DMGT Full Year Pre-Close Trading Update
Thursday, 24th September 2015
Stephen Daintith, Finance Director
Morning ladies and gentlemen and welcome to the conference call covering our Full Year Pre-Close trading update. I’m Stephen Daintith, DMGT’s Group Finance Director, and I’m joined by Adam Webster, Head of Management Information and Investor Relations.
Today’s conference call is the chance to pull together the key dynamics behind our trading over the 11 months of our financial year, to the end of August 2015 and ahead of our year-end on 30th September. As usual, there will be an opportunity at the end of the call for you to ask questions.
So, overall, trading for the 11 months has been line with our expectations, including in Q4 to date, and we are reconfirming our guidance for the Full Year. The Group’s suggested results are also anticipated to be in line with current market expectations.
Group revenues for the 11 months were flat on an underlying basis. Reported revenues declined by 1%, reflecting the impact of disposals during the year offset by the benefit of the strong US dollar.
Adjusting for the time of Euromoney’s events would result in underling revenue growth for the 11 months of 1% for the Group.
Overall, our B2B companies generated total underlying revenue growth of 2% over the 11 months, with good growth from dmg events and dmg information offset by more challenging conditions for Euromoney and a flat performance from RMS. Adjusting for the timing of Euromoney’s events would have resulted in an underlying growth of 3% for the B2B portfolio. On a reported basis, B2B revenues were up 4% reflecting the benefit of a stronger US dollar rate.
dmg media, our consumer business, saw underlying revenues decrease by 3% over the 11 months, primarily reflecting weak print advertising and declining circulation volumes.
We have continued to actively manage our portfolio this year, with several acquisitions, early stage investments and disposals made in the 11 month period.
Acquisitions have been most prevalent for dmg information, with several small property sector investments as well as businesses acquired by Hobsons and Genscape. Most recently, last week, Genscape announced the acquisition of Locus Energy, a leading US-based solar energy performance monitoring and data analytics provider. The acquisition is in line with Genscape’s long-term strategy of expanding into new asset classes. Euromoney has also been active in the M&A market, acquiring a minority stake in Dealogic earlier in the year.
On the disposal side, dmg events has recently announced the sale of its digital marketing activities, including the ad:tech shows. Post the disposal, the events business will operate with a higher margin and a more attractive revenue growth profile.
Turning to the share buy-back programme, we are pleased to say that the £100m programme completed on 10th September of this year and the Group has acquired 12.2 million shares at an average cost of £8.20 per share.
Looking at the balance sheet, despite the various acquisitions, totalling £124m to date, the £89m spent on the share buy-back programme during the year and the £40m premium on the October 2014 bond buy-back, the net debt to EBITDA ratio at the year-end is still expected to be below the Group’s preferred upper limit of 2.0 times.
Now to give you some more detail on each of our businesses:
Within B2B, over the 11 month period, RMS Core revenues were up an underlying 1% in the period, with total revenues flat on an underlying basis due to the expected lower consultancy revenues from RMS(one).
Conditions within the reinsurance market remained challenging and this, combined with the impact of client consolidation, influenced the performance of the Core business.
RMS has, however, continued to see strong renewal rates and RiskLink15 was launched successfully with two updated models for North Atlantic Hurricane and European Windstorm earlier this year. And, as outlined at the Investor Briefing event earlier this month, RMS(one) remains on track. As always, we will provide more detailed financial guidance for FY16 at our Full Year Results in November.
dmg information has maintained its growth trajectory, with underlying revenues up 6% over the 11 months. For those of you who attended the Investor Briefing, I hope that this event deepened your understanding of this portfolio of the businesses and the excellent long-term growth potential that they have.
Just looking at the dynamics of the different sectors, Genscape delivered double-digit revenue growth in the period, with the property information portfolio producing mid-single digit revenue growth. Trading for the UK property businesses in Q4 to date has picked up slightly, as expected. Underlying revenues at Hobsons, our education business, increased by 3%. If you adjust for the non-recurrence of a major project for the Common Application, which we have previously referenced, underlying revenues would have shown a 10% increase in the 11 month period. And, interestingly, if you adjust for the completion of this project, underlying revenues for dmgi as a whole are up 8% in the 11 months.
dmg events’ performance was strong in the 11 month period, with underlying revenue growth of 14%. As we flagged at the Investor Briefing event, the low oil price is expected to have a negative impact on some of our shows, particularly the Canadian Oil & Gas events, in the next financial year. As always, we will be providing more detailed guidance at our Full Year results in November.
Euromoney released its pre-close trading update today as well, although it does not report its performance for the 11 months. As highlighted in their statement, the challenging market conditions, particularly in the investment banking sector, have shown no signs of improvement. And as flagged in their July trading update, the impact of low energy prices has had a negative effect on smaller events and training in the second half, with trends exacerbated in the fourth quarter by commodity price weakness.
Moving onto our Consumer business, dmg media:
In line with our updated guidance for lower revenues at the Q3 stage, dmg media saw underlying revenues decline by 3% over the 11 month period. Whilst the rate of advertising revenue decline has improved slightly in the fourth quarter to date, this has been partly offset by a deterioration in the rate of circulation decline in July and August. Although we continue to see weak volumes, both Mail Newspapers titles to grow market share.
To provide some more colour on advertising, the underlying decline of 1% in the 11 months was the results of the following dynamics:
Print newspaper advertising was down 9% in the period, partly offset by revenues from our newspaper companion websites, mainly MailOnline, which increased by 15%, and other digital advertising, which includes Wowcher and Elite Daily, up 29%. UK print advertising has been particularly impacted by a deterioration in retail advertising, notably by supermarkets, over the period.
Looking across the Mail businesses as a whole, underlying advertising revenues declined by 5% in the 11 month period, with MailOnline’s digital growth of £9m, 16%, partly offsetting the £19m, 11% decline in print advertising at the Daily Mail and The Mail on Sunday.
MailOnline’s global monthly unique browsers stood at 218 million in August 2015, up 21% on last year, and the site attracted 13.7 million average global daily unique browsers, also up 21% on last year.
Wowcher continues to perform strongly, with revenues up 24% in the period. The business has established a substantial database of 8.1 million subscribers, which has shown 36% growth year-on-year.
In terms of current trading, for the four weeks since 23rd August, total underlying advertising revenues are up 5% year-on-year. This good performance reflects stronger print and digital advertising, with a notable increase in supermarket advertising, although, as always, I would caution you not to read too much into short-term growth patterns as advertising does remain unpredictable and visibility is extremely limited.
So, in conclusion, trading has been in line with our expectations. We have faced more challenging market conditions in some parts of our businesses during the second half, but we are reconfirming the Full Year outlook for the Group and anticipate the adjusted results to be in line with market expectations.
I would now like to hand over to you for any questions you may have. Thank you.
Q&A session
Question 1
Nick Dempsey, Barclays Capital
Good morning guys, I’ve got three questions.
So first of all, at this stage last year, you had planned buy-back for the coming year. You haven’t done that here you’ve just announced that you’ve finished your last one. Should we assume from that that you don’t plan a buy-back, or are you just waiting to tell us in November about uses of cash?
The second question. In terms of the 5% adgrowth in the last four weeks, can you break that out by MailOnline versus the papers for us?
And also, the third question on MailOnline. I believe that you closed a small advertising network that you were running as part of that. Now can you just clarify whether that was included in the Q3 growth number you gave, whether it was in the kind of number you gave for July, and then whether that is in the 11 month number, so is it all on the same basis around that advertising network?
Stephen Daintith
As we’ve said previously it will depend on our final net debt position, what our M&A pipeline looks like. M&A remains our priority so it depends on that and right now it’s less clear than it was a year ago in respect of all of those items especially when you think about the M&A side of things. So let’s just leave it at that and I will say more about this in November.
Right, the advertising trends is an interesting one. I think the best thing I can do first of all is just give you an overview of print and digital. And when I give you the breakdown here, and I think it’s useful just to do it by each of the quarters and remind us how the whole year has developed. So what I’ll do is I’ll break the 11 months down so Q1, Q2, Q3 and then July and August. And then at the end I’ll give you the four weeks as well. So I've got all those numbers.
So print, in that order was down 6% for Q1, down 4% for Q2, down 13% for Q3, down 16% for July and August, giving you 9% for the 11 months, but the last four weeks down just 2%. I hope it’s making sense.
Digital was in Q1 up 24%, Q2 up 20%, Q3 up 13%, July and August up 22%, giving you 20% for the 11 months and for the last four weeks was up 25%.
So if you put those two together you get Q1 up 2%, Q2 up 2%, Q3 down 6%, July and August down 4% and then the 11 months down 1% but the last four weeks up 5%.
So I think my quick read of that was first half pretty solid performance with 2% growth in aggregate across print and digital, and then a horrible five months down at about 5% across the two with both, well print certainly in Q3 and digital in Q3, digital less so in July and August but certainly print down again in July and August. But then the last four weeks a much better performance during the last four weeks across print and digital.
Would you like me to get into the MailOnline a little bit more on that as well I think because your third question alludes to that really?
Nick Dempsey
Yes please.
Stephen Daintith
Okay so if I just look at the MailOnline site and the two other businesses that are part of the MailOnline grand total, so to speak, are Metro.co.uk, there's a small amount of revenue there. And you’re absolutely right the network business, the ‘market making’ business as we call it, was a business that is out of our comparatives this year but was in last year’s numbers and if I can just go through the detail of those numbers by quarter.
So MailOnline across UK, US and rest of the world was up 28% in Q1, up 26% in Q2, up 14% in Q3, July and August up 21% and the last four weeks up 25%.
And then I've got that in geographic mix, I'm sure that question will come later and I’ll get into that in a second.
Market making was in all the other numbers as well. So market making is a drag on all the quarters’ performances so the fact that MailOnline for example for the 11 months is up 22% that I've just quoted but the grand total is up 16% and that difference in those percentages is very much the absence of that market making business in all of those numbers.
Nick Dempsey
And that washes out when you stopped it at the beginning of your year? Or when did you stop it? The market making business when did you close it so when does that affect wash out of your growth numbers?
Stephen Daintith
Effectively it’s next year, there'll be a slight impact next year but it’s pretty much immaterial the whole of next year.
Question 2
William Packer, Exane BNP Paribas
Hi, thanks for taking my questions. Firstly on the MailOnline you've provided some helpful breakdowns there, is a slowdown on FY14 could you just talk to whether there's been any challenges in monetising mobile and any impact you've seen from ad blocking? That's the first question.
Secondly in terms of the energy events you provided us a few weeks ago with an update that you expected a 0% organic revenue growth for FY16, are you still happy with that number? Has anything deteriorated or improved?
And then lastly on the property information business I think I'm right in saying that you said there was a mid-single digit organic revenue growth for the year to date? Could you just talk about what the run rate is at the moment? My understanding is the transactions have improved somewhat and you've pointed to this as something that in the UK could help drive the business, how’s it doing at the moment and how do you see it going from here for the rest of the year? Thanks.
Stephen Daintith
MailOnline revenue growth, so yeah I mean for the 11 months it’s 22%, the last four weeks it’s 25%. I mean MailOnline clearly as the numbers grow in scale the revenue growth percentages get harder to deliver the 40% or so of the last couple of years. I guess that's just the way it is, I mean we’re still going to be reporting a very good number this year that we’re very pleased with so we’re all very happy with the 20%+ growth and we expect the US which has grown for the 11 months 46%, to have another good year next year. So the US growth is going to help get us to that high number next year but no we’re very pleased with these numbers and not really any sort of deterioration trend but just a lower percentage than last year largely due to that higher, larger scale of the business.
On the energy events you’re right we guided towards flat at the Investor Day and that's very much what we’re reconfirming again today, no changes from that outlook.
Sorry going back into the ad blocking as well that you mentioned that point I just forgot about it, mobile still plays a very small part of our revenues for the MailOnline. Ad blocking is actually having a negligible effect on us and on our mobile revenues therefore, given this relatively small scale of mobile revenues for the MailOnline site which are still largely desktop revenues. And desktop by the way has had ad blocking capabilities for a long time and clearly any impact there is already in the numbers of the MailOnline for the desktop advertising.
Having said that a lot of the audience growth is on mobile, but mobile for everybody has proved a tricky space to advertise in, it’s a less user-friendly space compared to tablet or desktop. Anyway we shall see, but the short answer to your question is very limited impact on our advertising numbers, ad blocking the negative impact.
And then the third question, property information business yeah let me get into that because there is quite a lot happening in there. And again there is an improving trend. So let me give you the underlying growth rates by quarter, I’ll do European property first and then I’ll do US property and then property combined.
So Q1 European property was flat. Q2 up 4%, Q3 up 5%, and then was up 9% for July and August and therefore it gives you 11 months of +4%. So very much an improvement in the last two months of up 9% for European property which we’re all clearly pleased about.
US property was up 12% in Q1, up 10% in Q2, up 9% in Q3 and then again up 12% in July and August giving us 10% for the 11 months.
And then property combined is up 4% Q1, up 6% Q2, up 6% Q3, up 10% July and August and up 6% for the 11 months.
So US, European property both seeing a nice pickup in the last couple of months, and I think that's something in this trading update it’s important to highlight I think that improving trend not just in the advertising side for dmg media, but also in property within dmg information over the last few weeks.