Informa plc (INF) Earnings Call Transcript & Summary

Good day, and welcome to the Informa Half Year Results Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Stephen Carter. Please go ahead, sir.

Thank you very much, Adam, and good morning, everybody. Thank you very much for making the time to join us today. I'm joined by Gareth Wright, our Group Finance Director; and Richard Menzies-Gow, our Director of Investor Relations and Corporate Communications. I'm conscious that it's Monday morning and that we now know there's going to be a significant U.K. government announcement, I think at 11:00. So we'll try and make it worth your time. We are ostensibly here today to talk about our half year results to the end of June of this year. But for those of you who've seen our release statement this morning, you will see that one of the reasons why we took advantage of the extension to reporting obligations and moved our half year results presentation until late September, was really to enable us to have a conversation about forward visibility, both to the end of 2020 and indeed through to 2021. The last 8 months has been a remarkable experience, I suspect, for virtually everybody on this call. But it certainly has for our business. We, as many people will know, operate at some scale in Mainland China. And so we have been living the realities of the impact of COVID-19 pretty much since January 23 when China went into a lockdown. And we have seen that progressively roll out around the world, and certainly, for the vast majority of the first half. So the official period of this results announcement, our Events business -- physical Events business by the end of February was effectively closed everywhere in the world. I would like to use this just to put on record my appreciation to our colleagues around the world. If they say adversity brings out the best in people, certainly, we have seen that within our own company. And our culture of agility, ownership, distributed authority and personal sense of responsibility has served us extremely well, and also has our relationship with our customers and our Co-partners, whether they be venue operators or governments or trade associations. And that has enabled us to run a program of rescheduling and postponement and cost management which has served the company extremely well. I'm going to work my way through a slide deck, which is available, and I will, as I go through it, pass over to Gareth at an appropriate point to take you through the detail of the half year results and our forward look on our financial position overall. And then we will take questions at the end. The normal disclaimer and then on to where are we? Well, as we've been saying for many years, the strength of the Informa group is that we operate in what we describe as the knowledge and information economy. And if there was ever a circumstance where the knowledge and information economy comes to the fore, it is when 65% to 70% of the world's population is in lockdown and working remotely, where connectivity to subscription data; online activity; data and information; high-quality information; trading on online platforms; and access to digital content has never been more important. We, like many others, who operate in the advanced learning, academic publishing environment made available all of our articles and knowledge. As it relates to COVID-19, we've seen over 2 million downloads of that information that was made freely available by our colleagues in Taylor & Francis. Broadly speaking, for those parts of our business that are in the subscription and data world, this circumstance has served us well, and we have sought to serve our customers well. But clearly, where we have felt the financial and operating pain has been in our physical Events business, and we'll come on to where that leaves us and takes us in a second. The key proposition that we are seeking to lay out in some detail today is that we have used the summer period where it became clear that the North American and European markets were not returning to physical event trading in 2020 to take our plan to a point whereby we could achieve long-term stability and security for our company, even if there were no physical events in 2021 in North America or Europe, not our plan, not our preference, not indeed our view, but we have taken the position that getting to that level of stability and security is essential 8 or 9 months into this situation. What speaks to that is a combination of things. Clearly, our subscription business gives us a fundamental underpinning. Our debt in specialist markets is allowing us to secure our relationships on renewals and annual contract value. The nature of our Events business even where it does not specifically trade is that it forward books, and we have been working extensively on our forward relationships with our customers to maintain our forward booking. And also, we have used this circumstance to learn and experiment at scale in the provision of virtual events. And indeed, sitting here towards the end of September, we have run probably over 500 virtual events, all over the world in multiple geographies and multiple categories. Many of those events networking events, some of those events product discovery events, some of them trading events, some of them training events. They're very different products. And 2020 has been a petri dish of experimentation for us and indeed for our customers. And that has taught us much about how we develop that capability on a going-forward basis. Stepping back to go forward, if you look at our financial performance in the first half of 2020. Our subscription business has been very robust. And we had a strong start to the year, actually in our event-led business where it was trading in January and February. Before COVID-19, it was further confirmation of what we had seen in the preceding 6 or 7 years, which is we have a very strong portfolio of brands and market positions in specialist markets. And when the world is able to travel, transact and trade face-to-face, our products serve us well. But we then had to get into the launch of our postponement program, which we did deep and fast to shift where it made sense to later in the year, and that has worked in Mainland China, where we began to see product return at the end of June and is now running at pretty near to standard operational capacity in 2020. It has not returned in North America and Europe, and we'll come on to how we are reacting to that on a going-forward basis. Our revenues for the first half are tracking significantly below where we were this time last year. That is almost entirely, in fact, entirely, are a function of the gap in revenues in our Events business. Our subscription businesses are effectively flat year-on-year. We saw some weakness in the physical part of our books business in Taylor & Francis, partly because of the supply chain impacts, distribution and access and partly because of the closure of college campus bookshops and indeed college campuses themselves. That flows through to profits. And as a consequence, we have moved quite significantly on our costs in the first half with nearly GBP 300 million worth of direct and indirect cost savings. One of the [ perverse ] strengths of our business is that we have a very highly flexible cost base, where costs are incurred very directly related to activity. And so our ability to be able to flex our costs with our activity schedule has been something that has given us a flexibility of response. I'm pleased to say we remain in positive free cash flow for the first half, Gareth will talk more about that. But again, cash flow strength and volume and quality of cash flow is a feature of our business in normal times, but even in stress times, we have worked very hard on cost management, on cash controls and on cash conversion. And our balance sheet largely is a function of the support from shareholders, but also the management of our other costs has allowed us to keep our leverage at a comfortable level in the first 6 months of the year. We will see a leverage spike at the year-end for reasons that we will talk to, but we have a view about how we work our way through that, which we will return to. I suspect that most of the questions, the commentary and the forward crystal analysis, understandably, will be around the weakness or not as a result of the lack of return to physical products in North America and Europe. But I don't want to gloss over the depth and the resilience of our information and intelligence businesses. Again, one of the other strengths of the Informa group is that we are not a single business. We have, over the years, resisted the temptation and indeed at times the encouragement to divest and be a single purpose business. But we have always taken the view that operating in 3 markets in advanced learning, in high-quality business information and in B2B events was the basis of strength of our group, and this circumstance has borne that out. Taylor & Francis is now a multifaceted business increasingly, where we see a spread of product, subscription products, open access products, open research products, digital service products, electronic products in the main and still some residual physical product where we have felt some pain in the first half of 2020. Our intelligence business, where we have spent much time over the last 3 or 4 years, improving both the portfolio, its focus in key markets, importantly, its product, and also the way in which that product is accessible by customers, and we have seen that pay dividends in the first half of this year, and we have a very strong forward new business pipeline through to the year-end. So we feel confident in both those businesses on their likely year-end performance. Interestingly, within our Events business, not unsurprisingly, this circumstance has driven us to virtual and digital solutions. And many people on this call have had their own personal experience of participation or attendance in virtual and digital events. It's a bit of a [ curated ] depending upon which you attend. There are a [ lot ] of technology platforms and services that are developing to provide service delivery and capability. And we have been learning through a process of constant innovation as to what works, what serves, what delivers and which partners are best for us to work with. In the short term, our focus has largely been on keeping our brands visible, refreshing our data and ensuring that we're providing some service to our customers when they are otherwise unable to gain access to their customers. On top of that, because of the volume and scale of our business, it's allowed us to drive audience, and that is serving us in our media and marketing services revenues. And in those event-led businesses where we do have a data product to offer, aviation and technology, probably being the 2 leading examples, that has served us well in the data sets that sit underneath those event businesses. And that mixture of service delivery and revenue reach and emerging revenues is contributing something to 2020, and we believe we'll have the capability of delivering something more in 2021, and that speaks to our belief that we're now finding a floor in revenue for the group, even without physical trading in physical events in North America and EMEA in 2021. For those colleagues who are on the call, who are in the United Kingdom, you will get a much more detailed update on the macroeconomic impact of COVID-19 later today from the U.K. authorities. So I will not attempt to compete. But suffice to say, there are multiple statistics that bring out the practical reality of how this COVID circumstance is impacting individuals, and we see that in the case count. Countries where we see a differing level of case progression, where probably the notable outlier in terms of at scale in terms of case reduction is China, how that's changing behaviors. And in business like the place where that is most striking is in European flight volumes and U.S. flight volumes, where even post Labor Day, we have seen no material return to business flight activity in North America. And the net consequence of that is for our products, which in North America and Europe, demand physical travel and face-to-face interaction, it has left us with a gap versus our previous plans. Everyone on this call will be drawing their own data on what's happening in clinical trials. We have a window into that through our Citeline business, what's happening on the status of those clinical trials, we track that and indeed, provide that as a subscription service to our customers. Where are we seeing progress, which I think the world is seeing progress on therapeutics, and there are some estimated time lines on when the vaccine cavalry may or may not come over the hill and where it arrives first and how it gets industrialized at deployment and scale. There are different views and different data points on hospital admissions. But notwithstanding all of that, our view is that on a forward basis, we have been wise to make the judgment that we're announcing today which is we're extending our postponement program through to mid- to late-spring 2021. That has the effect of moving out our Events business in North America and Europe at a physical level until the other side of winter, the other side of 6 more months of progress on vaccines and therapeutics to the other side of the U.S. presidential election, and a place which allows us to plan for nearly $400 million worth of revenue shifting from the front end of the year to later in the year. Staying in 2020, colleagues on the call may recall when we raised some additional equity in April, and then we did our update in early June. We had a vigilant case, a kind of worst-case scenario, which assumed that there would be 0 physical events anywhere in the world until Q4. And then there would be a gradual return everywhere from October on the grounds that we would have made progress on containment or cure. And that, that would see us, depending upon the pace and rate of that return of permissions and confidence, getting to a group revenue of between GBP 1.5 billion to GBP 2 billion. And that would demand some cost savings but would be -- give us a forward trajectory into '21, which was more optimistic. What we have seen is that, that has not happened in North America. It has happened actually earlier than we thought in Mainland China, and indeed, Mainland China has come back more strongly than we'd anticipated in that vigilant case, but it does not offset the gap from what is our largest market in North America. And so net, for us, in 2020 revenues, that takes our revenue guidance down to near GBP 1.7 billion, and we have pretty good forward visibility on the reality of that now. There are virtually no physical events other than outdoor events anywhere else in the world. It's encouraged us and demanded that we up our cost savings in the year and indeed further up our cost trajectory, cost savings trajectory into 2021 because we have extended the postponement program, as I said earlier, through to mid- to late spring of next year. Slide 12 just shows that graphically. China, if one strips out the impact of lack of international participation, unfortunately, for us, the majority, if not nearly all of our products in Mainland China, is largely domestic. What we're seeing is our performance in Mainland China, which is close to where we had anticipated we would have been even at the beginning of the year. But North America is a stark contrast of the opposite. In China, and again, particular kudos to our teams there, not least because they've also, therefore, been pioneers of our AllSecure industry-led safety standard, where we have operated in conjunction with health authorities, governments and venue partners, a standard which enables controlled gatherings to happen with comfort and confidence, an intense use of biosafety and hygiene procedures, a compulsory requirement for digital preregistrations, digital prescheduling of meetings, traffic management, lower densities. Sometimes that's demanded an extension of the actual event, have more time, but lower densities during that time. And it really has seen a business return. And the truth of these businesses is they require 2 things to see them come back. They require permission from the relevant authorities, which we have as a result of our AllSecure standards, and it requires the confidence of the communities and the exhibitors and the attendees. And we've seen that confidence build. In China, we've run nearly 20-odd events since July, 2 or 3 of which have been up at the -- over the period of the event north of 100,000 participants. So these are physical controlled gatherings, back at scale with discipline in a market of scale and indeed, discipline. So where does that take us on the next stage of our COVID-19 action plan? Well, as I've said, the postponement program, we have made our own unilateral decision to extend it to mid-late spring 2021. That moves a large number of physical events, nearly GBP 300 million to GBP 400 million of revenue to later in the year, allowing us to still serve up our product to our customers. And it does -- it removes one, slightly high-class problem, but nevertheless, it removes it, which was because of the [ concerting ] effect of driving a lot of volume originally into the last quarter of 2020, there was some concern that if we then replicated that in near-term in 2021 with the same brand for the same industries with the same product, would we effectively overcap pent-up demand? In reality, we will not be doing that. We are now building a full schedule of virtual products, and I'll talk more about that later. And we now have a significant experience in deploying our AllSecure standard, and that is working very well. Savings, costs and cash, Gareth will come on to in a second, similarly on financing and on the ongoing colleague support, we've taken the view from the very beginning, that prioritizing the well-being of our colleagues and customers was critical. We have followed local advice in every market in which we operate, that's nearly 40 markets at reasonable scale. We moved instantaneously to full remote working for the entire company in all markets. Our enterprise support for our colleagues has worked flawlessly. We've put in place significant employment flexibility to allow colleagues who wish to volunteer and support their own local communities. We set up our own funded support fund. We have not drawn on the furlough schemes in the United Kingdom and we, on a going-forward basis, are going through a program of balanced working to work out how best to get the balance right between what office space working creates in terms of relationship and training and collaboration and innovation and what remote working can deliver in terms of security, safety focus and effective productivity. I am going to pause there and pass on to Gareth to give us an update on where we are financially. Gareth?

Thanks, Stephen. Good morning, everyone. Thank you for dialing in. I'm going to start by talking you through the results for the first half of 2020 and then I'm going to look forward, focusing on the steps we've taking to ensure the group's financial stability and security through 2021. So starting with the income statement on Slide 16. You can see that the group has generated GBP 814 million of revenue in the first 6 months of 2020 and converted this into GBP 119 million of adjusted OP. As you'll see when we get to the divisional analysis on the next slide, this has really been the outcome of 3 factors: resilient [ creating ] in our subscription-led businesses, underpinned by forward book subscriptions, solid performance from our nonphysical revenue in the events-led businesses and disruption in the physical events portfolio within our event-led businesses caused by COVID-19. Broadly a GBP 600 million reduction in revenue in H1 has resulted in a roughly GBP 300 million reduction in OP, with the balance being circa GBP 300 million of direct and indirect cost savings achieved, which I'm going to expand on in a few slides times. The interest of the 6 months decreases year-on-year by around GBP 10 million. This is primarily a combination of lower borrowing costs following refinancing in H2 2019, assisted by the lower levels of average net debt in H1 2020. Adjusted items for H1 2020 totaled GBP 872 million, but there are 2 key items, which make up 85% of that charge. Firstly, we have taken a GBP 593 million noncash impairment charge on the carrying value of our physical events portfolio to reflect the impact of COVID-19 within our long-term prudent modeling assumptions. And secondly, we have GBP 148 million charge for intangible asset amortization, which is consistent with the prior year charge. Within adjusting items, there are also costs classified as COVID-19 exceptional costs, which were primarily events-related costs where the event was postponed or canceled and we couldn't recover the costs or we see a long-term view around our stakeholder relationships non-subsidiary payment. The effective tax rate reduced to 13%. The main driver of the decrease is the fact that fixed tax deductions, such as the amortization of goodwill, had a greater benefit when the group's profits reduce. And finally, there's a GBP 5 million credit for minority interest in the first half, the minority interests are all in markets and connect and all in events-led businesses that have not traded because of COVID. Moving to the divisional summary on the next slide, starting with the subscription-led businesses, which, as I said earlier, performed robustly during the first half against what is a challenging backdrop for all businesses right there. Informa Intelligence underlying revenue growth was 1.8%, driven by a mix of robust renewals and good new business wins. In the verticals [ form ] was the strongest performer, the margin improvement was primarily because of the 2000 -- driven by the 2019 disposals. However, there were some favorable mix and phasing benefits in the first half, which we’d expect to reverse in the second half. Taylor & Francis revenues saw an underlying decline of 0.7%. There was a good performance in research publishing with robust journal subscription renewal rates and good growth in open access. But in advanced learnings, we saw a more mixed performance. Electronic revenues grew strongly, but physical book revenues were impacted by the temporary closure of universities and physical supply chains as a result of COVID-19. Turning to the event-led businesses, the performance almost entirely reflects the impact of the pandemic control measures on the ability to operate face to face physical events. Informa Markets have started the year well before lockdown commenced, but Tech and Connect in normal times have little [ training ] schedule for Q1. Informa Tech's underlying revenue declined with only 7%, underpinned by the OMNIA media reviews, but also benefiting from the heavy regional revenues during H2 in its normal annual phasing. Finally, Tech and Connect made an operating loss in H1, but this was before the full effect of cross-saving measures took effect and before revenue from virtual events gained momentum. The combined benefit of these 2 things is expected to eliminate the operating loss in H2 2020, excluding COVID-19 exceptional costs. Moving on to the next slide, which outlines the sources of revenue. Here we're going to cut into the revenue from a product-based angle to give you a feel for what's in the GBP 800 million that was delivered. The event-led business is generating just over GBP 400 million in H1 2020, around 1/4 of which was not generated by physical events. There are 2 main sources of this revenue. Firstly, virtual events while revenue contribution in H1 was modest, we made significant progress in developing and delivering a product our customers value and Stephen is going to expand on this a bit more in a minute and this revenue was also generated by a wide range of specialist content, digital products and marketing services, which goes to market using the contacts and knowledge built from operating events, but don't require the physical event throughout in 2020. The subscription-led businesses delivered GBP 400 million, with 0 [ ads ] revenue, broadly GBP 250 million from Taylor & Francis and GBP 150 million from Informa Intelligence, which means in total, over 65% of group H1 2020 revenues were delivered from nonphysical event activities. Moving on to the free cash flow analysis. We delivered over GBP 70 million of free cash flow in H1 2020, which together with the equity raise, has reduced half year leverage to 2.3x. This included a GBP 44 million working capital inflow, delivered by a combination of strong cash flow controls, tight cost management, lower deferred income releases following the postponement or cancellation of events, together with, importantly, an ongoing customer commitment to forward bookings in the event-led businesses. To put some color on that last statement, our customers requested around GBP 40 million worth of payments to be refunded in the first half which is a very small portion of the overall deferred income in the balance sheet. Looking forward to the full year, we’re modeling for working capital outflow to be prudent and to reflect that, we're not banking on a significant increase in physical event sales in H2, following postponed events to mid- or late-spring 2021 under the postponement program. The GBP 25 million CapEx invested in H1 2020 was focused on revenue growth areas not impacted by the pandemic. So for example e-book and open-access platforms in T&F, product improvements in Informa Intelligence, mainly in the form of finance and digital product development in Informa Markets. We spent around GBP 35 million of cash in H1 on COVID exceptional costs, which I explained earlier. Turning now to the COVID-19 action plans. Steve -- Stephen spoke to the postponement plan and the ongoing [ colleagues ] 4 areas, so I'm going to focus on the other 2. Our effective cost and cash management programs are targeting GBP 600 million plus of cost savings fee action by the end of the year, with GBP 400 million of direct cost savings and GBP 200 million plus from indirect savings. We're also maintaining our focused cash controls. The primary objective of these actions together is to eliminate any net cash burn and to ensure they're cash flow positive by January 2021. Focusing on our financing flexibility, we've already actioned measures in H1 2020 to increase our liquidity. We raised just under GBP 1 billion equity. We've added an incremental GBP 750 million credit facility. We've confirmed our eligibility but not drawn on the GBP 300 million Bank of England's CCFF. Looking ahead, our next steps will be to extend our maturities and potentially add further liquidity through the euro bond markets. And to renegotiate or repay our U.S. private placement borrowings. To wrap-up where we are in these actions, where the act can get us, we'll eliminate any cash burn, we'll be cash flow positive. We've extended our debt maturities, and maintained our significant liquidity and removed the point covenant in U.S. private-based borrowings. Moving on to Slide 21, you are thinking, well, [ he'll wrap ] cost management message but where are these costs coming out of? But when targeting cost savings, we very much focused on our COVID-19 action plan objective of delivering stability and security and whilst protecting the long-term strength and value of our business. In H1 2020, we have identified and actioned over GBP 500 million (sic) [ GBP 300 million ] of cost savings, GBP 220 million from direct costs avoided and GBP 80 million from indirect cost save. In H2 2020, we've identified and are actioning a further GBP 300 million of cost savings from GBP 180 million of direct cost of -- GBP 180 million direct cost avoided and GBP 120 million of indirect cost saved. The phasing of the total indirect cost savings to be actioned by the end of the year means around GBP 140 million of GBP 200 will benefit 2020, with the balance benefiting 2021. These cost savings of GBP 600 million represent around 30% of the 2019 cost base compared to a reduction in full year revenues of around 40%. With the difference in the 2 [ arising ], where we have taken decisions to protect the long-term strength and value in our business. So looking at our current liquidity and the financing profile at 30th of June 2020, you can see the strength of our financial position. We have substantial liquidity and cash, we have no drawn debt maturing until 2022. We have a single-point issue regarding a leverage covenant in our U.S. private placement borrowings, and we had no covenants on our bonds or our RCF. If you go to the next slide and paint the pro forma scenario, where we prepaid U.S. private placement borrowings to eliminate that point covenant issue, we will be cash positive by the start of 2021. We will still have substantial liquidity. We will have no drawn debt maturing until 2023. We will have removed the covenant constraint on the business. And this is the plan that in essence we're working to deliver. To summarize on stability and security on Slide 24. We continue to see resilient trading from our subscription-led businesses, underpinned by forward book subscriptions. The event-led businesses delivered just over GBP 400 million in H1 2020, around 1/4 of which was not generated by physical events. Our cost and cash management plan will make us cash flow positive by the start of 2021. We have substantial liquidity in cash. We have no near-term debt -- drawn debt maturities, and we can remove the point covenant constraints on the borrowings. All of which together, we believe, deliver financial stability and security through 2021. Now I'll hand you back to Steve.

Thanks, Gareth. So you move to Slide 26, I'll do this with a [indiscernible] so we can get to questions. Look, in essence, there's little about this circumstance that I think any of us like on a personal or professional or indeed human basis. But from a business basis, we've always taken the view that we want to try and stay slightly ahead of the situation we find ourselves in. We made those decisions early in January, February, March, to take out costs, deploy a scaled postponement program, raise equity, extend our liquidity. And now we're doing a similar series of actions again and further reducing our costs, taking our postponement program out till Spring 2021, further securing our financing and liquidity with the objective being to give the company a stable and secure platform through to the end of 2021 and beyond, even if physical events do not return in North America or EMEA, not our plan, not our preference, not indeed our view of what is going to happen, but it is a sensible and secure planning assumption. The first stage of that on Slide 27 is moving our physical trade shows in North America and EMEA out of the early part of 2021 into a later part. Clearly, that has a cash flow implication, which we've had to manage in order to feel comfortable that we can be in positive cash flow from January. But from a practical perspective, it gets us to the other side of winter. It puts another 6 or 7 months into the work that can be done on vaccines and therapeutic discovery and deployment. It gets us to the other side of the U.S. presidential election and what flows from that and on the other side of it and allows us to plan now for an assumption of activity even if that does not come back on that schedule. Slide 28 puts some more color around -- at a point that Gareth made earlier on the direct costs that we've avoided, which have been significant, nearly GBP 400 million, and that is one of the perverse strengths of our business. We can flex our costs in a very effective and speedy way and what indirect costs have we removed. And one of the things that I want to just draw out here, both the sad fact of it, but also the proportional impact of it is that we as a company have tried to resist any form of compulsory redundancy anywhere in the world up until now. We took that view early that we would do everything that we could to preserve the intellectual property of our business, our people, our culture. We have offered a sabbatical program for colleagues, which has been very popular. We offered a voluntary severance program on terms that were fair and supportive, which also saw some significant takeup. But today, we are announcing internally and indeed externally that not in Taylor & Francis, not in Informa Intelligence, mainly in North America and EMEA in our Events businesses and in some specific areas in global support, we sadly will have to look at compulsory redundancies. But to put it in context, it will mean that our compulsory redundancy program is about 5% of the total costs that we're removing. So 95% of our cost management we've been able to do without cutting in to the essence of our business, which is the genius and commitment of our colleagues. That program will run through to the end of December and will be completed latest by the year-end, allowing us to move into 2021 with a run rate of GBP 600 million worth of cost reduction. Slide 29, I'd like to dwell on just for a couple of seconds around virtual events. I'm sure, as I've said before, many colleagues on this call will have had their own experiences of a virtual event. I have been to many. I participated, spoken, hosted and indeed, been in team brainstormings as we developed. And it has been a very real and learning process. Just to be clear, we are not in any way, shape or form, saying that a virtual event replaces a physical event. It does not. It does not replace the immediacy, the engagement, the serendipity, the humanity, the sense of fun and discovery, the captured audience, the level of attention. I don't know how many of the -- how many have we got? 280 people who are listening to me, are multi-tasking at the same time as doing other things. At physical events, there is a higher sense of everyone being in the same place, doing the same thing with the same sense of intensity. And that network effect of a physical event, we believe, will return with scale, with impact and with customer demand. We believe that not because we have to believe it, we believe it because we've seen it. We are seeing that happen in China and actually in Japan, which started to come back last week. So when markets open and there are permissions, when confidence returns and there is participation, the physical product stands up again. But when it does, there's still a customer need. And that customer need might be a need to learn or network, it might be a lead -- might be a need to drive audience. It might be a need to do product promotion or bring a new B2B product to market. It might be a need just to either do advanced specified product discovery in your own very unique market or indeed, it might be a need to do direct product procurement often for smaller products, not for larger business products. And we have discovered that there is a market for the virtual events. It does give you some advantages. It gives you unlimited reach because there is no travel, there are no geographic boundaries. It provides us with deep pools of data and understanding about what our customers are doing. There are no calendar constraints and many of our virtual events have lasted for 6 weeks, 8 weeks, 12 weeks, 14 weeks, and that allows for new business models, it enhances the visibility of our brands, and by definition, it extends the customer engagement. There is no revenue read across from physical events to virtual events. And it is not yet clear to us what the pound-to-pound or dollar-to-dollar exchange from physical to virtual is, but there is a market, there is a demand, and we are getting better at delivering those products on a daily basis. As Slide 30 makes clear, we've now done over 500 of these products in many markets, in many countries, working with thousands of attendees, sponsors, brands and exhibitors. And I've picked out 4 on Slide 31 because they're in different markets, very different markets, cybersecurity, biotech, food & ingredients and fashion, both wholesale and retail. Some of those have been time-defined events. Some of those have been longer period events. Some of those have been audience engagement events. Some of them have been product discovery events. Some of them have had training streams. Some of them have had product discovery, product directory. And indeed, some of them have had product exchange service delivery as an integral part of the event. All of them have provided some security to our customers that our brands are still trading and as I said at the beginning, it has materially refreshed both our data pools. And as Gareth has said, the forward commitment of our customers to onward participation. The next slide really talks to how we have reshaped our physical products to allow governments and authorities to be comfortable that exhibitions are not uncontrolled gatherings, they are controlled gatherings. They have a high degree of discipline. We know who is attending. We know who is an exhibitor. We know who is an attendee. We know who wants to meet who, we know when they want to meet them. And it allows us to by altering density regulations and specifications to give people comfort on travel security and biosafety. This has now been road tested in reality in both China and in Japan and in our outdoor events, and we have a high degree of comfort that we have a world-beating standard for our physical product when the permissions do return. So to summarize, Slide 33 looks forward to 2021. This isn't guidance, but it's a shape of the business. And we have set ourselves the task over the last couple of months when it became clear that North America and EMEA were going to stay largely close to physical product for the remainder of 2020, that we needed to move to a position whereby we had a certainty of our own future, however bad that future might be. Whether the group is underpinned by our high-performing subscription businesses, we have developed a scale of products and revenues in media, in marketing services and an emerging product set in virtual events and digital services which gives us a revenue source from our assets and brands in the Events business, even if they're nonphysical. We have a high degree of confidence in the physical product in China. And I suspect in the rest of that region, there will be a faster return to physical product than we may see in Europe and North America. Coincidentally, that gives us a baseline for 2021 in revenue of around GBP 1.7 billion, which is where we now see ourselves landing at the end of 2020. And that has enabled us to adjust our costs so that we have a cost base at the end of this year that matches that revenue and will allow us to go into '21, secure in our own cash flows, secure in our own access to credit lines and secure in our own balance sheet. Which leaves an outstanding question, which is, so what will the revenue from physical events in North America and EMEA be in 2021, and at this stage, we have no answer to that. We have an operating case. We have a view. We have a planned schedule of physical events running from mid to late spring through to the end of 2021. But we don't need that for the business to be both stable and secure for 2021 and beyond. On that note, I will open it up to questions, Adam.

[Operator Instructions] We can now take our first question from Adam Berlin of UBS.

The first question I wanted to ask was about the last slide you showed, which gives the breakdown of the different revenues for the minimum in 2021. Can you just explain the GBP 840 million baseline from subscription. I think in the past, you talked about GBP 1 billion of non-event revenue in 2019. And just to break it down for us, if you did GBP 100 million of kind of non-event -- nonphysical event revenue from media and digital in H1, what is the equivalent number in that 2021 guidance you're talking about? Because the way it's laid out, it's a little bit different from what we've seen before. So that's the first question. The second question is on the balance sheet. When you reported after the capital raise, you talked about net debt releases of around GBP 1.3 billion. It looks like it's gone up about GBP 300 million in the intervening 3 months despite you delivering positive operating cash flow. Could you explain what the delta is around that? And why you think the net debt has gone up? And then the third question, is, can you talk through what the drop-through is for next year? So if we've got this baseline of GBP 1.7 billion of revenue into 2021, if we do get an extra GBP 100 million or GBP 200 million revenue from events in other parts of the world, what should we think about as the drop-through on EBIT if those events do come online?

Thanks very much for those questions. Let me take the first and the last, and then Gareth will come in on the net -- what's the variances in the net debt post the half year. On the shape of the revenue on [33], I think, and Richard can keep me honest, that the difference in the way in which we've laid this out, we're not trying to give guidance or recharacterize our revenues. What we're really seeking to do here was just to illustrate how we think about how do we get stability and security, absent physical events in North America and EMEA, not we want it. And so we have been -- we've sort of categorized it. The subscription businesses here are only T&F and Informa Intelligence. So if I compare to the previous categorization, we haven't included, for example, any of the subscription data that we do actually have in some of our event brands. So in tech, we've got subscription data from Omdia. In aviation, we've got subscription data from CAPA, whereas that GBP 840 million plus is just a combination of T&F and Informa Intelligence. And then what we've said is that sort of the other half of the business is really our event revenue and our event-related revenue. We have a high degree of confidence that physical events will continue in Mainland China in 2021. We -- and our confidence for that is based on the reality that it's happening today. And so I think the reasonable assumption is that things do not get worse and indeed possibly may get better through the entire period of 2021 in that region. But that number is just China and outdoor events, which also are running now. And then in the middle bucket are, as Gareth and I both talked to, where we either currently or prospectively can see revenue sources from the services that we offer through our event businesses. So that would include Omdia, CAPA, which are 2 data businesses within our Events portfolio, our media revenues, our marketing services revenues, and our virtual event revenues and our other digital service revenue. So that's how we've shaped that revenue slide. On the drop-through, we're not giving any forward guidance. We're not giving any guidance for 2020, let alone 2021 on profit. But I think the way I would think about it is the only -- I don't know if this qualifies as the glass half full, but it's certainly 1/4 full perhaps, is we have significantly adjusted the cost base of this business. I mean, we've taken -- but at the end of the year, we'll be north of 30% of our costs will have come out. Now we've got more than that in revenue loss, but that means that our traveling rate of cost is considerably lower. And we will not be taking those costs up, certainly, the indirect costs before we have a high degree of confidence that the physical revenues are returning. So you can make your own assumptions about what the drop-through impact is on 2021, but we're not offering guidance on that specific point. Gareth, over to you on the debt.

Adam, so you're right at the time of the equity raise, we quoted a net debt number of [1,356]. What that number was, was our year-end 2019 net debt pro forma for a GBP 1 billion equity raise and stripping out the IFRS 16 lease liabilities, which we stripped out because they are not included in net debt for our covenant leverage calculation purposes. And that's how you got to that 1,356 number. If you then run a bridge from that number to the reported net debt at the half year, you need to add back the IFRS 16 lease liabilities, which you can see in the press release, are worth about GBP 330 million, you can increase debt by that. And you also need to allow for the increase in debt that's occurred in the first half of the year. And debt has increased in the first half of the year by about GBP 260 million. But again, as you can see in the release, around GBP 240 million of that was simply the retranslation of our dollar-denominated borrowings, with the stronger U.S. dollar versus the first half of the year, increasing net debt by about GBP 240 million. So actually, the free cash flow of GBP 70 million with a few items, M&A, et cetera, [ thought to as ] broadly cash neutral [ funds from acquisition ] overall in the first half.

We can now take our next question from Nick Dempsey of Barclays.

Can you hear me guys?

Loud and clear, Nick, loud and clear.

Just got 3 questions, please. So if you find yourself in the end, having to cancel some shows in 2021, and that's the second year that you've canceled them, isn't it quite likely that some of your exhibitors will just start to find other ways to build their order books, meet their customers, et cetera, and maybe never come back to that brand? Is that second cancellation kind of critical to avoid that kind of finding a way around the exhibition? And how much confidence can we have that, that won't be the case? Second question, when you're referring to a positive monthly cash flow position by January 2021, are you including cash exceptionals in that? How are you thinking about working capital flows because there's been an inflow in the first half and clearly it could change in the second half. Just wondering, sort of all in, whether we'll definitely be positive in the way you said? And third question, at Taylor & Francis, you said advanced learning tradings returns to more typical patterns over recent months. Does that mean that you could see a return to growth or close to it? How should we think about that just in modeling terms?

Okay. Nick, again, let me take the first and the third, and Gareth will give you comfort, I'm pretty sure on the cash flow position. On the canceled shows, well, I don't know and neither does anybody. I don't see any logical reason why a second cancellation is a tipping point. And indeed, as a practical matter, in many instances, for our larger shows and brands, we're way past the second cancelation, Nick, we're on the third or fourth because we've already moved them twice. Because when we started the postponement program in February, March, in a number of instances, we rescheduled twice. I think it is a legitimate question to ask, but it's a kind of who knows. The evidence that we have got, I suppose, I would say the facts as we would present them, are slightly hostile witnesses to that thesis. What are the evidence? Well, all of the evidence from our customer research is that customers very much want the physical product to return. The evidence is when we have brought physical product back in China and Japan, we have seen a high degree of return, participation and forward booking. The evidence is that customers have been comfortable in the main at 85% to 90%, rolling their cash forward bookings forward. And then the evidence is that there is a high degree of participation in our virtual event product because there is a need and those needs are multiple. Now if this goes on in perpetuity, then we're in a different place, and that speaks to why we've shifted the business model to a place whereby we now need to cut our costs and our cloth to a point whereby we can see a way through this even if there are no physical events. Now clearly, the upside from that will be slower than the upside and the drop-through of physical events return because we'll have to build a deeper product set of digital and virtual. We'll have to build a variety of different products and services. But if it is the case that there is no airline travel, no business meetings, no face-to-face activity, no human engagement, well, that's a very different world and what we are saying is in that world, we can see a baseline revenue, which we can manage to. On T&F, I doubt we will get to growth, but I don't want to sell the path because I suspect I may have some T&F colleagues on this call. Our point really was that in the second half of the year, we're not facing yet scale campus closures and the supply chain has managed to adjust and course correct for the physical interruptions that it was having. And so that's not repeating itself. But the converse of that is that the comp in the second half and certainly in the fourth quarter in 2019 is a tough comp. And so I think we would -- I would regard, and here I am slightly selling the path, I would regard a flat year-on-year outcome as a triumph, and I think anything that is marginal, marginally negative around where we were at the half year, minus 0.7%, given the comps really would be a good, a really good outcome. But the fundamental point is that the underlying business is robust and resilient. The electronic business, the digital business, which is about 85% of the revenues in T&F is in growth even notwithstanding COVID. And so the point where we've got pain is in that very specific physical product set. Gareth, do you want to pick up on the working capital flows?

Nick, in terms of your – you explained another question, what does cash flow positive mean? What it means is basically that at a net funds flow level, we believe the group will be generating cash in the first half of 2021. So that's kind of a factor along. So in terms of the color around it, we're comfortable about that because, first of all, we've got this revenue base line that we've got clarity around and we can see good line of size over. We've got the cost savings of GBP 600 million plus that we will deliver by the year-end for benefit in 2021. We think we'll have completed that restructuring in 2020 so that the cash outflow for restructuring would have gone out the door and the other line by M&A, et cetera, we will manage over the course of 2021 to keep them broadly neutral. In terms of working capital, we're forecasting a reasonable working capital outflow in the second half of this year. Both from the fact that they we’re operating events, so the deferred income will come out and also because with the postponement program to mid to late spring, we're not anticipating a lot of working capital inflow in the second half of this year. So we'd say the working capital outflow for the full year will be somewhere around about GBP 100 million in 2021. If you put those factors together, that gets us to a position whereby we've got some confidence and clarity around being cash flow positive in the first half of 2021.

Nick, are you happy with that?

Yes.

We can now take our next question from Adrien de Saint Hilaire of Bank of America.

So a couple of questions, please, related to events. So first of all, I think you mentioned that revenues in China were tracking better than expected, better than budgeted. So let's call it down 20%, 30% versus 2019. If we assume that events resume in the second quarter of 2021 in the U.S. and Europe, given your comments that the recovery in U.S. and Europe would be probably slower than in China, should we assume that the 2021 revenues would be worse than 30% off versus the 2019 baseline? That's the first question. And then the second question, despite the pressure in the industry, we haven't seen any moves in terms of M&A or tie up between players. Is that something in the making? Or would you not expect any consolidation in the events industry?

Thanks, Adrien, and hope you're well. I -- to be honest, it's a very fair question, and I wish I could give you more guidance, but I just think I would be doing you a disservice if I tried to. I mean, you're correct in your analysis broadly in China, although let's wait and see how it finishes at the year-end because confidence there is generally building. And so we'll wait -- we'll see what the final position is in China on a kind of '20 versus '19. And bear in mind that, that effectively is 2 buckets of revenue because you have domestic revenues and international revenues. And most of our Mainland revenue shows are domestic. The international revenue in China for us tends to be more Hong Kong-based and there we have not seen the same return. On a forward basis, what happens when you get that kind of confluence of both permissions and confidence. Well, then the other thing to overlay on top of that is what wins? Does pent-up demand beat economic headwinds, travel budget constraints and human caution? And I think the answer to that will vary by industry sector. And so then I think you then start overlaying a sectoral analysis on the geographical question. And here I'm giving you a very personal opinion. I think our pharma and healthcare shows will be more robust than our fashion shows just because they're retail orientated. So I think it depends on which sector you're in. But whether or not you could read across a sort of 20% to 30% reduction year-on-year is, I think, very hard to tell at this point. On consolidation, I can't speak for other people in the industry, although I have spoken to many of them through this period. I think all of us are very focused on a combination of the day-to-day, the impact on our business and our customers and securing a long-term footing, albeit at a lower size and a lower scope for now. And that has been where our focus has been and I think that will serve us well going into 2021. And as confidence and permissions return, I suspect that's probably when you're likely to see M&A become more of a feature. Is that useful, Adrien?

Yes, very useful. If I could just sneak in maybe one more question. So you've generated about GBP 100 million of revenues outside of physical events or maybe something like GBP 200 million on an annual basis. Is that going to remain when physical events return? Or should we completely strike it out of our model going forward?

Great question. Again, I don't think we know. I think what is going to remain is the capability and I think some form of the demand. I mean, again, if you want to go back to my glass half full, let's imagine that you and I are still having these conversations in a couple of years' time when physical event activity is fully back, we will have built significant digital capability on an accelerated basis. Customers will have seen it. And I think it will give us the opportunity to extend our brands and our service offering to our customers. Some of it, I think, will be replicative, may have an impact on some of our portfolio. And I suspect it will mean that some of our smaller brands maybe cease to be physical and become digital. And it may mean that, however, that we are layering, continuing products and services, subscription-like products on top of our physical even. So I think on the other side of this, if one is looking for learnings and opportunities, I'm not sure I'd say whatever the number ends up being, GBP 200 million is a listed drop or GBP 200 million disappears. But I think what will remain is a combination of our capability and customer experience and demand. And then I think maybe you end up with the best of both worlds. And certainly, the product of both worlds.

[Operator Instructions] We can now take our next question from Rajesh Kumar of HSBC.

Just on Taylor & Francis, could you give us some color on how the renewal discussions for the next year is progressing? The second question is on business intelligence. Clearly, we are looking at a very resilient performance. Quite a lot of industry players have been resilient as well. Do you see a potential sector consolidation opportunity in that space? And if so, when do you think you'll have the management bandwidth to focus on such opportunities?

Thanks, Rajesh. Interesting question. I'll take them in reverse order. I think it's fair to say that the management has been busy. But having said that, we keep a very weather eye on what's happening in the information services market, particularly in the sectors that we operate in. And actually, particularly in the U.S., there has been quite a lot of activity, as you will be well aware, I'm sure. And as I think I said in my opening remarks, we've invested quite a bit organically in our Intelligence business in the last few years, in people and in product and technology. We think that is serving as well. We remain committed to those markets, particularly to Pharma. And so we are alive to opportunities. I suspect for us, there will be smaller scale, targeted opportunities and other capability or products extension in the part of the value chain that we operate in. But I think it's an interesting place to be and I'm glad we have retained our businesses in that. Taylor & Francis, while renewals are an ongoing cycle, we don't in our -- if you -- I take that you're talking likely about our subscription journal business, there -- we don't renew 100% of the revenue on an annual basis. Some of those are in 2-year or 3-year deals. So there's a proportion of the revenue that renews, there's a proportion of the revenue that rolls. We actually took an early decision in the middle of COVID in that business that we would go to market earlier on renewals for 2021, with a, we believe, attractive and flexible term sheet for those customers who are willing to engage in earlier renewal discussions and we think that will serve us well on forward visibility for 2021. The renewal discussions, like in every industry, but particularly in that industry because some of the customers, not all, but some of the customers are facing their own economic challenges, are demanding more services, more product, more flexibility, more open access, more open research, more speed to market and a greater level of tracking and tracing of usage and value. And we have built a lot of that capability into our business. So I'm not saying it's getting any easier, but we have a high degree of confidence in our product offering. And I think our decision to go early in the '21 renewal will serve us well.

Understood. So when you look at exposure by sector, do you see a different tone of negotiations in terms of Taylor & Francis?

I'm trying to make sure I answer your question, Rajesh. Can you give me a bit more color behind what exactly it is you're probing at?

So by discipline, so do you see a greater degree of budget pressure in social sciences versus other discipline?

Right, okay, sorry. So I understand. Well, it's a very interesting question. I mean, sort of, yes and no is the answer. I mean, one of the strengths of the fact that our portfolio index is higher in humanities and social sciences, is that there is much less public money that is the funding vehicle for research in humanities and social science. It tends to be research funded in a different manner. And so the tone, and I like your question, the tone, therefore, can be slightly different from what you might call the more generic tone that hangs around the discussions around hard science, which often seen -- which is often a heavy recipient of significant public funding or public body commissioning. Having said all of that, there is absolutely no doubt that our end customers, and this is true of every market, but our end customers, whether they be institutions or libraries or research bodies, they are all looking as for more flexibility, more products, more digital service, more control, more access, faster speed to market and a greater level of useability and relevance of the research. That speaks to quality. And we're in the quality end of the academic research and advanced learning business. So we feel confident in our product, but we're not casual about that. But I think it is different in humanities than it is in pure science, yes.

We now take our next question from Tom Singlehurst of Citi.

It's Tom here from Citi. I had a couple. The first one was on the sort of drop through. I suppose if we're looking at the sort of the direct cost savings, roughly speaking, GBP 400 million of savings on GBP 1 billion-plus of revenue decline. Is that sort of 30%, 35% drop-through rate? Is that -- would you say typical? And should we anticipate a similar sort of move in variable costs relative to revenue as and when recovery happens, I appreciate it might not happen in 2021, but would be the rough proportion be the same? That was the first question. And then the second question was on postponing to mid- to late spring. And I suppose the point being, surely, the most important thing for next year is simply that the events take place. So I suppose the question is, if they push back mid- to late spring, can they be pushed back yet again, if necessary? Or is that one and done? Is there a risk that they don't happen by mid- to late spring, you're going to have to cancel them again for the whole of 2021?

Thank, Tom. I hope you're well. Let me take the second one, and then I'll let Gareth take the first one because I thought I tried on to it and I clearly failed earlier. So hopefully, Gareth will provide you with more clarity. On postponements. I mean, we've developed a bit of a core competence in postponement, Tom, because we've lifted and shifted many events. If you take 2020 as a case study, we have actually experienced the practical reality of what you ask at scale in North America because initially, when we lifted from March, we largely moved to early summer and then in some instances, late summer. And then as March went to April, went to May, we then lifted again to Q4 and then when it became clear over the full summer that the world was not coming back for as Labor Day, physically in North America, we've just moved them into '21. So short answer is, is it possible to shift within the year? Yes, but the reality is you're then into capacity and containing and scheduling, that does create some tensions. But I don't think spring is a drop-dead date, it's done once it's done. I think we do have an option at the back end of the year. And so even if the world becomes late summer or post summer '21 and I think we'll have some adjustment capability there. That would probably be our last fallback for '21. But the decision we've made for now is based on what we have seen and what we know and what we're seeing in through our Pharma lens on vaccine, trialing and therapeutics. And what we've seen happen in the seasons that actually making that move to mid- to late spring is sensible. And that's how we've approached it. Hope that makes sense. Gareth, do you want to take the -- what's the run rate on the drop-through in '21 question?

Yes. I think Thomas was coming perhaps from a slight different angle to Adam earlier because I think Tom was focusing on the cost side but perhaps more than the virtual event pickup side of it. But I'll answer on that basis and Tom [indiscernible] whenever he's come back. But the thing what we're saying is that we're going to deliver around about GBP 200 million worth, GBP 200 million plus of indirect cost savings by the end of 2020 on a run rate basis. And what we're saying is for our baseline revenue case in 2021, we can maintain those indirect cost savings. So our baseline revenue is deliverable of the lower indirect cost number. After 2021, we'll make a call on whether we want to maintain those GBP 200 million of savings, which you need to build some things back as the business recovers and as revenue hopefully comes back into business. But the business as I said, GBP 1.7 billion, GBP 1.7 billion minus baseline revenue is manageable and deliverable with this GBP 200 million worth of indirect cost savings. So the fixed cost base will stay lower for that number. In terms of the virtual events, how they come through as Stephen said earlier, we're not ready for anything at this stage, how they're going to work. We think we're definitely in a profitable base on our experience in 2020 to date, but we're not going to make the call at this stage on how profitable the [indiscernible] will be at scale in 2021.