half year results presentation 30th may 2019/media/files/d/dmgt/half year 2019/transcript - dmgt -...

DMGT

Half Year Results Presentation

30th May 2019

DMGT

Paul Zwillenberg, Chief Executive Officer

Tim Collier, Chief Executive Officer

Questions From Ian Whittaker, Liberum Matthew Walker, Credit Suisse Nick Dempsey, Barclays Will Packer, Exane BNP Paribas Max Lewis, Bank of America / Merrill Lynch Natasha Brilliant, Citi Chris Collett, Deutsche Bank Alastair Reid, Investec

Key Highlights


Good morning everyone. To summarise what you've already seen this morning,

revenues are up an underlying 1%. Both cash OI and operating profit are up an

underlying 11%. And the dividend per share is up 3%.

Consumer performed very well in the first half. We have continued revenue growth in

our B2B businesses. We have returned nearly £900m in capital back to our

shareholders, around 38% of our market cap. And the balance sheet remains strong,

with net debt of £146m at the half year. And that is before the post period disposal of

our stake in Real Capital Analytics, which cuts that number roughly in half.

In short we've been busy and I'm pleased with how the business is progressing.

Let me start with the Euromoney distribution, at my first results presentation as CEO I

made my intentions about Euromoney clear and we subsequently sold down our stake

from 67% to 49% in December of 2016.

At the end of March we realised a fundamental milestone by seeing that process through

to its logical conclusion; redistributing our remaining stake, plus £200m in cash to our

shareholders. This is the biggest return of capital in DMGT's history.

I am extremely pleased with how it went, after considerable thought we chose a

structure that allowed us to distribute the Euromoney shares directly to our

shareholders; avoiding any of the discount that a market placing would have generated.

Almost 90% of our shareholders, I'm told an unprecedented amount, voted. And 95% of

those who voted, voted in favour.

Testament to our success is the fact that the share prices of both businesses have

outperformed the market since the announcement.

More importantly and on a symbolic level, it was a defining moment for DMGT, not only

did it make us more focused, but it was also an act of confidence by us and our Board in

the future of DMGT.

Before I hand over to Tim to talk you through the details let me take a moment to

highlight our accomplishments over the last six months. When I became CEO of DMGT I

was clear about what we needed to do to get this business fighting fit for the future.

By now you will all be familiar with our three strategic priorities; increasing portfolio

focus, maintaining financial flexibility, and improving operational execution. We have

made good progress against all three, testament to the hard work of everyone at DMGT.

Importantly you're seeing this turn up in the numbers, a combination of underlying

revenue growth, profit growth, and cash OI that makes this first half particularly strong;

especially when you take into account some of the headwinds in some of our markets.

Let me be clear, the transformation is not complete and it remains ongoing. But I am

pleased with the direction of travel and the way that all of our businesses have

responded to our call for action. And with the Performance Improvement Programme

now embedded in the businesses the balance of my time has shifted to the future and

how we create long term sustainable shareholder value.

We are an active portfolio manager, so looking to the future is all about how we

maximise our strengths in the attractive markets in which we play, that deliver growth,

improved cash generation and sustainable value creation.

I'll go into more of this later, but first I'm going to hand over to Tim to talk you through

the figures. And just in case you don't know Tim, there you go.

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Financial Review


Thanks for the picture Paul. Good morning everybody and welcome.

I'm now going to take you through our performance for the first half of the year. Let me

start with our adjusted numbers that you see here, which we believe provides a more

comparable view of the performance of DMGT.

We delivered underlying growth in revenue, cash OI, and profit. And profit before tax,

you'll see here on the bottom right, grew by 19% in the half year, aided by improved

financing costs.

Reported PBT was down 3%, with reduced profits from JVs and associates following the

sale of ZPG last summer.

We have also seen a normalisation of our tax rate, to 19.4% which is in line with our

guidance. And so EPS was down 8%.

We have also announced a dividend increase of 3%, consistent with our policy of

delivering growth in real terms.

For completeness this slide shows our statutory numbers. As you know I'm committed

to transparency and having, effectively, a cleaner set of accounts. And so I'm pleased

that cash exceptional items remain low.

The statutory performance that you see here was adversely affected by impairments in

respect of two disposals we're making, Euromoney and On-geo, which I'll talk about a

little bit later on.

Now to cash OI, now I know I've talked about cash OI quite a lot, or cash operating

income if you prefer, and that it's my favourite metric, surprise - it still is my favourite

metric. Why? Because it focuses the management team on underlying cash generation,

it provides a cleaner more transparent view of the business's underlying performance.

Why? Because unlike operating profit it isn't distorted by whether you capitalise

something, or estimate useful lives, and unlike operating cash flow it isn't distorted by

working capital movements. So I like it a lot.

Most of you will also know that I'm not a fan of capitalising development cost as I think

it's cleaner and more prudent to expense those costs as they are incurred.

I want to be really clear though, we continue to invest, but now it is mostly through our

P&L. Organic investment remains our top allocation priority and I fully expect that to

continue.

The right hand side of this slide shows the changing mix of that investment. With the

reduced capital expenditure, more of the development payroll cost is now going straight

to the income statement, rather than the balance sheet. This dynamic of capitalising

less and expensing more is a headwind for operating profit and EBITDA margins. And

the cash operating income exceeding operating profit, and you can see that on the

bottom right of that chart, is evidence of that.

We will see the benefit of that lower capex coming through the P&L in reduced

amortisation charges over time and then the two, that's cash OI and operating profit,

will trend together.

So now to the numbers, this slide brings together our key numbers. There was

underlying revenue growth across B2B and Consumer. Reported revenues, as you can

see, were down 3%. And that is a result of a slight FX benefit being more than offset by

the B2B disposals we made.

There was double digit underlying growth in both cash OI and operating profit, with a

particularly strong performance from Consumer Media and less cash outflow from the

centre.

There was an underlying decline in B2B operating profits. And this was a result of the

development costs being taken directly to the P&L that I just spoke about.

So overall an uptick in both cash OI margin and operating profit margin in the half.

So now I'll run through the businesses in a little bit more detail. This slide looks at the

B2B businesses. B2B underlying revenue grew 2% and that is in line with our guidance

of low-single digit for the full year.

Following the pruning that we made last year in both Property and Energy Information

reported revenues were down 7% to £381m.

Cash OI grew 9% with a strong performance from both EdTech and Energy Information.

Both cash OI and operating profit margins both increased.

And looking ahead to the second half we are not expecting a significant change in the

B2B growth rates. However, we do expect more investments and that is investment

that we planned and talked to you about in November, notably in Insurance Risk.

Events will also have a lower margin and that is really just due to the timing of their

shows, i.e. they have less shows in the second half of the year.

Consequently the B2B margin will be lower in the second half and our guidance for mid-

teens margin for the full year remains unchanged.

I'm now going to go into a little bit more detail on each of the B2B businesses. And I'll

start with Insurance Risk, which delivered a resilient performance. Revenues were

stable on an underlying basis, although as you see here increased to £119m, including

the benefit of that stronger US dollar.

There has been a favourable uplift in contract value for some of our renewals, but this

was against a backdrop of industry consolidation and the expected revenue impact from

historic issues associated with the delivery and performance of RMS(one).

The cash OI margin reduced as the product investment we talked about at the full year

increased. RMS, to remind you, is investing in software, data, data analytics and

applications. And as a reminder all of RMS's development costs are being expensed.

But here you'll notice that the operating profit benefited from the absence of the £7m of

RMS(one) amortisation costs in the year. And that is why RMS is the one business

where you see operating profit margin improvement but reduced cash OI. Again, one of

the reasons I like the cash OI metric.

We're very pleased with the performance that RMS has made in the re-architecture of

their software platform.

At Exceedance, a couple of weeks ago, RMS announced the launch of Risk Intelligence,

its new software platform. Risk Intelligence supersedes RMS(one) which has now been

retired and Paul will talk a little bit about that later on.

There have also been some encouraging bookings recently and our investment is due to

ramp up further, as I mentioned, in the second half. This is a key factor in the lower

B2B operating margin that we are guiding you to for the second half.

Turning to Property Information, the reported results reflect a more focused portfolio

with the absence of Xceligent, SiteCompli and EDR. Revenues were stable on an

underlying basis. And that reflects growth in the US from Trepp and BuildFax, but it was

offset by Europe.

Conditions in the UK property market remain challenging with depressed volumes, but

we are very pleased with Landmark's competitive performance. The cash OI margin

improved from 13% to 19% and that is the benefit of that improved portfolio, whilst

operating margin remained at around 18%.

Looking ahead we don't really expect to see any change in market conditions. Landmark

continues to innovate and develop new products, but it is against a challenging market

backdrop.

You will have also seen this morning that we've announced the disposal of On-geo which

is due to complete in the coming weeks. It makes our European Property Information

business much more focused, both in terms of product and geography and is consistent

with our strategy and will better enable Landmark's new management team to prioritise

their growth initiatives.

And now to EdTech, another strong performance from EdTech; revenues were up an

underlying 14%. And there was a transformation as well in cash generation, with the

cash OI margin increasing from 1%, it isn't a typo, from 1% to 12% in the year. The

good flow through from revenue to cash OI is particularly pleasing there.

As you may recall from last year's Investor Briefing, this is exactly what we're driving

our B2B businesses and particularly our growth businesses to deliver over time.

Hobsons is well placed to continue to deliver growth in the second half of the year.

Turning now to Energy Information, you'll recall that we rationalised the portfolio and

restructured the business last year and that has had a dampening effect on revenue, but

was part of the reason for the improvement in profit.

Revenues were stable on an underlying basis, but the cash OI margin improved

significantly, from 2% to 15% in the half. Similarly the operating profit margin went

from zero to 9% in the half.

The power market has become a bit more challenging for us, but we are pleased that

despite this the focus on improving operational execution is driving both stronger cash

generation and a better business.

On to Events, we saw continued revenue growth despite the market conditions in the

Middle East, notably in the construction market which did affect the growth rate, but we

are still pleased with the overall performance.

We are continuing to invest in future growth and that is consistent with our long term

approach to value creation across DMGT. This investment includes the launch of new

events, as well as existing events such as ADIPEC. Consequently there was a reduction

here in their margins.

As a reminder we are annualising Gastech from an 18 month cycle and we expect this to

increase future cumulative returns. It does however mean that the show in September

will be smaller than last year.

Given the constant overhead base and the seasonality of profits from the timing of

shows that Events businesses will be another key driver of the lower second half B2B

margin.

That completes B2B, so now to Consumer Media.

A stronger performance than we expected, with underlying revenue growth of 1% and

I'll talk about the breakdown of that in just a minute.

Cash OI and operating profit both grew year on year and that was despite the inclusion

of DailyMailTV which remains in investment phase.

Now we have been very open about the fact that advertising is hard to predict, but I

guess I don't need to tell this room how hard that is. The market conditions were

favourable in the first half, but we remain cautious as to the outlook.

Given the strong first half performance though we are changing our guidance for the full

year to a low-single digit revenue decline and that is an improvement from the mid-

single digit decline that we were guiding you to.

I want to be really clear on this though, we are not predicting any change in the long

term revenue trends. And we continue to expect a high-single digit operating profit

margin from Media.

So here's the breakdown of that strong first half revenue performance. Circulation

revenues were down 2% and that includes the 5p cover price increase that we put

through the Mail weekday titles in [September] last year.

So advertising revenues were strong in the first half and that includes a 16% growth

from the MailOnline and it was pleasing, particularly pleasing actually, to see the core

MailOnline site returning to double-digit growth. And that was further enhanced by the

strong organic growth of DailyMailTV. So as you see overall a stable performance from

the Mail businesses.

But this slide also shows that good double digit profit from Metro - sorry the good double

digit growth from Metro, which has benefited from the integration of the advertising

operations between Metro and Mail that took place in April last year and that is as well

as the additional regional franchises that we took on.

That completes the run through of the businesses, but before moving to JVs and

associates I want to talk a little bit more about the distribution of our Euromoney shares

and the £200m special dividend.

Both of these, as you know, happened in April and so they don't impact the first half

results. But we also made £117m available to the pension schemes. Now we haven't

contributed that yet and in fact the cash remains on our balance sheet, but we have ring

fenced it for the pension scheme. So whilst the cash technically remains on our balance

sheet we believe it is appropriate to exclude that when we're thinking about gearing and

our net debt numbers.

Finally the share count has also been reduced by 127 million shares that is down to 230

million shares. Something for you all to bear in mind when thinking about future

earnings per share and the reduced aggregate dividend amount.

Now to JVs and associates. You'll see that our share from operating profits from JVs and

associates was £18m, some £23m less than it was last year. The reason for that -

mainly the sale of ZPG that we talked about. But there were also reduced profits from

Euromoney itself due to disposals it made during the year.

The net share of operating losses from other JVs and associates was £6m and these are

early stage businesses and include Yopa the UK hybrid estate agent.

As Paul mentioned we have sold our stake in Real Capital Analytics for £89m - I knew I

was going to say pounds, I've said it every time, for $89m thank you, I wish it was

£89m, but anyway for $89m. RCA was acquired by us over a decade ago for $11m. So

another great example of long term value creation by DMGT.

The outlook for JVs and associates for the full year remains unchanged. There obviously

won't be any profits from Euromoney in the second half because we didn't own it in the

second half and our total share of operating profits for JVs and associates is expected for

the year to be around £15m.

So this slide, amongst other things, shows our exceptional items. Exceptional cash

items were just £3m, remaining at a low level compared to our historic norms. The

notable figure on this slide is the £49m impairment charge. To stress, this is a non-cash

charge.

As we treated Euromoney as an asset held for sale at the half year we were required to

take an impairment charge on it. That was because the market value at the end of

March was less than our carrying value. We will have another, but smaller charge, in

the second half of the year. Honestly it's just one of those necessary accounting oddities

which I'd be very happy to explain to you somewhere else.

And there is a similar situation for On-geo. We have entered into an agreement to sell

On-geo that I mentioned, but that agreement is to sell at a price that might be lower

than our carrying value, though not less than we paid for it, and so we had to take an

impairment there as well, because that asset is also held for sale.

I would stress though that On-geo has delivered a positive cash return to DMGT over our

ownership.

Now to net debt, we started the year with net cash of £233m and this chart shows the

movement since then. Firstly, you see cash OI totalling £97m, and you can see the

constituent parts there. There was then £61m of other operating cash outflows. These

include the usual incentive payments, as well as the working capital impact for the

increased dmg media's trade debtors that we flagged in November. Total operating cash

flow was consequently £36m a conversion rate of 40%.

You can then see here that we have the usual payments for tax, pension, interest and of

course the dividend. The net cash at the end of March was £172m. Adjusting that for

the £200m April special dividend - the balance will be net debt of £29m.

In addition if we were to strip out the £117m of cash that remains on our balance sheet,

but is ring fenced for the pension schemes net debt for gearing purposes would be

£146m. And that will be equivalent to a 0.6 times net debt to EBITDA ratio. It is worth

noting that these figures exclude the $89m of proceeds from this month's disposal of

RCA.

So to finish here is our guidance slide, the format is a little different to what we usually

show. At the Group level revenues are expected to be stable on an underlying basis.

And the operating profit margin is expected to be broadly stable.

Now when it comes to the full year results and giving guidance for the next year we are

considering giving guidance like this, namely at the Group level, and we'll be seeking

feedback from our investors on this. We will of course continue to provide commentary

on market conditions in both B2B and Consumer Media.

So to conclude, given the strong Consumer Media performance in the first half we are

revising our guidance for media to a low-single digit revenue decline. And that is despite

our caution for the remainder of the year.

The performance elsewhere was in line with our expectations.

So I want to be clear here that the Group outlook for the full year is consistent with

market expectations. And we do not expect consensus for the Group to change.

I look forward to taking your questions later, but in the meantime I'd now like to hand

you back to Paul, who will talk a little bit more about DMGT's position and our strategy.

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Business and Strategy Review


Thank you Tim. Two and a half years ago when I stood up in front of you for my first

results presentation I said I would put my stamp on DMGT.

You can see how the portfolio has transformed over the past few years. We have moved

from ten sectors to six, from 40 operating companies to 11, and from net debt to

EBITDA of 1.8 times to roughly 0.3 including the RCA disposal.

We have made substantial returns to shareholders in the process. We have injected

talent, leadership and resource helping our business to become more effective and more

efficient with a disciplined approach to ROI in the businesses and at the centre.

We have got chief product officers, chief technology officers in most of the businesses,

the very best product talent, engineering talent, commercial talent, marketing and

business development talent and across all of the functions. And they are working

alongside our journalists, our scientists and our analysts in the service of creating must

have content and proprietary data, which underpins everything that we do.

Our Performance Improvement Programme is becoming business as usual. What's

important here is that we're rebuilding the foundations of DMGT and have aligned our

interests with what our companies need for the future. Allowing us to focus on

amplifying our considerable strengths. It's products that our customers want and love

that are must have, it's a strong shared sense of purpose amongst our employees to

satisfy the need to know.

It's people who are bent towards the future, high performance pervades everything we

do now and importantly the patience to see things through to the long term.

So how will DMGT grow? Well first of all it's about positioning ourselves in attractive

markets. One of the great things about starting with 40 odd businesses in ten different

sectors is that you can look at where you want to play, because showing up in the right

places is half the battle.

And we did that and with deliberate focus we pruned our portfolio to focus on those

businesses which are not only market leading, but are positioned in sectors which have

attractive runways and which suit our strengths.

This was a deliberate move as we focused our portfolio. The core principle of how we

think about the portfolio now and going forward.

Let's take the Insurance sector at the top of this slide, the world is becoming more

complex and more uncertain and with that comes the need to quantify risk even more

precisely. Did you know that a staggering 17% of the $800bn in insured losses that

have taken place since the San Francisco earthquake in 1989 took place in just the last

two years.

As climate change intensifies, volatility increases, our insights become even more

valuable, whether you're looking across a portfolio, or at a particular property, whether

you're using it to price reinsurance or at the point of underwriting.

Take EdTech, student success is a relatively nascent market, but the stakes are high, for

the students themselves, for society, for students from every walk of life getting into

college and graduating with a good job is increasingly difficult, increasingly complex, and

very expensive. For many the system is impenetrable and is alienating. They feel that

the odds of success are stacked against them.

In that comes Hobsons our EdTech business which is a huge opportunity for us and for

them. This is a market where we lead, where we're market leaders, where we create

the market, where we get endorsements every day from large state college systems like

in California, the large public school districts in some of the biggest cities in the US,

where when you talk to parents whose schools have Naviance for example, they wax on

lyrically about the power of the scattergram to make complex data easy to understand

and help navigate their children's college journey.

The same goes for Property Information, for Energy Information, for our Events business

and our Consumer business, all full of opportunities.

The second point about growth is achieving the full potential of our portfolio. A healthy

portfolio needs a mix of different kinds of businesses at different stages of their evolution

who play different roles.

We evaluate each business against our aspirations for their future, whether it's to

generate predictable cash flows, to invest back in the business and help pay the dividend

or be the next generator of growth and profitability, or if the business is worth

substantially more to somebody else than it is for us, to crystallise that value.

I frame my thinking about the future of DMGT in these three buckets. At the top here

we have our predictable performers; these are amongst our largest businesses, mature

and predictable. They might be growing, they might be declining, but they are all strong

brands who play an important role in their individual market places, the Daily Mail, The

Mail on Sunday, Metro, Landmark and Trepp.

They have an important role to play in the portfolio, they have, and will continue to be,

our economic bedrock. So we will invest in these areas, organically and inorganically. If

an opportunity comes up where we can take advantage of our scale, if it's the right

business at the right time at the right price, and critically - and this is really important, if

we can bring something to the table such as our digital strengths, or an analytical

strength, or if it helps keep our businesses fresh and relevant then of course we'll look at

it.

Take Trepp as an example, market leader in providing analytics around CMBS. Here

we're rolling out new products in the CLO market which I'm sure you've all read a lot

about. Trepp has a proven track record of analysing and breaking down complex

financial instruments, like CMBSs and the tools and the expertise and the workflows and

the insights that we use there are directly applicable to CLOs.

Over the long term however, I expect us to see the majority of our revenue growth and

profit growth coming from the second bucket of growing and delivering businesses. This

includes dmg events, Genscape, Hobsons, MailOnline and RMS.

They are all businesses that are well positioned in attractive markets with long runways.

These are businesses where I expect to see growth both in the top line and in the

bottom line, both of which I know can be better.

We'll deliver that growth organically, but also through bolt-on acquisitions. These

businesses represent the economic engine of DMGT going forwards.

Let's take RMS for a minute, now I'm not going to do the business justice and

fortunately we have the leadership team, who will be in London in about a month's time

for an Investor Briefing, which I hope you'll all attend so you can hear it directly from

them. But this is a new leadership team that's been in place for a few months all told.

But these are people who've done it before and their impact on the business shows.

The last time I spoke to you I talked to you about the modular approach to the software

and you asked a lot of questions about it. Six months later tangible progress is to be

seen and was announced and demonstrated to customers at our customer event in

Miami a few weeks ago, Exceedance.

At Exceedance not only did we show, but we also announced launched dates for re-

architected software. RiskLink which underpins many of the models we deliver today is

being modernised. Risk Intelligence was unveiled running the US Flood HD model.

And then there is an exciting new product that we couldn't launch if we hadn't re-

architected the software. It's a data plus workflow service called SiteIQ, to put it really

simply it takes the complex output of our hurricane models and flood models, and

earthquake models, and wildfire models and turns it into a risk score. You can take any

house in America, houses, properties all around the world and literally in a few

milliseconds get scores for their risks that underwriters can use to price properties.

What was really exciting for this product, which is going to be available in a couple of

weeks' time - yes a couple of weeks' time, was that customers were lining up actually

asking when they could buy it and how to buy it.

And there's more. The RMS Data Lake that takes our data and a customer's data and

third party data, combines it together and opens up further opportunities for us in data

and analytics.

We said we would deliver and we are. Take Events, this is a business that we've moved

into this bucket of growing and delivering. Why? Because we see great opportunities

here, both continuing to exploit our playbook which has given its growth historically, but

also to expand in our core sectors in fast growing markets, or in some of the fast

growing markets that we're in to launch new shows. You probably didn't know it but in

Egypt we didn't have an Events business three years ago, today that's a $10m

businesses and growing.

MailOnline shows the benefits as well; a year ago we were talking about how challenging

the market is. But all of our investments in content, in distribution, in bringing people

directly to our audience and DailyMailTV they are all paying off which you saw in the

numbers.

That's what happens when you invest through the cycle.

To complete the rich mix of our portfolio we have our early bets, businesses for the

future. These are essentially start up business where technological change creates

opportunity. Some may succeed, some may not, but they are small enough for us to be

able to absorb that risk. And the prize for getting it right is huge.

In this area we're getting strong external market validation, DailyMailTV recently won

the daytime Emmy for the Best Entertainment News Programme in America, beating out

shows that have been on for decades.

We have form in this area, DailyMailTV is just one example, we build, we invest, we

incubate, Zoopla, MailOnline, there are many others.

Now overall we are a portfolio manager, an active portfolio manager. If a business is

worth substantially more to somebody else and the offer is serious we'll consider it. If

there's an opportunity to invest in the future, to take more growth over the long term,

we'll consider that and we'll do it.

To finish, when I took over this portfolio we were fragmented, overextended, and a

performance culture was lacking. We have done a lot of heavy lifting over the past few

years, we took a long hard look at the portfolio and made some very difficult decisions.

Streamlining the portfolio, focusing it around the assets where we feel we have the most

potential and building up the capabilities within the businesses that we need to compete

for the long term.

This is an important year for us, we returned nearly £900m in capital to our shareholders

and in doing so changed the shape of the Group. Ultimately though it's about something

much, much bigger than that - it's about our belief in the opportunities ahead. With the

focus, the flexibility and the firepower that we now have we are well positioned to take

advantage of those exciting opportunities, because everything we do is focused around

optimising the value of this portfolio and creating shareholder value for the long term.

Thank you and with that we'll take your questions.

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Questions and Answers

Ian Whittaker, Liberum Thank you, just three questions, first of all RMS, so you talked sort of about the good

potential long term growth opportunities within the business, it's not really an area that

has too much visibility in terms of what the market dynamics are. So can you just talk

about what you think is the sort of market growth in the area in which you operate and

therefore whether you're underperforming, or you're in line, and so forth?

And if you are underperforming how long do you think it will take you to get back to the

sort of market level growth, because if you are doing a software reboot that tends to

suggest it could take some time?

Second question, again just on RMS, you talked about in terms of the second half

adjusted margins will go down. Just in terms of the cash margins should we expect a

similar sort of year on year performance with the second half of last year, so a slight

decline as you had in the first half, or the same sort of step change as we'll see with the

stated operating margin?

And then third of all just in terms of the Consumer Media side, in terms of the upgrading

of the advertising guidance, could you just explain why the margin target is not

changing, because if it is that advertising look a bit better than you predicted then

normally that should be quite a high drop through in terms of the profits. So what else

seems to be sort of compensating that effect?

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Do you want to do that first one?

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Sure, so your first question was around the market dynamics around RMS. There are

several things going on in the market, first of all in our core market which we define as

models, data and analytical services, we see some tailwinds and some headwinds. We

see consolidation taking place in some respects, on the other hand we see the demand

for data and information growing.

We see alternative investors coming into the market, and actually growing the market,

so new audiences to serve. Data and analytical services, analytics are faster growing

areas, ones where we have positions, but frankly where we have not taken our fair share

of those opportunities.

When you look at the software, the next generation software, Risk Intelligence that you

know - 2019 is all about delivering that road map. That has more of a classic SaaS or

enterprise software take up curve. So where you deliver the software, where people test

it and accept it, that translates into bookings and then those bookings eventually

translate into revenues.

I think I have been pretty consistent in saying around the part of the business that you

know '19 is about delivering a road map, '20 is about getting it into customers' hands,

bookings and revenue will start to come in '21, but you won't see the full force of that

until '22 in my opinion.

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Then I think your second question was around the margin for RMS and the look of it. I

don't think you'll see the same uptick, no. If you look back at the comments we made

last year RMS had a large amount of one time revenue in the second half of the year.

So you won't see that same trend this year.

And b), we are making more cash investment in RMS in terms of product, data analytics

that I talked about a little bit earlier on, so you won't see that.

The third question I think was around - basically I think your question was why didn't I

change my guidance number? So the reason I didn't change my guidance is because we

talked about investments we're making in DailyMailTV for example. Now the guidance

that we've given for Consumer Media is a high-single digit margin and it's still in that

range.

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Ian Whittaker, Liberum

Thank you, just on the first question and just coming back in terms of RMS in terms of

the market opportunity. What do you think should be a sort of good steady state growth

rate for this business moving forwards, once you've got past the steps that you're

taking?

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Well we're not providing guidance beyond what we've provided this year. What I would

encourage you to do is to come to the Investor Briefing on the 2nd of July and hear

more from the business, both about the markets that we're in and the adjacencies that

we're also in but we're starting to target with the new products and services that we've

launched.

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Matthew Walker, Credit Suisse

Three questions please, the first is if you look at page 26 where you talked about your

market opportunities, all of those markets look like they're very healthy growing

markets, good areas to be in. When do you think that the - obviously you've guided for

stable revenue as a Group for this year, and obviously some of that is market dependent

for next year, but when do you think we might see a bit of growth in the overall Group

coming through? I think that's what investors - that's their first question really to me.

The second question is, where do you think, if anywhere, that you might be exposed to

the China/US trade dispute and to what extent?

And lastly I think you were linked - going back to the portfolio and what types of

investments you would consider, you were linked with a number of newspaper assets,

the Irish Independent was one of them, nothing really happened there, but can you just

explain why would it make sense to invest in a print business when I think - I know you

could make money out of it, but most investors would like to see print minimised and

maybe data and analytics prioritised? Thank you.

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Let me start and work backwards with it. So first of all we don't comment on rumours or

speculation, but I did say that when we see an opportunity to take advantage of our

scale - to take advantage of our brands that we will consider those. Look at for example

what we have been able to do in the Consumer business by integrating the Metro

salesforce with the Mail newspaper salesforce. That shows that strategy in action.

When I look at opportunities out there the first thing that I look at, the first thing that

we look at is the digital opportunity. And I think it's pretty safe to say that we're pretty

good at digital. And so when we look at opportunities that are out there we're always

asking ourselves is there a digital opportunity that we feel we are well placed to deliver

on that can drive sustainable returns over the long term. Not just for a couple of years,

but literally over decades.

In terms of your second question in terms of our exposure to China and the trade

dispute, I can't think of any specific ones - we're probably at more macro considerations

that might affect the broader economy potentially in the Energy …?

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Maybe.

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But you know we're more concerned with geopolitical matters closer to home in the

Middle East than we are in the China/US trade war.

In terms of RMS and the market opportunities, growth in the overall Group - yeah I think

there's a mix effect that you have to think about when you think about RMS and when

you think about the opportunities that are in that business, the opportunities across the

portfolio.

Some businesses right now, you know the newspapers are, unfortunately, in structural

decline, our UK property business has been operating in a market where transaction

volumes have come down, if you talk to people active in the market and they talk about

the 3 Ds which sort of unpin the market and think we're pretty close to that. Those are

two of our largest businesses. And so when you've got two of your larger businesses,

which are declining, it does pull down the overall growth rate of the Group.

But those businesses are nothing if not predictable, so we understand where they're

going and what their trajectory is. The metric that Tim and I tend to focus on is what

percentage of our Group is growing over a certain amount, and those largely represent

the businesses in that second bucket. Those are businesses where there's still a lot of

growth runway and where there is a lot of opportunity on the margins. In fact many of

you write about that in your reports on the B2B businesses.

So our focus as we move into the next phase of the transformation - when I talked last

time about moving from fixing to fine tuning, fine tuning in those B2B businesses is how

we get them to industry average margin levels, depending on the specific category that

we're in. And that's the work that we're doing - or we're starting to do with the

businesses today.

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Nick Dempsey, Barclays Hi, I've got three questions. So first of all just on RMS first half, second half, you've

been clear that you've spent somewhat of the investment in the first half but there is

more to come in the second half, can you help us a little bit in terms of quantifying how

much has been spent of your planned total for the year?

The second question, over a number of years your plan in terms of spending your cash

has involved buying interesting growing data assets, you've got a bit of headroom now.

If we go and look at Verisk, Wolters Kluwer, TransUnion, Experian, etc, they've all

rerated, 25, 30% quite fast. Are you kind of priced out of getting involved in data

analytics, growing information assets by the listed peers?

And the third question, I think Tim would be disappointed if I didn't ask this, what extent

is Metro's growth boosted by taking on even more regional Metros from Reach plc. And

when does that stop?

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Okay, thank you for the third one, I'll wait for that to answer that one. I'll leave the

second one to you.

So your first one, I'm going to try very hard not to answer your question but to give you

some hint. So it is very much second half loaded. We talked at the full year around the

sort of quantum of that in terms of year on year difference. And you'll see that the

margin was good in the first half, but that was because we had less money spent on

that. And the reason for that - the majority of the money is actually people, so it's

actually bringing on individuals, be they contractors or the like. So it's really a second

half weighting on that.

Thank you very much for the third question on Metro. You're right we did take on a

number of franchises and that has had a positive impact on our revenue. But

importantly and this is the point you'll really like Nick, is that we grew organically all of

those franchises that we took on. So thank you for asking that one.

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In terms of data assets I would make two points. One is we remain a disciplined

investor. We know what returns we're looking for, we know what we can do with these

businesses, we know how we would integrate them and we use that to determine a

business case and then apply a multiple to it, remaining disciplined so that we don't

overpay.

The second half of your questions though is - you know are these acquisitions affordable.

And they are - I mean when you've got great platforms that are well positioned with

channels to market like we have the ability to generate accretive value for us and for

shareholders is significant.

I've been out - you know whenever I go out and look at businesses across our B2B

sectors and I ask these businesses, you know where are you investing? They all say

time and time again, salesforce, go to market as one example. That's one thing that we

already bring that we have. And so when you can plug one of those businesses in to our

existing franchises the opportunity for accretive growth is quite significant.

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Will Packer, Exane BNP Paribas Hi, three from me please. Firstly, MailOnline accelerated growth pretty materially in the

second quarter and is now growing double digit and yet audience is flat to declining, how

sustainable is that growth in that context, or is that the DailyMailTV has been a very

significant impact there?

Secondly, you talked about a weak British property market dragging on your UK

property business, it hasn't been great, but it's not been disastrous - it's sort of flattish

this year, minus 2% last year, is that how we should think about the performance or are

you losing market share to competitors?

And then lastly, on the Risk business, just to help us going forward, do you plan to share

any KPIs on the progress of the investments that you've made. This obviously isn't the

first time there have been meaningful investments in this business in recent history with

a mixed record, is that something we can expect at the Investor Day in due course?

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So MailOnline accelerating - no MailOnline is accelerating, if I try to work out what the

maths of DailyMailTV growing would be - a huge, huge growth number. So no it's core

to MailOnline. And the real reason for that is we continue to see traffic coming directly

to us and that is the secret. So I apologise if I'm banging on about this, but you know

the big difference between - MailOnline and most other sites that you hear about is we

rely on direct traffic that is direct to our portal or direct to our app. And that is the key

secret sauce there.

With UK property - interesting that inherent in your question is you know is zero weak or

not, I still think zero is weak, but that's the way that market is. You know it does

change month to month, you know you'll see a little bit of noise in the current numbers

because it depends when Easter comes for example and all of those things. But I would

say that viewing that as a market backdrop is not an unreasonable thing to do.

But with that being said, we have a new management team in Landmark and they have

done a really good job. And I think you'll find that our market share is improving rather

than anything else.

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In terms of the progress on the RMS transformation. This year has been about building

the team and about delivering the road map. And launching things - not announcing

things until we're absolutely ready to launch them. So there is still a fair amount of

work to go, notwithstanding the great progress that they've made and what they

announced at Exceedance.

I think when we have the Investor Briefing they are going to take us back to basics, talk

us through the business, each of the lines of business and how they are architecting the

business for the future. And I think that will answer all of your questions.

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Will Packer, Exane BNP Paribas Thanks.

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Max Lewis, Bank of America / Merrill Lynch Firstly congratulations on a very good print this morning. I wanted to talk a little bit

about the Consumer businesses today. If we start off with print this is obviously a set of

businesses which is dependent to a very large degree on the print distributors, John

Menzies and Connect plc. Connect plc. Has obviously seen its share price decline by well

over 60% over the last 13 months and this is a business which continues to suffer as

newspaper circulation goes down, especially given both its operating and financial

leverage.

How concerned are you about the print distributors and the potential of a shock if one of

them were to be forced into a situation where they'd have to make significant cuts to

their network? Are you in any negotiations to potentially pay them more or to pay them

some form of subsidy? And what would your contingency plan be if one of them did end

up having to cut back on the number of routes they service?

Secondly, on the theme of print let's talk a little bit more about the margins and how

rising newsprint prices will have an impact on that. One, can you tell me what hedging

arrangements you've had in place, or what forward buying agreements you've in place

and what impact should we see from rising print costs in the second half of the year?

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Why don't I take the first one. I mean first of all you wouldn't expect us to go into any

detail about our contingency plans because that is commercially sensitive. But we've

been operating newspapers for a long time, we understand how the market works, we

have been working in partnership with third parties and also with other newspaper

publishers some of whom print our own newspapers. So we're very comfortable in our

ability and the industry's ability to manage those risks.

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And the second question was around newsprint essentially, we talked at the full year

about the impact of increased news print prices and actually that's one of the reasons

that we flagged that margin would be high-single digits operating profit margin this year.

We actually buy newsprint from many other providers as well - so we actually have the

benefit of scale and we would lock in prices wherever we can for the appropriate period.

So I don’t think you should expect any material change from that in terms of our

guidance there.

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Natasha Brilliant, Citi Firstly on the RMS customer base you talked about industry consolidation, is this

something that you anticipate going forwards, do you think it's a sort of temporary

phenomenon, or something that could weigh on growth in the medium term?

And then following on from that you talk about some new customers - are their spending

habits similar, are they likely to offset declines from the existing base? That's the first

one.

Secondly on EdTech, you've had another strong quarter, I think at the first quarter you

talked about some one off sort of project type revenues, so to what extent has the first

half been boosted by that? And how should we think about that going into the rest of

the year?

And then finally just thinking about leverage, you've given us quite a lot of detail on how

you're thinking about the portfolio, the sorts of things you're looking for, in the absence

of that could we expect some more shareholder returns, or are you more likely to sort of

sit on the cash and wait for something interesting to come along?

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Shall I start from the bottom. It's funny when you think about what questions you're

going to have, you think about how you should answer the - I've just given £900m of

cash to back to shareholders am I going to be asked am I going to give some more? I

think we've talked a lot around our use of capital, but number one it's about organic

investments, number two - it is about the dividend, and number three- it's about M&A.

And I think that still stays that same.

So we're very pleased with the return that we made, our shareholders are very pleased,

I'd be delighted to sit here in a few years' time and do another one, but I think we have

a fair way to go for that.

Your second question was around EdTech and the margin first half, yeah it was a little

flattered - I mentioned it in the first quarter around that. Maybe it's worth just

explaining a little bit of the dynamic there, that's because we had a very good sales -

end of last year sales number, so we had much more integration - implementation sorry

coming through. A little bit flattered, but I wouldn't - not an overall big changer in that

revenue number.

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So to your two RMS questions - you know when we talk to industry experts and we talk

to the C suite, we see a lot of dynamics going on in the market. You know some people

will say to you that there are cycles of M&A in the sector and we're seeing one now, so

some of it's cyclical. Some will say that yeah it's a mix of consolidation but also private

equity getting into the market, which creates different kinds of opportunities.

The market is growing for reinsurance, driven mainly by the alternates, who having

experienced several years of losses for the first time are turning their attention to

analytics and other services.

In terms of new customers, one of the great things about SiteIQ for example is that it

unlocks our data which has historically been used to calculate exceedance curves into

other parts of the insurance activity chain. So Lloyds underwriters can now use it and

replace all the paper that they have and the lock ups that they were doing and literally

click in an address and if they're so inclined, get a risk score. Other underwriters can

plug in through their own software using our APIs who use that data alongside the likes

of their risk score, LexisNexis to price their policies.

So actually I see as we move forward us already playing in adjacencies to the modelling

space, the CAT modelling space and that these developments only give us more rights to

play and more opportunities in those close adjacencies.

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Chris Collett, Deutsche Bank Morning, I just had two questions, one was just on Genscape, obviously that's a business

which in the past has performed incredibly well as a provider of alternative information

sources, just really wondering if we sort of stand back what's really been happening

there with the growth coming down. Is it simply a matter of the commodity cycle, it is

that other alternative providers have also come into the market, or just has the

commodity market become more transparent, or does it require different distribution

maybe through some of the market data players?

And then the second question was actually on the pension deficit. So you're in the

middle of the triennial review, I know you've got an accounting surplus, but does that

fact that you're putting money in, does that indicate that there's still a large actuarial

deficit, or maybe are you going to have made that deficit up with the current payment

that you're making in?

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Thanks Chris. So the short answer - well I guess there are two sides of the answer for

your Genscape question. Number one, you're right there is always volatility in the

commodity market and depending on where prices are people come in and out of that

market. So you tend to see a little bit more volatility in a Genscape number than you

would see in a Hobsons number for example.

The second aspect though is maybe what I would describe as self-inflicted. You know we

made a number of acquisitions in that space, hadn't really integrated them, and we'd

also launched many new products, it was one of the great features of Genscape,

continuing to be very innovative, launched new product after new product. Candidly we

ended up with rather too many products and too many businesses that weren't ever

going to get anywhere. So we sold some, shut some down and closed product lines.

Again I'm not trying to call out exceptionals, etc, so we just took all that through

Genscape's numbers and you see that on the year on year movement.

I still consider Genscape to be - you know must have information for their core business.

They have very strong retention rates for their core customers and again those sorts of

day traders, you tend to see more volatility there, that's really where you see the trend

in Genscape.

The pension deficit - I guess the short answer to your question could just be ‘yes’, which

wouldn't be very helpful to you. So we do have an accounting surplus now, I think you'll

always see - for everybody else you know your accounting and actuarial deficits are very

different, but the trend I think you can read, you know good things, i.e. our accounting

surplus has continued to get better and I think our deficit therefore will continue to get

less on an actuarial basis.

We are in the middle of that, the date is 31st of March that that's done at, it takes

several months to do, I fully expect that to be a much smaller number than when they

did it three years ago. The reason we put in £117m is yes we thought that was a fair

amount to get a good number when we get to the final actuarial valuation.

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Alastair Reid, Investec Chris took one of mine, but if you could perhaps give me just one question then. If you

could give us an update on MailOnline, I think you put in the appendix that there had

been some test of the paywall in some part of the world, just an idea of how that's going

there?

And actually maybe a second, hopefully very quick, can you just give us a sense of the

size of the revenues, profits and the trajectory for On-geo as well?

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I'll do the second one quickly, so roughly for the year it will be - I don't know, just under

£30m revenue and £2m or £3m of profit, that's the sort of number.

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In terms of MailOnline it's a good question, but we're continuing with the trial, so that

shows that it's working. We're actually in markets outside of the US, UK, Canada,

Australia where we're focusing our efforts, we're seeing that we're generating more

revenue per user from the subscriptions than we were from advertising. So that is a net

positive. And as a result we continue to rollout that test to more countries, test more

pricing options, etc.

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Good anybody else?

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If not then thank you very much for attending and we will see you on the 2nd of July in

just a few weeks' time in the afternoon for the Investor Briefing on RMS.

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END

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