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About the OFR
The Operating and Financial Review (OFR) which is based on guidance from the Accounting Standards Board’s ‘Reporting Standard 1: Operating and Financial Review’, includes information previously found in the operating and financial reviews as well as new material, and covers: |
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Our business: a description of the business; competitive environment; strategy; key performance indicators |
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2005 results: Group results; results and operating reviews by division |
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Financial review |
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Risk and risk management: principal risks the directors believe to be material to the business and explains how they are managed |
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Corporate social responsibility: employees, health and safety, the environment and communities. |
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Forward-looking statements
The OFR contains certain forward-looking statements made by the directors in good faith based on information available to them up to the time of their approval of this report. These statements should be treated with caution, however, due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking statements. |
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Our business
Company overview
United Business Media is a leading international market information company that brings together the world’s buyers and sellers, helping their markets work effectively and efficiently. UBM operates two global businesses – PR Newswire (news distribution) and CMP (business-to-business events, print and online media). PR Newswire is one of the world’s leading electronic distributors of corporate and other news and is used by journalists, investors and others seeking breaking news at source.
CMP has four divisions: CMP Asia, CMP Media, CMP Information and CMPMedica. |
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CMP Asia is a leading events and publishing business operating in Japan, China, Hong Kong and throughout the region with a wide portfolio of media activities and a particular strength in exhibitions. |
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CMP Media is the largest business-to-business and online publisher in the U.S. high tech sector. It also has a substantial continuing medical education and medical publishing business and operates events and publications in a number of other sectors. |
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CMP Information delivers integrated media solutions to a wide variety of business-to-business markets in the UK, Europe, the U.S. and Asia. |
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CMPMedica comprises drug information businesses in continental Europe and Asia, and trade press, patient education and pharmaceutical marketing solutions businesses in Germany, Benelux and Asia Pacific. |
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People
UBM employs over 5,000 people in 60 countries around the world. Recruiting and retaining the best talent are fundamental to maintaining our market leadership. Employees are selected and promoted solely on the basis of their skills and ability to do their job, regardless of age, gender, race, religion, sexual orientation or disability. Our culture of diversity contributes to the growth of UBM by developing and rewarding the unique talents of each employee in line with strategic objectives.
More information on training, development and communication can be found under ‘Corporate Social Responsibility’ on page 20.
Brands and trademarks
Collectively through PR Newswire and CMP, UBM owns significant assets in terms of our many well-known branded events, print and online publications. Managing and protecting these brands through registering trademarks and other elements of brand equity such as URLs (website addresses) is an important part of safeguarding our assets and ensuring we continue to achieve good returns for shareholders.
Competitive & business environment
We consider UBM’s competitive and business environment in terms of our major businesses, PR Newswire and CMP. For a broader discussion of the changing nature of the media business environment, the impact of online media and the challenges and opportunities it offers UBM, see ‘Strategy’ on page 12.
PR Newswire
PR Newswire’s revenues are predominately earned in the U.S. where the business competes with other electronic news release distribution services, as well as with other forms of news release delivery. It also has competitors in online monitoring and broadcast services, webcast services and investor relations web services.
In the U.S., growing regulatory requirements for corporate disclosure and an increasingly transparent business culture have supported growth in corporate business news distribution. Other markets are following America’s lead in strengthening regulatory requirements for transparency and disclosure, albeit at different speeds and using different methods. A potentially positive long-term development for PR Newswire is the European Union’s aim to harmonise disclosure standards and practices for publicly-quoted companies across all member states. We do not anticipate any short- to medium-term benefits, however, since the EU has yet to define the detail.
CMP
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CMP Asia, CMP Media, CMP Information |
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The business-to-business online, print and events activities of CMP Asia, CMP Media and CMP Information compete directly with various media companies in their respective fields in the U.S., Europe and Asia. CMP’s competitive and business environment is strongly affected by trends in the level and pattern of marketing expenditure by customers. |
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Historically, the overall level of expenditure by companies on marketing activities has been cyclical, with companies spending less on marketing in times of economic slowdown, although the overall trend is one of long-term growth. These cycles take place at both macro (national and international economic trends) and micro levels (trends in specific vertical markets). |
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CMPMedica |
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CMPMedica is a market leader in the provision of drug information in many of the 25 countries in which it operates in Europe and Asia, competing mainly with smaller local competitors. It also competes indirectly with larger competitors that operate predominantly in the U.S. Operating in the pharmaceutical and broader healthcare markets, CMPMedica’s business is largely print based and is affected to a greater degree by regulation, both legislative and professional, than other CMP divisions. |
Strategy
UBM aims to create long-term value for shareholders by developing growing, profitable businesses through investing in organic development and making strategically coherent acquisitions that meet UBM’s strict financial criteria for return on capital. We will continue to review our portfolio to ensure we are maximising the value of our assets, divesting assets where appropriate, whilst maintaining a progressive dividend policy and returning surplus capital to shareholders.
Market context
Over the last few years, many media businesses have been subject to rapid changes brought about by the development of new digital technologies. These technologies are changing established media consumption patterns, with online media growing particularly rapidly not only in consumer markets, but also in business-to-business markets.
These changes mark a long-term evolution of the competitive and business environment. This evolution challenges established media business models, particularly those based on print advertising, and is driving the development of online business models. The pace of change and the degree of impact is not uniform across media businesses. Some markets such as recruitment advertising are particularly suited to online media and have experienced rapid and almost wholesale change, particularly in the U.S. where adoption of online media has been most advanced. Other markets, both sectorial and geographical, are less exposed to online migration and have yet to experience substantial effects.
A rapidly evolving market offers competitive opportunities to those companies that embrace and lead change. UBM’s assessment of the impact of new digital technologies on our businesses is fundamental to the development of our strategy. We aim to mitigate negative impacts, for example by reducing exposure to markets susceptible to rapid and wholesale online migration, while taking advantage of business opportunities, in particular by developing profitable online businesses that leverage and complement our existing businesses.
Connecting buyers & sellers
UBM’s strategy is to connect buyers and sellers, assisting them and their markets to operate effectively and efficiently. In each market in which we operate, we aim to establish a leading position. This means creating the market’s premium media product, namely the one which connects most buyers and sellers thus creating the best market in which to trade. Buyers have the greatest choice and sellers can get the best prices.
We aim to achieve this through developing a balanced portfolio of products in each market that connects buyers and sellers across complementary media – news distribution, print, online and events – and that will best meet the needs of our customers. This will see UBM investing particularly in events and online products.
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Existing vertical markets
UBM aims to build leading positions in its specific vertical markets through organic product development and by making acquisitions. In each market UBM will leverage an existing position in one or more media to:
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grow into complementary media in the same market – e.g. leveraging a strong print position to develop a leading complementary event |
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extend into a new geography – e.g. launching an existing successful magazine in a new, fast-growing geography |
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create a product for adjacent or upstream or downstream markets – e.g. creating a website to target a specialist interest group within the broader audience of an existing online or print property. |
Expansion into new markets
Where the opportunity to secure a leading position presents itself, UBM will extend its coverage into vertical markets in which we have no presence. In 2005 for example, the acquisition of The Publican and subsequently the Bar Show brought UBM into the Licensed Trade sector in the UK.
Key performance indicators
UBM’s Board and executives monitor the Group’s performance continuously using a wide range of financial and non-financial indicators. The principal key performance indicators by which the Board assesses the Group’s progress against its strategic objectives are listed below.
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2005 |
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Earnings Per Share*(1) |
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40.9 pence |
Diluted Earnings Per Share*(1) |
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36.7 pence |
12 month Total Shareholder Return(2) |
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35.5% |
Pre-tax return on acquisitions(3) |
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12.1 |
Sources of revenue(4) |
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Print |
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55% |
Events |
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24% |
News Distribution |
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15% |
Online |
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6% |
Annual revenues of organic Launches(5) |
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£25.7m |
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Before amortisation of intangible assets, non-recurring items, net financial income other than interest and including discontinued operations. |
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(1) |
Earnings per share as per financial statements but adjusted for amortisation, non-recurring items, other financial income other than interest and including discontinued operations. Diluted shows the impact of potential shares. |
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(2) |
Total shareholder return includes ordinary and special dividends plus movements in the share price. |
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(3) |
The Group has a financial target that acquisitions should achieve an 8% post tax return. This equates to a pre tax return of 10% at the group’s effective tax rate of 20%. The return is calculated by dividing the attributable operating profit by the cost of acquisitions for the total of the three prior years. Current year acquisitions are included on a proforma basis to ensure the full year is recognised. |
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(4) |
The Group has a strategic objective of rebalancing revenues such that the contribution made by events and online activities grow to reduce the relative contribution made by print activities. The ratio between the types of business is based on percentage of Group revenue. |
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(5) |
This shows organic growth based on revenue from new launches initiated from 2003 onwards. |
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2005 Results |
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Revenue
Year ended 31 December |
Operating Profit*
Year ended 31 December |
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2005
£m |
2004
£m |
Change
(%) |
Underlying
(%)# |
2005
£m |
2004
£m |
Change
(%) |
Underlying
(%)# |
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PR Newswire |
104.1 |
94.8 |
9.8 |
8.8 |
29.2 |
23.9 |
22.2 |
20.7 |
CMP Asia |
61.9 |
51.4 |
20.4 |
15.1 |
17.5 |
14.0 |
25.0 |
10.9 |
CMP Media |
225.9 |
220.3 |
2.5 |
0.0 |
24.9 |
27.1 |
(8.1) |
(16.2) |
CMP Information |
177.0 |
161.0 |
9.9 |
4.0 |
43.0 |
38.5 |
11.7 |
(4.0) |
CMPMedica |
106.9 |
29.8 |
- |
2.8 |
19.4 |
3.4 |
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26.7 |
Corporate+ |
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3.1 |
0.8 |
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Total |
675.8 |
557.3 |
21.3 |
4.1 |
137.1 |
107.7 |
27.3 |
3.2 |
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Underlying: adjusted for the estimated effects of acquisitions, discontinued operations, biennial events and foreign exchange |
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Before amortisation of intangible assets and non-recurring items |
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Corporate operations comprise net central operating costs together with those equity-accounted investments which do not form part of one of the Group’s operating divisions. This includes the equity investments disposed of in 2005 (five, SDN,SIS) |
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Underlying revenue was up 4.1% after adjusting for the effects of acquisitions, discontinued operations, biennials and foreign exchange. Group revenue increased by £34.9m for acquisitions made in 2005 and operating profit increased by £5.9m. The net effect of biennial events was to increase revenue by £4.8m and operating profit by £2.9m in 2005.
The movement in the US dollar and Euro had a direct translation impact. With approximately two thirds of UBM’s revenue reported locally in US dollars or Euros, Group revenue was increased by £4.5m as a result of foreign exchange. The average rate of $:£ exchange for 2005 was $1.81 (2004: $1.83); together with the effects of other currency movements this increased operating profit by £0.9m. A 1 cent movement in the US dollar against sterling is approximately equivalent to a move in profit of around £0.3m to £0.4m over the full year.
Results and operating review by division
PR Newswire
PR Newswire delivered a strong performance in 2005 with underlying revenue rising 8.8% and underlying operating profit up 20.7%, with the overall operating margin up from 25.2% to 28.0%. Increased traffic, improved mix and growth of revenue from non-wire products all contributed to overall strong performance. In particular, two organic product developments, MEDIAtlas and MultiVu, showed good growth and improving profitability in 2005.
Performance outside the US was encouraging with the European business progressing from being loss-making in 2003 to achieving a 19.2% operating margin in 2005. PR Newswire’s non-US business achieved 5.3% revenue growth for the full year, and an operating profit of £1.9m (2004: £0.2m). The business continued to make good progress in China. Further international expansion is planned for 2006.
CMP Asia
CMP Asia delivered a strong performance in 2005 across the business with underlying revenue up 15.1%, underlying operating profits up 10.9%, and operating margins rising modestly to 28.3% (2004: 27.3%). CMP Asia’s major exhibitions in Hong Kong continued to be successful while a combination of acquired and organically developed business drove the company’s growth in China where it now operates more than 20 exhibitions. In Japan, CMP Asia’s KSS business continued to perform well and the Japan Jewellery Fair was acquired during the year. Further new events are planned for 2006, including CMP Asia’s first exhibition in India. 2005 had a positive impact from biennial events.
CMP Media
CMP Media’s underlying revenues for 2005 were flat, underlying profits fell by 16.2% to £23.5m and operating margins fell to 11.0%. The decline in operating profits across CMP Media largely reflects both challenges to certain titles (notably Information Week) and higher levels of investment in new product development, particularly in online media, healthcare as well as the costs of relaunching certain print titles including Information Week.
In healthcare, revenue increased to £37.0m for the full year, an increase of 5.8%. Revenue growth was re-established in the second half as customers of medical education businesses restructured themselves to address US regulatory concerns.
During 2005, two technology events businesses, Black Hat and ICMI, were acquired followed by a further two, MediaLive and Shorecliff, in January 2006. The acquisitions in 2005 of online businesses Light Reading and TechOnLine, will help overall online business development, as well assisting in the evaluation of alternative online business models.
Steve Weitzner was appointed CEO of the division in October 2005. |
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CMP Information
CMP Information, incorporating the previously reported UAP segment, CMP Information (CMPi) delivered solid performance in the year, with strong results from the events business. CMPi’s underlying revenue rose by 4.0%. Operating profit was £43m, the largest contribution of profit to the Group. Higher investment in new product development resulted in underlying operating profit falling by 4.0% compared with 2004.
In line with Group strategy, during the year CMPi rationalised its business portfolio and focused on core vertical markets. CMPi disposed of Exchange & Mart and Auto Exchange for around £50m, and acquired ABI (online building industry data), The Publican, Theme & Bar (licensed trade event and print titles) and Informex (chemical ingredients event) for a total of around £50m. These acquisitions are performing in line with expectations.
Gary Hughes was appointed CEO of the division in January 2006.
CMPMedica
CMPMedica was acquired in July 2004 and was augmented with the acquisition of France Medical Press & Services in March 2005. The business has been trading in line with its acquisition case, with a strong seasonal weighting towards the first half of the year. The drug information business has performed well, particularly in France which accounts for roughly half the business. However there was some softness in the Asia-Pacific trade press markets. In 2006 we intend to make further investment in drug information services and continuing medical education products, and to seek geographical expansion into Eastern Europe and Japan.
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