Euromoney’s Strategy: Three case studies of the strategy in action Andrew Rashbass and Wendy Pallot February 2019
Agenda 1. Euromoney strategy recap 2. Case Studies • Fastmarkets • Telecoms • Specialist Information 2
Our strategy is… Strategy “to manage a portfolio of businesses in markets where information, data and convening market participants are valued. We deliver products and services that support our clients’ critical activities. In particular, we look to serve markets which are semi-opaque; that is, where there is information which organisations need in order to operate effectively but the information is hard to find. Price discovery is a good example.” 4
Euromoney’s capital allocation decisions can be understood along two dimensions Structure Cycle Quadrants We characterise the business We service fundamentally cyclical Plotting the businesses along the models of B2B information markets. Understanding which axes supports our investment companies into three generations, point in the cycle they are in is decisions, capital allocation and which we call B2B Information fundamental to our capital defines strategic priorities. 1.0, 2.0 and 3.0. allocation decisions. 5
Successful B2B information companies will be 3.0 businesses - + B2B Information 3.0 B2B Information 1.0 B2B Information 2.0 Print Digital Embedded in workflow Monologue Dialogue Part of the industry structure Licensing revenues based on Advertising-centric Subscriptions customer outcomes Product-centric Customer-centric Solution-centric 6
Quadrants + B2B Information 3.0 Prepare for the upturn Invest 3 4 • Protect and enhance competitive position • New product development • Invest in acquisitions when cycle turns • Invest in sales and marketing Structure • Opportunistic revenue initiatives • Acquisition • Tighten cost control • Fix any operational deficit • Fix any operational deficit • Accelerate transition to 3.0 Cycle - + Challenged market Strong market tailwinds Use the time wisely 2 Disinvest 1 • Modest investment to move to top-right quadrant • Maximise short-term profit and cash • Maximise short-term profit and cash • Divest • Fix any operational deficit • Prevent future build-up • Consider divestment - B2B Information 1.0 The quadrants guide investment decisions, capital allocation and also define strategic priorities 7
Pillars 3 Prepare for the upturn 4 Invest 3 Prepare for the upturn 4 Invest 3 Prepare for the upturn 4 Invest Use the time wisely Use the time wisely Use the time wisely 1 Disinvest 2 1 Disinvest 2 1 Disinvest 2 Invest around big themes Transform the operating model Actively manage the portfolio Semi-opaque market Must have, not nice to have Acquisition Inefficiency Create once, sell many Challenged business models 3.0 Business model Disruption Disposal Best of both worlds Barriers to entry Actions depend on market Product development and creating Recycling capital characteristics our future operating model 8
From 1 October 2018, our portfolio of businesses are now split into three segments composed of six divisions with support from central functions Euromoney Institutional Investor PLC Asset Management Banking & Finance Pricing, Data & Market Intelligence Central functions Institutional Investment Banking & Finance Fastmarkets Telecoms Specialist Information Investor Research LEGAL MEDIA Corporate INSURANCE GROUP Development Finance PROJECT AND ASSET FINANCING HR IT DERIVATIVES Legal, Risk and Programmes Marketing RELATIONSHIP M&A, ACTIVISIM & MAPPING RESTRUCTURING 9
We have chosen three businesses to highlight the big themes and implementation of our strategy Big theme Segment Division Brands 1 Price discovery Fastmarkets 2 Price, data & market Telecoms Telecoms intelligence 3 Price discovery Counterparty risk Specialist Information Asset management 10
Case study 1: Fastmarkets – Building a world leading Price Reporting Agency (PRA)
Our strategy is… Strategy “to be a world-leading PRA” 12
Overview - Price Reporting Agency Why a PRA is How a PRA fits Euromoney’s Euromoney’s PRA attractive strategy strategy 13
Price Reporting Agency - Market Why a PRA is attractive 14
PRAs report the market price of commodities Market Reference price Physical benchmark Financial benchmark Industry accepts a PRA’s price as Customer Markets use price for trends Transactions using exchange the standard for physical use-case and analysis contracts based on PRA’s price contracts Illiquid, opaque and Increasingly sophisticated Market structure Liquid markets undeveloped PRA market market Compliance No compliance requirements, Transparent methodology, Rigorous process externally requirements specifications or methodology internally validated audited and IOSCO compliant Definitions: Physical price – This is the price used in contracts by suppliers, producers and manufacturers 15 Physical premium –This is a price for a material with defined specifications taking into account location, purity and delivery requirements among others (eg. Shanghai, copper premium, Grade A, cathode, cif)
PRAs are attractive with strong financials and high barriers to entry Market A High barriers to entry B Strong fundamentals A B • Price benchmarks are embedded within the supply • Price data is critical to a customers’ workflow chain making subscription and licence revenues resilient • Data is used for contracts so reputation is a • Low marginal cost of sales and data delivery to prerequisite in the market additional clients • Financial market adoption increases regulatory • Price reporting serves customers across the value requirements and the cost of compliance chain of large markets D C Scalable infrastructure At the core of their markets • PRA skillsets, expertise, technology and assets are • In order for participants to interact they need a price they can trust relevant to multiple markets • Markets need independent price assessments to C D provide transparent pricing in an opaque market Serving customer needs is at the heart of the PRA industry I need to understand I need trustworthy I need real-time I need to hedge my My pricing needs PRA customer needs: my costs price information access to prices transactions will change 16
PRAs – Barriers to entry Market Price Reporting Agencies are critical to workflow which creates high barriers to entry • The use of prices in financial markets increases regulatory requirements (e.g. IOSCO) and the cost of compliance Regulation • Technology investment is required to provide systems that ensure transparency in the price discovery processes and editorial workflows Technology • A PRA needs to be trusted by the industry it serves. Industry participants have to be willing to share information with the PRA Reputation • PRAs need to demonstrate credibility and integrity over many years to ensure confidence in their data and encourage price adoption • Price reporting is a complex role with no formalised third-party training available; price reporters must develop expertise while working at a PRA People • It requires significant investment to build a sustainable price-reporting team eg Metal Bulletin has over 100 people involved in metals pricing • Prices are part of client workflow supporting activities from trading to procurement Workflow • Prices, once established as benchmarks, are used across the supply chain Supply chain 17
PRAs – At the core of their markets Market Price benchmarks are used by financial markets. Where oil has led, other markets follow Price Reporting market development (Illustrative) Oil & Gas Petrochemicals Metals Forestry Products PRA Exchange royalties revenues Licencing fees Subscriptions Market maturity Shift in revenue mix towards exchange royalties provides PRA businesses with strong growth prospects Source: Internal business market estimates (not to scale) 18
Price Reporting Agency - Fit for Euromoney How a PRA fits Euromoney’s strategy 19
Euromoney’s PRA business addresses each of the strategic pillars Fit for Euromoney Invest around big themes Transform the operating model Actively manage the portfolio Transform into a 3.0 business – Price discovery from a news organisation into a PRA 20
It took 100 years to get from B2B 1.0 to 2.0 but only five years to go from 2.0 to 3.0 Fit for Euromoney Development of world-leading Commodities PRA business 2006 Euromoney purchases MB 1882 1913 2019 2012 1999 2003 2015 2017 2018 Quinn’s Metal Market PRA strategy launched with new Fastmarkets brand AMM Launched AMM converts daily print Letter (MB) launched operating and sales model launched paper to digital service LME announces launch of contracts IOSCO Type 1 CME launch a futures contract MB launches first website based on Fastmarkets pricing accreditation achieved referencing MB prices B2B 3.0 business B2B 1.0 business B2B 2.0 business • • • Embedded in contracts and workflow Print Digital • • • Monologue Dialogue Benchmark for the industry • • • Advertising Subscriptions Licencing Euromoney bought Metal Bulletin during its transition to a 2.0 business and we have now accelerated its development to 3.0 21
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