating profits† increased by 6% to £2.8 million. Profits† from Databases and Information Services improved by 26% to £2.2 million, driven by the continued strong performance of ISI, the emerging markets information provider. The number of ISI customers, information sources and data providers all increased during the period and subscription revenues continue to grow at a rate of just under 20%. CEIC, a joint venture acquired in March 2005 which provides valuable time series economic data for the Asia region, has been integrated with ISI and CEIC revenue and profits† continue to grow at a faster rate than the forecasts made at the time of acquisition. CASH FLOW AND NET DEBT The level of debt traditionally increases in the first half, following payment of the final dividend (£9.8 million) and year end profit shares (£6.9 million) in January. In addition, during the first half the company invested £3 million in the acquisition of a 47.5% interest in Asia Business Forum, and made further payments of £9.3 million under earn-out agreements for the acquisitions of IMN and ISI. Positive operating cash flows helped significantly to offset the impact of these payments and net debt at March 31 2006 was £75.5 million, an increase of only £9.1 million since year end. MANAGEMENT INCENTIVE These results reflect further evidence of the benefits of the Capital Appreciation Plan, the incentive plan introduced to drive profit* to a target of £50m by 2008 against a base of £21m in 2003. Approximately 150 managers participate in this highly geared equity incentive scheme which directly rewards each participant for the profit† growth achieved by their business. † Before goodwill impairment, share option expense and joint venture profit as set out in the group income statement. As disclosed previously, the non-cash cost of the CAP is being expensed over the life of the plan. This expense was first recorded in the second half of 2005. The charge in the first half of 2006 of £2.3m therefore affects reported profit before tax at the interim stage for the first time. IFRS This is the first time the Company has reported its results under IFRS. As disclosed in its IFRS announcement in March, the adoption of IFRS represents an accounting change only, and does not affect the underlying trading or cash flows of the group. The most significant impact of IFRS on these results is the requirement to charge imputed interest on future acquisition payments under option agreements (IAS 39). This additional finance cost reduced first half profit before tax by £0.5m, with no equivalent cost in 2005. OUTLOOK The positive trends of the first half have continued into the third quarter and forward bookings for advertising, sponsorship and delegates are all ahead of the same time last year. The second half results will be affected by timing differences on certain events, which will probably move operating profits† of approximately £2.5 million from the fourth quarter into the first quarter of the next financial year. These timing differences had previously not been scheduled to arise until financial year 2007. The company believes that these trading results flow from the focus on organic growth and on selected acquisitions. In general, the outlook remains positive.
Padraic Fallon END NOTE TO EDITORS About Euromoney Institutional Investor PLC Euromoney Institutional Investor PLC 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 sector. It publishes more than 100 magazines, newsletters and journals, including the leading financial market titles Euromoney and Institutional Investor. It also runs an extensive portfolio of conferences, seminars and training courses and is a leading provider of electronic information and data covering international finance and emerging markets. Its main offices are in London, New York and Hong Kong and nearly half its revenues and profits are managed from the United States. For further information please contact: Euromoney Institutional Investor
Group Income Statement
Group Balance Sheet
† Before goodwill impairment, share option expense and joint venture profit as set out in the group income statement. Group Cash Flow Statement
Group Statement of Changes in Equity
Notes to the Unaudited Interim Report 1. Basis of preparation This interim report was approved by the board of directors on May 17 2006. The group has previously prepared its financial statements under UK Generally Accepted Accounting Principles (“UK GAAP”). From October 1 2005 the group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and implemented in the UK. This interim report has been prepared using IFRS accounting policies consistent with those that the group expects to use in the preparation of its first annual report and financial statements under IFRS for the year ending September 30 2006. These accounting policies were included in the group’s “Adoption of International Financial Reporting Standards - Preliminary restatement of 2005 financial information” document which was published on March 22 2006, and is available on the group’s website at www.euromoneyplc.com/reports/IFRS_Restatement_2005.pdf. The reconciliations of profit and shareholders’ equity from UK GAAP to IFRS required by IFRS 1 “First time adoption of IFRS” are also included within this document. As permitted by IFRS 1 the group elected to defer implementation of IAS 32 “Financial Instruments: Presentation and Disclosure” and IAS 39 “Financial Instruments: Recognition and Measurement” until the year ending September 30 2006. The adjustments required for the adoption of IAS 32 and IAS 39 as at October 1 2005 are detailed in note 7 of this report. The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985 and should be read in conjunction with the 2005 annual report and the IFRS restatement document. The comparative financial information is based on the interim results for the six months ended March 31 2005 as amended in the IFRS restatement document. 2. Segmental analysis
2. Segmental analysis continued
3.Tax on profit on ordinary activities
4. Net debt
Net debt comprises cash at bank and in hand, bank overdrafts, banks loans and other borrowings. 5. Dividends
The proposed final dividend was approved by shareholders at the Annual General Meeting held on January 25 2006 and paid on January 27 2006. The interim dividend of 5.4p (2005: 5.2p) is anticipated, subject to approval, to be paid on June 23 2006 to shareholders on the register on May 26 2006. It is expected that the shares will be marked ex-dividend on May 24 2006. Holders of International Depositary Receipts ("IDR") can receive their dividend on June 23 2006 by presentation of coupon number 38 to Dexia Banque Internationale à Luxembourg or to one of their agents. The interim dividend has not been included as a liability in these financial statements in accordance with IAS 10 "Events after the balance sheet date". 6. Earnings per share
The 2006 basic earnings of £9,620,000 includes £448,000 of imputed interest on acquisition option commitments. 7. First time adoption of IAS 39 "Financial Instruments: Recognition and Measurement" As permitted by IFRS 1 “First time Adoption of International Financial Reporting Standards”, the Group has elected to defer the implementation of IAS 39 until the year ending September 30 2006. The effect of the adoption of IAS 39 at October 1 2005 is to reduce net assets by £21.2 million, due to the following adjustments: Forward exchange contracts and interest rate swaps Derecognition of liabilities Acquisition option commitments Deferred tax Independent Review Report to Euromoney Institutional Investor PLC We have been instructed by the company to review the financial information for the six months ended March 31 2006 which comprises the group income statement, the group balance sheet, the group cash flow statement, the group statement of changes in equity and related notes 1 to 7. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 1, the next annual financial statements of the group will be prepared in accordance with International Financial Reporting Standards as adopted for use in the EU. Accordingly, the interim report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended March 31 2006.
Deloitte & Touche LLP Chairman PM Fallon ‡ Managing Director PR Ensor ‡ Finance Director CR Jones Directors President Sir Patrick Sergeant Company Secretary CR Jones Registered Office Nestor House, Playhouse Yard, London EC4V 5EX Registered Number 954730 Auditors Deloitte & Touche LLP, London Solicitors Nabarro Nathanson, Lacon House, Theobald’s Road, London WC1X 8RW Stockbrokers UBS, 1 Finsbury Avenue, London EC2M 2PP Depositary Dexia Banque Internationale à Luxembourg SA, 69 route d’Esch, 2953 Luxembourg Agents of the Depositary Registrars Capita IRG plc, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
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