First, the headline numbers: Group operating profit* increased by 6.8% to £141.9m (2004 – £132.9m). Earnings per share* increased by 25.1% to 40.9p (2004 – 32.7p). The Board is recommending a final dividend of 11.0p (2004 – 8.37p) bringing the total dividend for the year to 15.0p (2004 – 12.0p) an increase of 25% which reflects the strong performance during the year and the directors’ confidence in the outlook for the Group.
It is hard to overstate the importance of the year that UBM has just enjoyed. It began with the arrival of David Levin as CEO, in succession to Clive Hollick, and it ended with a strong set of financial results that highlight not just the changes made to your company, but also its potential going forward as a strong, tightly managed B2B media Group focused on shareholder return.
The CEO transition process that the Board put in place for the CEO handover worked well, as the full-year financial results demonstrate, with one exception, namely the incentive arrangements for Clive. Despite the controversy that ensued, a successful handover was achieved and since then we have been working with shareholders to ensure there is a closer meeting of minds on key issues such as executive remuneration.
We had previously announced our intention to conduct a detailed review of senior executive remuneration policy during 2005, with particular reference to the balance of fixed and performance-related remuneration. During the spring and summer we conducted extensive consultations with our major shareholders in relation to proposed new long-term incentive arrangements, which were approved by an overwhelming majority at an EGM on the 26th September 2005.
David Levin has set about his tasks with relentless, thoughtful vigour – digging deep into understanding each of the individual, often specialised, markets in which we operate. His first task was to secure key players in his team and then to build round them once the strategic direction had been thought through.
Our strategy is now clear. We are a Group focused primarily on news distribution and business-to-business activities bringing buyers and sellers together through a combination of print, exhibitions and online offerings. We know that the business models of the online world are still being proven and that those of the print world are being challenged by a consistent reduction in revenues. We have a proven track record of building profitable events businesses. This provides a backdrop requiring that the business be most thoughtful in its investment. Our direction is to have a higher proportion of our earnings coming from events and online, more in those sectors where we see good growth and more of our earnings coming from the faster growing economies and the so-called emerging markets.
With that strategic direction in mind, we divested just under £750m of non-core assets during 2005, including our market research activities: NOP; our stake in Channel Five and Auto Exchange/Exchange and Mart where we saw limited earnings growth. We achieved excellent prices for these disposals, generating significant value for our shareholders. During the first two months of 2006 we have announced our intention to sell a further portfolio of, largely publishing, assets which we feel do not fit our strategic mould.
Not only have we been disposing, we have also been acquiring, although to a much lesser extent. During the year we spent approximately £105m on bolt-on acquisitions, all of which strengthen our offering / sectorial / geographic direction.
In June we returned £298m to shareholders by means of a special dividend, accompanied by a share consolidation. In addition we spent £250m buying back our shares and bonds. This illustrates our continuing desire to maximise shareholder value by returning funds if we feel that in the short term our balance sheet is overly strong. Notwithstanding this return of cash, our balance sheet remains strong; we have the desire and capability, both cash and management, to make bolt-on acquisitions within the range of £150-£250m p.a. provided, obviously, they fit our strategic direction and our rigorous financial hurdles to exceed our weighted average cost of capital. Furthermore, we have the firepower to step up to something more significant, but only if the board believes all our criteria of strategy, financial discipline and management capability have been met.
Regarding the latter, it is pleasing to see the management team being developed, encouraged and strengthened.
On behalf of the Board, I would like to thank all our people for the dedication they have shown in producing such an excellent performance in this year of significant change. The Board too, is seeing change. Chris Powell will be stepping down from the board at the AGM on 4th May after a ten year tenure. Chris has given valuable service and insights to the board and we thank him sincerely and wish him well for the future. Sandy Leitch took over from Chris as Chairman of the Remuneration Committee as from January 1st 2006.
So, all in all, a huge amount has been achieved for shareholders:
– Strategic clarity
– Excellent financial performance
– Successful handover of CEO
– Excellent value from disposals.
With our new CEO David Levin and his invigorated team taking the business forward with energy and focus, a strong balance sheet and with the support of you – our shareholders and staff – we should be in for another exciting and positive year.
*
Excluding non-recurring items, amortisation of intangible assets, and including operating profit from discontinued operations.
