Disclaimer 1 This transcript is derived from a recording of the - - PDF document
Daily Mail and General Trust plc Full Year Results 2018 29 November 2018 Transcript Disclaimer 1 This transcript is derived from a recording of the meeting. Every possible effort has been made to transcribe this event accurately. However,
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Disclaimer
2 This transcript is derived from a recording of the meeting. Every possible effort has been made to transcribe this event accurately. However, neither BRR Media Limited nor DMGT shall be liable for any inaccuracies, errors or omissions.
3 KEY AW: Adam Webster, DMGT PZ: Paul Zwillenberg, DMGT TC: Tim Collier, DMGT ND: Nick Dempsey, Barclays WP: William Packer, Exane BNP Paribas KT: Katherine Tait, Goldman Sachs CC: Chris Collett, Deutsche Bank MW: Matthew Walker, Credit Suisse PW: Patrick Wellington, Morgan Stanley SL: Steve Liechti, Numis AW: Good morning and welcome to DMGT’s FY 18 results. A quick housekeeping point - if you could put your phones on mute, that would be great. I'd now like to hand you over to our CEO, Paul Zwillenberg. PZ: Good morning and welcome to DMGT’s 2018 full year results presentation. Tim and I will run through the presentation and then we will take your questions at the end. First, as usual, the disclaimer. Let me begin with a quick overview of the year. We have made good progress with the strategic priorities I set out two years ago, of improving operational execution, of increasing portfolio focus and of enhancing financial flexibility. While the deliberate transformation of DMGT has impacted our absolute results, we're now much stronger than we were in so many ways. We have significantly strengthened the balance sheet with 233 million pounds of net cash. We have a more focused portfolio and we have a growing culture of continuous
print and digital advertising as well as UK property. And we did. However, I am encouraged by how the portfolio has performed across the board with good growth from our Insurance, EdTech, Energy and Events businesses, and a resilient performance from our Consumer Media business. In terms of financials, the performance was solid and the results were in line with expectations. Revenues were stable on an underlying basis while operating profit was down as expected, and we have again delivered real dividend growth. I'm pleased to announce that the dividend is three percent up on last year, which gives us a dividend CAGR of 7% over the past 20 years. This reflects the
4 Board's confidence in the Group strategy, supported by our strong balance sheet, to deliver long term earnings and dividend growth. Given the progress that we have made over the past two years, we're now in a much better position to look to the future, but more of that in a few minutes. First, I would like to hand over to Tim who will take us through the financials. TC: Coming into this year, we knew which of our businesses faced challenging market conditions, which were set to grow, and where our margins were likely to change. So I'm pleased to be in a position today to report that we have delivered a performance in line with our expectations and our market guidance. Let me start with our adjusted numbers, which we believe provide a more comparable view of the Group's performance. Revenues for the year were £1.4bn, delivering a stable underlying performance. Reported revenues were down 9% on last year and that’s on a pro forma basis, so really just normalises the Euromoney transaction. The reduction in revenues reflects disposals and closures during the year as well as the weaker US dollar. Operating profits were down an underlying 17%, reflecting the stable performance from the B2B portfolio, a reduction in Media’s profits and the increased Corporate costs that we spoke about last year. On a pro forma basis, profit was down 16% - that's before tax, with EPS down 23% and that's a result of the increase in the effect of tax rate, again, that I spoke about last year, for completeness. This slide shows our statutory numbers. You'll notice we have considerably less exceptional costs and impairments this year, which has resulted in a £300 million or so improvement at the operating profit level. We also made £658 million of profits on the sale of assets, and that's notably the ZPG disposal, and that drove an even bigger improvement in the profit before tax, which you can see here. You may recall that the gain on last year’s Euromoney transaction was classified as a discontinued operation so it only impacted the profit for the year and the statutory EPS lines. Before I talk to you about the different sectors, I thought it would be useful to remind you of how we think about the different roles that each of our businesses play in our portfolio. And you may remember this slide from our Investor Day. The Operating at scale businesses, and they're the predictable cash generators, so newspapers and Landmark, for example, accounted for 64% of Group revenues and they delivered an 18% Cash OI margin. That’s slightly down on last year due to the tough market conditions for Media and our UK property businesses. In the middle are our Focused growth businesses, and they include RMS and the
5 MailOnline, and these are businesses that we expect to grow, not just their revenues, but also improve their Cash OI performance. And I'm pleased to confirm that these business delivered an underlying growth rate of 6% in the year; but revenue is just part of the story and I'd like to take a minute to explain what's happening at the profit level. One of our key metrics is Cash OI or, if you prefer, EBITDA less capex. This metric gives us an earlier insight into what cash the businesses are really generating and the future trajectory of operating profit. And I'm pleased to say that the combined Cash OI margin at the Focused growth businesses increased this year from 9% to 11%. Importantly, all of our Focused growth businesses are now operating profitably. And this is especially encouraging given where we are in our transformation. And finally on the slide, our Early bets, these businesses are still in their investment stage and they continue to grow their revenues well. Now let me move to the B2B revenue, and this is really the more conventional view of DMGT. So, I'll start with B2B and you'll notice that I've cut down this section a little bit, but don't worry, all the normal slides are in the appendix; so you can have those at your leisure, but across our B2B portfolio revenues grew an underlying 3%. Now, let me take you through each of the businesses in turn, starting with Insurance Risk. RMS performed well. They delivered an underlying revenue growth of 5% in the year, which includes the benefit of one time project revenues, such as analytical services as well as subscription growth. Now, Paul will talk to you shortly about this, but following the changes we've made at RMS, we've made the decision to re-architect the RMS(one) platform and that's really in order to take advantage of new technologies and the changing attitude to things like cloud computing. As a result of this, we have decided to impair the
taken a non-cash charge against that. But before I leave RMS, I'd note that I'm actually encouraged by their revenue growth. They improved their revenue growth from 2% last year to 5% this, demonstrating the core demand for RMS products and services, and we will be increasing our investment in RMS(one) this year and that reflects our confidence in that business. Now to Property Information. The growth in the US was more than offset by our European business, with UK mortgage approvals were down 4%. So the challenging market conditions that we predicted persisted through the year.
6 In EdTech, Hobsons continues to perform well. Their 9% growth was driven across all three product lines: Naviance, Intersect, and Starfish. Similarly in Energy Information, there was growth from each of Genscape’s core oil, gas and power businesses, and they combined deliver the 7% revenue growth you see here for Genscape. In addition, in September, we merged Locus Energy with AlsoEnergy, in which we now have a 20% stake. Finally, Events and Exhibitions, who grew their revenues by 5%. And that's despite Gastech rotating out of Japan this year and also the geopolitical situation currently occurring in the Middle East. So when I look at this, other than Property Information, the underlying growth rates were in the five to nine percent range for our B2B businesses. Turning now to profits. They were also affected by foreign exchange and the portfolio changes, but were broadly stable on an underlying basis. The Insurance Risk margin benefited from the higher revenue flow-through, whilst the increase you see here in the Property Information margin, was driven largely by our portfolio mix change, and that's really the Xceligent, or rather the exclusion of Xceligent. The EdTech company, Hobsons, which is today a stronger, higher quality student success business, delivered good growth and their profits were up an underlying £5m. To remind you, we sold the CRM business last year and so the change in margin reflects that mix. In Energy Information it is important to understand the profit dynamic of what is happening. In the year, Genscape took a number of actions to reduce its costs, to tidy up its portfolio, and increase its focus and discipline on
this, and these costs have been taken through Genscape’s P&L in the year. More significantly though is the focus and rigour on investments, and that resulted in reduced capitalisation with more costs being taken directly through Genscape’s P&L. While this has reduced the short term operating profits and its margin, Genscape’s cash OI increased by £7m, and indeed Genscape ended the year with a cash OI margin of over 10%, and will see the benefit of that reduced amortisation in future operating profits. In Events we continue to invest, but it's not just in the major shows such as ADIPEC, which had another great year and continues to expand, but also in new launches, in bolt-on acquisitions, designed to expand our portfolio and help drive future growth. And as a result of this investment and the geopolitical challenges I mentioned in the Middle East, their margin has dipped, albeit slightly.
7 I've mentioned before that Cash OI is probably, well actually it is, is my favourite metric across the B2B portfolio. Although our operating profit was broadly stable, the cash contribution increased by £11 million. Why is that important? Because I believe it's a reflection of really the operational improvements we've made and the direction of travel of our businesses. So looking ahead to next year, the B2B underlying revenue growth is expected to remain in the low-single digits. Turning to profits. Organic investment remains the top priority within our capital allocation framework, and we will be increasing our investment in product development. The additional investments I spoke about at RMS will continue to be expensed directly in the P&L and will broadly be offset by reduced amortisation charges. So as a result of the investments we're making, the B2B operating margin is expected to be in the mid-teens for Full Year 2019. Now turning to Consumer Media. Revenues were down an underlying 4%, with
persistent challenges facing the national newspaper sector, with circulation volumes continuing to decline. That being said, we take a long-term view of cover price increases and continue to grow our market share. You are aware I think, of the cover price increases from last year and in the absence of further increases circulation revenues were down 5%. Print advertising also declined, but this was largely offset by the MailOnline’s revenue from advertising which grew 5%. The cost base of newspapers was further reduced in the year and we saw an improved profit contribution from MailOnline. The lower newspaper revenues, however, resulted in lower operating profits and margin, again, as we expected. Looking ahead to next year, we expect the general dynamics to continue, although there will be the benefit of the 5p increase on the Monday to Friday editions of the Daily Mail that we put through in September this year, that was roughly 8%. The advertising market, as always, remains uncertain and therefore we are guiding to a mid-single digit underlying decline in revenues for Media. Now turning to Media's profits, we continue to manage the cost base of newspapers, although newsprint prices are increasing and we expect further progress from MailOnline. DailyMailTV is now in its second season, so still in investment stage, but we now own 100% of DailyMailTV, so their results will be included in those of Media. So taking all these factors into consideration, the
said the operating profit margin for Media, it's expected to be in the high-single digits and that's similar to Full Year 2018 had we included DailyMailTV in those numbers.
8 So here's the breakdown of the 4% underlying decline in Consumer Media
but just highlight a noteworthy milestone, which is that the MailOnline's advertising revenues have now overtaken the Mail’s advertising revenues from
advertising revenues have now overtaken the Mail’s print advertising revenues. Now to Corporate costs. As a reminder, Corporate costs now include costs that were previously borne by dmg information. Hence, the underlying increase here is really 25% rather than 50%, and I would remind you as well that 2017 included a number of one-time credits. So, the central team continues to evolve. For example, we continue to strengthen our technology expertise and we recently reduced headcount and
less than £45 million, and importantly that includes the restructuring costs associated with a reduction in headcount I just spoke about. So I am confident that the underlying run rate will reduce further in 2020. This slide recaps the revenue and operating profit figures. As you see, Group revenues were flat on an underlying basis and the operating profit was £145 million. Now, moving to JVs and associates. Euromoney's revenues grew by an underlying 3%, but profits were affected by disposals, and DMGT’s share, therefore, remained unchanged on a pro forma basis. As you know, we sold ZPG in the summer and consequently we only included eight and a half months, so their results, so profits were down, our share of profits were down about £2 million year-on-year. Finally, there were several other businesses that we have stakes in. These are typically early stage ventures that we think have good potential and the net share of losses from those this year was about £5 million, and that includes for this year DailyMailTV. Turning to this coming year. We no longer own ZPG, so no profits there and Euromoney’s results will be impacted by their disposals, most recently the Mining Indaba sale. We increased our investment in Yopa, the hybrid estate agent, in August, so that is now an associate, so their share of losses will be included in our numbers next year. So taking that altogether, we are guiding to our share of profits from JVs and associates to be at least £40 million.
9 Now to financing charges. Finance costs were £37 million in the year and that reflects the benefit of the proceeds on disposals and a lower share of financing costs from ZPG and Euromoney. We have a bond maturing next month that we will not be replacing and the share of financing charges from JVs and associates next year is likely to be
so consequently we expect financing charges next year to be around £15 million. This slide brings it altogether. The reduced share of profits from JVs and associates was largely offset by the lower financing charges, so PBT was down 16% on a pro forma basis, whilst EPS was down 23% and the effective tax rate increased to 18.2%. So this slide shows exceptional items, well, amongst other things, but as I said in May, when there are significant one-off events we will continue to treat them as exceptional and exclude them from our adjusted numbers. It is important, however, that these costs are truly exceptional. If not, we will not include them
consultancy costs that we now carry in the corporate centre line, and you can see the benefits here with cash exceptional items of just £3 million this year and that compares to £43 million last year. We've also stopped capitalising RMS(one) development costs and that was just over two years ago, in August 2016. There was however a £58 million asset on the balance sheet and that's in respect of historical development costs, and as I mentioned, that has now been fully
table, you can see this profit on the sale of assets. The £658 million in 2018 was largely from the ZPG and EDR disposals, whilst in the prior year, it was predominantly Euromoney. I like this slide, actually I like it quite a lot. It's the first time I can use the title as well on this slide, net cash position. But really, why am I emphasising that? Because it's evidence of the progress that we've made with our strategy. We ended the year with net cash of £233 million and the block that dominates the chart is a £738 million of net proceeds from disposals and acquisitions. I've already explained those. We then had the usual payments, tax, pension, interest, and of course the continued increasing dividend in real terms, and a small impact from foreign exchange. The operating profit was £117 million, including £50 million of capital
adverse change in working capital caused by the timing for payments of
10 million one-off reduction in trade debtors from 2013, and so our net cash and cash conversion will be affected accordingly through the year. Although that does help reduce the interest cost, as I mentioned earlier. So I've talked about being net cash and, indeed,the over £700 million year-on- year improvement that this slide shows in the net debt position, and how has actually improved by over £900 million over the last two years. In the same period, largely due to the sensible investment decisions taken by the Trustees, the pension plan has strengthened by £500 million, moving into a surplus. I should stress that this surplus is on an accounting basis, so not an asset that we can access now, but it does bode well for the next actuarial valuation. So effectively here, a £1.4bn strengthening of the balance sheet over the last two years. And here is the slide that brings together our guidance for 2019. I won't repeat the guidance, but I would point out for you, for all those who are not wearing your glasses, that I have included some adjusted figures for FY 18 in the
indication of the starting point coming into the year, from which to build the underlying growth rates, but you might need your glasses for them. So to finish, I am pleased that we have delivered on our guidance and expectations for 2018, as well as the progress that we've made over the past two years in a transformation of the portfolio. We have a clear financial strategy underpinned by a strong balance sheet. We have greater visibility, increased transparency, we've improved the quality of our profits and have a far greater focus on cash. Equally important, we have a more rigorous and disciplined approach to capital allocation decisions based on an ROI mind-set. So I look forward to taking your questions with Paul later. But in the meantime, I’d now like to hand you back to Paul to talk more about the transformation and the strategy. PZ: Thank you Tim. I'd like to start by talking about the DMGT strategy which I sat
progress on all three of our strategic priorities. We have improved our
increased our portfolio focus. Is the job done? Absolutely not. Transformations do not happen overnight, but I am pleased with what has been achieved so far and the discipline we are building and how we are biasing our investments towards good growth. I've laid out a transformation plan and we are executing against it and we now have the balance sheet strength, and bandwidth, to look to the future.
11 So first I want to talk about improving operational execution. The Performance Improvement Programme that we introduced a year ago is delivering in top line, bottom line, product, commercial operations, people and technology. We are moving from the fixing stage to fine-tuning stage and are highly focused
embedding a culture of continuous improvement across the businesses with a mindset that is rooted in ROI. You can see a wide array of examples of how we are making progress across the Group. Take Hobsons and Genscape, for example, through the PIP initiatives, they have improved their focus on growth
consuming cash; in FY 18, both generated cash and both will generate even more in FY 19. They are delivering what I call good growth, sustainable profitable growth with a high quality of earnings. It is a remarkable turnaround in a short space of time for which I'd like to thank the teams involved for their hard work and dedication. In fact, all of our Focused growth businesses, RMS, Mail Online, Hobsons and Genscape, are now profitable when two years ago that was only the case for RMS. That is what I call performance improvement. Before moving onto the other strategic priorities, I want to talk to you about RMS and MailOnline in a bit more detail. These are both franchises with strong market positions which we will continue to invest in and grow. As you know, we put in place a new leadership team at RMS this year, which was necessary to achieve our ambition. We now have a team that has deep enterprise software expertise. We need to complement our market-leading models and data and analytical services. This is a team who has done it before and it shows, it shows in the important changes that have taken place in that business over just the past six months with product, with technology, with total cost of ownership, with strategy, and with customers and with building the very best team. All of this has given me renewed confidence in RMS’s future, to enhance its market-leading position and to drive long-term growth. Since we embarked on the RMS(one) project in 2011, there has been considerable change. We can now do things that we couldn't even contemplate even two years ago, which make a big difference in how we deliver our products and services to our customers. Take, for example, the cloud. The market now accepts cloud in a way it did not two years ago, enabling us to deliver RMS(one) in a modular format that is easier for customers to use and, importantly, at a lower total cost of ownership. To make the most of this market shift requires a software re-architecture, which is exactly what we're doing. The result will be better for our customers and for RMS and we have the right team in place to
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fiscal year, is why we've decided to increase our investment in FY 19. This will deliver the roadmap that will position us well for 2019 and beyond. Let me remind you, we are building on a market-leading position. We have the relationships, we have the expertise, we have the experience, we have the products, and we have the team that our customers need to manage the challenges that lie ahead from data driven underwriting to the long-term impact
I'd also like to spend a few minutes on MailOnline. If you remember back to February of this year at the Investor Day, Martin Clarke told you, “some years are going to be tougher than others and I suspect this one will be one of the tougher ones for the entire industry”, and boy did he turn out to be right. But in the face of everything Google and Facebook threw at us, we outperformed the market, not just in terms of revenues, but also, importantly, in building our loyal, direct audience. The numbers I pay attention to are the numbers of people who come directly to our site and our apps each and every day and how much time they spend there. Our audience spends a remarkable 145 million minutes on the site and apps each day. That is up 2% on last year. Even more impressive is the time spent by the direct audience has grown 7%. 145 million minutes a day. That is a loyal, engaged audience and no one even comes close. When you layer on some of the other distribution platforms, such as Snapchat, Facebook video, it takes the number of daily unique visitors up to more than 60 million people. People are having a daily interaction with MailOnline's content, many of whom are visiting us multiple times a day, and this is before we even count the additional 1.3 million people a day watching DailyMailTV. To emphasise, we are not in the business of generating high volumes of low quality one-off visitors to help pad our monthly numbers. We don't buy traffic, we don't chase algorithms. We focus on the direct audience: quality, loyal and engaged readers who keep on coming back day after day after day, increasing page views, total minutes and, importantly, driving revenue growth. On the subject of revenue, as Tim said, we achieved an important milestone with digital advertising now greater than print, than the Mail’s print advertising. So, having given you a bit of a deep dive about two of our franchises, let me return to our strategy. Looking back over the past 24 months, we have been through a period of transformation, with the aim of increasing our portfolio
13 focus and enhancing our financial flexibility. We have done exactly what we set
In Property Information, we sold EDR, Xceligent ceased trading, and we sold our majority stake in Sitecompli. In EdTech, Hobsons sold its Admissions and Solutions businesses. In Energy Information, we've narrowed our focus, exiting business lines. Most recently we merged Locus Energy into AlsoEnergy. And Consumer media, we sold Elite Daily and closed 7 Days and we've now bought in the rest of DailyMailTV, strengthening the MailOnline franchise. In FY 17, we reduced our stake in Euromoney, decoupling our balance sheets. Finally, in JVs and associates, we've monetised Zoopla and invested in Yopa - another exciting disruptive business. So two years ago we had £679 million of net debt. Now we have £233 million of net cash. I cannot tell you how pleased I am that we have the strongest balance sheet in living memory. So what does this mean for capital allocation? It's important to stress that we have worked hard to give ourselves the financial flexibility we now have. It is imperative to me, to us, to the Board that we maintain it. Our capital allocation framework remains consistent, but let me be clear; it is now underpinned by a more and much tighter focus on ROI and good growth. Organic investment to drive organic growth remains our highest priority. Last year, we invested some 8% of revenues in organic initiatives. DMGT has a long term perspective. We invest through the cycle, recognising that often the best returns can be realised by investing. When times are challenging, we will continue to invest in organic growth. We have a clear preference for investing in growth opportunities and disruptive technologies. What does this mean? In practice? It means that we look to invest in either scalable businesses where we are a franchise or have the potential to become a franchise, like we have with RMS, with MailOnline, and with Hobsons’
getting it right is big, just as we did with Zoopla.
14 As you've seen from us again today, we are committed to real dividend growth. The dividend remains our primary mechanism for returning capital to shareholders. Finally, we take a balanced view of the merits of M&A, maintaining financial flexibility and returning additional capital to shareholders. We will prioritise bolt-ons, where we see the opportunities to deliver synergies or scale and we will continue to invest in early stage ventures that how significant potential
business, mindful of the cycle, so expect to see the disciplined approach to capital allocation continuing. And when we invest behind opportunities, be they
the right time and at the right price for us. Two years ago, I set out to deliver long-term sustainable returns for
progress we have made, as I've always said, our people are our greatest assets and the mettle and focus and determination they've demonstrated, in bringing about the considerable change I've just outlined, are a testament to that. We have increased our portfolio focus. We have improved our operational execution, and we are now maintaining our financial flexibility, a virtuous circle as our priorities become mutually reinforcing and the benefits compound. The net result is that we are now well placed and future focused. We have a strong balance sheet and have laid the foundations upon which to
term shareholder value. Thank you for your time. We'd now like to hand over to you for your questions. Questions ND:
working capital for FY 19. So, we had a quite a significant outflow for FY 18 and you flagged some timing issues around newsprint costs. We've got the trade debtors issue, which would she flagged as a negative in FY 19. So can you help us
effect from that in FY 19 or how can we think about working capital unfolding in this year?
15 Um, second question on RMS(one). So, how much amortisation are we losing? Is it something around £17 million? Um, and therefore, what is the cash margin that RMS is likely to be seeing in FY 19 broadly, um, and the, uh, third question, if you had interesting acquisitions in the pipeline, would you have planned to take out the bonds in December or would you have rolled it over? TC: I guess I'll get all three of those. Um, so your first question is working capital, You’re right. So we had the newsprint issue. Again, that's a timing issue. So to your points, it may or may not unwind, depends on the exact timing of when, when shipments come for us. So, but yes, it's a one-time issue for that. Trade debtors that was essentially a factoring operation that we did a few years ago in ‘13, that was, you know, and that that was basically a simple financing structure. So now our net cash, I don't need that and I save quite a bit of money on the interest line by unwinding it. So nothing funny in terms of that, literally just a financing transaction. RMS(one), a good number, £17 million is pretty much it, pounds. I'm going to try not to give you a Cash ROI number for next year because I'm trying not to forecast individual business lines, but your logic is, um, I'm going to be spending cash investing in product development in RMS(one) deliberately. So while its operating profit will stay the same, you're right, cash OI will come down as a result. That's just maths with the Cash OI. The third question, would I have repaid the bond or not? The bond is roughly £200 million, so it would have depended what size acquisition I was doing. So I still have £233 million of cash. So if it's less than £200 million, I would have done it without doing the bond. Again, it’s just straight maths. WP: Hi, it's a Will Packer from Exane BNP Paribas, three for me please. Um, firstly, in terms of the revenue outlook for RMS and RMS(one), should we think of today as a big reset again and it will take time for incremental RMS(one) type revenues to be recognised in sort of 2020 and beyond, or is it more there's a strategic pivot and we should stop thinking about those incremental revenues at all and just think about a mid-single digit growing business permanently on a lower margin than perhaps it was before this started. Secondly, in terms of JVs and associates last year, you are to be a bit cautious. Um, you talked about £75 million and then that, even though you only got eight months of Zoopla, you still hit that number, if I recall correctly. Could you just talk us through the building blocks of your 40? Is Yopa a bit more loss-making and a bit of a larger stake than we think, is that why perhaps the, you know, we're ahead of that just to help us there?
16 And then lastly, where are you thinking about your target net debt to EBITDA? You, your comment around dividends as the primary means of returning cash to
TC: Do you want to do the first and I’ll do the last two? PZ:
the revenue across all the lines of business because they are complementary. The updated strategy, the modular approach, the re-architecture allows us to do several things. First of all, by reducing the total cost of ownership for customers, it makes our models and our data and our software a more compelling proposition. Second of all, it opened it up by making it more
versus the monolithic, you need everything, approach we had been taking
Thirdly, part of that investment is going in to the RiskLink software to help reduce its total cost of ownership for customers. And what that means is that the 200 models that we continue to run on RiskLink have a long lifetime and it doesn't require a forced migration on customers. You take that altogether. It means we have our core revenues of models, data and analytical services which continue to grow, have exciting prospects, that group, and we have more opportunities to sell the software in the ways that customers have been asking for it. WP: And I suppose just to clarify a little bit, I think it's fair to say, so some analysts, and at least myself, we, based on the previous guidance, had a steady state RMS business and then jumps in RMS(one) when certain levels of development are
better growth trajectory permanently, but there's no big jumps? PZ: Um, yes, I think that makes sense. I think what you've seen in the results this year was through some subscription and also one-time services. You've seen steady progress. You've seen good growth progress in our core models, analytics and data services. WP: And the growth achieved this year is a good proxy for the kind of growth you're going to be targeting in the future? PZ: Well, I'll leave any future projections to Tim. TC: So I’ll answer your second question then. So your second question is actually quite hard for me to answer because Euromoney is the biggest single item in the
17 Associates line. So I need to be very careful. I'm not actually giving a profit forecast for Euromoney, but you know, when you sit here and try and do your guidance for the year, you look at which assets you have and what's happening. So you're right, I've got Euromoney in there. Although, as I flagged, Euromoney be slightly smaller, although they're doing well, due to disposals they're making. You're right, Yopa is in there, Yopa is loss- making, so you have to factor that in. Then I have a bunch of other smaller assets that generally in those, in that space, are loss-making. So I'm comfortable with my guidance. I don't really want to give you line by line for the reasons articulated. I think your last question was around my targets, the net debt to EBITDA ratio. We don't have a target number as such. We have a maximum, which is two
make is, and Paul emphasised this earlier on, we're very comfortable where we
came in, you know, Paul and myself talked about, you know, the three key priorities that we had in increasing financial flexibility, it really enables many of the other things to happen. So very comfortable where we are in our net debt to
we were spending money on. You've pulled out a capital allocation slide there. Know the number one priority for us as organic or best within the business. We continue to look at bolt-on acquisitions. You know, we did a couple, for example, in Events this year, we liked. We will continue to do that for the reasons that Paul articulated. And we actually love our constantly increasing dividend, so there'll be, that's our main focus, our capital allocation. TC: Thanks, Katherine. KT: Morning everyone. It's Katherine Tate from Goldman Sachs. A couple of questions for me. First, your RMS, just going back to the um, growth, um,
pulled out which parts of that has been sort of subscription based price versus
be very helpful. Um, and then secondly with MailOnline, clearly a number of moving parts there in terms of the changes that have been made in terms of your traffic and what's driving that. Can you help us understand how, now it's moving into sort of profitability, where that sort of trajectory goes, I know where we are today, and how we should think about the MailOnline business on a sort of five year basis, you know, what's the sort of normalised profit and that we could expect is it comparable to your existing margin within that overall business?
18 And then finally, just on DailyMailTV. Um, perhaps if you could just expand a little bit more on why bring that into the Group and again, how we should think about that part of the business on a sort of five year view. Thank you. TC: So to the first one. So I'm going to try very hard not to give, again, granular, but it was more one-time than it was recurring. How's that? I think I flagged at the half year as well. So no real change there. PZ: In terms of MailOnline, yes. MailOnline is firmly into profit as we've been
generate more revenue because the vast majority of our advertising revenues come from programmatic advertising. So more pages, more engagement equals more revenue in terms of the long term margin trajectory. As we think about each of our Focused growth businesses, we seek to strike the right balance between revenue growth and profit growth or Cash OI growth, given the material opportunities that are available to MailOnline still. So much
combined with the challenges that we're seeing come up every day with other digital content businesses. And I think yesterday it was reported that Mic, a millennial content site in the US, is in discussions with Bustle Media Group. Um, we see lots of opportunities to continue to invest in the product, to invest in content and take advantage of those white spaces that are increasingly appearing, we think long term. And so we'll accept lower margins in MailOnline in the short term in order to take advantage of the long-term opportunity. In terms of DailyMailTV, you know, we bought in the rest of the JV because we fundamentally invest in content and wanted to be sure that we were 100 percent in control of how much we invest, how we invest in that content. We are still very much in partnership with Dr Phil, who we signed a long-term production deal with. And that show continues to go from strength to strength and
CC: Good morning. It's Chris Collett from Deutsche. Just have a couple of questions. One was just coming back to RMS. It sounded like from what you're saying about the, the benefits of the move to a more modular approach might have some
RMS or bit of unbundling there. So just wondering, is that a potential revenue headwind that we should think of at some point in the, in the future? And then second question, was just wondering if you were to gear up what sort
19 And then third question was just on Events. A number of the events have already run, but just sort of taking into the round, about Gastech kind of running again, that being smaller, some of the headwinds in the Middle East. I mean all of that sort of sounds like it is heading for exhibitions seeing a revenue decline this
PZ: You want to take two, three thanks. Sure. Let me kick off with a, with, with RMS. So when we started the project in 2011, we, the, the approach, we took reflected the technologies that were available, the attitude towards cloud at the time, and also a focus on natural catastrophe, natural disaster risk modelling. Since then, the technology has evolved. The insurance sectors, the insurance sector is relationship with clown attitude towards cloud has evolved. Acceptance of cloud computing has evolved and the customer base is looking for a broader set of solutions, not just natural catastrophes, but also new risks like cyber or
advantage of the growing benefits of cloud technology, which makes it much cheaper to operate versus the current cost of operation and even what we had been delivering over the past year since we released 1.0. It reflects customer, not only customer demand, but also customer requirements, improving reducing costs for them and improving the performance. It also means that we're able to deliver these new products and services. So to answer your question, no, I don't think this creates revenue headwinds at
customers, and ‘B’, to deliver the product, the models and the software that they need, how they need it, when they need it. CC: Great. TC: And then your second question. So a couple of points to make. One, we already have some bank facilities that are all undrawn, so there's no need for me to put new debt in place if I was still going to do something like that. But more importantly, yeah, we're in a net cash position, so £233 million, but we actually have, we have two big bonds that are outstanding, one that matures end of this year, which I talked about repaying, matures next month. And another one that, that keeps going for many, many more years. So actually, my incremental cost is relatively little because I'm certainly going to spend the cash which has a very low return on it. So again, I very much like the position that I'm in from my increased financial flexibility. The third point I think was around events and headwinds. Um, and so I want to allay your fears. You know, I do not think Events can be in negative territory. Um, maybe it was just meant a slightly lower growth than last year, which I
20 think would not be an unreasonable position for them to expect. And if you look at our events, you know, we have some energy shows and others. We have a Middle East exposure. So generally I see us as almost anti-cyclical to many other trade shows for them, for, for that energy continues to pull. And I mentioned the Middle East is a little bit more challenging. MW: Good morning. It’s Matthew Walker from Credit Suisse. Two questions, please. First one is back on RMS. You mentioned obviously moving into other new areas, cyber, terrorism. I think you mentioned those before, back at the Investor
are you thinking about other things like, you know, anti-money laundering, know your customer, um, you know, claims in auto and health and property – all that kind of broader risk or are you really just sticking to cyber, terrorism and catastrophe risk modeling? And the second question is on, you talked about particularly as we look into the future, maybe reinvesting the money, you mentioned quite a big focus on ROI. Um, uh, could you tell us, you know, with ROI, is that already baked into the executive compensation plans or will it be in the future? I just asked that because it's quite telling when you look at some of the companies in the sector, there's very few who've got ROI baked into management compensation plans and there's a lot of people you've got ROI as a sort of target, but it's not in the executive compensation plan. So if you could just sort of enlighten us on that point as well. PZ:
to deliver the roadmap that they've set out that will underpin modularisation, that will allow them to build confidence with customers that will allow them to release both their US flood model and their Wildfire model, which I'm sure you saw the report in the FT earlier in the week referencing RMS. Um, all that focus for next year will be on those core elements of the business that position us for the future. And for me that, and continuing to build out the team that we started to build, are the number one priorities for RMS. When we’ve got that right, then we earn the right to look more broadly at other
when we look for a future, for when we look at the opportunities, now and in the future, we look to see if they get product market fit, if the customers want them and if they will pay for them and it will deliver a good ROI and then we'll back
21 TC: So I understand why people have trouble doing it because it's actually quite hard to put that in the compensation plan. The way we address it, which is effectively the same thing, is we have a capital charge. So the executive compensation is essentially, you know, profit over a certain number and then it gets adjusted by a capital charge. So if you buy anything or spend anything, you pay for it. TC: Patrick, PW: I'm Patrick Wellington, Morgan Stanley, a couple of generic questions. Tim, you've been in charge for 18 months or so in finance. Do you think you've cleared everything out now you've got that trade creditors out of working capital
there that you're targeting to regularise or if we've done it? And while you're talking about that, can you say what the total level of exceptionals is? Because it's very gratifying that you've stuck it back into the numbers, but there's
Group, can you give us now a total for ‘18 and how it might look in ‘19? Yeah.
TC: Just two Patrick? PW: It’s seasonal and you’re the Ebeneezer Scrooge I think of the sector. I mean you've already £640 million on Zoopla. Right? But this whole presentation has been about how you like cash. I've got this Dickensian vision of you. They're sort
newspaper, which frankly a switch back to print would be a bit of a surprise. So all these people who are looking for a Zoopla-uSwitch style acquisition that sends earnings up 20% in a day. Are they going to be disappointed? TC: So Scrooge, I'll do the first then, so thank you very much. But yeah, again, thank you for clarifying. I'm not in charge of everything, that's Paul. Just finance for
how much we’ve cleared up and how much we’ve changed things, which has been a very deliberate thing that we've done. Is there anything that I'm aware of? No, there's nothing I'm aware of that I haven't done. We've taken enough pain and suffering for cleaning up the bits and pieces that we have. I mentioned earlier on, about we have much more transparency. We have much more visibility of what's happening. They're things like, you know, the numbers today are audited. Yeah. And that's a reflection of the great work of the team and how far they've come in terms of finance generally. So thank you very much for noticing.
22 So I'm, I'm debating whether to answer the second question or not because if I answered the second question, I don't want someone to write that I actually had lots of exceptional charges. So, I'll answer just you Patrick, because you won’t do
number would be my guess, around the incremental bits that we've spent this
they want to spend those things, understand it's in their numbers because actually, unless it is truly exceptional, it should be. TC: Scrooge, do you want to..? PZ: Well, Scrooge here takes a disciplined and long-term perspective to capital allocation to M&A and, as we've been consistent for the last six to 12 months, asset prices are very high and so you need to be able to find clear synergies that you can bank on to even consider some of the things in the market. The reality is that we are two years into a multiyear transformation. Very few of our businesses are in a position, to have been to date in a position, to actually consider M&A, bolt-on or otherwise. They've been fixing. As they move into fine-tuning, some of them are getting to the point where I think they can consider some bolt-on acquisitions, which we mean smallish. We mean
channel and sell it, or where we can combine two similar businesses and take
Those are the kinds of things we are starting to look at now, but overall, long term, we have a long term approach. We're disciplined and given the price of assets in the spaces that we operate in, we don't see things that meet our five investment criteria, or my more simple criteria of ‘is it the right business at the right time, at the right price’. You asked about the ‘i’ newspaper and, you know, you can draw me on it. Um, as, as we said when, when it came out, you know, we look at publishing assets when they arise. We've been very clear in our Operating at scale businesses that one of the strategies for those businesses is to take advantage of their scale. And so when there is an opportunity to take advantage of scale, as we've done by consolidating Metro into Mail Newspapers, merging the advertising teams, looking for opportunities to gain efficiencies in editorial, we will do that whether internally or externally, but again, with a very disciplined eye on cash pay-back periods, etc. PW: And arguably the balance sheet isn't that efficient with £230million in cash, so shareholder returns are a possibility. Um, but you seem to downplay this through the meeting.
23 TC: I think we've been clear on the answer, to be honest, Patrick, I think, you know, we were very deliberately, I think Paul mentioned, made the point in his
You know, does it, does it mean that actually some short-term pain for some of
shareholders are long-term investors in DMGT and they understand that that's the, that's what DMGT is. We are the long term. We have some in the room today, um, and actually, you know, all the conversations we have with our shareholders are very supportive of that long-term view. That's the answer. SL: Sorry, Patrick. Steve Liechti, Numis. I'm just trying to square a few different things in terms of RMS(one). Um, so the, the write down in terms of the spend that you had capitalised previously. Um, customers have been beta-testing RMS(one) for the last 12, 18 months, whatever it is. And your comments in terms
analyst as opposed to a software engineer, what does that mean for customers and is there a risk that you're trying to reinvent the wheel again and there could be more delays in the infrastructure, that you're new HD models are going to roll out on in the next 12, 18 months? PZ: Just one? I was taken aback. So, we listened to our customers, um, when we released RMS(one), we got a lot of feedback from the customers on things like how to deploy it, on things like total cost of ownership. And Karen and her team took on board that feedback and that led to input in, and supported the evolution of, the strategy to the more modular approach. Um, they wanted software that they didn't want to have to take everything on an all-or-nothing proposition. And they gave us a very clear message that they liked how it worked, but they needed performance to be improved and the total cost of ownership to come down. And so that customer feedback actually informed the modular approach. In terms of reinventing the wheel, the answer is no, we're not reinventing the
growing analytical services business. Because we said we're re-architecting the software we wrote, we impaired software. The software that we impaired was written prior to August 2016. So we're building on what we know and putting it together in a way that customers can use it easily, can take what they want, can adapt it to their own needs and can help them manage multiple types of risk. The team that we have in place, I was just out there about a month ago, the team
24 that we have in place has done more in the last six months then the business did in the last six years. Let me say that again. They’ve done more in the last six
They've actually accomplished more in the last six months than they have in the last six years, which gives us confidence to invest behind the 2019 roadmap. And I'll give you a, just a simple example. There's one, I won't be too specific, but there's one important model run that our customers do. Millions of properties are loaded in model runs; ‘yesterday’, it took 18 hours and took 150 cores, which for a media analyst is a way that you get charged by the cloud providers to run. Because of the work that this team has done in this short period of time, that same very important model run goes in four hours on 50 cores, so better performance, significantly improved performance, significantly lower cost to execute. That's what this team has done in just the last six months and that that's why it gives me and the Board confidence to continue investing in RMS. Any others? Nope. Well thank you very much indeed. We look forward to seeing you at the Half Year results and to see some of our shareholders over the next few weeks. Thank you very much indeed. Have a great day.