WORLD TELEVISION
DMGT
Half Year Results Presentation
21st May 2015
DMGT - Half Year Results Presentation - 21st May 2015
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DMGT
Martin Morgan, Chief Executive
Stephen Daintith, Finance Director
QUESTIONS FROM
William Packer, Exane BNP Paribas Gareth Davies, Numis Steve Liechti, Investec Nick Dempsey, Barclays Capital Alex DeGroote, Peel Hunt Ian Whittaker, Liberum Capital Patrick Wellington, Morgan Stanley Chris Collett, Deutsche Bank
DMGT - Half Year Results Presentation - 21st May 2015
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Introduction
Martin Morgan, Chief Executive
Well good morning everybody it’s a pleasure to see you here and welcome you back to
this marvellous hall. I hope you will find the presentation as equally enjoyable as the
surroundings. So this is our presentation on the half year results up to the period to
March the 31st.
And this morning we have a simple agenda, I will touch on the highlights of the results
following which Stephen Daintith our Finance Director will take you through the details
and I’ll return to give you a brief update of what’s going on in the operating companies
and then of course we’ll have Q&A.
So as to the highlights. Group underlying revenue was up 1% with underlying operating
profit down 7% and we came in at an operating margin of 16%. Adjusted operating
profit before tax was down 4% but EPS was up 7%. And the interim dividend was 6.5p
up 5%.
We continued to be an active manager of our portfolio of businesses, as you know that’s
very much a priority for us. Acquisitions were made within dmg::information,
dmg::media and Euromoney and we completed the disposal of Jobsite which was the
last remaining business in the former Evenbase digital recruitment company and we
disposed Lewtan.
Net debt to EBITDA ratio was 1.9 and Stephen will explain why that is expected to come
down towards the end of the year. And we completed a bond buyback in October 2014.
We made good progress with a £100m share buyback programme we announced last
November with £71m of shares being purchased to date.
And importantly the outlook for the full year is unchanged and in line with market
expectations; although EPS - our expectations of EPS are somewhat ahead of current
market expectations. So that concludes the highlights and it’s now my pleasure to hand
over to Stephen. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Performance
Stephen Daintith, Finance Director
Thank you Martin, morning everybody. I think and Martin mentioned this, one of the
key messages for today is that the first half was very much in line with our expectations
and indeed the full year remains in line with our expectations.
This is a slide that we put up back in November of last year and just to remind ourselves
of the things that we flagged then which very much hold true today, some of the key
things that are happening in the first half numbers, and there’s a lot of thing happening
in our first half numbers, but this slide just sort of summarises those one by one. So the
investment in RMS(one) and the reduction in margin and profit in RMS as a
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consequence, the absence of the Gastech event which took place in March 2014 has not
taken place in this fiscal year.
The Evenbase disposal, Martin mentioned that, but we have a reduced stake in Zoopla,
we IPO’d Zoopla back in June last year and our share went from 52% down to 32% of
Zoopla so that’s a driver of the numbers that we see today. We have a reduced finance
charge, we’ve bought in quite a lot of our bonds over the last 18 months or so and
reduced our interest charge as a consequence. Other M&A, Martin mentioned that. And
finally the exchange rate, last year’s average was 1.66 and as we’ll see later on the
average so far this year has been somewhat lower than that.
So a quick summary of the numbers before I get into the detail, underlying revenue
growth of 1% and operating profits down 7%, the profit declined despite the revenue
growth driven by the absence of Gastech and the investments in RMS.
And then I just highlight down the bottom here that if we were to adjust the operating
profits for the timing of events in Euromoney in fact the underlying decline would be
somewhat smaller at 5%. It’s a small point but Euromoney do not adjust in their
underlying calculation for the timing of events whereas we do. So I’m just pointing that
out, it’s a slight point of detail but it’s just useful to know.
Profit before tax down 4% and then earnings per share growing by 7%, I’ll get into that
later explaining why there’s a difference there between the 4% decline and the 7%
growth. And we are happy to declare a 5% growth in our dividends which is of course in
today’s days of zero inflation CPI is a 5% real growth as well.
So as we look at DMGT it is important I think just for a little while just to reflect on the
diversity of the group and this is something we’ve been pursuing over the last, you know
quite some time now. We are very much a good balance I think of B2B and consumer.
B2B representing 59% of our revenues and 67% of our profits. B2B is growing its
revenues at 2%, we’ll get into the detail of that shortly. Consumer down 2% and we’ll
understand that a little better later on as well.
What’s happening within the profits is interesting, B2B up until recently has represented
a higher proportion of our profits than consumer; but one of the things that we are
seeing today in our numbers is a resurgence in the profitability of our UK consumer
business and the 15% margin that we’re reporting today, and again we’ll get into that
detail as we progress through this presentation. B2B declining at 20% in profits largely
driven by Gastech and RMS, so again not surprised by that number but just highlighting
its impact, and consumer growing by a very healthy 33%.
So I think what this also demonstrates is the importance of a portfolio like DMGT where
one part of the group for whatever reasons sees a decline in its profits the other part can
take up that slack and that works well for us right now and has done for quite some
time.
Similarly the geographical diversity of DMGT often seen as a UK business with just 51%
of our revenues are out of the UK, 49% from the rest of the world. And you can see
there in the UK on the profit side whilst 50% of the profits, the underlying growth of the
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UK profitability up by 23%. So a very nice performance from our consumer business in
the UK. North America down, driven by RMS largely.
And again going back to the diversity of the portfolio very much diverse and well
balanced revenue streams as well. Print advertising is now just 16% of our portfolio,
that’s the one that we know and expect to decline over the years ahead, it’s just 16% of
our Group revenues. And we’ve highlighted here that what we are doing across the
group, this is taking into account the Euromoney print advertising revenues and the
Daily Mail and Metro, the declines there, albeit Metro is in fact growing, but the declines
there are being equally offset by the growth in digital advertising that we get from a
small portion from Euromoney but from Mail Online in the UK, US, rest of the world and
also from Wowcher which has grown very well as we’ll see later.
So moving through our divisions one by one, first of all B2B, RMS again there are no
surprises in these numbers, very much in line with our expectations. The core business
flat year on year, the 2% decline that we see in RMS revenues, Group revenues, very
much driven by the absence of RMS(one) consultancy revenues where we saw around
$3m of consultancy revenues in the first half of fiscal ’14 in anticipation of the then
planned launch for April 2014. It's been pretty much a complete absence of those in
fiscal ’15 and that’s the big driver of the 2% decline across the board.
We do expect an acceleration in the growth of the core business and we’ll get into the
reasons for those I’m sure during the Q&A. Essentially driven by RiskLink 15.0 and two
new versions of North American Hurricane and European Windstorm.
2% revenue decline I’ve just mentioned that. And the operating margin of 14%, we
gave guidance back in November of between 10 and 15% so we’re very much in the
range of our guidance that we gave, what is it now, 6/7 months ago.
Dmg::information, revenue growth of 6% in dmg::information, good revenue growth.
Growth a little bit below perhaps what one might have expected at the half year largely
driven by a decline in UK mortgage approvals in the first half of this year down 14% on
the same period last year. Just as a reminder the same period last year was up 34% on
the first six months of fiscal ’13 so they were always going to be tough comparatives.
The second half of ’14 grew by only 4% so we are expecting an improvement in growth
rates in mortgage approvals and implicitly therefore in the UK property information
business in the second half of this year. And I’m talking there especially about
Landmark and SearchFlow. Notwithstanding that though good growth in Education and
even more impressive growth in Energy as we’ll see in a second.
Profits down in dmg::information largely on the back of increased investment in
Xceligent which is growing very well, its revenues but the investment we’re putting in
there is largely driving down that operating profit decline in the first half of the year. We
do see some seasonality in Hobsons, as a reminder of that the profits in the second half
in Hobsons, the profits sorry within Hobsons are very much more aligned to the second
half than the first half.
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So look at the margin of last year at 14% for the first half which subsequently improved
to a 17% on the full year basis, we’re expecting much the same for the 13% margin in
the first half.
This breaks down dmg::information into a little more detail, there’s the 2% growth, the
European property businesses which is largely a reflection of that Landmark and
SearchFlow revenues driven by UK mortgage approvals. US however growing very well
at 11% and you can see there the stand out performance by Energy, that’s the
Genscape business growing at 17%. And the growth in Education will accelerate in the
second half for the reasons that I just mentioned earlier through our Hobsons business.
Dmg::events continue good growth in dmg::events with 13% underlying growth largely
driven by very impressive performance out of two large events that took place in the
first half in the Middle East, ADIPEC and Big 5. What else would I say about this one,
again good profit growth 27%, operating margin of 30%. That shouldn’t be taken as a
guide for the full year of course because the big events taking place in the first half are
very much the high margin events so that we will see, we’re maintaining our margin
guidance of 20 to 25% on the full year basis, notwithstanding that 30% margin in the
first half.
Euromoney, Euromoney reported its numbers last week, 1% growth of revenues across
the portfolio and an operating margin of 27%. Euromoney continues to operate in
challenging markets, you’ll have read their statements, some of you may have attended
their release so I won’t add much more to that.
Dmg::media so stand out performance for us I think in the portfolio on a profit basis,
underlying revenue growth of 2%, this is very much in line with our expectations, you’ll
recall that we used the word stable when we described our expectations for revenue in
dmg::media and we give that as a range as either minus 2 or plus 2. Advertising, print
advertising remains volatile and of course cover price increases, if we were to introduce
any, can result in big spikes in growth when they, or if, they were to take place.
The Mail on Sunday’s increased £1.50 to £1.60 recently, on a half year basis that gives
us around £2m so a slight impact on revenue trajectory for our UK consumer business.
There a 15% margin, very pleased with that, it’s a reflection of the continued cost
reductions that we’re able to find in the business. We very much streamlined the
portfolio of dmg::media, not so long ago we had probably over 20 businesses within
dmg::media, we’re very much now down to the stable of 4 or 5 businesses.
At the same time our printing and distribution has rationalised significantly down to two
printing plants, we had eight. Our marketing spend is not what it once was, we found
more better and more effective ways of marketing Daily Mail and growing market share
as a consequence. So put all those things together we’re pleased with the 15% margin
that we see today.
A bit more detail on the revenue streams in dmg::media, circulation revenues down 4%
that’s in the absence of the cover price increase so holding up pretty nicely actually
particularly compared to the rest of the market. And then on the advertising side, digital
growth exceeding the print decline, digital growth coming from MailOnline and Wowcher
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and the print essentially from the Daily Mail and Metro, 2% revenue growth across the
consumer business.
And then looking at it by business, a little bit more detail there, Daily Mail down 6% but
MailOnline growing strongly 20% and indeed in the US growing at 46% so a very good
growth that we expected out of the US and introducing new blue chip brands to the
advertising customer list in the US which we’ll talk about a little later. 4% across the
Mail businesses decline by Metro, really pleased with Metro’s first half performance of
4%, traditionally it’s very strong in retail and telecoms and that’s been reflected in that
first half performance.
Wowcher very good growth again out of Wowcher, it’s now got a subscriber database of
seven million people that we have information on for Wowcher that have accessed
Wowcher and registered for Wowcher. Wowcher in the first half moved into profitability
that we expected so we’re pleased about that, it’s a small profit but we’re in profitable
territory and we will be on a full year basis so we’re very pleased with the way Wowcher
is progressing, 2% across dmg::media.
And then just a little bit of clarity on the profit growth. Mail businesses growing 21% so
for a business that is you know one might think with the challenges for the print industry
really pleased with this performance. And on the expected profitability to remain at
these sorts of levels for at least a little while. And it will very much depend on how print
advertising plays out; our circulation revenues go up and down depending on cover price
increases, but also on the resilience and growth of our digital advertising play as well.
Sorry I should have said Metro, 7 days, Wowcher, Elite Daily growing at 30%.
And then this slide and the next slide really just summarises all the numbers we’ve just
gone through it’s just a nice convenient snapshot of the revenues across the Group and
profits.
Corporate costs we see that number in there for the first time, down £4m on a half year
basis, I wouldn’t read that as a permanent rebasing of corporate costs, a large chunk of
our corporate costs are driven by professional fees and it can often be around the timing
of those fees and timing of the consultancy exercises that take place that are a large
driver of that sort of intrinsic cost.
Joint Ventures and Associates, Zoopla, Property Group, £7m or as that reduction reflects
that reduced proportion of profits of Zoopla, it went from 52% to 32%, we remain strong
supporters of Zoopla, we were happy to support the uSwitch acquisition and we remain
very hopeful for Zoopla’s prospects in the future.
Just a quick word on Local World, Local World just a reminder that used to be called
Northcliffe combined with the Iliffe Newspapers and continues to be a resilient generator
of profits and cash, in fact growing its profits during the half year compared to last year.
And that reflects our 39% holding in Local World. There's the Zoopla change in holding.
Net finance costs have come down nicely from 26 down to £19m, a reflection of our
reduced net debt, but also our restructuring of debt. You’ll recall that over the last 18
months we’ve bought in about £250m worth of bonds and we’ve largely replaced that as
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we’ll see in a second with less expensive bank facilities so a good reduction in interest
costs in the first half of the year.
Pretty good altogether, you’ll recognise those numbers, I think the one number that may
be the pleasant surprise this morning is earnings per share growing at 7%. That is
largely a reflection of two things; number one a more simple one to explain is a
reduction in the number of our shares as we continue our share buyback programme.
But also in reduction of the effective tax rate which is now at 14.1%.
Driven on the back of three factors, number one - the proportion of our UK profits is
higher in this half than it was last year, driven by the decline in RMS but also the growth
out of our UK consumer business. Two, we’ve had the two big events businesses in the
Middle East which have attractive tax rates attached to them. And thirdly as we look at
our UK profits and the trajectory for UK profits we can take a less cautious view than we
did last year on the use of our deferred tax assets and the usability of that asset to
offset the chargeable tax profits in our UK business.
Put all those things together we’re down to 14%, we still expect to head towards 20%
over the next three or four years, but as it we’re happy to take that number right now.
Exceptional items down a little bit on last year £11m, this is the only cash number in this
table and largely driven by headcount reductions in dmg::media, a little bit of
refurbishment of Northcliffe House, but also as preparation for new tenants coming in on
an empty floor, a bit of detail but there you go and we expect this number to be lower in
the second half of the year.
Net debt finishing the half at 1.9 times, no surprises there the end of March is
traditionally our highest net debt situation. We still remain on track to be no more than
two times at the end of the year. Cash conversion during the first half is just 47%, it
will be higher on a full year basis. We tend to see items like our incentives schemes and
bonus schemes paying out in the first half of the year and that’s largely one of the key
drivers for the reduced conversion for the first half of the year, EBITDA 1.9 times.
Just a reminder where we are, our trajectory we target less than two times of the year
at the year end, the last two years we’ve comfortably achieved that and I expect to do
the same again.
Just a couple of words on buy-backs, the share buyback programme that we announced
in September of last year, we’ve progressed through this at a fair old pace, £71m all the
way through at an average price of £8.24. It remains a good and effective use of capital
where M&A remains our priority but rather than having cash sitting on our balance sheet
when we look at our share price we think it represents a good investment and so we’ve
been very happy with the progress we’ve made so far.
And again bond buy-backs we had £149m bond buyback in October 2014, we did one
again a little earlier than one around £100m or so the year or so before and that has
resulted in that reduced interest charge that we saw a little while ago which is a pretty
useful bridge to explain the first half of last year to the first half of this year.
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Again highlighting the negative impacts of RMS(one) investments and Gastech on our
half year numbers, £17m investment in RMS(one) largely due to reduced capitalisation
of software development spend. But also the introduction of the data centre costs that
we’ve brought onto the books that we plan to be using right now for RMS(one) and
waiting for RMS(one) to become available as it will do in the final quarter of calendar
2015 and in the absence of the Gastech even as well.
But aside from that you can see good growth elsewhere across the Group. So those are
those two big stand out numbers.
So what are the considerations you ought to have on your mind for the second half of
the year? I think we would expect to see a stronger year on year performance for RMS
profitability and dmg::i UK property information business. We expect to see a revenue
growth of the core business is RMS driven on the back of that RiskLink 15.0 release but
also the new versions of those two big models, which coincidentally represent about a
quarter of RMS’s catastrophic risk modelling business, those two models alone.
We do however have a smaller global petroleum show which is on an annual basis versus
the biannual from beforehand. We sold the Jobsite business, cover price increase, the
reduced financial charge will continue, the reduced tax charge that we saw in the first
half. And of course whatever happens with the exchange rate will have an impact as
well, right now the average is 1.54 to where we are yesterday and 1.66 on a full year
basis last year.
Just reiterating a very key message this is the slide that we showed back in November
and it is unchanged so we’re pleased to maintain our guidance. That’s it from me, back
to Martin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business Update
Martin Morgan, Chief Executive
Thanks Stephen. It is our custom to talk quite extensively about strategy at the time of
the full year results and I will certainly be doing that when we come to next November.
But I thought just as a quick reminder what our priorities are I’ve listed them out here
and those of you who follow us regularly will recognise them.
Our priority in terms of investment is to drive organic growth through innovation in the
company and I’ll touch on a number of those initiatives that are going on right now. I’ve
already mentioned rigorous and active portfolio management and I’m going to show you
a table next to talk a little bit about the M&A and disposals that have taken place in the
first half.
And we continue to be very focussed on DMGT becoming an ever more international
business, I’m glad to say we’ve made good progress in Asia recently. Technology we
see actually as an enabler of growth, that’s a high priority for us and of course attracting
and developing entrepreneurial talent which we think thrives in the way we operate
DMGT on a light touch decentralised basis.
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So enough on strategy so let’s come to active portfolio management. You’ll be familiar
with the layout of this slide but just to remind you those companies that are mentioned
here that are on a green background we consider bolt-on acquisitions to existing
businesses and the red indicates investments or adjacent investments, which really are
companies that operate in markets where we already have a business and therefore
have extensive market knowledge but aren’t directly bolt-on.
So you see we made four bolt on acquisitions in the first half, Starfish was added to
Hobsons a really excellent acquisition I think, which provides additional customers and
product to help universities and colleges and America deal with a very difficult problem
they have which is to do with low retention rates. And as funding in American
universities and colleges moves more to an output or a results based system rather than
simply by headcount it becomes crucial for universities to hold on to students because
after all that’s their revenue and it’s a very nice addition to the Hobsons business.
Energy Fundamentals and Petrotranz are two further acquisitions for Genscape and
Stephen has already called out how fast Genscape is growing on an underlying basis and
we continue to see a great pipeline of small entrepreneur earlier stage businesses that
can actually add to that growth rate and build our product for Genscape.
Gulf Glass and GulfSol were two small bolt-on acquisitions for our Middle East Events
business which is a very successful business indeed and so those are nice additions and
add to our sort of construction portfolio.
In the adjacent category we invested and acquired Elite Daily which is a US based
business and its focus in terms of demographics very much at the millennials and
therefore is a very good complement to the demographic profile of MailOnline. And the
two businesses joining together to sell advertising across both platforms where
advertisers are looking for a broader and bigger reach. So I think a very interesting and
exciting investment acquisition there.
Dealogic you will have heard of from Euromoney, Euromoney now has a 15.5% stake in
Dealogic and I think we are very enthusiastic about that because it takes Euromoney
another step into being involved, if you like, in the digital work flow, in this particular
case for investment banks on a pretty global basis and it’s a very impressive business
and we have a seat, well Euromoney has a seat on the board.
And finally dmg::i made an investment in an early stage business in property
information in the US called Compstak. And actually sticking with property for a minute
since the half year close in fact earlier this week dmg::i completed its first investment in
a Chinese business, an early stage Chinese business which is also in the real estate
information sector. And I don’t want to tempt fate but we’re looking forward to actually
closing one at least of a similar style of transaction in India in a property information
business there. And India has very exciting prospects I think in the coming
sophistication of how real estate is dealt with in that country.
So a very nice set of acquisitions and investments I think the first half. And if you look
right down the bottom of the page where we’ve referred to the disposals we actually
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raised more money through disposals in the first half than we spent on acquisitions
which is something we’ve done in previous years.
So let me know just move on to talking about each of the main operating businesses in
DMGT starting with RMS. News out of RMS is good, Stephen’s referred to the roll out of
RiskLink 15 which is the latest iteration of the RiskLink software that delivers the models
for RMS. It’s an important upgrade dealing with US Hurricane and European Wind, it
also includes very extensive updates to databases to do with hazard and geo information
across I think 46 countries, it’s been very well received by the industry, adoption rates
are good.
And interestingly enough many, many clients are now taking the software online and
downloading and inviting the software online which is a nice precursor to what RMS(one)
will do.
Now talking of RMS(one) very much on track for the scheduled roll out that we have laid
out previously with the first HD models coming by the end of the calendar year, further
models going into ’16, exposure manager, risk manager, other components of the
RiskLink platform - excuse me, the RMS platform to be rolled out through ’16.
So that all led to the latest RMS Client Conference which we attended in Miami recently,
being a very successful and no doubt that clients are reassured and pleased by the
progress RMS is making. So I think we’re quietly confident that we are on firm
foundations, significantly firmer foundations than we were this time last year.
I did mention in November that RMS was facing some headwinds in the reinsurance
industry, it’s been well written about since then that premiums are under a lot of
downward pressure amongst re-insurers. And that does put sort of budgetary
constraints on them in terms of their ability to increase their expenditure on models and
data and other such things so that is a continuing factor in the marketplace.
However on the upside and it’s early days here of course, the primary insurers are
obviously benefiting from the falling insurance rates and the growth of capital markets
and I think those are new opportunities for RMS to actually increase potentially in the
time its revenues coming in from primary insurers as compared to the re-insurers. But
as I say that is a potential future trend on the upside.
Let me turn to dmg::information, we feel very pleased that dmg::information that that
strategy we had for investing in organic growth supplemented by well-chosen
acquisitions is really working. There were some special factors that affected growth
rates in the first which Stephen has taken you through and I won’t repeat. But in terms
of innovation a lot of innovation in the property information businesses, Stephen has
mentioned Xceligent which is in the process of building out a national database of
properties and information about tenants in the US, that’s growing very quickly but it is
an investment business.
In the UK Landmark recently launched a new product and service for dealing with flood
insurance to residential properties and of course it’s a pretty big issue in the UK, those
being just two examples.
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Hobsons we’ve mentioned the acquisition but in terms of innovation it’s had a very
successful launch of a new platform to deal with their higher education service and
products for those customers, major upgrades and contents to the Naviance school
system where we are market leader by a very long shot. So I think Hobsons growth rate
prospects are very sound and as Stephen said I think we expect them to pick up in the
second half.
Genscape is just a hive of entrepreneurial activity with lots more products, in fact a very
small acquisition we didn’t list here that’s also been completed over a business called
Vessel Tracker which helps us monitor what’s happening on the seas in terms of the
movement of liquid national gas and oil and so on. And it’s ever adding to the richness
of the information that Genscape can provide traders as they figure out the balance
between supply and demand.
I won’t go over the acquisitions again because I’ve already talked about them, which
takes me to dmg::events, the highest growing business of course in DMG at the moment
and continues its excellent track record of the last few years. And with the Global
Petroleum Show which is coming in Calgary I think in July it will be the last of the
changes to increasing the frequency of our large events. And as Stephen has indicated
it will therefore be a somewhat smaller event given the change of frequency.
I’m sure you’re interested in our view on the impact of the lower oil price on our energy
events. So far stand bookings have held up very well for the Global Petroleum Show, it’s
just too early to tell what’s going to happen with visitor numbers, we have no indications
yet that they’re going to be majorly affected but we can’t bank that yet it’s too early.
Stand sales for Gastech which this year will take place in October in Singapore equally
stand sales are looking pretty good. But again there’s inevitably this far out some
uncertainty about visitor numbers and then we’ll have ADIPEC again Abu Dhabi in I think
it’s November.
But I think we have to be a little bit cautious about how '15/'16 is going to play out in
terms of growth rates in the energy business, I just think it’s prudent to be cautious and
I’ve got no firm numbers to give you at this early stage.
We continue to expand geographically and you will know that one of our big events is
called Big 5, it takes place, it’s the largest trade show in the Middle East, it’s been geo
cloned into Saudi Arabia and other locations. And now had also moved into Indonesia,
which is a nice step forward in our ambitions to do more trade shows in that part of the
world, in Asia in general.
Euromoney well you will have had information directly from them and I suppose we all
know that Euromoney continues to face rather challenging markets in the investment
banking capital markets sector of their business. I hope I’m not clutching at straws and
I know there are some investment bankers in this room but it’s been somewhat
encouraging to see some of the investment banks actually producing some pretty good
results I think at the end of the first quarter. Again, it’s not something we can, no pun
intended, bank, but maybe one can start hoping there might be a bit of an upturn in that
part of Euromoney’s business to come.
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Very pleased with the way Euromoney is handling its technology, the Delphi platform has
been very successfully rolled out initially to BCA the international research business and
new products have been launched, customers are buying them and Delphi has been
rapidly rolled out in many other parts of the business. We remain very excited about the
prospects for the Institution and Investor network, there was an extensive presentation
in September on that and investment has continued to go in there and building out the
staff and the talent to underpin their ambitions.
And of course Euromoney remains on the lookout for acquisitions and we support that
and it’s a very competitive M&A market out there and we very much respect
Euromoney’s tradition of being a disciplined buyer, but of course with a very strong
balance sheet they’re in a good position to buy companies when they find them.
And finally we were delighted to be able to announce that Andrew Rashbass is going to
join as Euromoney Executive Chairman when Richard Ensor retires at the end of
September. He’s a man obviously with a tremendous track record and I’m sure that he
will be a tremendous addition to the Euromoney team and we look forward to meeting
Andrew, if you haven’t already in his other careers when he steps up at Euromoney.
So finally to the sort of star performer I suppose in the first half dmg::media. Our
papers continue to be really resilient and increasing market share, which I think is a very
good sign of how good and how strong they are and the effectiveness of the marketing
programmes that Stephen alluded to that we bought in recently and which we were able
to successfully introduce a cover price increase with very little adverse effect on the
circulation of the Mail on Sunday.
And we are seeing the benefits of those cost reductions and the efficiency initiatives that
you know we started a few years ago flowing fully into the results in the first half.
MailOnline continues to make terrific progress I think growing its international audience
very strongly around the world advertising is following, I think rates of advertising
increase are obviously down a little but that is obviously because of a larger number and
we’re very much on track I think to achieve our objectives in terms of advertising
revenue this year and into next year.
And I’ve talked about Elite Daily so perhaps I’ll say no more about that other than it
does strengthen the advertising story for a combination of MailOnline, now called
Dailymail.com in the US and Elite Daily.
So just to wrap up notwithstanding the sort of specific factors that we’ve gone into that
have impacted certain parts of the group in the first half I still think we’re very well
placed to deliver good consistent growth looking out. And we see no reason to change
our strategy which we’ve laid out to you before.
I think the portfolio is pretty nicely balanced and our balance sheet is in good shape and
has enabled us and will continue to enable us to focus on driving shareholder returns
which is of course at the end of the day what we’re all interested in.
DMGT - Half Year Results Presentation - 21st May 2015
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So that brings to an end the formal part of our presentation and Stephen and I will be
delighted to take your questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Questions and Answers
William Packer, Exane BNP Paribas
Just a couple of questions from me please. Firstly in terms of the dmg::media
profitability in H2, if we look back in previous years there hasn’t been a huge amount of
seasonality. Could you just take me through why we shouldn’t expect an upgrade to full
year guidance for that division?
Secondly I think you covered it at the previous trading update but apologies, could you
just refresh us in your thinking as to what the sustainable growth rate at the MailOnline
is going forward? Obviously there's been a bit of a slowdown versus previous quarters.
It would be good to get your thoughts on where it can go from here?
And then finally on RMS(one) you've made it very clear that you don’t want to talk about
financial specifics looking forward. One element from here is the rollout of a couple of
HD models in H2. Just can we have a kind of qualitative flavour of the kind of
requirements for a client that they need to make in order to take the jump with those
models? How significant an investment is it? How big a risk for them is it moving to
those models? And how big a take up do you think there’ll be?
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Martin Morgan, Chief Executive
Do you want to do the margin one first?
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Stephen Daintith, Finance Director
Yeah. Okay so on the margin it’s a fair question. I think the one key thing to remember
is that dmg::media sees 2% underlying revenue decline at the moment and of course we
expect that decline to continue into the second half. So you would naturally see a
deterioration in margin with revenue decline, so we have that very much on the horizon.
I think it is a fair point though that when you look back the guidance that we have given,
you know the outlook - the actual outlook number isn’t likely to be more - it’s slightly
ahead of that rather than behind it if anything. So I wouldn’t expect the 15% but it
might be something that’s not far short of that.
Next question was on MailOnline growth.
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Martin Morgan, Chief Executive
Well I think we’ve indicated before a sort of target to get to £100m in ‘16, end of ‘16,
and I would say that given the current trajectory that looks like a pretty fair target still.
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I think it would be a brave person in the changing world of digital media to forecast
much beyond that but yeah, I think if we hit this year’s number it’s a nice step forward
towards that.
In terms of RMS that’s a really interesting question about the cost to the client. Well our
analysis continues to show that actually moving to the software as a service model will
reduce client costs. Will there be transition costs for some clients? Yes I suspect there
will be. I'm struggling a bit to know quite how to generalise across a diverse client base
that has quite different internal IT systems. I think with the nature of now the sort of
rollout being sort of in stages, I think we will see clients adopting in different stages. I
think you'll see for example some clients continuing to run RiskLink and embrace
RMS(one) for other reasons, and some of them will move much more quickly. So I think
the cost profile is going to vary.
What we will do to your question is RMS are going to be presenting at our investor day
in September. I suggest we make sure that we address that question in a bit more
depth then.
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William Packer, Exane BNP Paribas
And so just to confirm, if someone does decide to take the European flood model they’d
take RMS(one), and if they kept the hurricane Florida model they'd have RiskLink as
well?
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Martin Morgan, Chief Executive
Yeah.
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William Packer, Exane BNP Paribas
They'd take both?
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Martin Morgan, Chief Executive
Yeah.
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William Packer, Exane BNP Paribas
Okay thanks.
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Stephen Daintith, Finance Director
Yeah I mean I think one of the key goals of RMS is to make it as easy as possible for its
customers to migrate onto RMS(one) and as straightforward as possible. And they will
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need RMS(one) if they are to use the high definition models that become available
starting with European flood in the final quarter of this year.
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Martin Morgan, Chief Executive
That’s final calendar quarter.
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Stephen Daintith, Finance Director
Yeah, calendar year. And then I think you've got Japan typhoon into 2016 and New
Zealand earthquake beyond that. That’s the rollout plan.
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Martin Morgan, Chief Executive
Just commenting on that, the significance of that rollout is so the net first period you'll
have each of the major perils on an HD platform. So some people have said well New
Zealand earthquake, you know that doesn’t sound like a particularly significant one,
although it’s a big deal, earthquake is a big deal in New Zealand obviously for the New
Zealanders. But actually it’s proving that technology can work because the science is
broadly similar earthquake to earthquake so you'll have flood, hurricane, wind and quake
all onto the new platform in ‘16.
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William Packer, Exane BNP Paribas
Thank you.
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Gareth Davies, Numis
Morning. Two for me. Just going back to dmg::media again, in terms of investment
certainly the wording in the statement implies that you’re still putting quite a lot of
investment into the US. Can you talk around the investment, the specific sort of
projects you've got going on there? And is that something we should expect to sort of
ease off through ‘16 and ‘17 and give additional margin benefit? Or - just a little bit
around that dynamic.
And then secondly sort of another margin related question. dmg::information are
looking to pick up quite a bit in H2, can you talk about some of the specifics driving that?
And then also specifically on Hobsons. I think from memory it’s sort of been a standout
laggard really in margin terms relative to the rest of the Group and I know you had
some initiatives ongoing there that could sort of help drive that. Can you give us an
update around that?
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Martin Morgan, Chief Executive
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Yeah well in terms of investments in MailOnline and the US it’s really people. And don’t
want to be a hostage to fortune but it looks as though that substantial step up in people
is really behind us. I mean there might be some additional people but I'm not hearing
any great demands for any significant increases in headcount there.
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Stephen Daintith, Finance Director
No I mean it’s essentially the desire for a true US product requires US journalists writing
US stories. So naturally you would expect a pickup in headcount to achieve that.
And the other big driver is video of course. The CPMs, the yields on video advertising
are much higher than the static display advertising. So developing the video capabilities
requires the investment to get to that stage. So those are the two big things really.
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Martin Morgan, Chief Executive
Dmg::i margin?
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Stephen Daintith, Finance Director
Dmg::i margin. Yeah last year we moved from 14% first half to 17% full year. This
year we’re at 13% so we expect a similar sort of improvement. Big drivers of that as I
mentioned the Hobsons higher education revenues are very much towards the second
half of the year driven by the seasonal marketing activity that takes place in Hobsons in
the universities for of course the applicants during the summer and into enrolment in the
sort of September, October time as it is in the UK.
Similarly we expect the benefits of the Radius software platform that’s been introduced
in Hobsons to flow through into the second half. And also the - shall we say Xceligent
revenue growth being sufficient to see some sort of say decline in its investment phase if
that makes sense, in the second half of the year as well.
So you put all those things together and then add onto that what we expect [gap in
audio] was quite rightly a little bit of uncertainty about the prospects of a coalition
government and the uncertainty that might bring. That’s been removed and the early
signs are that UK consumers are now ready to start applying for mortgages and moving
house and so on. So put all those things together, kind of explain why we expect to see
an improved margin in the second half.
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Steve Liechti, Investec
Morning. Two questions please. First of all on RMS(one) you've talked about the HD
model rollout. It looks to me as though two of those models slipped a quarter, in that
you said at the pre-close update you expected three HD models launched in calendar
fourth quarter. Are my notes incorrect? And if they have slipped why have they
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slipped? And I know you’re saying RMS(one) is on track, but is there anything sort of I
should be worried about by that slippage?
Second question is on RMS core. You talked about the reinsurance market and the
pressure there on the margins; obviously one of the effects there is the cap bond sort of
coming through there. I'm just trying to understand why you are not getting a benefit
from the cap bond side in terms of assessing risk? And I believe your competitor is
outperforming in that area. Can you explain to me why I guess you’re missing that
opportunity?
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Martin Morgan, Chief Executive
I'm just checking, is it a slip in terms of what we said before?
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Stephen Daintith, Finance Director
There's no slippage on RMS(one).
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Martin Morgan, Chief Executive
No, I didn’t think so.
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Stephen Daintith, Finance Director
I mean I think the point is we’ve got more detail now as to how we think it’s going to roll
out and we think it’s sensible to do a big model, European flood first, and then the other
two to follow shortly after. I mean they really are, I don’t want to say back to back but
not too far apart. So we’re talking - you know this is detail so there's no slippage, very
much on track. And this is what we think is a sensible plan for the rollout of those high
definition models.
And indeed if you were to take a longer view and look at the two, three year horizon, the
amount of activity in those two, three years, it will outweigh anything of the last sort of
ten years in terms of model rollout, HD model rollout, assuming all goes well with the
RMS(one) software platform.
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Martin Morgan, Chief Executive
Yeah in terms of RMS’ sort of market share in the cap bond market yeah it’s true that
going back a few years ago, I hate to have to raise it, we had considerable difficulties
when we had version 11 of RiskLink. The market didn’t like the view of risk we took.
But to a certain extent we were definitely vindicated when Hurricane Sandy came.
And in that case the market, in terms of the cap bond market, chose at that time to
move more to a competitor that had a view that the risk was low, i.e. prices were low for
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the risk. Well you can take a view of what makes most sense from the point of view of
the insured, but anyway RMS has been somewhat in a catch up in terms of participating
in cap bond securitisations.
We have a pretty strong product there. We also have a licensed product which is doing
very well which is helping people who hold the securities to actually manage them once
they have bought them and, you know, as they increase the size of the portfolio and
that’s doing pretty well and that’s a subscription product. And cap bonds are fine but
they’re kind of one off consultancy fees that you get to do a model for an investment
bank who’s putting out a bond. It’s kind of nice business to have, but it’s not really -
because it’s not licensing revenue, it’s fine, but it’s not the high grade revenue you get
from a licensed product.
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Nick Dempsey, Barclays Capital
Just two questions left please. So just in terms of the tax I understand the benefits are
mostly non-cash, so if we were talking about theoretical cash EPS would you not be
upgrading your expectations on EPS?
And second question, at Hobsons did you have any exposure to the Corinthian for profit
college chain which had to close a bunch of university campuses?
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Martin Morgan, Chief Executive
Yeah I’ll do the second one first. Actually Hobsons has not been active in terms of
selling to the private education market. And the market has tended to bifurcate between
the sort of non-profit university sector which can be private and public, and we’d not
actually focused on the full profit sector. So that’s a long winded answer saying we
weren’t affected.
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Stephen Daintith, Finance Director
And the first one yeah there would be a modest additional benefit there on a cash basis
for the tax rate so you’re not wrong.
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Alex DeGroote, Peel Hunt
Thanks guys, morning. Two quick questions please. Firstly just on the cash funding into
the pension, have you overpaid or brought forward some funding there? That 38 looks a
bit higher I think than the full year guidance so a bit of a heads up there would be great.
And then secondly just on Zoopla actually acquiring uSwitch. I seem to recall about
seven years ago DMGT dipped its toes in the price comparison market. I think
SimplySwitch was the asset and I think that was closed fairly short order after the
purchase. So I just wondered if you have any observations about what might be
different this time round? Thanks.
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Martin Morgan, Chief Executive
Well because of the corporate memory being as good as yours, when it was first
proposed by Alex it caused us to pause for a moment. But given the - given his strategy
if you like for, you know, providing people who are homeowners moving home, people
who are interested in home with a range of services if you like that are relevant to the
home I think it’s pretty compelling.
And you know that’s one that DMGT got wrong for a variety of reasons. I'm afraid I
wasn’t CEO at the time so I really don’t know the ins and outs of it, but that was then
and now is now. And you know obviously we have a tremendous respect of Alex and his
very strong management team and I think a very interesting strategy that he's put
together that’s justified the buying of uSwitch.
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Stephen Daintith, Finance Director
Yeah very much so. And then on the pensions, yeah our recovery plan and we continue
paying that in line with what we’ve agreed with the trustees of the pension fund. And
what we shouldn’t forget is there is often a little top up to that in respect of any share
buybacks that take place. So the difference is the agreement that we have with the
trustees to pay in a proportion of any share buybacks into the pension fund to reflect
that effectively sort of leakage of cash out of the Group.
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Ian Whittaker, Liberum Capital
Good morning. Just two questions. First of all just in terms - coming back on the tax
rate. You mentioned in terms of you decided to sort of look at more optimisation of
some of your losses. Was that down - a direct result of the UK general election result?
Laughter
And if so is that something that could be sustained moving forward?
And then the second question just has to do with events. If you look at the sort of
longer term oil price, there's increasingly a question as to whether there is sustained
deflation in that market, whether oil prices will ever increase significantly again at least
in the medium term. Is that changing your view of whether you want to be in the
events business or not?
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Martin Morgan, Chief Executive
No it’s definitely not. But I'm certainly not willing to make forecasts in terms of where
energy prices are going to be. I mean I think the benefit of our position in energy is that
we have very successful, very substantial trade shows and I think it’s - would typically
be the case that secondary shows, more marginal shows, are the ones that are going to
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Page 21
be in more difficulties. Because there's also politics involved. You know in a show like
Abu Dhabi, it’s a showcase for Abu Dhabi in the whole energy industry there and what
they’re doing, very strong conference programme for example. So it certainly wouldn’t
change our view about being in events generally, no.
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Stephen Daintith, Finance Director
And then on the first question no, the tax rate had nothing to do with the outcome of the
UK election. It was very much the growth in UK profits and our ability to use tax losses
that we thought would previously be more difficult to use. And then as we looked to the
near future our ability to continue to use those tax losses. And the drivers there are you
know continued growth in MailOnline as it moves out of its investment phase and into
that sort of £100m of revenue in fiscal ‘16 that we’ve guided to for quite a while now.
As we look at Wowcher moving into profitability, look at the resilience of Metro but also
in particular the improved margin in the newspaper business. All of those things put
together make us feel more confident about the use of those tax losses that we have
stored up.
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Question
On Elite Daily, first of all how much overlap is there between MailOnline and Elite Daily’s
audience? Are you planning to integrate the two and does it offer a significant
monetisation opportunity?
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Martin Morgan, Chief Executive
Yeah I think I'm right in saying that the overlap in terms of traffic is only 10%.
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Stephen Daintith, Finance Director
That’s right, less than 10%.
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Martin Morgan, Chief Executive
So it’s highly complementary. I think the audience is still predominantly female, yeah?
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Stephen Daintith, Finance Director
It’s affluent females.
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Martin Morgan, Chief Executive
Yeah, the younger so that’s very good. And yes we do believe and it’s one of the main
justifications for the acquisition is that you can buy in the traffic that you’re getting from
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Elite Daily with the traffic from Dailymail.com and the demographic complementarity,
there are advertisers who want to buy large numbers across a broad demographic.
That’s not going to suit all advertisers but there's plenty of advertising opportunities and
that’s really one of the fundamental rationale for doing the investment.
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Stephen Daintith, Finance Director
They’re very much sort of different audience sets to Martin’s point. And one of the key
stats is that when you look at MailOnline in the US and Elite Daily combined, together
they reach over half of the 18 to 40 year olds in the US. So there's a good sort of
advertising yield play there with that. But we’re learning a lot from them on their social
networking skills.
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Martin Morgan, Chief Executive
Yeah, and video.
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Stephen Daintith, Finance Director
And video capabilities. So it’s -
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Martin Morgan, Chief Executive
So we didn’t really answer your question. In terms of the way the businesses are run,
they’re run sort of day to day and certainly from a content perspective they’re run by
two different management teams, two different editorial teams, but they’re joined
together at the hip in terms of the sort of B2B side of the business which is dealing with
advertisers and agencies.
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Patrick Wellington, Morgan Stanley
Morning. I'm going to plug away at RMS. Hemant Shah at Exceedance was quoted as
saying the first RMS HD model would come in the fall. I don’t know whether the fall is
the same as the end of the year, and I kind of agree with Steve on the other two models
as well. So it does look as though there has been a degree of movement on those model
production.
Secondly on RMS when we have seen some big new models in the past it has caused a
bit of customer disruption as customers got used to the different findings of those
models. You seem very confident that that’s not going to happen this time round.
And then just an easy one. On the tax charge does it pop up, you know, 16, 18, 20 or
do we move further back towards 20? Give us a bit of a feel for that.
DMGT - Half Year Results Presentation - 21st May 2015
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And corporate costs, I mean you’re still on the full year guidance although you had the
big half year. Are you leaving yourself a bit of spare on corporate costs for the full year?
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Martin Morgan, Chief Executive
Well in terms of - you’re right and I alluded to it before, we had problems with version
11. Well there was a lot of hard learnings from that. One is preparing the industry
better and more in advance for any significant change in the view of risk, and that’s sort
of become practice with RMS now. And it’s just a fact that the version 15 rollout is going
very well. And that’s because the product was well designed, Q&A was done, the
testing, the clients were prepared; it’s been well organised and well received.
Well I don’t know if we’ve got anything further to say on the timing difference. I think
you know quite frankly in the scheme of things I don’t think there's any real slippage to
RMS. We want to make sure that the - in terms of the rollout of the HD models that
they come at a pace that the clients can adopt. It’s the same thing, they have to be sold
in, the view of - I mean there is this transitioning needs to be handled. I'm much rather
it was done at a steady, well organised pace, you know and a few weeks here or there I
don’t think is material. I really don’t think it’s material. I don’t see any significant
slippage at all.
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Stephen Daintith, Finance Director
Yeah you’re dead right. Hemant said fall but that’s autumn so final quarter calendar. I
think we’re splitting hairs.
Tax charge 14.1% now, I think sort of 15% on the full year is more likely. And I think
we ought to see that sort of trajectory heading towards 20% over the next three, four
years. But just to make the point though that it might be more spiky and a bit more
volatile in light of that usability of those UK losses. So I'm not suggesting this is going
to happen but if there were a dramatic decline in print advertising for example, profits
would naturally come down and therefore the usability would be less and the tax rate
might go higher. So I'm just flagging that that volatility may exist, but that’s the broad
trajectory that we’re expecting to increase over time to that level.
And then was the final question around corporate costs I think? Yeah, so £17m for the
half year compared to £21m or so last year. I think we may come in slightly lower than
we did last year, but there will be that pickup in the second half so I wouldn’t necessarily
just double the £17m to get to the full year basis. I think we’ll be closer to last year’s
full year number, but maybe slightly lower than that.
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Chris Collett, Deutsche Bank
Just two questions. One was just on Dealogic and really what your aspirations are along
with Euromoney to really expand in work flow solutions in the investment banking
space?
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And then second again on RMS. Can you just remind us about the timing of the
additional investment in the data centres and the product development? Is there
additional step up in the second half of this year compared to the second half of last
year?
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Martin Morgan, Chief Executive
Well in terms of Dealogic interesting question. I think if you think about investment, the
investment network, investor intelligence network that I talked about earlier on, you
know taking what an institutional investor has done traditionally and the relationships
they have with both asset owners and asset managers and turning that into a digital
system whereby assets can be transacted in terms of owners finding managers, you
know that’s a workflow application. So Dealogic is not the only example of that.
They’re perhaps less headline grabbing examples even at a company like BCA using the
Delphi platform. You know if you think about where the research was previously
published, well it used to be in printed form but then it was a PDF, and of course what a
lot of clients want, I imagine some of you in the room, is often you actually just want to
imbibe the data and you want to be able to manipulate and do things with the data so
you now through the application of the Delphi content management system etc. you
know you can start to offer clients a whole variety of services where you’re putting - you
know you’re allowing the client to be in control of how they use the information you
have. So I think the sort of workflow development and being more engaged in the
workflow, we’re going to see it in multiple businesses at Euromoney over time.
Are you going to deal with the other question about the developments?
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Stephen Daintith, Finance Director
I don’t think you’re going to see in the second half a pickup in the RMS cost base. It’s
pretty much as it is now and those investments in data centres were first started - where
are we now - first started towards the back end of fiscal ’13. And as we’ve got to the
stage that we’re at now, there is capital that’s on the balance sheet in respect of those
which is now being released to the income statement. And there are lease costs which
are being incurred that were - those leases being set up in anticipation of the launch in
April ‘14 so they’re costs that we’re incurring effectively in respect of the postponement
or the delay of RMS(one).
Any more questions?
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Martin Morgan, Chief Executive
Well thank you very much for your questions and thank you very much for coming.
Good morning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DMGT - Half Year Results Presentation - 21st May 2015
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END
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