Informa plc (INF) Earnings Call Transcript & Summary

Good day, and welcome to November 2023 Trading Update. Today's call is being recorded. At this time, I would like to turn the call over to Richard Menzies-Gow. Please go ahead.

Thanks, Elise, and good morning, everybody. Thanks for taking some time to dial in this morning. I know it's a busy day. Hopefully, you've had a chance to see the trading update we published this morning. My name is Richard Menzies-Gow. I am the Investor Relations Director. I'm here with Gareth Wright, our Group Finance Director. Gareth is going to just give a couple of short comments on the statement, and then we'll jump straight to Q&A straight after that. So over to you, Gareth.

Thanks, Richard. And as Richard said, good morning, everyone, thanks for taking the time to join our 10 month trading update call. And yes, I'm going to run through the highlights of the announcement that we've put out this morning, and then we'll open it up to questions. The key dynamic behind today's market update is the strength of trading and the future bookings since our half year results in July. And this strong trading across the portfolio drives a further increase in 2023 revenues, operating profit and cash flow, and gives us confidence regarding our momentum into 2024. As you've seen in the release, our updated '23 group guidance is for revenue of GBP 3.15 billion plus and operating profit of GBP 840 million plus. That's an increase up from GBP 3.05 billion and GBP 790 million, respectively, so a 3% increase in revenues and a 6% increase in OP now. And it's worth bearing in mind that the updated '23 OP guidance is now around 20% higher than the OP guidance we gave at the start of the year, reflecting strong trading right across the portfolio. So what's behind that strong trading? Well, I think what we say is we operate in 2 markets: the B2B market for international B2B Events, Specialist Data, and Digital Services; and the Academic Market for knowledge makers and research institutions worldwide, and both those markets are in structural growth. In B2B events, we're benefiting from the world going more digital everywhere constantly and changing working practices that see people get together less frequently. And the reality is, your Teams calls or your Zoom calls have brought into a sharper focus, the value of high-quality professional face-to-face interaction of the source that you get at our B2B events, particularly if you're launching new products, you're negotiating contracts or you're building relationships. That's a lot harder to do virtually than it is face-to-face. In our Academic Markets, structural growth in original research and specialist knowledge combined with the power of our specialist brands and a growing range of open research services is accelerating revenue growth in that market. And we're the market leader in many areas of our specialization. We're good at it, and we're getting better with technology and data through the IIRIS platform we've built, meaning our products today are better than they were pre-COVID, and we think they'll be better again in 3 years' time. So in both markets, this is driving more value to our customers, and this speaks to our ability to drive further growth in the future. There are also other dynamics behind the trading. Our international breadth is key with today's guidance upgrade particularly benefiting from the performance in the U.S., the Middle East, China and Hong Kong since the half year. We've got a great range of specialist products and services that are deeply embedded within our customer markets and are being improved by continued operational capital investment, primarily through technology and data. And finally, our focus on growing specialist B2B and academic market products rather than B2C market products is providing resilience and strength and giving us confidence around our outlook into 2024. We're quite confident about that outlook. Despite uncertain economic and shared political background in certain areas of the globe, we're not seeing a particular impact on our business. We continue to take a disciplined approach to capital allocation, balancing strong returns to shareholders, organic investments and targeted acquisitions. And today, we've announced GBP 150 million extension to our share buyback program, enabled by the strength of our balance sheet and the strength of our cash flows. We bought back around about 1 billion shares -- GBP 1 billion worth of value shares since the divestment of Informa Intelligence. And as we think our share is at good value, our cash flows are strong and our balance sheet is strong, we're extending that program. This leaves us with the flexibility to use our cash flows and balance sheet to build and buy further scale going forward. This year, we've redeployed over GBP 1 billion worth of Informa Intelligence proceeds. But with leverage expected to be 1.3x at year-end, we still have plenty of capacity to deliver further growth. So I think those are the key messages from the trading update that we've issued to the markets this morning. And I'm going to hand it back to Elise to take any questions that you may have on the call.

[Operator Instructions] We will take our first question from Steve.

I think that's me, Steve Liechti from Numis. I've got 3, please. One is you kind of mentioned it earlier on in terms of confidence in forward bookings. But can you give us any more detail in terms of forward booking trends for next year? Anything you can give us, I guess, there? So that's the first question. The second thing is, again, thinking about 2024, if your longer-term target is 5% organic growth, are you still thinking you're going to get above that in '24 on a normalized basis as things get back to wherever they might get to? Or is 5% probably more realistic? Second question. And then third question is, is there actually any weakness in events anywhere that you can reference. I know you talked very positively across the board, but anywhere where cracks are beginning to appear for any reason would be helpful.

Okay. Well, maybe taking those in reverse order. No, look, I think the trading performance across the year has been very strong. If you look at our major event brands, all the event brands are basically on or above the budget we set for them for the year, which I think is indicative of a consistent performance across the brands. And then we've certain areas of expansion like the Saudi business, which is really an organic startup this year, has grown very quickly. I think it gives us real confidence in the structural growth in the products that I talked to in my opening speech. And there's no particular area I'd say where we're concerned about the performance in '23 versus when we started the year. Really, in overview, everything has proven very positive and very good in terms of performance. In terms of '24, I think we'd say, we will be above 5%. I think it would be our view from where we stand at the moment. I think we're still enjoying good growth in the markets. As we said in the release, really almost all the areas of the business are above 2019 levels of trading. The only one that would be close is probably Hong Kong, which might be around it. China as a whole is definitely well ahead. So it's not about recovery growth, now it's strong structural growth in the products and the business overall, but we would look to be above the 5% average in '24. And that growth algorithm that we outlined at the half year is still how we're thinking about the business in the longer term. And then forward bookings in '24. I think we'd say, we're pleased with the way it's looking. There are different shows booked in different ways on a forward cycle, but the shows where we'd expect to see bookings are booking up well. And we see overall that here between our events businesses and our subscription business and our advance paid for services, we'd say we can see around about GBP 1 billion worth of '24 revenue already from where we stand now.

Steve, just to add to Gareth. I mean, on the 5% number, you're right, it is sort of our framework of long-term guide. I think there was a plus in that. And as you'll know, covering us for a while, pluses are important in the way we guide. So I think we said 5% plus in this guide. So I think, going to next year, given what we can see and what's secured already, I think definitely will be in plus territory.

We will take our next question from James Tate, Goldman Sachs.

It's James Tate from Goldman Sachs. I think two questions, please. So firstly, and you just mentioned there, you've secured around GBP 1 billion in revenue year-to-date from advance bookings. How does that compare versus last year? If you sort of exclude the acquisitions you've done and sort of just to understand what's the underlying growth you've seen there. And then secondly, you've sort of upgraded margin guidance for the full year. Does that make comps tougher for next year? Can you still grow margin? And could you walk us -- help us with some of the moving parts of sort of the biennial events in Tarsus and the investment in HIMSS and what the sort of underlying margin improvement could look like? I think consensus is around 2 percentage points for 2024. Do you think you can still achieve that?

Thanks, James. Yes. I mean, look, in terms of the growth in forward bookings, I think we would say that it's consistent with the growth that we've got in consensus. I think it's consistent with the growth outlook for the business that we're talking about. I think what we're really trying to say there is that at this point, the forward visibility of the business is good. And we're getting lots of questions from fund managers, et cetera, around the forward outlook and people are concerned about recessions or they're concerned about geopolitical macro risk in the global markets. And what we're saying there really is, look, we're not seeing any of those particular headwinds as we stand at the moment. So that's really what we're trying to give assurance of around that number. In terms of the margin, you're right that the margin has ticked up a bit in '23. And we still expect it to tick up again in 2024. We talked at the start of the year -- or middle of the year around the evolution over time of being around about 26% margin in '23, then 28% in '24, and looking to get a sort of circa 30% in the medium term. And that's what we would still broadly commit to as a shape. You're right that we're slightly ahead of where we thought we would be in 2023. And therefore, still commit to the sort of circa 28% for 2024 rather than a 2 percentage point increase because some of that benefit in year '23 is areas like China and Hong Kong have just traded better in the year than we thought they were. So there's plenty of other moving parts in the margin that we can dig into. But overall, here the key message we want to give is that we do see another acceleration in '24. And we're still focusing on the longer-term target of circa 30% in the medium term, and that's 30% alongside the 5% plus revenue growth that we talked to in the answer to Steve's questions.

We will take our next question from Carl Murdock-Smith.

It's Carl from Berenberg. Two from me. First, can we have an update on the difficulties you talked about for H1 in the tech industry. So you talked about digital media marketing services and the generation revenues being declining at H1. Can you provide an update on that? And then secondly, just in terms of the pedant question around the financials. So at H1, you talked about interest costs of around GBP 30 million for the full year. You talked about an effective tax rate of 19%, and minority interest costs of between GBP 45 million and GBP 50 million. Are you still comfortable with those comments for H1 or any evolution for those?

Okay. Well, in terms of the technology market, what we'd say there is, you're right, that has been one of the tougher end markets that we've traded into this year. But I think our performance of the bits of our business has been pretty good actually when you look at some of the comps out there in the market. The events business has traded well in that space and has seen good recovery in particular areas like Black Hat in the U.S. and Game Developer Conference earlier in the year. And the events seem to have come back well both in terms of delegates and specs, which, again, I think speaks to the structural growth of the events products that we spoke about in the opening introduction. The research products in that area have been solid, mid-single-digit growth and good retention rates in terms of subscriptions, and continues to grow well. And I think there is more opportunity for that part of the business to grow going forward. And then in terms of sort of the audience development, digital demand generation area, which is the bit of our business that has been more challenged by the slowing in the technology end market, that has seen a small decline year-on-year. But as I say, better than most of the peers that we can see in that market, if not better than all of them, actually, in terms of the performance. This then gives us confidence around the fact that the product is good and that there is a good opportunity to grow that going forward. And I would expect the technology market to be back in structural growth in a short to medium term going forward. And therefore, our place in that industry, our positioning in that industry, I think, will serve us well going forward. I think it's a good market. And as said, we have no particular concerns about our products. And indeed, we continue to develop them during 2023. So if you look at some of our Industry Dive, before we acquired it, that would normally do about 4 dives a year as new launches. This year, it's going to do double that. And again, that speaks to the fact that we're getting more product out into the market. And I think we're well positioned for recovery there, which I think really will come. I don't think it's a kind of if, I think it is a when. And therefore, I think we're pleased about our position in that business. On your -- what you described as pedant financial questions, I've never described them as pedant questions.

I might.

Yes, exactly. I'm not sure which ones particularly we want to highlight. I know there are some ones like -- tax you mentioned, yes, that's still 19%, I think. And one thing I would mention is noncontrolling interest. I know in some of the consensus numbers, that looks a little bit light because our NCI numbers in places like Curinos in China, as it performs better, and in Saudi as well, those are a bit stronger. And I think, again, in 2024, they will be stronger again. So I think that's an area probably to look at in terms of modeling to make sure you've got that in the right place for both '23 and '24.

I think you mentioned GBP 45 million to GBP 50 million, Carl, on minority interest costs. I mean, I think for this year, that's '23, as Gareth says, you'd expect that to step up again because those three areas are growing pretty strongly. So you'd expect to see a step up again next year. I think the other one was just the interest you mentioned. I think you said around GBP 30 million for this year. It may be a bit better than that, I think, because we've outperformed and the cash flow is strong. So that probably is an area where we'd expect a bit of a better outcome or a lower number in '23.

That's fantastic. And just to be clear, when I say pedant, I mean it definitely is a compliment in my vernacular. Thank you.

We will take the next question from Nick Dempsey.

I've got three questions. So first of all, just on your free cash flow guidance of GBP 575 million plus. I think consensus is somewhere over GBP 600 million. Can you maybe talk about the difference here? Were we all too optimistic on the change in working capital? And if so, what's driving that? And what -- is cash tax perhaps higher, that's the other area that I think might possibly be the difference? Second question, pricing in events into 2024. I guess, relative was about 5% at one point. Kind of industry feeling is some sort of mid-single-digit number. So are you seeing that as well sort of mid-single-digit across the board on average of price increases for events into 2024? And the third question. I've been getting a number of questions on the Middle East, as I'm sure you have. Can you just give us some indications of how Dubai and Saudi shows have been resilient in the past to conflict in the wider region?

Okay. Well, a few different themes in there. I'll kick off, and I'm sure Richard will come in. Yes, on free cash flow, as you said, we've upgraded the number to GBP 575 million plus in terms of our update going out today. Yes, an increase over where we were at the half year. But definitely, you're seeing, in the working capital line, particularly in sort of China and a bit in Hong Kong, as those events recover, we're using roll forward deposits, particularly in China, because we thought that market was going to trade in 2022, particularly in the second half of the year. Then in the last minute, it didn't. And we had quite a lot of receipts in the balance sheet at the end of that year, which we've rolled forward to this year's shows. So that's coming through in the OP and the revenues we're trading, but a bit less in the cash flow because the receipts were kind of already in the balance sheet. In terms of some of the other numbers, I think tax is a bit -- will be going up a bit year-on-year. I'm not sure sort of what numbers out there, but somewhere around sort of GBP 130 million, GBP 140 million or something for tax. It is definitely a higher number than in '22, because the profitability of the business has gone up as it's recovered from COVID. So that would be a number to look at. Interest, as we touched on, is a lower number in '23 because of the lower levels of debt that we're carrying. But overall, that gives us a number around GBP 575 million, but as Richard touched on earlier, you always got to watch the pluses in our announcement. That's definitely a GBP 575 million plus. Rich, would you like to talk on pricing?

Yes. I mean, look, Nick, we always talk about price to value. And I think the thing that we are excited about in our business is that our product today is better than it was in 2019. Technology and data are allowing us to get a better product that gives more value to exhibitors, more value to attendees. And in three years, it will be better again. We can see that road map. That allows you to price to value. And so for a customer, you feel like you're getting more out of the product and you can price to that. And so I think that gives us confidence over the next few years of how that value can materialize. Specifically on numbers, we tend not to allude to, but I think the way you talked about, I think we feel confident that we're at least being around those sort of levels. So I think other commentary in the market would be sort of consistent. But I think for us, the focus is on how do we drive a better experience for attendees, more value for exhibitors, use our data to really help them spend the right time with the right people, match buyers and sellers better, allow them to access contact point of sale to really drive more value for them from the time they spend with us. And that I think we're pretty excited about not just next year, but over the next 3 to 5 years.

And then on the Middle East question, yes, I think you're right in that Saudi Arabia and Dubai or the United Arab Emirates are the two key areas to talk about there. And we operate events across the region in places like Bahrain, Egypt, Qatar, Turkey, but really Saudi and the UAE are the two material areas, which between them probably generate about 75% of our revenue from that region. And as you kind of alluded to in your question, I mean, they have traded robustly through periods of crises in the past. They're not sort of casual about it. They watch the happenings in the region with appropriate sensitivity and concern. But their view is that businesses business and will keep trading through the period or through the concerns. And that's certainly what we're seeing at the moment. We're operating a number of shows in Dubai, in Turkey and Saudi this week, actually, and they're all going ahead with appropriate sort of security arrangements and appropriate management of the situation, but they're all proceeding in the process, Dubai, Bahrain, Saudi, Turkey, Abu Dhabi, they're all happening this week. So I think that shows that the region is still trading and gives us confidence about the ability to trade through the next couple of months.

Sorry, just a quick follow-up. The Dubai Airshow, I think it's now, is it -- or it is the first day today. No issue at all with that one. I know it's a big one.

Yes, that's a big one. You're right. That was one of the ones we acquired with Tarsus. No, it looks like it's running for a good addition. I think it actually opened yesterday technically, so actually it is up and running. And we've made the appropriate security measures, et cetera, around it, but nothing particularly in terms of the trading on that. I think it will be a good addition to the show. And good to get that one operated under our belt in our first year of ownership. As you say, it's a big show and a key one in the ex-Tarsus portfolio.

As a side note, I mean, the headlines coming out of it. I mean, record commercial airline orders. I mean, the industry itself, I think, interestingly is just bouncing back very strongly sort of post COVID, and you can see that in the level of orders that seem to be coming out of it, and as Gareth said, it's super busy there.

We will take our next question from Sami Kassab.

Thank you, and good morning, everyone. Two questions, if I may, please. Within the 5% plus growth algorithm, could you outline how much you would expect from the launches of new shows versus pricing versus volumes, please? And secondly, will you continue to benefit from the Hong Kong government subsidies for venue costs in 2024?

Yes, Sami. Look, I'd say, materially, in the 5%-plus growth, really, that's about volume, it's about growth in the markets we serve, and it's about pricing and how the increasing value of our products translates into pricing conversations with our customers. I mean, we do, do launches, but the Saudi Arabia launches are, I'd say, a bit more of an anomaly rather than the norm. I mean, just the scale of those launches and how quickly they have gone to scale has been unusual. So there'll be a bit of Saudi Arabian growth in the numbers, but generally, launches are a much smaller scale. And certainly, in the materiality of our numbers, it's materially going to be about volumes, pricing, new products and services and structural growth rather than about launches in specific markets.

And on the subsidy, Sami. I mean, you're right, we definitely benefited from that this year. I think I'm right in saying there will be some benefit flowing into next year, maybe not quite at the same level. I think our view has been you want to lean into that and reinvest some of that to really maximize the experience of your attendees and drive better retention, better volumes in terms of sort of numbers. So I mean, you're right in that there will still be, I think, some benefit for each of those and not the same amount, but we'll look to use that, I think, and just to sort of invest behind the product.

[Operator Instructions] It appears there are no further questions at this time.

Great. Well, thanks very much, Elise, and thanks to everyone listening. I'm sure there'll be lots of other questions and follow-ups, so don't hesitate to get in touch. Either myself or Gareth are around all day if you want to have a conversation. But thanks for dialing in. And speak to everyone soon.

Thanks, everyone.

This concludes today's call. Thank you for your participation. You may now disconnect.