Euromoney Institutional Investor
Annual Report 2009

Plain-text annual report

Annual Report & Accounts 2009 Euromoney Institutional Investor PLC www.euromoneyplc.com Euromoney Institutional Investor PLC Nestor House, Playhouse Yard, London EC4V 5EX A n n u a l R e p o r t & A c c o u n t s 2 0 0 9 E u r o m o n e y I n s t i t u t i o n a l I n v e s t o r P L C 16991EUROMONEcvr.indd 1 16991EUROMONEcvr.indd 1 16991 10/12/09 Proof 8 16991 10/12/09 Proof 8 10/12/2009 10:36 10/12/2009 10:36 Welcome to Euromoney Institutional Investor PLC Euromoney Institutional Investor PLC is listed on the London Stock Exchange and is a member of the FTSE 250 share index. It is a leading international business-to-business media group focused primarily on the international finance, metals and commodities It publishes more than 70 magazines, sectors. newsletters and including Euromoney, Institutional Investor and Metal Bulletin. It also runs an extensive portfolio of conferences, seminars and training courses and is a leading provider of electronic information and data covering international finance, metals and commodities, and emerging markets. Its main offices are located in London, New York, Montreal and Hong Kong and nearly half of its revenues are derived from emerging markets. journals, Contents OUR PERFORMANCE Highlights Our Divisions Chairman’s Statement Appendix to Chairman’s Statement - Reconciliation of Group Income Statement to Underlying Results Directors’ Report OUR GOVERNANCE Directors and Advisors Corporate Governance Directors’ Remuneration Report Independent Auditors’ Report 01 02 04 07 08 26 28 34 49 GROUP ACCOUNTS 50 Group Income Statement 51 Group Balance Sheet 52 Group Cash Flow Statement Note to the Group Cash Flow Statement 53 Group Statement of Recognised Income and Expense Notes to the Group Accounts 54 55 COMPANY ACCOUNTS Independent Auditors’ Company Report 95 96 Company Balance Sheet 97 Notes to the Company Accounts OTHER Five Year Record Financial Calendar and Shareholder Information 107 108 16991EUROMONEcvr.indd 2 16991EUROMONEcvr.indd 2 16991 10/12/09 Proof 8 16991 10/12/09 Proof 8 10/12/2009 10:36 10/12/2009 10:36 Highlights Revenue £317.6m 2008: £332.1m Adjusted Operating Profi t* £79.4m 2008: £81.3m Operating Profi t £27.2m 2008: £61.0m Adjusted Profi t before Tax* £63.0m (Loss)/Profi t before Tax £(17.4)m 2008: £67.3m 2008: £37.4m Adjusted Diluted Earnings a Share* 40.4p Diluted (Loss)/Earnings a Share (6.7)p 2008: 44.4p 2008: 40.4p Dividend 14.0p 2008: 19.25p Net Debt £165.1m 2008: £172.0m E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C * See Reconciliation of Group Income Statement to underlying results on page 7. Annual Report and Financial Statements 2009 01 Our Div isions FINANCIAL PUBLISHING TRAINING £75.4m Revenue £31.7m Revenue The training division runs a comprehensive range of banking, finance and legal courses, both public and in-house, under the Euromoney and DC Gardner brands. Courses are run all over the world for both financial institutions and corporates. In addition the company’s Boston-based subsidiary, MIS, runs a wide range of courses for the audit and information security market. PRINCIPAL BRANDS Financial publishing includes an extensive portfolio of titles covering the international capital markets as well as a number of specialist financial titles. Products include magazines, newsletters, journals, surveys and research, directories, and books. A selection of the company’s leading financial brands includes: Euromoney, Institutional Investor, EuroWeek, Latin Finance, Asiamoney, Global Investor, Project Finance, Futures & Options World, Total Derivatives and the hedge fund titles EuroHedge, InvestHedge, AsiaHedge and AR. BUSINESS PUBLISHING £56.3m Revenue The business publishing division produces specialist magazines and other publications covering the metals and mining, legal, telecoms and energy sectors. Its leading brands include: Metal Bulletin, American Metal Market; International Financial Law Review, International Tax Review and Managing Intellectual Property; Capacity; Petroleum Economist, World Oil and Hydrocarbon Processing. 02 Euromoney Institutional Investor PLC CONFERENCES AND SEMINARS £74.9m Revenue The company runs a large number of sponsored conferences and seminars for the international financial markets, mostly under the Euromoney, Institutional Investor, Metal Bulletin and IMN brands. Many of these conferences are the leading annual events in their sector and provide sponsors with a high quality program and speakers, and outstanding networking opportunities. Such events include: The Global Borrowers and Investors Forum; the Annual Global Hedge Fund Summit; the European Airfinance Conference; the Islamic Finance Summit; the Super Bowl of Indexing®; and Global ABS and The Annual ABS East Conference for the asset-backed securities market. In the energy sector, the group runs the world’s leading annual coal conferences, Coaltrans and Coaltrans Asia; TelCap runs International Telecoms Week, the leading global event for telecom carriers and service providers; and MIS runs a leading event for the information security sector in the US, InfoSec World. DATABASES AND INFORMATION SERVICES £87.5m Revenue The company provides a number of subscription-based database and electronic information services for financial markets. Montreal-based BCA Research is one of the world’s leading independent providers of global investment research. The company’s US subsidiary, Internet Securities, Inc. provides the world’s most comprehensive service for news and data on global emerging markets under the Emerging Markets Information Service (EMIS) brand, and also includes CEIC, one of the leading providers of time-series macro-economic data for emerging markets. The company also offers global capital market databases through a venture with its AIM-listed partner, Dealogic plc. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 03 Chairman’s Statement We have come through a dangerous year safely and are looking ahead at the opportunities and challenges we see. Systemic collapse is never very far from financial markets, but the failure of Lehman Brothers presented the biggest threat to the western financial system since the company began. That threat tested our strategy, which emerged unchanged and unscathed. It tested our people, who responded magnificently, though there were fewer of them at the end of the year. It challenged the strengths of our brands, which met the challenge. It challenged our margins, and our investment in new products, both of which increased. The effects of the threat linger still, evidenced by lower revenues and a tough start to the new financial year, but the mood of the company is positive and more adventurous than a year ago. The crisis is not over, but we believe the group will emerge from it to enter a new era of growth. Against a strong tide, we achieved an adjusted profit before tax of £63.0 million for the year to September 30 2009, against £67.3 million in 2008. Adjusted diluted earnings a share were 40.4p (2008: 44.4p). The directors recommend a final dividend of 7.75p giving a total for the year of 14.00p (2008: 19.25p). Group revenue fell by 4% to £317.6 million, against £332.1 million in 2008. After a strong first quarter when revenues increased by 15%, we experienced a sharp fall in sales from January 2009 as customers imposed tight cost controls from the start of their new budget year in response to the world credit crisis. This immediately translated into falling revenues, although the year-on-year rates of decline in advertising, sponsorship and delegate revenues in the second half were no worse than those experienced in the second quarter. Subscription revenues proved more resilient, increasing by 24%, but the rate of growth has declined in the second half as the lag effect of customer cuts in headcount and information buying gradually work their way through into revenues. We acted quickly and early to restructure the business, cut costs and protect margins, and the adjusted operating margin improved from 24.5% to 25% despite the fall in revenues. The adjusted profit before tax of £63.0 million compares to a loss before tax of £17.4 million in the statutory results. The statutory loss is stated after charging exceptional restructuring costs of £10.7 million, most of which was charged in the first half, which generated annualised cost savings of approximately £17 million; an exceptional impairment charge of £23.2 million, again most of which arose in the first half; acquired intangible amortisation of £15.9 million; a foreign exchange loss on tax equalisation contracts of £19.9 million which is matched by a tax credit and has no effect on earnings a share; and a foreign exchange loss of £7.9 million on restructured hedging arrangements included in net finance costs. Foreign currency movements have had a significant impact on both revenues and net debt. The group is exposed to foreign exchange risk on the US dollar revenues in its UK businesses, which are hedged, and on the translation of the revenues and profits of its US dollar- denominated businesses, which are not hedged. The reported 4% decrease in group revenues would have been a 16% decrease at constant exchange rates, while the net benefit to adjusted profit before tax from foreign currency movements, after hedging, was approximately £6 million. The board announced its decision to increase its dividend cover at the time of its half year results. The proposed reduction in the final dividend reflects this decision, which arose after reviewing possible debt and cash flow outcomes in the light of events in world financial and commodities markets from 2007 onwards. These reviews suggested that volatility in these markets had increased sharply, particularly in the wake of the Lehman collapse. The board concluded that such volatility may persist for some time, in spite of the recovery in parts of the financial markets, and that the dividend cover should be rebased to a sustainable level for the longer term. In future, the board intends to maintain a policy of distributing one third of its after-tax earnings to shareholders while delivering long-term dividend growth in real terms. Net debt at September 30 was £165.1 million compared to £214.7 million at March 31 and £172.0 million the previous year end. Approximately 80% of the group’s debt is US dollar-denominated and the increase in the sterling-US dollar rate since March 31, combined with the group’s traditionally strong operating cash flows in the second half, helped reduce net debt by nearly £50 million. The group’s net debt to EBITDA ratio, which is calculated on an average exchange rate basis, was little changed at just under two times. 04 Euromoney Institutional Investor PLC the United States are likely to be weak for the foreseeable future; and the threat of increased regulation of financial markets will continue to restrict capital availability. The return to profitability of most global financial institutions should be a positive factor for trading in 2010. However, the cuts in headcount and the restrictions on discretionary spend on marketing, training and information buying applied throughout 2009 are not expected to be relaxed quickly, and not before the start of our customers’ new budget year in 2010. The group continues to trade in line with the board’s expectations. The first quarter of the new financial year is expected to be the toughest: the board expects the decline in year-on-year revenues to continue despite the benefit of cost savings implemented in 2009 and favourable exchange rates. October’s revenues fell by 18% compared to a year ago. From the second quarter, the year-on-year revenue comparatives should become less challenging but the point at which revenues start to grow again is dependent entirely on the timing and scale of any recovery. The focus on managing margins and reducing net debt will therefore be maintained, although the group has also stepped up its investment in new products and electronic publishing to take advantage of the recovery when it comes. Capital Appreciation Plan The board believes that much of the company’s recent success has been driven by the first Capital Appreciation Plan that was launched in 2004. The CAP, a highly geared performance-based equity plan, has motivated and led to the retention of key individuals since it began, and adjusted profits before tax have trebled over the period. Shareholders at the last annual general meeting approved the introduction of a second CAP to follow the first once performance targets were reached. In 2009 the profit performance target was again exceeded, enabling the company to embark on the second CAP, for which the Remuneration Committee has set a profit target of £100 million by the end of 2013, against the base profit of £62.3 million for CAP purposes achieved in 2009. Details of the new CAP are set out in the Directors’ Remuneration Report, and minor amendments to it will be submitted to shareholders at the annual general meeting Strategy The company’s strategy has been to build a more resilient and better focused global information business. This strategy has been executed through increasing the proportion of revenues derived from subscription products; accelerating the online migration of its print products as well as developing new electronic information services; investing in products of the highest quality that customers will value in tough times as well as good; eliminating products with a low margin or too high a dependence on advertising; maintaining tight cost control at all times; retaining and fostering an entrepreneurial culture; and generating strong cash flows to fund selective acquisitions to accelerate that strategy. The success of this continues to be highlighted by these results. Subscription revenues increased by 24%, in sharp contrast to the declines in other revenue streams, and now account for 47% of total revenues against 37% in 2008. Similarly, the profits from databases and information services, which include some of the highest margin products in the group and are derived mostly from subscription products, accounted for 36% of the group’s adjusted operating profits compared to 21% a year ago. The tight control of costs and focus on high quality, high margin products was critical to the group’s performance in 2009. The adjusted operating margin improved to 25% as costs were restructured early in the year, low margin products were eliminated quickly, and continued product investment ensured the growth in higher margin electronic publishing products was maintained. Looking ahead, the group remains keen to acquire small, specialist information businesses that complement its existing activities and provide scope for strong organic growth, although it does not expect to complete any significant transactions in the next six to 12 months. Excess cash flows will be applied to investment in new products and reducing debt. We think the strategy is robust and suitable for a wide range of trading conditions. While the outlook for economic recovery remains uncertain, the board will continue to focus on managing costs, protecting our margins and reducing debt levels. At the same time, we have stepped up our investment in technology and new subscription-based products. Outlook Generally markets seem to have stabilised after an exceptionally difficult period and the outlook among our customers is more positive than it has been for some time, although this has not yet translated into improved revenues. The broad sentiment is that global markets will continue to recover in 2010, but slowly. The risks of further banking failures and a correction to the recent recovery in financial markets remain; the prospects for economic growth in Europe and E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 05 Chairman’s Statement continued in January 2010. The new plan will include many who were not in the first, colleagues who are a very important part of the company’s future. The target is very challenging in what are likely to be volatile markets, but the new CAP will be welcomed most by those who relish the opportunity to perform whatever the conditions. It was Euromoney’s 40th anniversary in June. To thank our clients for their support and to explain the company’s development strategy we arranged dinners throughout key cities, generally in emerging markets. The response, in difficult times, was even greater than we had hoped. It was clear that our brands had never been stronger. Management Under the terms of my service contract, I am due to retire as the company’s chairman at the annual general meeting in January 2010. Following an independent recommendation from the nominations committee, the board has resolved to extend my retirement date under my service contract by two years to the date of the annual general meeting in 2012. The board was strengthened in December 2008 by the appointment of another independent non-executive director, David Pritchard, who has extensive experience of the financial services industry and serves on the company’s audit committee. In November 2009 we announced the appointment of a new executive director, Bashar AL-Rehany, who is chief executive officer of BCA Research, the group’s single largest business. Tom Lamont retired from the board in January 2009 after nine years of valuable service as an executive director and editor of Institutional Investor’s newsletter division. Michael Carroll, who has served as an executive director since 2002 in his capacity as editor of Institutional Investor, has indicated his intention to step down from the board at the annual general meeting in January 2010. It was with great sadness in July 2009 that we reported the death of Christopher Brown, one of our longest-serving executive directors. We miss his cheerful face in adversity and his unfailing energy greatly, and to perpetuate his spirit we have created the annual Christopher Brown Innovation Prize for employees, the winner of which will be announced internally on each anniversary of Chris’s birthday, February 6. As a tribute to Sir Patrick Sergeant, who founded the company, we also announced a new Sergeant Intern Scholarship for graduates from emerging market universities. I am also glad to tell you, in the same vein, that the Kalinga paediatric eye hospital in Orissa, India, built and staffed through the efforts and generosity of our shareholders, colleagues, and customers and which was officially inaugurated in March, continues to make good progress. By September 30 approximately 43,000 children from very poor families had been screened at the Euromoney eye centre and at outreach camps, while almost 10,000 had been treated, or received surgery. Screening should increase further in 2010: we raised more money for Kalinga than we expected, and the additional funds have been used for a wider outreach programme. On your behalf and mine, I thank all our colleagues, wherever they are and whatever jobs they do, for the courage and resourcefulness they have shown in the most testing year I have seen. Now they prepare for a recovery in a changed landscape. Padraic Fallon Chairman November 11 2009 06 Euromoney Institutional Investor PLC Appendix to Chairman’s Statement Reconciliation of Group Income Statement to underlying results for the year ended September 30 2009 The reconciliation below sets out the underlying results of the group and the related adjustments to the statutory income statement that the directors consider necessary in order to provide a more comparable indication of the underlying trading performance. Underlying Adjustments £000’s £000’s Notes 2009 Total £000’s Underlying Adjustments £000’s £000’s 2008 Total £000’s Total revenue 3 317,594 – 317,594 332,064 – 332,064 Operating profit before acquired intangible amortisation, share option expense and exceptional items Acquired intangible amortisation Share option expense Exceptional items 3 79,447 – 79,447 81,308 – 81,308 – (15,891) (15,891) – (12,749) (12,749) (2,697) – (2,697) (5,361) – 5 – (33,901) (33,901) – (2,477) (5,361) (2,477) Operating profit before associates 76,750 (49,792) 26,958 75,947 (15,226) 60,721 Share of results in associates 219 – 219 308 – 308 Operating profit Finance income Finance expense Net finance costs 76,969 2,281 (16,262) (49,792) – (30,557) 27,177 2,281 (46,819) 76,255 5,594 (14,506) (15,226) – (14,691) 61,029 5,594 (29,197) 7 7 (13,981) (30,557) (44,538) (8,912) (14,691) (23,603) Profit/(loss) before tax 62,988 (80,349) (17,361) 67,343 (29,917) Tax (expense)/credit on profit/(loss) 8 (17,060) 27,472 10,412 (18,346) 25,625 37,426 7,279 Profit/(loss) after tax from continuing operations Profit for the year from discontinued operations Profit/(loss) for the year Attributable to: Equity holders of the parent Equity minority interests 45,928 (52,877) (6,949) 48,997 (4,292) 44,705 15 – 1,207 1,207 – 245 245 45,928 (51,670) (5,742) 48,997 (4,047) 44,950 45,383 (51,670) (6,287) 47,766 (4,047) 545 – 545 1,231 – 43,719 1,231 45,928 (51,670) (5,742) 48,997 (4,047) 44,950 Diluted earnings/(loss) per share – continuing operations 10 40.39p (47.06)p (6.67)p 44.36p (3.99)p 40.37p Underlying figures are presented before the impact of amortisation of acquired intangible assets and goodwill impairment, restructuring and other exceptional operating costs, exceptional profit on disposal of investments and property, non cash movements on acquisition option commitment values, foreign exchange losses on restructured hedging arrangements and foreign exchange losses on tax equalisation swap contracts and the related tax effect. In respect of earnings, underlying amounts reflect a tax rate that includes the current tax effect of the goodwill and intangible assets. Further analysis of the adjusting items is presented in notes 5, 7, 8 and 10 to the Annual Report. Annual Report and Financial Statements 2009 07 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Directors’ Re port The directors submit their annual report and group accounts for the year ended September 30 2009. 2. Strategy The key elements of the group’s strategy are: Certain statements made in this document are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred to in these forward-looking statements. Unless otherwise required by applicable law, regulation or accounting standard, the directors do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future development or otherwise. Nothing in this document shall be regarded as a profit forecast. The directors’ report has been prepared for the group as a whole and therefore gives greater emphasis to those matters which are significant to Euromoney Institutional Investor PLC and its subsidiary undertakings when viewed as a whole. It has been prepared solely to provide additional information to shareholders as a body to assess the company’s strategy and the potential for that strategy to succeed and the directors’ report should not be relied upon by any other party for any other purpose. The Corporate Governance report forms part of this Directors’ Report. 1. Principal activities Euromoney Institutional Investor PLC is listed on the London Stock Exchange and is a member of the FTSE 250 share index. It is a leading international business-to-business media group focused primarily on the international finance, metals and commodities sectors. It publishes more than 70 magazines, newsletters and journals, including Euromoney, Institutional Investor and Metal Bulletin. It also runs an extensive portfolio of conferences, seminars and training courses and is a leading provider of electronic information and data covering international finance, metals and commodities, and emerging markets. Its main offices are located in London, New York, Montreal and Hong Kong and nearly half of its revenues are derived from emerging markets. Details of the group’s legal entities can be found in note 13. y drive top-line revenue growth from both new and existing products; y building robust subscription and repeat revenues and reduce the dependence on advertising; y improving operating margins through revenue growth and tight cost control; y leveraging technology to launch specialised new electronic information services; y making focused acquisitions that supplement the group’s existing businesses, strengthen the company’s market position in key areas and have the capacity for organic growth using the existing knowledge base of the group; and y keeping its net debt within a debt to EBITDA limit of four times. In 2004, to supplement this strategy, the board set the group a profit* target of £50 million by 2008 against a base of £21 million in 2003. In March 2007, the target was increased to £57 million to reflect the Metal Bulletin acquisition. The profit* achieved in 2007 was £65.7 million, beating the increased target a year earlier than expected. The board believes this significant achievement reflects the success of the Capital Appreciation Plan (CAP) in driving profit growth. This was further demonstrated in both 2008 and this year when the profits* achieved of £72.9 million and £62.3 million exceeded the performance target set for the second and third (final) tranche of the CAP despite the tough economic trading conditions. The directors believe that the CAP has been instrumental in driving the company’s strong profit performance since 2003 and, at the company’s 2009 Annual General Meeting, shareholders approved a new long-term incentive scheme, Capital Appreciation Plan 2009 (CAP 2009). This incentive scheme is being re-presented for shareholder approval at the 2010 Annual General Meeting in view of certain proposed amendments to the scheme, mainly to allow tax efficient structuring of the award and to confirm the primary and secondary performance targets. This revised incentive scheme, Capital Appreciation Plan 2010 (CAP 2010), if approved, will replace CAP 2009. The board is firmly of the view that the CAP will continue to help drive the profit growth of the group. Further details of CAP 2010 are set out in the Directors’ Remuneration Report. * Profit before tax excluding acquired intangible amortisation, share option expense, exceptional items, non-cash movements in acquisition option commitments values, foreign exchange loss interest charge on tax equalisation contracts and foreign exchange on restructured hedging arrangements but including redundancy costs as set out in the Group Income Statement, note 5, and note 7. 08 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C 3. Business review 3.1 Group results and dividends The group loss for the year attributable to shareholders amounted to £6.3 million (2008: profit £43.7 million). The directors recommend a final dividend of 7.75 pence per ordinary share (2008: 13.00 pence), payable on February 4 2010 to shareholders on the register on November 20 2009. This, together with the interim dividend of 6.25 pence per ordinary share (2008: 6.25 pence) which was declared on May 14 2009 and paid on July 16 2009, brings the total dividend for the year to 14.00 pence per ordinary share (2008: 19.25 pence). 3.2 Key performance indicators The group monitors its performance against its strategy using the following key performance indicators. Revenue change and mix Subscriptions Advertising Sponsorship Delegates Other Foreign exchange losses on forward contracts Gross margin1 Adjusted operating margin2 Like-for-like (reduction)/growth in profits3 Headcount4 Net debt to EBITDA5 Revenue 2009 £m 152.3 54.8 38.5 69.6 10.5 (8.1) 317.6 Mix 2009 % 47% 17% 12% 21% 3% – 100% Revenue 2008 £m 123.1 66.5 45.8 86.4 10.3 – 332.1 2009 71.9% 25.0% (£3.0m) 1,841 1.99:1 Mix 2008 % 37% 20% 14% 26% 3% – 100% 2008 69.1% 24.5% £3.4m 2,207 2.17:1 Revenue change % +24% (18%) (16%) (19%) +2% – (4%) Change +2.8% +0.5% (366) Annual Report and Financial Statements 2009 09 Directors’ Report continued CAP Profit6 and Adjusted PBT7 £m 75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 CAP Profit Adjusted PBT CAP Original Target CAP Revised Target 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year 1 Gross margin = gross profit as a percentage of revenue. Gross profit and revenue are both as per note 4 in the financial statements. 2 Adjusted operating margin = operating profit before acquired intangible amortisation, share option expense, exceptional items and associates as a percentage of revenue. Operating profit and revenue are both as per the Group Income Statement in the financial statements. 3 Like-for-like growth in profits = proportion of operating profit growth that relates to organic growth, rather than acquisitions. Operating profit is from continuing operations and excludes closed businesses and is adjusted for significant timing differences. 4 Headcount = number of permanent people employed at the end of the period including people employed in associates. 5 Net debt to EBITDA = the amount of the group’s net debt (converted at the group’s weighted average exchange rate for the rolling 12 month period) to earnings before interest, tax (operating profit), depreciation, amortisation and exceptional items but after the share option expense. 6 CAP profit = profit before tax excluding acquired intangible amortisation, share option expense, exceptional items, non-cash movements in acquisition option commitments values, foreign exchange loss interest charge on tax equalisation contracts and foreign exchange on restructured hedging arrangements but for 2009, including redundancy costs as set out in the Group Income Statement, note 5, and note 7. 7 Adjusted PBT = CAP profit after the deduction of share option expense and the exclusion of redundancy costs as set out on page 7. 10 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C 3.3 KPIs explained The key performance indicators are all within the board’s expectations and support its successful strategy. These indicators are discussed in section 3.4 below. sharply from the second quarter, while advertising and sponsorship revenues have continued to decline more gradually. Similarly, subscription renewal rates and new sales also started to decline from the second quarter. 3.4 Development of the business of the group 3.4.1 Trading review Total revenues fell by 4% to £317.6 million: a 4% increase in the first half was offset by an 11% decrease in the second. The impact of the tough trading conditions on revenues would have been much greater but for the favourable movement in exchange rates. The group generates more than two thirds of its revenues in US dollars and the 20% fall in the average sterling-US dollar rate over the year had a significant effect on reported revenues, which at constant exchange rates fell by 16%. Revenues 2009 £m 152.3 54. 8 38.5 69.6 10.5 Subscriptions Advertising Sponsorship Delegates Other/closed Foreign exchange losses on forward currency contracts (8.1) Change at constant exchange rates 2008 Headline change £m 123.1 66.5 45.8 86.4 10.3 24% (18%) (16%) (19%) 2% 3% (29%) (30%) (29%) (5%) – – – Total revenue 317.6 332.1 (4%) (16%) The performance of the group’s various revenue streams reflects the timing of the reaction of its customers to the global credit crisis. In 2008 most customers, particularly the global financial institutions, were focused on financial survival and positioning their businesses for tougher trading conditions. Spend on advertising and conference sponsorship, which tends to be both high value and discretionary, was cut and headcount was reduced. The micro-management of costs, however, particularly training, conference attendance and travel, and information buying did not begin until January 2009. As a result, delegate attendance at events and training courses turned down For the past three quarters, the year-on-year declines in advertising and sponsorship (-20%) and delegate revenues (-30%) have been running at similar rates. In contrast, subscription revenues grew by a third in the first half, and have continued to grow in the second half, although the rate of growth has slowed rapidly due to the lag effect of lower sales and renewal rates earlier in the year, which will continue to be a drag on subscription revenues in the first half of 2010. Emerging markets, which account for nearly half of the group’s revenues, were less exposed to the excess leverage and complex financial products that have characterised the credit problems in North America and Europe, and have come through the credit crisis well. The recovery of China and the consistent strength of Latin American markets have helped offset weakness in Eastern Europe and the Middle East. The group acted quickly and early to restructure the business, cut costs and protect margins. As part of this restructuring, the group has reduced its world-wide headcount by 17% since the start of the financial year, reduced the amount of office space in London and New York, and closed or merged a number of small or low margin print titles. These actions generated annualised cost savings of approximately £17 million, more than half of which are still to flow through to profits in 2010. Despite a £15 million fall in revenues, adjusted operating profit fell by just £1.9 million to £79.4 million, and the group adjusted operating margin improved from 24.5% to 25%. The tight management of margins is an integral part of the group’s strategy. The group deliberately keeps as much as possible of its cost base variable with revenues, volumes or profits. This includes the direct costs of producing content and running events or training courses, much of which is provided by freelancers and contractors, and the compensation of its employees, much of which is provided through incentives which vary directly with revenues or profits. Fixed Annual Report and Financial Statements 2009 11 Directors’ Report continued overheads, which relate mostly to offices and technology, account for less than 10% of revenue. 3.4.2 Business division review Financial Publishing: adjusted operating profits fell by 17% to £20.3 million, and the adjusted operating margin decreased from 29% to 27%. Revenues, which comprise a mix of advertising and subscriptions, fell by 10% to £75.4 million. Advertising revenues are heavily dependent on the marketing spend of global financial institutions and fell by 20%. Many US and European institutions stopped advertising altogether, whereas advertising from emerging markets held up well. In contrast, subscription revenues increased by 7% as the group continued to invest in migrating its print products to a higher value web-first publishing model with an emphasis on subscriptions over advertising. Business Publishing: the group’s activities outside finance are in sectors traditionally less volatile, and which follow different cycles. Adjusted operating profits increased by 21% to £23.4 million, following a 6% increase in revenues to £56.3 million and an improvement in the adjusted operating margin from 36% to 41%. Among the sectors covered, metals, minerals and mining under the Metal Bulletin brand, telecoms under TelCap’s Capacity brand, and legal publishing all achieved good growth; only the energy sector was weak. Training: revenues are derived largely from paying delegates. Training is a discretionary spend for most customers, at least in the short- term, and revenues fell sharply from the start of the second quarter, with an immediate negative effect on margins. Some of the revenue decline was self-inflicted as course volumes were cut deliberately in the second half which, combined with the impact of early cost cuts, helped the margin recover a little. Training revenues for the year fell by 22% to £31.7 million and, after a decline in the adjusted operating margin from 26% to 20%, adjusted operating profits fell by 40% to £6.2 million. Conferences and Seminars: revenues comprise a roughly equal mix of sponsorship and paying delegates. Like Training, delegate revenues fell sharply from the start of the second quarter as customers cut back on travel and event attendance. Sponsorship revenues tend to follow similar trends to advertising, and have been declining at a more gradual rate but from an earlier starting point. In difficult markets there is inevitably a shift to the bigger, more established events, and the market contracts as many of the smaller events are cut. The group’s strategy for its event businesses reflects this experience, and during the year it focused on maintaining the market leading positions of its bigger events, at the same time shrinking volumes by eliminating many of the smaller, low margin events. Revenues fell by 15% to £74.9 million and the adjusted operating margin declined from 26% to 21%, driving a 31% decline in adjusted operating profits to £15.9 million. Databases and Information Services: this was the best performing division by some way, with adjusted operating profits increasing by 72% to £36.2 million, compared to just £3.4 million five years ago. Revenues grew by 32% to £87.5 million and the adjusted operating margin improved to 41%. Revenues and profits from this division are predominantly subscription-based and US dollar-denominated, and the decrease in the sterling-US dollar rate was a significant factor in this year’s growth. Revenues at constant exchange rates increased by 9%. In volatile and challenging markets the demand for high quality information and data tends to hold up well, particularly for products that are an integral part of companies’ information flows and work processes, and have built up a strong brand loyalty. The main driver of growth from Databases and Information Services in 2009 was BCA: demand for its high quality, independent macro-economic research has proved robust despite the shrinking of the asset management industry. ISI, the emerging markets information business, has experienced a more difficult time as many financial institutions have cut investment and resources in this area, although CEIC, its emerging market data subsidiary, has continued to grow as it expands its data coverage from Asia to other markets. Revenues from the group’s capital market databases, a venture undertaken with Dealogic plc, also increased after significant investment by Dealogic to upgrade its products and delivery platform. 12 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C 3.4.3 Impact of foreign currency on results The group generates approximately two thirds of its revenues in US dollars, including approximately 30% of the revenues in its UK- based businesses, and approximately 60% of its operating profits are US dollar-denominated. The group is therefore exposed to foreign exchange risk on the US dollar revenues in its UK businesses, and on the translation of the results of its US dollar-denominated businesses. The average sterling-US dollar exchange rate applied for the year was $1.58 against $1.97 in 2008. In order to hedge its exposure to US dollar revenues in its UK businesses, forward contracts are put in place to sell forward surplus US dollars, with a view to being 80% hedged for the coming 12 months and partially for the following six months. As a result of this hedging strategy, some of the profit benefit from the movement in the sterling-US dollar rate has been delayed until 2010 and beyond. In 2009, foreign exchange losses on forward currency contracts of £8.1 million, which are reported as a reduction in revenues, were matched by a similar improvement in the sterling value of US dollar revenues in the UK businesses. At the end of the first half, the group recognised losses of £9.0 million on forward currency contracts rendered ineffective by the sharp downturn in US dollar revenues in the group’s UK businesses. The closing of these contracts was completed at more favourable rates early in the second half, and the realised loss was reduced to £7.9 million. This loss is reported as an expense in net finance costs and excluded from the underlying results. The group does not hedge the foreign exchange risk on the translation of overseas profits, although it does endeavour to match foreign currency borrowings with investments and the related foreign currency finance costs provide a partial hedge against the translation of overseas profits. The significant increase in profits from its US dollar-denominated businesses, particularly BCA and ISI/CEIC, means that the impact of exchange rate movements on the translation of overseas profits has also increased. In 2009, the translation benefit from favourable movements in the sterling-US dollar rate was approximately £6 million. 3.4.4 Financial review The statutory loss before tax of £17.4 million is stated after charging, among other items: exceptional restructuring and impairment costs of £33.9 million (see below); acquired intangible amortisation of £15.9 million; foreign exchange losses on tax equalisation contracts of £19.9 million (see below); and finance costs of £7.9 million on restructured hedging arrangements (see below). The group’s actions to restructure its businesses and cut costs incurred exceptional restructuring and other costs of £10.7 million, most of which were incurred in the first half. The group has also reviewed the carrying value of goodwill and intangible assets, which has given rise to an exceptional impairment charge of £23.2 million, mostly in connection with its US-based activities in the structured finance sector, and again mostly charged in the first half. 3.4.5 Finance costs The group’s interest cost includes £19.9 million (2008: £12.0 million) in relation to foreign exchange losses on hedges on intra-group financing. These are matched by an equal and opposite tax credit in the group’s tax line from tax equalisation swaps designed to hedge this transaction, so that there is no financial impact on earnings per share. During the year the group restructured its hedging arrangements (see note 7 and note 18) and incurred foreign exchange losses of £7.9 million (2008: £nil) on its resultant ineffective hedges. IAS 39 ‘Financial Instruments: Recognition and Measurement’ requires an imputed interest charge to be recognised on the group’s future acquisition payments under option agreements. This additional finance charge increased the group’s interest cost by £0.6 million (2008: £1.0 million). IAS 39 also requires any movements in the estimated value of acquisition option commitments to be recognised in interest and in 2009 an amount of £2.2 million (2008: £1.7 million) was recognised. There is no related cash effect of these amounts. Annual Report and Financial Statements 2009 13 Directors’ Report continued Excluding these amounts, the group’s net finance cost increased from £8.9 million to £14.0 million, reflecting the higher cost of the group’s new debt facility and the loss of income of £3.4 million from a treasury structure in 2008 which was closed at the start of the year. The group continues to follow its treasury policy of fixing the interest rate on a portion of its long-term borrowings (see treasury section below) and hence did not benefit significantly this year from the lower LIBOR interest rates available in the market place. A detailed reconciliation of the group’s underlying and statutory results is set out in the appendix to the Chairman’s Statement. 3.4.6 Debt and working capital management Net debt at September 30 2009 was £165.1 million (2008: £172.0 million) which included cash of £12.5 million (2008: £21.2 million). At the end of September the group’s net debt to EBITDA ratio improved to 1.99 (2008: 2.17), resulting in the group’s variable rate interest margin above LIBOR falling by five basis points compared to the beginning of the year. The net debt to EBITDA covenant on the group’s committed facility is subject to a limit of four times. However, in light of the global credit crisis, the board decided at the start of the year to apply a more conservative internal covenant of three times EBITDA, and to implement a rigorous debt reduction plan. The net debt to EBITDA ratio at year end was just under two times, a slight reduction on the level at the half year, and has been held at this level for most of the year. The net debt to EBITDA ratio is expected to peak at the end of the second and third quarters of 2010 and the board will continue to manage its net debt to its more conservative internal debt covenant. During the year the group has focused on reducing its cash holdings in order to maximise the amount available to reduce its gross debt. At September 30 2009 cash held has fallen by £8.7 million. Cash generated from operations fell by 27% to £72.6 million producing a cash conversion (the percentage by which cash generated from operations covers adjusted operating profit) of 91% (2008: 123%) as a result of a fall in deferred revenue. Approximately 80% of the group’s debt is US dollar-denominated. The sterling-US dollar rate increased from $1.43 at March 31 to $1.60 at year end, which helped reduce net debt by £18.0 million, reversing some of the £31.0 million increase generated by currency movements in the first half. Cash flows in the second half are traditionally stronger than those in the first due to the timing of payments for annual profit shares, dividends and earn-outs. Cash generated from operations in the second half was £48.1 million, against £24.5 million in the first half. The operating cash conversion rate was 91%. The group also invested a further £6.3 million in the second half in increasing its equity interests in a number of its subsidiaries under acquisition earn-out agreements. Commitments remaining under outstanding acquisition option agreements total £11.9 million, most of which is expected to be paid in 2010. The group’s debt is provided through a dedicated multi-currency committed facility from Daily Mail and General Trust plc (DMGT). The facility was renewed in December 2008 on terms broadly similar to those of the previous facility. At renewal, the group took the opportunity to reduce the size of its facility from £300 million to $400 million reflecting the strong cash flows since the acquisition of Metal Bulletin in October 2006. The facility is provided in a mix of sterling and US dollar funds over three and five year terms, and the earliest repayment date is December 31 2011. Interest on the facility is payable at a variable rate between 1.3% and 3.0% above LIBOR, compared to 0.4% and 1.6% under the old facility, depending on the group’s net debt to EBITDA ratio. The net debt to EBITDA covenant is defined to allow the rate used in the translation of US dollar EBITDA, including hedging contracts, to be used also in the calculation of net debt, thereby removing any distortion to the covenant from increases in net debt due to short-term movements in the US dollar. At September 30 2009 there were £81.4 million (2008: £115.4 million) of committed undrawn amounts directly available to the group. The average cost of funds in 2009 was 6.0% (2008: 5.9%). 14 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C 3.4.7 Dividend strategy At the time of the half year results, the board announced its intention to increase its dividend cover to three times earnings. The proposed reduction in the final dividend reflects this decision, which arose after reviewing possible debt and cash flow outcomes in the light of events in world financial and commodities markets from 2007 onwards. This review suggested that volatility in these markets had increased sharply, particularly in the wake of the Lehman collapse. The board concluded that such volatility may persist for some time, in spite of the recovery in parts of financial markets, and that the dividend cover should be rebased to a sustainable level for the longer term. The board has approved a final dividend of 7.75p a share (2008: 13.00p), making a total dividend for the year of 14.00p (2008: 19.25p). The final dividend will be paid on February 4 2010 to shareholders on the register at November 20 2009. A scrip dividend alternative will again be available to shareholders. The group’s majority shareholder, Daily Mail and General Trust plc, has indicated its intention to accept the scrip alternative when the final dividend is paid. In future, the board intends to maintain a policy of distributing one third of its after-tax earnings to shareholders while delivering long- term dividend growth in real terms. From 2010, the interim dividend will be adjusted so that approximately one third of the expected total dividend will be paid as an interim and the balance as a final dividend. 3.4.8 Balance sheet The net assets of the group were £105.0 million compared to £88.1 million in 2008. The main movements in the balance sheet items were in: intangible assets, reflecting the recognition of £23.2 million of goodwill and other intangible assets following the further equity purchases of ISI, TelCap, Total Derivatives, IMN and ABF, foreign exchange gains of £34.0 million and amortisation charge of £16.1 million and impairment losses of £23.2 million; property, plant and equipment fell by £1.9 million to £19.8 million, largely as a result of depreciation of £3.8 million, including exceptional accelerated depreciation of £1.2 million following the rationalisation of the group’s property portfolio (see note 5), offset by regular capital expenditure across the group of £1.3 million and a foreign exchange gain of £0.7 million; net pension surplus fell from £2.5 million to a deficit of £0.4 million reflecting the change in pension surplus on the Metal Bulletin pension scheme; derivative financial instruments (due less than one year and more than one year), increased slightly from a liability of £23.1 million to £23.4 million reflecting the mark to market value of the group’s forward currency contracts and interest rate swaps; acquisition option commitments due in less than one year fell £11.0 million to £11.2 million reflecting the £20.7 million exercise of the option commitments over ISI, Total Derivatives, Telcap, IMN and ABF, £2.1 million of foreign exchange loss, offset by the £7.5 million transfer of the liability from acquisition option commitments due in more than year, in relation to further tranches of the group’s acquisitions due for purchase in 2010; trade and other payables increased £28.6 million to £59.2 million reflecting the inclusion of a balance due to a DMGT group undertaking from an intergroup funding transaction; deferred income fell £6.9 million to £82.6 million reflecting the fall in the group’s revenues; loan notes fell £1.9 million to £5.7 million, a result of loan note redemption during the year; committed loan facility is, in 2009, classified as due in more than one year following its renewal. The total facility (less than one year and more than one year) has fallen £13.2 million to £171.4 million, reflecting the net cash generated by the group from operations; deferred tax, the net deferred tax liability has fallen from £11.4 million to £3.3 million due to the recognition of additional deferred tax assets on US and UK losses and the unwinding of deferred tax on intangible assets and goodwill impairment. 3.4.9 Acquisitions and disposals Acquisitions remain a fundamental part of the group’s growth strategy. In particular the board believes that acquisitions are valuable for taking the group into new sectors, for bringing new technologies into the group and for increasing the group’s growth by buying into rapidly developing niche businesses. The group continues to look for acquisitions to support its main brands, especially in international finance, energy, commodities, telecoms and law. Increase in equity holdings During the year the group has invested £19.9 million in increasing its equity interests in a number of its subsidiaries under acquisition earn- out agreements. This includes the acquisition of the outstanding 20% minority interest in Information Management Network, the structured finance, indexing and real estate events business, for £7.7 million, and the acquisition of the outstanding 10% minority interest in Asia Business Forum for £0.4 million. The group also spent £3.0 million Annual Report and Financial Statements 2009 15 Directors’ Report continued on an additional 4% interest in ISI, taking its holding to 98%, £2.8 million increasing its interest in Total Derivatives from 78% to 89%, and £6.0 million increasing its interest in TelCap from 70% to 85%. Further details are provided in note 14. Following these payments, the total commitment under outstanding acquisition option agreements has fallen from £29.8 million to £11.9 million, most of which is payable in 2010. 3.4.10 Headcount The number of people employed is monitored monthly, to ensure that there are sufficient people employed to meet the forthcoming demands of each business but also to make sure that the businesses continue to deliver sufficient profits to support the people they employ. During the year, given the down-turn in trading, the directors have reduced headcount and, at the end of September, the group employed 1,841 people, a decrease of 366 since the start of the year. 3.4.11 Marketing and circulation In 2009 revenues from direct marketing, including Metal Bulletin, increased by 8%. Revenue growth was achieved across all products, in particular electronic subscriptions. Marketing revenues taken online grew by 32%, primarily driven by the database businesses: BCA, ISI and CEIC. Return on marketing spend improved by 25%, marketing continues to be focused on renewal and driving electronic subscriptions. 3.4.12 Systems and information technology The group continues to invest across all technology areas. In 2009 the group implemented new advertising billing software in the UK and Asia and planning is underway for  delivery to the US office early next year. The group is continuing the roll out of the event management and registration technology and integrating systems with the conference business websites. A major project to implement new central CRM technology has started with an extensive roll out scheduled during 2010. The group has invested in resilient and high capacity telecom infrastructure; VoIP networks provide increased internet bandwidth and a scalable and feature-rich telephony network across the company.  Unified messaging is in place in the UK and US to enable staff to receive voicemail over the web worldwide. The group continues to invest in video conferencing technology between the offices in London, New York, Montreal and Hong Kong to improve communication and reduce global travel costs. Total call costs were further reduced following a full review of telecom suppliers and services during the year. The group’s websites are located at a dedicated, high-availability hosting centre. Many sites were re-launched during 2009 with fresh designs and updated technologies. New state-of-the-art search technology was implemented during the year and made available across a portfolio of sites. Throughout 2009 the group continued to invest in its e-commerce infrastructure. New technology has been developed to enhance how the group manages its website customers, products and online orders; new access control software has increased the number of ways content can be delivered online. A comprehensive training programme is underway to support the software roll out across the group. There was a full review of the group’s information security policy in 2009. A programme is underway to encrypt data on all laptops worldwide and new software is being introduced across the group networks to track and control access to corporate data. All credit card processing systems and procedures were updated during the year to meet the new standards mandated by the payment card industry. In 2009 disaster recovery and business continuity plans for all businesses were updated. The group has an active programme for testing the disaster recovery plans for all business units. 3.4.13 Tax and treasury Committee The group’s tax and treasury committee normally meets twice a year and is responsible for recommending policy to the board. The committee members are the chairman, managing director and finance director of the company, and the finance director and the deputy finance director of DMGT. The chairman of the audit committee is also invited to attend the tax and treasury meetings. The group’s treasury policies are directed to giving greater certainty of future costs and revenues and ensuring that the group has adequate liquidity for working capital and debt capacity for funding acquisitions. 16 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Treasury The treasury department does not act as a profit centre, nor does it undertake any speculative trading activity and it operates within policies and procedures approved by the board. foreign currency borrowings with investments and the related foreign currency finance costs provide a partial hedge against the translation of overseas profits. As a result of this hedging strategy, any profit or loss from the strengthening or weakening of the US dollar will largely be delayed until the following financial year and beyond. Interest rate swaps are used to manage the group’s exposure to fluctuations in interest rates on its floating rate borrowings. The maturity profile of these derivatives is matched with the expected future debt profile of the group. The group’s policy is to fix the interest rates on approximately 80% of its term debt looking forward over five years. The maturity dates are spread in order to avoid interest rate basis risk and also to negate short-term changes in interest rates. At September 30 2009, the group had 84% of its gross debt fixed by the use of interest rate hedges. The predictability of interest costs is deemed to be more important than the possible opportunity cost forgone of achieving lower interest rates and this hedging strategy has the effect of spreading the group’s exposure to fluctuations arising from changes in interest rates and hence protects the group’s interest charge against sudden increases in rates but also prevents the group from benefiting immediately from falls in rates. The group generates approximately two-thirds of its revenues in US dollars, including approximately 30% of the revenues in its UK- based businesses, and approximately 60% of its operating profits are US dollar-denominated. The group is therefore exposed to foreign exchange risk on the US dollar revenues in its UK businesses, and on the translation of the results of its US dollar-denominated businesses. In order to hedge its exposure to US dollar revenues in its UK businesses, a series of forward contracts are put in place to sell forward surplus US dollars. In 2008, the group hedged fully for the coming 12 months and partially for a further 36 months. This year, the directors reviewed the group’s hedging policy and as a result reduced the period of partial hedging from up to 48 months to between 12 and 18 months and reduced the percentage of revenues hedged in the first 12 months to 80%. The transition to the revised policy will take a number of months, with forward deals in excess of 18 months being allowed to naturally unwind. Details of the financial instruments used are set out in note 18 to the accounts. Tax The underlying effective tax rate based on adjusted profit before tax and excluding deferred tax movements on intangible assets, prior year items and exceptionals is 27% (2008: 27%). The group’s underlying tax rate has historically been below 30% because of the tax benefit of overseas tax deductible goodwill. The group’s reported effective tax rate decreased to a 60% credit compared to 19% credit in 2008. A credit of £19.9 million relating to tax on foreign exchange losses (2008: £12.0 million) has been treated as exceptional as it is hedged by £19.9 million (2008: £12.0 million) of foreign exchange losses on tax equalisation contracts included within net finance costs (note 7). A reconciliation to the underlying effective rate is set out in note 8 in the accounts. The total net deferred tax balance held is a liability of £3.3 million (2008: £11.4 million) and relates primarily to capitalised intangible assets, tax deductible US goodwill and rolled over capital gains, net of deferred tax assets held in respect of US and UK tax losses and short- term timing differences and the future deductions available for the CAP. The decrease in the net liability is primarily due to the impairment of goodwill and the unwinding of deferred tax on intangible assets. 4. Principal risks and uncertainties The company has continued to develop its processes for risk management. Management of significant risk is regularly on the agenda of the board and other senior management meetings. Specific risk areas that potentially could have a material impact on the group’s long-term performance include: The group does not hedge the foreign exchange risk on the translation of overseas profits, although it does endeavour to match Downturn in economy or market sector The group generates significant income from certain key geographical Annual Report and Financial Statements 2009 17 Directors’ Report continued regions and market sectors for both its publishing and events businesses. Uncertainty in global financial markets increases the risk of a downturn or potential collapse in one of these areas, should this occur, income is likely to be adversely affected and for events businesses some abandonment costs may also be incurred. However, the group has a strong product mix and operates in multiple geographical locations which reduces dependency on any one sector or region. Management has shown a proven ability to switch the group’s focus to new or unaffected markets (e.g. following the SARS outbreak in Asia and terrorist attacks in New York). Major disease outbreak The recent outbreak of a new strain of H1N1 influenza (Swine Flu) has led the World Health Organisation to increase the pandemic threat level to five, indicating an imminent pandemic. Whilst it is not clear how serious any pandemic might be, it could significantly affect the group’s ability to produce and deliver its products, reduce the demand for them, or increase the cost base. Events businesses in particular may be sensitive to a pandemic as their success depends on delegates’ confidence in and ability to travel globally. Disruptions or reductions to global travel as a result of a pandemic could lead to events being cancelled or postponed. Disaster recovery plans are in place to address this risk. Liquidity risk The group has significant borrowings and is an approved borrower under a Daily Mail and General Trust plc (DMGT), $400 million revolving multi-currency facility. This facility requires the group to meet certain covenants based on net debt and profits adjusted for certain non-cash items and the impact of foreign exchange. Failure to do so would result in the group being in breach of the facility potentially resulting in the facility being withdrawn or impediment of management decision making by the lender. Management regularly monitor the covenants and prepare detailed debt forecasts to ensure that sufficient headroom is available and that the covenants are not close or potentially close to breach. The group’s strategy is to use excess operating cash to pay down its debt. The group has a cash conversion rate (the percentage by which cash generated by operations covers adjusted operating profit) of 91%, due to much of its subscription, conference and training revenue being paid in advance. The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013. Under the DMGT facility, at September 30 2009, the group has £81.4 million of undrawn but committed facilities available to draw upon if required. This is more than sufficient for the group to meet expected and unexpected short-term working capital requirements. However, given the level of uncertainty in the global economy and financial markets, there is a risk that the undrawn portion of the facility may be unavailable or withdrawn if DMGT experience funding difficulties themselves. It is, however, unlikely that this would impact the group as DMGT have a wide range of funding sources, other than bank debt, available to them. In addition, if DMGT were unable to fulfil its commitment to Euromoney the directors are confident that the group is in a position that would enable it to secure adequate facilities outside of DMGT, albeit at an increased cost to the business due to high interest charges imposed given the crisis in the credit markets. Market price risk Market price risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. The group’s primary market risks are interest rate fluctuations and exchange rate movements. Derivatives are used to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist. Derivatives used by the group for hedging a particular risk are not specialised and are generally available from numerous sources. The fair values of interest rate swaps, currency options and forward exchange contracts set out in note 18 represent the replacement costs calculated using the market rates of interest and exchange at September 30 2009. The group has no other material market price risks. Interest rate risk The group’s borrowings are in both pounds sterling and US dollars with the related interest tied to GBP and US dollar LIBOR. This results in the group’s interest charge being at risk to fluctuations in interest rates. It is the group’s policy to hedge approximately 80% of its interest exposure, converting its floating rate debt into fixed debt by means of interest rate swaps. The maturity dates are spread in order to avoid interest rate basis risk and also to negate short-term changes in interest rates. The predictability of interest costs is deemed 18 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C to be more important than the possible opportunity cost foregone of achieving lower interest rates and this hedging strategy has the effect of spreading the group’s exposure to fluctuations arising from changes in interest rates and hence protects the group’s interest charge against sudden increases in rates but also prevents the group from benefiting immediately from falls in rates. Details of the group’s interest rate swaps are given in note 18. Foreign currency risk The group generates approximately two-thirds of its revenues in US dollars, including approximately 30% of the revenues in its UK- based businesses, and approximately 60% of its operating profits are US dollar-denominated. The group is therefore exposed to foreign exchange risk on the US dollar revenues in its UK businesses, and on the translation of the results of its US dollar-denominated businesses. The group does not hedge the translation of the results of its US dollar- denominated businesses. Consequently, fluctuations in the value of sterling versus the US dollar could materially affect the translation of these results in the consolidated financial statements. The group endeavours to match foreign currency borrowings to investments in order to provide a natural hedge for the translation of the net assets of overseas subsidiaries with the related foreign currency interest cost arising from these borrowings providing a part natural hedge against the translation of foreign currency profits. Subsidiaries normally do not hedge transactions in foreign currencies into the functional currency of their own operations. However, at a group level, a series of US dollar forward contracts are put in place to sell forward surplus US dollars. In 2008, the group hedged fully for the coming 12 months and partially for a further 36 months. This year, the directors reviewed the group’s hedging policy and as a result reduced the period of partial hedging from up to 48 months to between 12 and 18 months and reduced the percentage of revenues hedged in the first 12 months to 80%. The transition to the revised policy will take a number of months, with forward deals in excess of 18 months being allowed to naturally unwind. The timing and value of these forward contracts is based on managements estimate of its future US dollar revenues over an 18 month period. If management materially underestimated the group’s future US dollar revenues this would lead to too few forward contracts being in place and the group being more exposed to swings in US dollar to sterling exchange rates. An overestimate of the group’s US dollar revenue would lead to associated costs in unwinding the excess forward contracts. At September 30 2009, the fair value of the group’s forward contracts was a liability of £15.8 million (2008: £10.9 million). Credit risk The group seeks to limit interest rate and foreign currency risks described above by the use of financial instruments and as a result has a credit risk from the potential non-performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. The group also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Credit risks are controlled by monitoring the amounts outstanding, with and the credit quality of, these counterparties. For the group’s cash and cash equivalents these are principally licensed commercial banks and investment banks with strong long-term credit ratings, and for derivative financial instruments DMGT who have treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than AA. The group also has credit risk with respect to trade and other receivables, prepayments and accrued income. The concentration of credit risk from trade receivables is limited due to the large and broad customer base. Trade receivable exposures are managed locally in the business units where they arise. Allowance is made for bad and doubtful debts based on management’s assessment of the risk of non-payment taking into account the ageing profile, experience and circumstance. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, recorded in the balance sheet. All of the above risks have been further heightened by the impact of the credit crunch resulting in increased uncertainty in global financial markets and economies. Annual Report and Financial Statements 2009 19 Directors’ Report continued London, New York, Montreal or Hong Kong wide disaster The group has its main offices located in London, New York, Montreal and Hong Kong. An area wide disaster is likely to have serious consequences with office space potentially becoming unusable for several months and a lack of suitable alternative accommodation; loss of key clients and staff in an affected area and difficult communications with both customers and staff. As a consequence of the above, the group could suffer a loss of revenue. To mitigate this risk the group has detailed disaster recovery (DR) plans for all businesses. All employees can work remotely. The group regularly tests its DR plans. It has robust systems in place with key locations (including the UK, US, Canada and Asia) benefiting from dual locations of back ups, dual loading of live back-ups for key systems and third-party 24-hour support. Publishing legislation The group generates a significant amount of its revenue from publishing and hence has an inherent libel risk. A successful libel claim is likely to affect the group’s reputation in the market place where the libel claim arose and/or where the publication was published. As a consequence the group could suffer a loss of advertising and other add-on revenue streams. To mitigate this risk the group runs mandatory annual libel courses for all journalists and editors. Key staff are aware of the significant nature of the risks and strong internal controls are in place for reporting to senior management if a potential issue arises. The group also has libel insurance cover. Circulation The group publishes over 70 titles and publications and sells advertising based partly on circulation figures. An incorrect claim for circulation could adversely affect the group’s reputation in the applicable market place with a potential knock-on effect for other titles within the group. This could lead to the permanent loss of advertisers and other revenue streams. To mitigate this risk the group runs rolling annual internal audits and regularly monitors internal controls designed to cover circulation. Detailed guidance is provided to all relevant employees and their understanding of the rules is regularly monitored. There are a large number of mutually exclusive titles and it is unlikely that an incorrect circulation claim, should it arise, would affect the circulation of other titles within the wider group. Similar controls are applied to claims for electronic publishing activities. Acquisition and disposal risk Part of the group’s strategy is to be acquisitive. Management review a number of potential acquisitions each year with only a small proportion of these going through to due diligence stage and possible subsequent purchase. The group could suffer an impairment loss if an acquired business does not generate the expected returns or fails to operate or grow in its markets and product areas. The expected risks of a newly acquired entity may be misunderstood. As a consequence a significant amount of management time could be diverted from other operational matters. The group is also subject to disposal risk, possibly failing to achieve optimal value from disposed businesses or underestimating the impact on the remaining group businesses from such a disposal. To mitigate this risk experienced senior management perform detailed in-house due diligence and call on expert external advisers where deemed necessary. Acquisition agreements are usually structured so as to retain key employees in the acquired company and there is a close monitoring of performance at board level of the entity concerned post acquisition. Key staff leaving In order to pursue the group strategy, the group is reliant on key management and staff across all businesses. Many of the businesses products are reliant on the technological and specialist expertise provided by a number of talented staff. All key staff are engaged in long-term incentive plans to encourage retention. In addition the directors remain committed to recruitment and retention of high quality management and talent, and provide a program of great opportunity and progression for employees including extensive training and transfer opportunities. Reliance on key brands The group has a portfolio of significant brands. Damage to any of these brands, or increasing popularity of a competitor brand could impact the group’s reported profits. The group works hard to manage the quality and reputation of its brands and products and protects these where necessary with trade marks which are monitored by 20 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C external advisers. In addition the group benefits from a broad range of products and brands which diversifies the brand risk. Conferences and events Events businesses within the group form a significant part of the group’s operations and account for approximately 30% of the group’s profits. A number of key events are organised as joint venture partnerships. Failure in these joint venture relationships could result in loss of profit, reputation and damage to the specific event brand. Measures are in place to closely manage these key relationships and the quality of the events to ensure they remain financially successful. Events are held all over the world and rely on the ability of the delegates to travel globally. Disruptions or reductions to global travel as a result of terrorism, pandemic (see major disease outbreak risk paragraph above) or climate change issues, could lead to events being cancelled or refunded. Abandonment insurance is in place for targeted key events. Tax The group operates within many jurisdictions; earnings are therefore subject to taxation at differing rates across these jurisdictions. The directors endeavour to manage the tax affairs of the group in an efficient manner, however, due to an ever more complex international tax environment there will always be a level of uncertainty when provisioning for tax liabilities. There is also a risk of tax laws being amended by authorities in the different jurisdictions in which the group operates which could have an adverse effect on the financial results. External tax experts and in-house tax specialists, reporting to the tax and treasury committee, work together to review all tax arrangements within the group and keep abreast of changes in global tax legislation. Technological change and IT infrastructure All of the group’s businesses to some degree are dependent on technology. Information systems are critical for the effective management and provision of services around the group. Disruption to information technology could adversely affect the business and damage the group’s reputation. The internet is becoming an ever increasing important revenue stream for the group and with this comes risk. The internet, through the proliferation of free content and content aggregators, has the potential to erode hard copy advertising and subscription revenues. The group’s increasing dependence on information systems has also heightened the information security risk to the group with breaches in our data security systems having a potential impact on our business and reputation. The group is already embracing these challenges, and overall sees the internet and other technological advances as an opportunity not a threat. Business continuity plans are in place in each business and include comprehensive back up plans for IT infrastructure, with the aim to protect the businesses from unnecessary disruption. The group has comprehensive information security standards and practices in place which are reviewed on a regular basis. Many of the group’s businesses already produce soft copies of publications to supplement the hard copies. While the internet is an important tool for generating additional revenue the group’s product mix provides protection for any potential unforeseen problems. For example, the group’s share of profit from event businesses is significant, with face-to-face meetings of increasing importance. 5. Social Responsibility The company encourages its people to be active in charities. Its charity budget deliberately supports the same good causes that its employees support, matching or better the money raised by its people. The Euromoney Paediatric Eye Care Centre The Euromoney Paediatric Eye Care Centre at Kalinga Eye Hospital & Research Centre, Dhenkanal, Orissa, India was officially opened on March 5 2009. Euromoney directors, employees and customers contributed £195,000 for the centre, which now provides a fully trained paediatric eye care team in a child-friendly facility within the main Kalinga hospital. To date, more than 43,000 children have been screened at the hospital and at outreach camps, and 10,000 children have been treated or received surgery at the hospital and at outreach camps. The paediatric care team will look after five districts, providing outreach and screening in a poor and remote community. The Euromoney Centre and the Kalinga Hospital represent a strong commitment and effort on the part of many, in India and at Euromoney. This culmination of faith and action will change the lives of those who are needlessly blind. The picture above shows the new Annual Report and Financial Statements 2009 21 Directors’ Re port continued Kalinga Eye Hospital during the official opening of the Euromoney Centre. Charity dinners A number of charity dinners were held during the year. For instance this year, Institutional Investor Journals sponsored a table at the Annual Auction4Kids Gala held at the New York Stock Exchange. This event supports Per Scholas’ Comp2Kids program, which supplies computer literacy training as well as home computers for low income students and schools in the Bronx, Brooklyn, and Manhattan. Many donated items were auctioned at the Gala, and several hundred thousand dollars were raised as a result. Help for flood victims in the Philippines The company donated £10,000 to the Red Cross appeal to help victims of the tragic floods in the Philippines. The funds will be used to create eight temporary homes for families who have lost their houses in the two typhoons that have caused wide spread damage this year. The picture on the previous page shows the Red Cross model house that the relief organisation designed specially for disasters of this kind. Running Club This year, the UK businesses set up a running group for charitable purposes. It is the intention that the club will complete charity runs on a regular basis, the first, which had over 30 runners, was in September 2009. So far the club has raised over £7,500. Scholarships To mark its 40th Anniversary, Euromoney has announced a programme of international financial publishing scholarships - “The Euromoney Sergeant Scholarships”. Each scholar is given the opportunity to work for Euromoney for 2 months with accommodation, stipend for living and return airfares provided to successful candidates. These candidates will be trained by senior staff and will work on writing articles, researching data and marketing work. Following the scholarship programme permanent job offers may be available. BCA have also committed for three years to give a scholarship to a finance student at the John Molson School of Business at Concordia University. Global charity events A number of the group’s businesses participated in charity events around the world to raise money for local charities. For example II News raised $15,000 for SPARKS through a fundraiser at the Global Derivatives & European Securitization Awards in October 2008. The Legal Group raised a total £5,450 for the Red Cross at three of their awards events. BCA sponsored a walk for breast cancer and one of BCA’s employee is completing 12,000 km on a bike through South America for the David Suzuki Foundation, (www.12000km.org). BCA also donated $10,000 to a local hospital to purchase neurological equipment. In May, Gulf raised $2,000 through a t-shirt drive for Ilene Hartmann an employee of Gulf for 28 years who sadly died in January 2009. The money raised was donated to the pancreatic cancer research. Gulf also participated in the charity Sprint for Life 5k run/walk to raise money for cancer research. Annual charity drive Each year the US group conducts a charity drive where the businesses match up to a total of $50,000 per year in employee contributions made to various charitable organisations. This is an excellent way to cover a broad range of charities that employees themselves may favour and support. Christmas charity event Again this year, the US businesses selected a local charity for employees to donate Christmas gifts. This year the donations were given to a shelter for single mothers that housed 27 mothers and 62 children. They were invited to participate in a party at which they were all given gifts that they had requested in letters to Santa. 6. Future developments in the business The group continues to trade in line with the board’s expectations. It has a clear, well established strategy which it is executing successfully to build a more robust, high quality earnings flow. This strategy, combined with the strength of its brands and the diversity of its sectors, customers, and geographic markets, means the group is well positioned to return to growth as soon as markets improve. 22 Euromoney Institutional Investor PLC E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C An indication of the trading outlook for the group is given in the Chairman’s Statement on page 6. In 2010 the directors will build on the cost based review completed in 2009 to ensure the business is operating as effectively as possible, to facilitate growth in a challenging global market and to continue to shape the business to remain lucrative and competitive in the midst of the difficult economic environment. The group is well placed to diversify its product and geographical base and remains committed to its strategy set out on page 5. The board will continue to review the portfolio of businesses, disposing, closing or restructuring any under-performing businesses to allow the group to have the necessary resources and skills to remain acquisitive. The group will invest in technology and new businesses, particularly electronic information products, as well as in its internal systems. 7. Directors and their interests The company’s Articles of Association give power to the board to appoint directors from time to time. In addition to the statutory rights of shareholders to remove a director by ordinary resolution, the board may also remove a director where 75% of the board give written notice to such director. The Articles of Association themselves may be amended by a special resolution of the shareholders. The directors who served during the year are listed on pages 26 and 27. The directors’ interests are given on pages 47 and 48. CR Brown, an executive director, died on July 16 2009. RT Lamont retired as a director on January 14 2009 on reaching the age of 62. DP Pritchard was appointed a non-executive director on December 22 2008. With effect from November 11 2009, B AL-Rehany was appointed to the board as an executive director. MJ Carroll has indicated his intention to retire as an executive director at the company’s Annual General Meeting on January 21 2010. under corporate governance, all non-executive directors who have served for more than three three-year terms must submit themselves for re-election on an annual basis. In addition, in accordance with the Combined Code on Corporate Governance, before the re-election of a non-executive director, the chairman is required to confirm to shareholders that, following formal performance evaluation, the to be effective and non-executive’s performance continues demonstrates commitment to the role. Accordingly, Sir Patrick Sergeant, The Viscount Rothermere and JC Botts will retire at the forthcoming Annual General Meeting and, being eligible following a formal performance evaluation by the chairman, offer themselves for re-election. Details of the interests of the directors in the ordinary shares of the company and of options held by the directors to subscribe for ordinary shares in the company are set out in the Directors’ Remuneration Report on pages 43 to 48. 8. Capital structure and significant shareholdings Details of the company’s share capital are given in note 22. The company’s share capital is divided into ordinary shares of 0.25 pence each. Each share entitles its holder to one vote at shareholders’ meetings and the right to receive one share of the company’s dividends. At November 11 2009, being the latest practical date before approval of the accounts, notification had been received, in accordance with chapter 5 of the Disclosure and Transparency Rules, of the following voting rights as a shareholder of the company: Name of holder Daily Mail and General Holdings Limited AEGON UK Nature of holding Number of shares Direct Direct 76,026,142 3,508,021 % of voting rights 66.83 3.08 Following best practice under corporate governance and in accordance with the company’s Articles of Association, all directors submit themselves for re-election at least every three years. Accordingly, PR Ensor, DC Cohen, CR Jones, and CHC Fordham will retire at the forthcoming Annual General Meeting and, being eligible, will offer themselves for re-election. Also, as required by best practice Banque Internationale à Luxembourg SA has issued international depositary receipts (IDR) in bearer form in respect of a total of 812,800 shares (0.7%) (2008: 948,800 shares (0.9%)) registered in its name. Each IDR issued equates to one underlying ordinary share in the capital of Euromoney Institutional Investor PLC. The company announced on October 8 2009 that it intends to terminate the deposit Annual Report and Financial Statements 2009 23 Directors’ Re port continued agreement and delist the underlying shares from the Luxembourg Stock Exchange with effect from December 14 2009. Details of the directors’ entitlement to compensation for loss of office following a takeover or contract termination are given in the Directors’ Remuneration Report. 12. Disabled employees It is the group’s policy to give full and fair consideration to applications for employment from people who are disabled; to continue, wherever possible, the employment of, and to arrange appropriate training for, employees who become disabled; and to provide opportunities for the career development, training and promotion of disabled employees. 9. EU Takeovers Directive Pursuant to s992 of the Companies Act 2006, which implements the EU Takeovers Directive, the company is required to disclose certain additional information. Such disclosures, which are not covered elsewhere in this Annual Report include the following: A number of agreements that take effect, alter or terminate upon a change of control of the company following a takeover bid, such as commercial contracts, bank loan agreements, property lease arrangements, directors’ service agreements and employee share plans. None of these is deemed to be significant in terms of their potential impact on the business of the group as a whole. 10. Authority to purchase and allot own shares The company’s authority to purchase up to 10% of its own shares expires at the conclusion of the company’s next Annual General Meeting. A resolution to renew this authority for a further period will be put to shareholders at this meeting. At the Annual General Meeting of the company on January 28 2009, the shareholders authorised the directors to allot shares up to an aggregate nominal amount of £80,030 expiring at the conclusion of the Annual General Meeting to be held in 2010. A resolution to renew this authority for a further period will be put to shareholders at this meeting. 11. Political and charitable contributions During the year the group raised charitable contributions of £207,000 (2008: £290,000). There were no political contributions in either year. See pages 21 and 22 for details of the group’s charitable projects. 13. Employee involvement and training The group believes it is important to provide skills and management training for its employees around the world. It continues to develop these programmes and tries to ensure that as many employees as possible benefit from internal and external training. The group is continually developing and expanding the training programmes provided. The group recognises the importance of good communication in relationships with its staff. This is pursued in a number of ways, including training and regular meetings between management and staff, which seek to achieve common awareness on the part of all employees of the financial and economic circumstances affecting the group’s performance. Many employees participate directly in the success of the business through involvement in the group’s profit sharing schemes, the Capital Appreciation Plan and in the savings related share option scheme. 14. Supplier payment policy Each business agrees payment terms with its suppliers on an individual basis and it is group policy to make payments in accordance with these terms. The group had 84 days of purchases in creditors at September 30 2009 (2008: 80 days). 15. Directors’ indemnities The company has in place directors and officers liability and corporate reimbursement insurance for the benefit of the company’s directors and those of other associated companies. The insurance has been in place throughout the year and remains in force at the date of this report. 24 Euromoney Institutional Investor PLC 16. Annual General Meeting The company’s Annual General Meeting will be held on January 21 2010. 17. Auditors A resolution to reappoint Deloitte LLP as the company’s auditors is expected to be proposed at the forthcoming Annual General Meeting. 18. Disclosure of information to auditors In the case of each of the persons who is a director of the company at November 11 2009: y so far as each of the directors is aware, there is no relevant audit information (as defined in the Companies Act 2006) of which the company’s auditors are unaware; and y each of the directors has taken all the steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information (as defined) and to establish that the company’s auditors are aware of the information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. By order of the board Colin Jones Company Secretary November 11 2009 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 25 Directors and Advisors Executive Directors Mr PM Fallon ‡ Chairman Mr PM Fallon (aged 63) is chairman. He joined the company in 1974 and was appointed an executive director in October 1975. He was appointed managing director in 1985, chief executive in 1989 and chairman in 1992. He is chairman of the nominations committee. He is also an executive director of Daily Mail and General Trust plc and a member of the board of the Trinity College Dublin Foundation. Mr PR Ensor ‡ Managing director Mr PR Ensor (aged 61) is the managing director. He joined the company in 1976 and was appointed an executive director in 1983. He was appointed managing director in 1992 and is a member of the nominations committee. He is also a director of Internet Securities, Inc. and BCA Research, Inc. Mr NF Osborn Mr NF Osborn (aged 60) joined the company in 1983 and was appointed an executive director in February 1988.  He is the publisher of Euromoney. He is also a director of Internet Securities, Inc., and of OAO RBC Information Systems, a Russian public company. Mr DC Cohen Mr DC Cohen (aged 51) joined the company in 1984 and was appointed an executive director in September 1989. He is managing director of the training division. Mr CR Brown Mr CR Brown died on July 16 2009 aged 55. He was appointed an executive director in September 1989 and was president of Institutional Investor, Inc. Mr CR Jones Finance director Mr CR Jones (aged 49) is the finance director. He joined the company in July 1996 and was appointed finance director in November 1996. He is also the company secretary and a director of Institutional Investor, Inc., Information Management Network, Inc., Internet Securities, Inc. and BCA Research, Inc. Mr SM Brady Mr SM Brady (aged 44) joined the company in 1988 and was appointed an executive director in May 1999. He is managing director of Euromoney. Mr RT Lamont Mr RT Lamont (aged 62) retired as an executive director on January 14 2009 on reaching the age of 62. He joined Institutional Investor, Inc. in 1976 and was appointed an executive director in May 1999. He is editor of Institutional Investor’s newsletter division and a director of Institutional Investor, Inc. Ms DE Alfano Ms DE Alfano (aged 53) joined Institutional Investor, Inc. in 1984 and was appointed an executive director in July 2000. She is managing director of Institutional Investor’s conference division and a director of Institutional Investor, Inc. Mr GG Mueller Mr GG Mueller (aged 43) is chairman of Internet Securities, Inc. (ISI), which he founded in 1994. Euromoney acquired ISI in 1999, at which point Mr Mueller joined the company. He was appointed an executive director in July 2000. He is also chairman and CEO of Institutional Investor and a director and chairman of Information Management Network, Inc. Mr MJ Carroll Mr MJ Carroll (aged 52) joined Institutional Investor, Inc. in 1994 and was appointed an executive director in May 2002. He is a director of Institutional Investor, Inc. Mr MJ Carroll has indicated his intention to retire as an executive director at the company’s Annual General Meeting on January 21 2010. Mr CHC Fordham Mr CHC Fordham (aged 49) joined the company in 2000 and was appointed an executive director in July 2003. He is the director responsible for acquisitions and disposals as well as some of the company’s publishing businesses, including the Metals, Minerals & Mining division of Metal Bulletin. Ms JL Wilkinson Ms JL Wilkinson (aged 44) joined the company in 2000 and was appointed an executive director in March 2007. She is director of marketing for the group, and a director of Adhesion SA, the French events business. Mr B AL-Rehany Mr B AL-Rehany (aged 52) was appointed as an executive director on November 11 2009. He is chief executive officer and a director of BCA Research, Inc. which he joined in January 2003. Euromoney acquired Metal Bulletin plc in October 2006, at which point he joined the company. 26 Euromoney Institutional Investor PLC Non-executive Directors The Viscount Rothermere †‡ The Viscount Rothermere (aged 41) was appointed a non-executive director in September 1998 and is a member of the remuneration and nominations committees. He is chairman of Daily Mail and General Trust plc. Sir Patrick Sergeant ‡ Sir Patrick Sergeant (aged 85) is a non-executive director and president. He founded the company in 1969 and was managing director until 1985 when he became chairman. He retired as chairman in September 1992 when he was appointed as president and non- executive director. He is a member of the nominations committee. Mr JC Botts †‡§ Mr JC Botts (aged 68) was appointed a non-executive director in December 1992 and is chairman of the audit and remuneration committees and a member of the nominations committee. He is senior adviser of Allen & Company in London, non-executive chairman of United Business Media Group Limited and a director of several private companies. Mr JC Gonzalez § Mr JC Gonzalez (aged 64) was appointed a non-executive director in November 2004 and is a member of the audit committee. He is chairman and chief executive of American Orient Capital Partners Holdings Limited, an investment and financial advisory services firm based in Hong Kong covering the Asia Pacific region. He is also a director of a number of publicly listed companies in the Philippines. Mr MWH Morgan †‡ Mr MWH Morgan (aged 59) was appointed a non-executive director on October 1 2008. He was also appointed a member of the remuneration and nomination committees with effect from October 1 2008. He was previously chief executive of DMG Information and became chief executive of Daily Mail and General Trust plc on October 1 2008. Mr DP Pritchard § Mr DP Pritchard (aged 65) was appointed a non-executive director on December 22 2008 and appointed a member of the audit committee with effect from June 8 2009. He is chairman of Songbird Estates plc and of AIB Group (UK) plc. He is deputy chairman of Allied Irish Banks plc and a director of The Motability Tenth Anniversary Trust. He was formerly deputy chairman of Lloyds TSB Group, chairman of Cheltenham & Gloucester plc and a director of Scottish Widows Group and LCH.Clearnet Group. † member of the remuneration committee ‡ member of the nominations committee § member of the audit committee President Sir Patrick Sergeant Company Secretary CR Jones Solicitors Nabarro, Lacon House, Theobald’s Road, London WC1X 8RW Brokers Registered Office UBS, 1 Finsbury Avenue, Nestor House, Playhouse Yard, London EC2M 2PP London EC4V 5EX Registrars Registered Number Capita IRG plc, The Registry, 954730 Auditors Deloitte LLP, London 34 Beckenham Road, Beckenham, Kent, BR3 4TU E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 27 Corporate Governanc e The Financial Reporting Council’s Combined Code on Corporate Governance is part of the Listing Rules of the Financial Services Authority. The paragraphs below and in the Directors’ Remuneration Report on pages 34 to 48 set out how the company has applied the principles laid down by the Code. The company continues substantially to comply with the Code, save for the exceptions disclosed in the directors’ compliance statement on page 33. Directors The board and its role Details of directors who served during the year are set out on pages 26 and 27. During the year the board comprised the chairman, managing director, 11 other executive directors and six non-executive directors. On December 22 2008 DP Pritchard was appointed a non-executive director, on January 14 2009 RT Lamont retired as an executive director on reaching the age of 62. CR Brown, an executive director, died on July 16 2009. Two of the six non-executive directors are independent, one is the founder and ex-chairman of the company, two are directors of DMGT, an intermediate parent company, and one has served on the board for more than the recommended term of nine years under the Code. With effect from November 11 2009, B AL-Rehany was appointed to the board as an executive director. MJ Carroll has indicated his intention to retire as an executive director at the company’s Annual General Meeting on January 21 2010. There are clear divisions of responsibility within the board such that no one individual has unfettered powers of decision. The board although large does not consider itself to be unwieldy and believes it is beneficial to have representatives from all key areas of the business at board meetings. There is a procedure for all directors in the furtherance of their duties to take independent professional advice, at the company’s expense. They also have access to the advice and services of the company secretary. All directors submit themselves for re-election at least once every three years. Newly appointed directors are submitted for election at the first available opportunity after their appointment. The board meets every two months and there is frequent contact between meetings. Board meetings take place in London, New York, Montreal and Hong Kong, and in other locations where the group has operations. The board has delegated specific aspects of the group’s affairs to standing committees, each of which operates within defined terms of reference. Details of these are set out below. However, to ensure its overall control of the group’s affairs, the board has reserved certain matters to itself for decision. Board meetings are held to set and monitor strategy, identify, evaluate and manage material risks, to review trading performance, ensure adequate funding, examine major acquisition possibilities and approve reports to shareholders. Procedures are established to ensure that appropriate information is communicated to the board in a timely manner to enable it to fulfil its duties. Executive committee Chaired by the company’s chairman, the executive committee also comprises the divisional directors of the group’s main businesses, together with the managing director and finance director. The committee is responsible for the approval of acquisitions, divestments, capital expenditure and contractual commitments below the level that the board has reserved to itself for decision, and for certain operational, administrative and other routine matters. The committee also regularly reviews and reports to the board on the performance of the group’s businesses. At least 10 meetings are held each year and other senior executives frequently attend by invitation. Nominations committee The nominations committee is responsible for proposing candidates for appointment to the board having regard to the balance of skills and structure of the board and ensuring the appointees have sufficient time available to devote to the role. The committee meets when required and comprises PM Fallon (chairman of the nominations committee), PR Ensor and four non-executive directors: Sir Patrick Sergeant, The Viscount Rothermere, MWH Morgan and JC Botts. The committee’s terms of reference are available on the company’s website. The committee met once during the year to recommend to the board the appointment of DP Pritchard as a non-executive director and the re-election of directors retiring by rotation. The committee did not find it necessary to use open advertising or an external search consultancy for the recruitment of the non-executive director position as the company had access to a number of potential candidates through its own network of contacts. Remuneration committee The remuneration committee meets twice a year and additionally as required. It is responsible for determining the contract terms, remuneration and other benefits for executive directors, including performance related profit share schemes. The committee also recommends and monitors the level of remuneration for senior management and for the rest of the group, including group-wide share option schemes. The composition of the committee, details of directors’ remuneration and interests in share options, together with information on directors’ service contracts, are set out in the Directors’ Remuneration Report on pages 34 to 48. The committee’s terms of reference are available on the company’s website. Audit committee Details of the members and role of the audit committee are set out on page 31. The committee’s terms of reference are available on the company’s website. Tax and treasury committee Details of the members and role of the tax and treasury committee are set out in the Directors’ Report on pages 16 and 17. Non-executive directors The non-executive directors bring both independent views and the views of the company’s major shareholder to the board. The non- executive directors during the year, whose biographies can be found on page 27 of the accounts, were: The Viscount Rothermere, Sir Patrick Sergeant, JC Botts, JC Gonzalez, MWH Morgan and, with effect from December 22 2008, DP Pritchard. 28 Euromoney Institutional Investor PLC At least once a year the company’s chairman meets the non-executive directors without the executive directors being present. The board considers JC Gonzalez and DP Pritchard to be independent non-executive directors. JC Botts has been on the board for more than the recommended term of nine years under the Code and the board believes that his length of service enhances his role as a non-executive director. However, due to his length of service, JC Botts does not meet the Code’s definition of independence. During the year JC Botts also held options to subscribe for common stock in Internet Securities, Inc. a subsidiary of the company, which were exercised during the year. However, the number of options held by JC Botts is not material to him or to the company. The Viscount Rothermere has a significant shareholding in the company through his beneficial holding in DMGT and because of this he is not considered independent. The Viscount Rothermere and MWH Morgan are also executive directors of DMGT, an intermediate parent company. However, the company is run as a separate, distinct and decentralised subsidiary of DMGT and these directors have no involvement in the day-to-day management of the company. They bring valuable experience and advice to the company but the board does not believe these non- executive directors are able to exert undue influence on decisions taken by the board, nor does it consider their independence to be impaired by their positions with DMGT. However, their relationship with DMGT means they do not meet the Code’s definition of independence. Board and committee meetings Board and committee meetings are arranged well in advance of the meeting date and papers covering the points to be discussed are distributed to its members in advance of the meetings. The following table sets out the number of board and committee meetings attended by the directors during the year to September 30 2009: Number of meetings held during year Board 7 Executive Remuneration Nominations committee committee 1 1 committee 11 Audit committee 3 Tax & treasury committee 5 Executive directors PM Fallon - chairman PR Ensor - managing director NF Osborn DC Cohen CR Brown* CR Jones - finance director RT Lamont^ SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson Non-executive directors The Viscount Rothermere Sir Patrick Sergeant JC Botts JC Gonzalez MWH Morgan DP Pritchard† 7 7 6 7 6 7 1 6 7 7 6 7 7 4 4 7 6 7 3 11 11 11 10 10 11 2 7 11 9 7 11 11 – – – – – – – – – – – – – – – – – – – 1 – 1 – 1 – 1 1 – – – – – – – – – – – 1 1 1 – 1 – – – – – – – – – – – – – – – – 3 3 – 1 1 5 – – – 5 – – – – – – – – – – – – – * Died on July 16 2009 ^ Retired on January 14 2009 † Appointed on December 22 2008 and a member of the audit committee since June 8 2009 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 29 Corporate Governanc e continued Board and committee effectiveness During the year the board, through its chairman, assessed its performance and that of its committees. The chairman surveyed each board member and evaluated the strengths and weaknesses of the board and its members. In addition, each of the main committees completed a detailed questionnaire encompassing key areas within their mandates. The results of the assessment were presented and discussed at a board meeting and it was concluded that the board and its committees had been effective throughout the year. Communication with shareholders The company’s chairman, together with the board, encourages regular dialogue with shareholders. Meetings are held, both in the UK and US, to discuss annual and interim results and highlight significant acquisitions or disposals, or at the request of institutional shareholders. Private shareholders are encouraged to participate in the Annual General Meeting. In line with best practice all shareholders have at least 20 working days notice of the Annual General Meeting at which the executive directors, non-executive directors and committee chairs are available for questioning. Internal control and risk management The board is responsible for the group’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. In accordance with principle C.2 and C.2.1 of the Combined Code on Corporate Governance, the board has implemented a continuing process for identifying, evaluating and managing the material risks faced by the group. The board has reviewed the effectiveness of the group’s system of internal control and has taken account of material developments which have taken place since September 30 2008. It has considered the major business and financial risks, the control environment and the results of internal audit. Steps have been taken to embed internal control and risk management further into the operations of the group and to deal with areas of improvement which have come to management’s and the board’s attention. Key procedures which the directors have established with a view to providing effective internal control, and which have been in place throughout the year and up to the date of this report, are as follows: The board of directors y the board normally meets six times a year to consider group strategy, risk management, financial performance, acquisitions, business development and management issues; y the board has overall responsibility for the group and there is a formal schedule of matters specifically reserved for decision by the board; y each executive director has been given responsibility for specific aspects of the group’s affairs; y the board divides the group’s key risks into six broad categories and reviews and assesses each of these at least annually; y the board seeks assurance that effective control is being maintained through regular reports from business group management, the audit committee and various independent monitoring functions; and y the board approves the annual forecast after performing a review of key risk factors. Performance is monitored regularly by way of variances and key performance indicators to enable relevant action to be taken and forecasts are updated each quarter. The board considers longer-term financial projections as part of its regular discussions on the group’s strategy. During the year and up to the approval of this annual report and accounts the board has not identified nor been advised of any failings or weaknesses which it has determined to be significant. Therefore a confirmation of necessary actions has not been considered appropriate. Quality, integrity of people and whistle blowing arrangements The integrity and competence of people is ensured through high recruitment standards and a commitment to management and business skills training. High-quality personnel are an essential part of the control environment and the high ethical standards expected are communicated by management and through the employee handbook which is provided to all employees. The employee handbook also sets out the procedures available to staff to raise, in confidence, possible improprieties in matters of financial reporting or other matters. Social responsibility The group is keen to maintain a high level of social responsibility and has procedures embedded in its internal systems and controls to ensure its social standards are monitored regularly and are not breached. The group supports and encourages employees who become involved in social projects and examples of these are given in the Directors’ Report. Environmental responsibility The group does not operate directly in industries where there is the potential for serious industrial pollution. It does not print products in-house or have any investments in printing works. It takes its environmental responsibility seriously and complies with all relevant environmental laws and regulations in each country in which it operates. Wherever economically feasible, account is taken of environmental issues when placing contracts with suppliers of goods and services and these suppliers are regularly reviewed and monitored. For instance, the group’s two biggest print contracts are outsourced to companies who have environment management systems compliant to the ISO 14001 standard. The paper used for the group’s publications is produced from pulp obtained from sustainable forests, manufactured under strict, monitored and accountable environmental standards. The group is not a heavy user of energy; however, it does manage its energy requirements sensibly using low- energy office equipment where possible and using a common sense approach such as switching off equipment, air-conditioning, heating and lights when not required. Carbon footprint The company, as part of the wider Daily Mail and General Trust plc group (DMGT), participates in a DMGT group-wide carbon footprint 30 Euromoney Institutional Investor PLC analysis completed by ICF International. This exercise has been undertaken every year since 2006 using the widely recognised GHG protocol methodology developed by the World Resource Institute and the World Business Council for Sustainable Development. The directors are committed to reducing the group’s carbon emissions and have embarked upon a comprehensive strategy to manage its carbon footprint. The company, as part of the wider DMGT group, has committed to reducing its footprint by 10% from the baseline year of 2007 by the end of 2012. Health and safety The group is committed to the health and safety of its employees and communities in which it operates. The group complies with all local health and safety regulations and makes use of external health and safety advisers where appropriate. The UK businesses benefit from a regular assessment of the working environment by experienced assessors and regular training of all existing and new UK employees in health and safety matters. Investment appraisal The managing director, finance director and business group managers consider proposals for acquisitions and new businesses. Proposals beyond specified limits are put to the board for approval and are subject to due diligence by the group’s finance team and, if necessary, independent advisers. Capital expenditure is regulated by strict authorisation controls. For capital expenditure above specified levels, detailed written proposals must be submitted to the board and reviews are carried out to monitor progress against budget. Accounting and computer systems controls and procedures Accounting controls and procedures are regularly reviewed and communicated throughout the group. Particular attention is paid to authorisation levels and segregation of duties. The group’s tax, financing and foreign exchange positions are overseen by the tax and treasury committee, which meets at least twice a year. Controls and procedures over the security of data and disaster recovery are periodically reviewed and are subject to internal audit. Internal audit The group has an internal audit function which is managed by DMGT’s internal audit department, working closely with the company’s finance director. Internal audit draws on the services of the group’s central finance teams to assist in completing the audit assignments. Internal audit aims to provide an independent assessment as to whether effective systems and controls are in place and being operated to manage significant operating and financial risks. It also aims to support management by providing cost effective recommendations to mitigate risk and control weaknesses identified during the audit process, as well as provide insight into where cost efficiencies and monetary gains might be made by improving the operations of the business. Businesses and central departments are selected for an internal audit visit on a risk-focused basis, taking account of the risks identified as part of the risk management process; the risk and materiality of each of the group’s businesses; the scope and findings of external audit work; and the departments and businesses reviewed previously and the findings from these reviews. This approach ensures that the internal audit focus is placed on the higher risk areas of the group, while ensuring an appropriate breadth of coverage. DMGT’s internal audit reports its findings to management and to the audit committee. Accountability and audit Audit committee The audit committee comprises JC Botts (chairman), JC Gonzalez (independent), JP Williams, the finance director of DMGT and, with effect from June 8 2009, DP Pritchard (independent). Three of the four members are non-executive directors and JP Williams is a director of DMGT. The committee meets at least three times each financial year. The committee is responsible for reviewing the interim report, the annual report and accounts and other related formal statements before their submission to the board, and reviewing and overseeing controls necessary to ensure the integrity of the financial information reported to the shareholders. The audit committee advises the board on the appointment of external auditors and on their remuneration, both for audit and non-audit work. It has set and applied a formal policy, which focuses on the effectiveness, independence and objectivity of the external audit, the type of non- audit work permissible and a diminimus level of fees acceptable. Any non-audit work performed outside this remit is assessed and where appropriate approved by the committee. The committee discusses the nature, scope and findings of the audit with the external auditors and considers and determines relevant action in respect of any control issues raised by the external auditors. The audit committee is also responsible for monitoring and assessing the effectiveness of internal audit, and reviews the internal audit programme and receives periodic reports on its findings. It reviews the whistle blowing arrangements available to staff. The audit committee’s terms of reference are available on the company’s website. Going concern, debt covenants and liquidity The results of the group’s business activities, together with the factors likely to affect its future development, performance and financial position are set out in the Directors’ Report. The financial position of the group, its cash flows and liquidity position are set out in detail in this Annual Report. The group meets its day-to- day working capital requirements through its $400 million dedicated multi-currency borrowing facility with Daily Mail and General Trust plc group. The facility is divided into four quantums of sterling and US dollar funds with three and five year terms with a total maximum borrowing capacity of $310 million (£194 million) and £59 million respectively. The facility’s covenant requires the group’s net debt to be no more than four times adjusted EBITDA on a rolling 12 month basis. At September 30 2009, the group’s net debt to adjusted EBITDA was 1.99 times and the uncommitted undrawn facility available to the group was £81.4 million. The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013 (see note 18 for further details). The current economic conditions create uncertainty, particularly over: a) the level of demand for the group’s products; b) the exchange rate between sterling and US dollars and its impact on the translation of US dollar profits and losses from its US-dollar-based businesses and transactions, including the gains or losses from the group’s forward contracts used to partially hedge these; and c) the availability of bank finance in the foreseeable future. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 31 Corporate Governanc e continued The group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level and covenants of its current borrowing facility. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing this Annual Report. Directors’ responsibility statement The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the parent company financial statements, the directors are required to: The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement We confirm that to the best of our knowledge: y the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and y the management report, which is incorporated into the Directors’ Report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. y select suitable accounting policies and then apply them consistently; By order of the Board y make judgements and accounting estimates that are reasonable and prudent; y state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and y prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. Richard Ensor Director November 11 2009 In preparing the group financial statements, International Accounting Standard 1 requires that directors: Colin Jones Company Secretary November 11 2009 y properly select and apply accounting policies; y present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; y provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and y make an assessment of the company’s ability to continue as a going concern. 32 Euromoney Institutional Investor PLC Statement by the directors on compliance with the Combined Code The UK Listing Rules require the board to report on compliance throughout the accounting year with the applicable principles and provisions of the 2008 Combined Code on Corporate Governance issued by the Financial Reporting Council. Save for the exceptions outlined below, the group has complied throughout the financial year ended September 30 2009 with the provisions set out in Section 1 of the Combined Code. Provision A.3.2 states that half the board, excluding the chairman, should be comprised of non-executive directors determined by the board to be independent. During the year the board comprised 19 directors of whom six are non-executive directors, two of whom are considered to be independent non-executive directors under the Combined Code. On January 14 2009, RT Lamont retired as a executive director and on July 16 2009 CR Brown, an executive director, died, hence, at the year end, the board comprises 17 directors of whom two are considered to be independent. With effect from November 11 2009, B AL-Rehany was appointed to the board as an executive director, and Mr MJ Carroll has indicated his intention to retire as an executive director at the company’s Annual General Meeting on January 21 2010. Contrary to provision A.3.3, the board has not identified a senior independent non-executive director as the directors are of the opinion that all matters relating to the effective governance of the group must be dealt with by the board as a whole. Provision A.4.1 requires that the majority of the nominations committee should be comprised of independent non-executive directors. Although the committee consists of four non-executive and two executive directors, none of these non-executive directors can be considered independent under the Combined Code. Provision A.4.4 states that the terms and conditions of appointment of non-executive directors should be available for inspection. As explained in the Directors’ Remuneration Report, the non-executive directors do not have service contracts. Provisions B.2.1 and C.3.1 require the remuneration and audit committees to comprise entirely of independent non-executive directors. The remuneration committee is comprised of three non- executive directors, none of whom can be considered independent under the Combined Code. During the year, the audit committee comprised four members, only three of which were non-executive directors of the company including DP Pritchard who was appointed a member of the audit committee on June 8 2009. Only two of the members of the audit committee can be considered independent under the Combined Code. On behalf of the board Padraic Fallon Chairman November 11 2009 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 33 Directors’ Re muneration Report Introduction This remuneration report sets out the group’s policy and structure for the remuneration of executive and non-executive directors together with details of directors’ remuneration packages and service contracts. The report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 and shareholders will be invited to approve this report at the Annual General Meeting on January 21 2010. The remuneration committee The remuneration committee is chaired by JC Botts. Its other members during the year were The Viscount Rothermere and MWH Morgan. All members of the committee are non-executive directors of the company. The Viscount Rothermere and MWH Morgan are also directors of Daily Mail and General Trust plc (DMGT) but have no personal financial interests in the company (other than as shareholders), and no day-to-day involvement in running the business. The executive chairman normally attends meetings of the remuneration committee, but is not present at any discussion concerning his own remuneration. For the year under review, the committee also sought advice and information from the company’s managing director and finance director. The committee’s terms of reference permit its members to obtain professional external advice on any matter, at the company’s expense, although none did so in 2009. The group itself can take external advice and information from many sources in preparing proposals for the remuneration committee, but no material assistance from a single source was received in relation to remuneration decisions for 2009. Remuneration policy The group believes in aligning the interests of management with those of shareholders. The two consistent objectives in its remuneration policy since the company’s inception in 1969 have been the maximisation of earnings per share and the creation of shareholder value. The first objective is achieved through a comprehensive profit sharing scheme that links the pay of executive directors and key managers to the profits and growth in profits of the group or relevant parts of the group. This scheme is completely variable with no guaranteed floor and no ceiling. To support the implementation of the policy of profit sharing, the group is divided into a number of profit centres. The manager of each profit centre is paid a profit share related to the profit centre’s profits and profit growth. Each profit centre is part of a larger business group. Each business group manager has an incentive based on the business group’s profits and profit growth. Profit sharing encourages directors and managers to grow their businesses, to launch new ventures and to search for acquisitions that would fit well with their businesses. All executives on profit shares are aware that if profits rise, so does their pay. Similarly if profits fall, so do their profit shares. The profit shares of executive directors and senior managers make up much of their total pay. For example, of the total remuneration of the 13 executive directors who served in the year, 83% was derived from profit shares. The creation of shareholder value is also encouraged through an executive share option scheme and the 2004 Capital Appreciation Plan (CAP 2004) and, from October 1 2009, the 2010 Capital Appreciation Plan (CAP 2010). The current executive share option scheme was approved by shareholders in January 1996. The performance criteria under which options granted under this scheme may be exercised are set out on page 37. This scheme expired in 2006, but no share options have been issued under it since February 2004 although options previously granted may be exercised before various dates to February 2014. CAP 2004 was approved by shareholders in February 2005, and is a highly geared performance-based share option scheme which not only directly rewards growth in profits of each executive’s businesses but also links more robustly equity reward with the delivery of economic shareholder value. The CAP 2004 profit target was achieved in 2007, a year ahead of expectations, and exceeded again in both 2008 and 2009 resulting in the second and final tranche of options vesting, subject to the additional performance condition also being met by the individual businesses. A more detailed explanation of the CAP is given on page 37. Shareholders approved CAP 2009 at the 2009 Annual General Meeting. This incentive scheme has been revised during the year and shareholders will be asked to re-approve it at the 2010 Annual General Meeting. The revised incentive scheme, CAP 2010, will replace CAP 2009. CAP 2010 is deliberately similar to CAP 2004, and aims to mirror the success of CAP 2004 for both shareholders and employees by delivering exceptional profit growth over the four years to 2013. Further details of CAP 2010 are set out on page 36. The directors believe that these profit sharing and share option arrangements are responsible for much of the company’s success since 1969. These arrangements serve shareholders by aligning the interests of the directors and managers with those of shareholders and are considered an important driver of the company’s growth strategy. The remuneration of the non-executive directors is determined by the board. 34 Euromoney Institutional Investor PLC Remuneration structure Executive directors It is the group’s policy to construct executive remuneration packages such that a significant part of a director’s compensation is based on the growth in the group’s profits contributed by that director. The details of the remuneration packages of individual directors are set out below. Basic salary and benefits The basic salary and benefits are generally not the most significant part of a director’s overall compensation package. Each executive director receives a salary which is reviewed annually by the remuneration committee. Certain non-cash benefits are also provided including private health care, and life assurance through the membership of one of the pension schemes. Pension schemes Each UK-based director is entitled to participate in the Harmsworth Pension Scheme (a defined benefit scheme, closed to new directors), the Euromoney Pension Plan/PensionSaver (money purchase plan) or their own private pension scheme. Directors based overseas are entitled to participate in the pension scheme arrangements applicable to the country where they work. Details of pension scheme contributions can be found on page 41 of this report. There are no other post-retirement benefits. Profit share scheme The group believes in aligning the economic interests of management with those of shareholders and achieves this through a comprehensive profit sharing scheme that links the pay of each executive director to the profits and growth in profits of the businesses that the executive director manages. The executive directors who manage business divisions are set profit thresholds for the businesses for which they are responsible. The profit thresholds are set at the time the director takes on responsibility for the businesses concerned, usually based on the profits of the previous 12 months, and are adjusted if such responsibilities change. The normal profit share arrangement pays 1% of profits from zero up to a threshold and then 5% of profits achieved in excess of this threshold. Some of the directors have schemes which have been in place for a number of years and pay profit shares at slightly higher rates or which are subject to additional thresholds. The profit shares of the chairman and managing director are based on the adjusted pre-tax post-minority profits of the group, thereby matching their profit share with the pre-tax return the group generates for its shareholders. The chairman is entitled to 5.32% (2008: 5.54%) of the adjusted pre-tax profit. The managing director is entitled to 3.15% (2008: 3.28%) of the adjusted pre-tax profit up to a threshold of £31,972,645 and an additional 1.18% (2008: 1.23%) of adjusted pre-tax profit in excess of this threshold. The finance director receives a profit share linked to the pre-tax adjusted earnings per share (EPS) of the group . A fixed sum is payable for every percentage point the EPS is above 11p and an additional fixed sum is payable for every percentage point that EPS is above 20p. CHC Fordham, in addition to his profit share, has an incentive linked to the performance of acquisitions. JL Wilkinson, who is responsible for all the group’s marketing activities, receives an incentive based on the growth in the group’s subscription and delegate revenues. Each of the executive director’s profit share schemes is completely variable with no guaranteed floor and no ceiling and is designed to be the most significant part of the executive director’s remuneration package. Each director’s profit share scheme is subject to remuneration committee approval, and can be revised at any time if the director’s responsibilities are changed. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 35 Directors’ Remuneration Report continued Remuneration structure continued The table below shows the 2009 percentage split of the fixed and variable elements of each director’s remuneration package. Executive directors PM Fallon PR Ensor NF Osborn DC Cohen CR Brown (died July 16 2009) CR Jones RT Lamont (resigned January 14 2009) SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson Total Fixed salary & benefits Variable profit share 6% 7% 28% 31% 39% 37% 73% 51% 23% 33% 100% 21% 30% 17% 94% 93% 72% 69% 61% 63% 27% 49% 77% 67% 0% 79% 70% 83% SAYE scheme The group operates an all employee save as you earn scheme in which those directors employed in the UK are eligible to participate. Participants save a fixed monthly amount of up to £250 for three years and are then able to buy shares in the company at a price set at a 20% discount to the market value at the start of the savings period. In line with market practice, no performance conditions attach to options granted under this plan. The executive directors who are participating in this scheme are PM Fallon, PR Ensor, NF Osborn, DC Cohen, CR Jones, SM Brady and CHC Fordham, details of which can be found on pages 43 to 47 of this report. Share schemes The directors consider that share schemes are an important part of overall compensation and align the interests of directors and employees with those of shareholders. Details of the directors’ share options can be found on pages 43 to 47. 2010 Capital Appreciation Plan (CAP 2010) CAP 2010 is being presented for approval by the company’s shareholders at the 2010 Annual General Meeting. CAP 2010 is a revised version of CAP 2009 which was approved by shareholders on January 28 2009, and replaces CAP 2004 as no further awards may be granted under CAP 2004. If approved by shareholders, CAP 2010 will replace CAP 2009. The grant of awards under CAP 2010 is expected to be made soon after the 2010 Annual General Meeting. The remuneration committee intends to offer participation in CAP 2010 to approximately 150 directors and senior employees of the group who have direct and significant responsibility for the profits of the group. Each CAP 2010 award will comprise two equal elements – an option to subscribe for ordinary shares of 0.25p each in the company at an exercise price of 0.25p per ordinary share, and a right to receive a cash payment. In accordance with the terms of CAP 2010, no consideration will be payable for the grant of the awards. The award pool will comprise a number of ordinary shares which have an option value (calculated at date of grant using an option pricing valuation model) of £15 million and cash of £15 million, limiting the total accounting cost of the scheme to £30 million over its life. The awards will vest in two equal tranches. The first tranche of awards become exercisable on satisfaction of the primary or secondary performance condition and lapse to the extent unexercised by September 30 2020. The second tranche of awards becomes exercisable in a subsequent financial year in which the profits achieved in the year of initial vesting are again achieved. The second tranche only vests on satisfaction of the primary (or secondary) performance condition and an additional performance condition. The primary performance condition requires the group to achieve adjusted pre-tax profits* of £100 million by no later than the financial year ending September 30 2013 and that profits remain at this level or more for the vesting period of the second tranche. If the primary performance condition is not met, the secondary performance condition requires the group to achieve adjusted pre-tax profits* of at least £84.9 million (60% of the growth under the primary performance condition) for the year ending September 30 2013 and remain at this level or more for the vesting of the second tranche of awards. If the secondary performance condition is met (but not the primary condition) and adjusted pre-tax profits* increase in the following year then the award pool for the second tranche of options is increased (catch-up award). In the event that either the primary or secondary profit target is achieved, the award pool will be allocated between the holders of outstanding awards by reference to their contribution to the achievement of the performance condition, but no individual may have an award over more than 6% of the award pool they participate in. The catch-up award is also allocated between the CAP participants in the same manner but by reference to their contribution to the achievement of the profit growth in the year the catch-up award applies only. 36 Euromoney Institutional Investor PLC Share schemes continued The additional performance condition, applicable for the vesting of the second tranche of the award, requires that the profits of the respective participants’ businesses in the subsequent vesting period remain at least 75% of that achieved in the year the primary (or secondary) performance condition was met. Thus the CAP 2009 is designed so that profit growth must be sustained if awards are to vest in full. 2004 Capital Appreciation Plan (CAP 2004) The CAP 2004 was approved by shareholders on February 1 2005 and replaced the 1996 executive share option scheme. Each CAP 2004 award comprises an option to subscribe for ordinary shares of 0.25p each in the company for an exercise price of 0.25p per ordinary share. In accordance with the terms of CAP 2004, no consideration was paid for the grant of the awards. The awards vests in three equal tranches. The first tranche of awards became exercisable on satisfaction of a primary performance condition and lapse to the extent unexercised on September 30 2014. The other two tranches of awards became exercisable following the results achieved in the 2008 and 2009 financial years when the profits exceeded those achieved in 2007 (the year the primary performance target was met) was again achieved but only to the extent that an additional performance condition was also achieved. The scheme was potentially available to all employees. The primary performance condition, broadly, required that the company achieve adjusted pre-tax profits* of £57 million by no later than the financial year ending September 30 2008 and remain at least this level for two further vesting periods. For the purposes of 2009 profits, redundancy costs were charged against profits for CAP purposes. The additional performance condition requires that the profits of the respective participants’ businesses in the subsequent two vesting periods remain at least 75% of that achieved in the year the primary performance condition was met. The CAP 2004 profit target was achieved in 2007 and the option pool (of a maximum of 7.5 million shares) was allocated between the holders of outstanding awards by reference to their contribution to the achievement of the primary performance condition, subject to the condition that no individual had an option over more than 10% of the option pool. One third of the awards vested immediately. The primary performance target was achieved again in 2008 and, after applying the additional performance condition, 2,241,269 options from the second tranche of options vested in February 2009. The primary performance target was achieved again in 2009 and, after applying the additional performance condition, approximately 1.5 million options from the third (final) tranche of options will vest in February 2010. For those individual participants where the additional performance conditions for the second and final tranches have not been met, the vesting is deferred until the profits are at least 75% of that achieved in 2007 but no later than by reference to the year ending September 30 2012. The actual value of the second tranche of the CAP 2004 award to each director is set out in the directors’ share option table on pages 43 to 45. The number of options received by the directors for the final tranche is provisional and will depend on the extent that the additional performance test has been met for their respective businesses. The remuneration committee require the results of the businesses to be reviewed and subsequently modified for true-up adjustments during the period to December 31. The provisional number of options anticipated to be received by the directors for the final tranche is given in the directors’ share option table on pages 43 to 45. The fair value per option granted and the assumptions used to calculate its value are set out in note 23. 1996 executive share option scheme The executive directors have options from a previous executive share option scheme approved by shareholders in 1996. This scheme expired in 2006 and no share options have been issued under it since February 2004 although options granted may be exercised before various dates to February 2014. These options are exercisable subject to certain performance conditions. For options expiring on January 5 2010 the performance test set by the remuneration committee requires the growth in the company’s earnings per share for the three consecutive financial years commencing from the year of grant to exceed the growth in the retail prices index by an average of 4% a year. For all other options expiring after 2005, the performance condition set by the remuneration committee requires that the Total Shareholder Return (TSR) of the company exceeds that of the average TSR for the FTSE 250 index for the same period. For the performance condition to be satisfied, the TSR of the company must exceed that of the FTSE 250 on a cumulative basis, measured from the date of grant of the option, in any four out of six consecutive months starting 30 months after the option grant date. The fair value per option granted and the assumptions used to calculate its value are set out in note 23. Internet Securities, Inc. (ISI) option scheme GG Mueller and NF Osborn are also participants in the Internet Securities, Inc. option scheme. There are no performance conditions attached to these options. Their options, all of which are fully vested and exercisable, are set out on page 46. JC Botts was also a participant in the ISI option scheme and exercised his options during the year. The market price at the date of exercise is determined by an independent financial valuation of Internet Securities, Inc. * Adjusted pre-tax profits are before goodwill amortisation and impairment, exceptional items, movements in acquisition option commitment values, imputed interest on acquisition option commitments, foreign exchange gains on losses on tax equalisation contracts on hedges of intra-group financing, foreign exchange loss on restructured hedging arrangements, the cost of the CAP itself and for 2009, after charging redundancy costs. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 37 Directors’ Re muneration Report continued Remuneration structure continued Subsidiary put options GG Mueller has an option to sell his 2% (2008: 5%) holding of shares in Internet Securities, Inc., a subsidiary of the group, to Euromoney Institutional Investor PLC at a fair market value as determined by an independent valuation of the company. GG Mueller retains the rights granted under this put option should his employment contract terminate. If GG Mueller has not exercised his put option by 2011 the company has the right to purchase his shares at a pre-determined premium to an independent valuation of the company. Non-executive directors The remuneration of the non-executive directors is determined by the chairman and executive board with the aid of external professional advice if necessary. Non-executive directors receive a fee and are re-imbursed for expenses incurred in attending meetings. They do not receive any performance related bonuses, pension provisions, share options or other forms of benefits apart from JC Botts who was a participant in the Internet Securities, Inc. option scheme during the year. Total Shareholder Return (TSR) Shown below is the group’s TSR for the five years to September 30 2009 compared to the TSR achieved by the FTSE 250 index over the same period. This index has been presented as it reflects the comparator group for the performance condition attached to the executive share option scheme referred to above. The TSR calculations assume the re-investment of dividends. Euromoney Institutional Investor PLC Total Shareholder Return EM PLC FTSE 250 % n r u t e R r e d o h e r a h S l l a t o T 250 200 150 100 50 0 3 0 3 1 3 1 S e D M D M D M D M D M 3 0 J u n S e 3 0 3 1 3 1 3 0 3 1 3 1 3 0 3 1 3 1 3 0 3 1 3 1 3 0 J u n S e 3 0 J u n S e 3 0 J u n S e p t 0 4 e c 0 4 a r 0 5 0 5 p t 0 5 e c 0 5 a r 0 6 0 6 p t 0 6 e c 0 6 a r 0 7 0 7 p t 0 7 e c 0 7 a r 0 8 0 8 p t 0 8 e c 0 a r 0 8 9 0 9 p t 0 9 3 0 J 3 0 u n S e Period Service contracts The group’s policy is normally to employ executive directors on twelve month rolling service contracts. The remuneration committee seeks to minimise termination payments and believes these should be restricted to the value of remuneration for the notice period. With the exception of Sir Patrick Sergeant, none of the non-executive directors has a service contract. All executive service contracts are reviewed from time to time and updated where necessary. A service contract terminates automatically on the director reaching his/her respective retirement age. Following an independent recommendation from the nominations committee, the board has resolved to extend PM Fallon’s retirement date under his service contract by two years to the date of the Annual General Meeting in 2012. 38 Euromoney Institutional Investor PLC Benefits accruing if contract terminated* Benefits accruing if contract terminated due to incapacity/death^ 12 months’ salary, profit share and pension. 9 months’ salary, profit share, and pension. Note (1), (3) Service contracts continued Executive directors Date of service contract Notice period (months) Retire- ment age PM Fallon Jun 2 1986 12 PR Ensor Jan 13 1993 12 NF Osborn Jan 4 1991 12 65 62 62 DC Cohen Nov 2 1992 12 62 CR Brown (died July 16 2009) Dec 31 1991 12 62 CR Jones Aug 27 1997 12 62 Jan 6 2000 6 62 RT Lamont (retired January 14 2009) SM Brady Feb 17 2000 12 62 DE Alfano Jan 10 2001 6 62 GG Mueller Jan 25 1999 12 62 MJ Carroll Mar 18 1999 6 62 CHC Fordham Sept 21 2004 12 62 12 months’ salary, profit share and pension. 6 months’ salary, profit share and pension. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 9 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 6 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated bonus up to the date notice of termination is given. In addition, if the company terminates the contract without cause, Mr Mueller is entitled to exercise immediately any outstanding and unvested options due to vest in two years. 6 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 12 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 1 month’s salary, pension and a pro-rated profit share up to the date of termination. 1 month’s salary, pension and a pro-rated profit share up to the date of termination. 1 month’s salary, pension and a pro-rated profit share up to the date of termination. 6 months’ salary, pension and a pro-rated profit share up to the date of termination. 3 months’ salary, pension and profit share if already paid. 6 months’ salary, pension and pro-rated profit share up to the date of termination. Salary, pension and profit share earned up to the date of termination only. Salary and pension earned up to the date of termination only, and any incentive earned provided it has already been paid. 6 months’ salary, pension and pro-rated profit share up to the date of termination. 6 months’ salary, pension and pro-rated profit share up to the date of termination. (3) (2), (3) (3) (3) † (3) (3), (4), (6), ‡ (3) (3), (6) (3), (5) (3), (6) (3) (3) . JL Wilkinson July 26 2000 6 62 6 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. 6 months’ salary, pension and a pro-rated profit share up to the date notice of termination is given. Non-executive director Sir Patrick Sergeant Jan 10 1993 12 n/a 12 months’ expense allowance. Expense allowance up to the date of termination. Annual Report and Financial Statements 2009 39 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Directors’ Remuneration Report continued Service contracts continued (1) PM Fallon has a second service contract with a subsidiary of the group, Euromoney Institutional Investor (Jersey) Limited (EIIJ), dated May 4 1993. This service contract has the same terms as his contract with Euromoney Institutional Investor PLC. Any termination payment would include profit share based on EIIJ’s results. In addition, if PM Fallon be adjudged bankrupt, he is entitled to 7 days salary and profit share from EIIJ. (2) NF Osborn has a second service contract with a subsidiary of the group, Euromoney Inc, dated January 4 1991 normally terminated by 12 months notice. In the event of termination NF Osborn is entitled to 12 months base salary and pension, plus a pro-rated profit share to the date notice of termination is given. The company may also terminate his agreement due to incapacity giving 3 months notice and NF Osborn would be entitled to 3 months’ salary, pension and pro-rated profit share.^ (3) On termination, profit share is calculated as though the director has been employed for the full financial year and then pro-rated accordingly to the date of termination unless otherwise stated. (4) If employment is terminated due to a breach of contract and the company is judged to have breached RT Lamont’s editorial independence, the company shall pay US$87,500 to the United Way of Greater New York. (5) GG Mueller’s service agreement is with Internet Securities, Inc. (6) RT Lamont, DE Alfano and MJ Carroll’s service agreements are with Institutional Investor, Inc. If MJ Carroll’s contract is terminated due to just cause he is entitled to his salary and pension up to the date of termination, but no profit share unless already paid. * ^ If the director terminated reaches retirement age before the expiration of their notice period then benefits will only be paid up to the date of retirement. This also applies if the director gives less than their notice period to the company. If the contract is terminated for reasons of bankruptcy or serious misconduct it is terminated immediately without any payment in lieu of notice. † CR Brown’s service contract terminated on his death on July 16 2009. ‡ RT Lamont’s service contract terminated on his retirement on January 14 2009. Information subject to audit (pages 40 to 47) Directors’ remuneration table Executive directors PM Fallon PR Ensor NF Osborn1 DC Cohen CR Brown (died July 16 2009) CR Jones RT Lamont2 SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson Non-executive directors The Viscount Rothermere Sir Patrick Sergeant CJF Sinclair3 JP Williams3 JC Botts JC Gonzalez MWH Morgan4 DP Pritchard5 Salary and fees 2009 £ 199,633 188,181 120,641 108,951 121,066 202,458 39,187 129,762 122,519 138,871 67,363 133,058 98,875 26,367 26,367 – – 35,548 26,367 26,367 20,228 Year to September 30 Benefits in kind 2009 £ 942 942 942 1,178 3,637 1,178 2,237 471 9,219 13,726 11,225 1,178 471 Profit share 2009 £ 3,226,712 2,508,665 306,095 239,924 197,925 345,725 15,051 125,178 451,384 309,993 – 512,066 228,214 – – – – – – – – – – – – – – – – Total 2009 £ Total 2008 £ 3,427,287 2,697,788 427,678 350,053 322,628 549,361 56,475 255,411 583,122 462,590 78,588 646,302 327,560 26,367 26,367 – – 35,548 26,367 26,367 20,228 4,253,340 3,467,080 545,288 724,971 344,015 687,003 154,319 316,951 593,135 645,589 208,003 740,985 318,694 28,000 28,000 28,000 28,000 37,750 28,000 – – 1,831,809 47,346 8,466,932 10,346,087 13,177,123 40 Euromoney Institutional Investor PLC Service contracts continued Fees as a director include fees paid as a director of subsidiary companies. Benefits in kind include payments by the company for health care. 1. NF Osborn has waived £8,674 of profit share in respect of the current and future years. The profit share waived was paid into a private pension scheme on the director’s behalf. This waiver has not been deducted from the profit shares above. resigned as non-executive directors on September 30 2008. 2. retired as an executive director on January 14 2009. 3. 4. appointed as a non-executive director on October 1 2008. 5. appointed as a non-executive director on December 22 2008. The salaries of the executive directors, and the fees of the non-executive directors, were reduced by 10% from March 1 2009 in response to the difficult trading conditions. This reduction will remain in place until March 31 2010, or later if the remuneration committee so recommends. Directors’ pensions Executive directors can participate in the Harmsworth Pension Scheme (a defined benefit scheme, closed to new directors), the Euromoney Pension Plan (a money purchase plan) or their own private pension scheme. Group pension contributions PM Fallon PR Ensor NF Osborn DC Cohen CR Brown (died July 16 2009) CR Jones RT Lamont (retired January 14 2009) SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson Harmsworth Pension Scheme 2009 £ Euromoney Pension Plan 2009 £ – – – 18,604 – 37,636 – – – – – – – – – 9,074 – – – – 13,780 – – – 14,130 – Private schemes 2009 £ – – – – 1,703 – 1,359 – 4,658 4,658 4,658 – – Total 2009 £ – – 9,074 18,604 1,703 37,636 1,359 13,780 4,658 4,658 4,658 14,130 – Total 2008 £ – – 8,244 18,004 2,858 35,237 2,872 12,013 2,999 2,364 3,328 12,354 – 56,240 36,984 17,036 110,260 100,273 In addition to the company pension contributions, NF Osborn has elected to waive part of his profit share. The profit share waived is paid by the company into a private pension scheme as set out above. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 41 Directors’ Remuneration Report continued Group pension contributions continued Under the Harmsworth Pension Scheme, the following pension benefits were earned by the directors: Increase Accrued annual pension at September 30 2009 £ in accrued annual pension during the year £ Transfer value September 30 2009 £ Increase in Transfer value transfer value September 30 (net of directors’ contributions) £ 2008 £ 1,000 – 1,900 5,100 9,000 64,200 26,900 35,800 170,000 1,380,000 410,000 490,000 170,000 1,460,000 380,000 410,000 – (80,000) 30,000 80,000 Director PM Fallon* PR Ensor DC Cohen CR Jones The accrued annual pension entitlement is that which would be paid annually on retirement based on service to September 30 2009 and ignores any increase for future inflation. All transfer values have been calculated on the basis of actuarial advice in accordance with ‘Retirement Benefit – Transfer Values (GN11)’ published by the Board for Actuarial Standards. The transfer values of the accrued entitlement represent the value of assets that the pension scheme would need to transfer to another pension provider on transferring the scheme’s liability in respect of the directors’ pension benefits. They do not represent a sum paid or payable to individual directors and therefore cannot be added meaningfully to annual remuneration. During the year there was a change to the assumptions used to calculate transfer values, which made allowance for the expectation that members will live longer in retirement than had previously been assumed as well as reflecting a fall in long-term interest rates. These changes contributed to the increase in transfer value (net of directors’ contributions). Members of the scheme have the option of paying additional voluntary contributions. Neither the contributions nor the resulting benefits are included in the above table. The normal retirement age for the Harmsworth Pension Scheme is 62 years. * PM Fallon’s pension benefits relate to a deferred pension in the Mail Newspapers Pension Scheme for pensionable service between April 1 1978 and April 1 1986. No further contributions have been made to this scheme by the group or PM Fallon. 42 Euromoney Institutional Investor PLC Directors’ share options The directors hold options to subscribe for new ordinary shares of 0.25p each in the company as follows: PM Fallon PR Ensor At start of year 85,000 255,000 2,533 46,126 – – Exercised/ Granted/ trued up lapsed during At end of year/date year of retirement during year – – – – 5,133 46,126 (85,000) (255,000) (2,533) (46,126) – – – – – * – 5,133 ¶ 46,126 ‡ 388,659 51,259 (388,659) 51,259 75,000 225,000 2,533 46,126 – – – – – – 5,133 46,126 (75,000) (225,000) (2,533) (46,126) – – – – – * – 5,133 ¶ 46,126 ‡ 348,659 51,259 (348,659) 51,259 Exercise price £3.95 £4.31 £3.69 £0.0025 £1.87 £0.0025 £3.95 £4.31 £3.69 £0.0025 £1.87 £0.0025 Date from which exercisable lapsed lapsed lapsed exercised Feb 01 12 Feb 12 10 lapsed lapsed lapsed exercised Feb 01 12 Feb 12 10 NF Osborn 5,000 – – 5,000 DC Cohen CR Brown (died July 16 2009) 2,533 18,800 – – – – 5,133 18,052 (2,533) (18,800) – – – * – 5,133 ¶ 18,052 ‡ 26,333 23,185 (21,333) 28,185 8,000 6,000 10,000 5,000 3,018 64,385 – – – – – – – – – 8,000 6,000 10,000 5,000 – (3,700) 8,214 – (60,685) – 3,018 § – † 8,214 ‡ 96,403 4,514 (60,685) 40,232 28,000 8,000 40,000 30,000 – – – – (28,000) – – – – 8,000 40,000 30,000 61,347 – – 29,038 (61,347) – – 29,038 ‡ 167,347 29,038 (89,347) 107,038 £4.19 £3.69 £0.0025 £1.87 £0.0025 TSR criteria not satisfied lapsed exercised Feb 01 12 Feb 12 10 £5.38 £3.35 £2.59 £4.19 TSR criteria not satisfied now TSR criteria not satisfied TSR criteria not satisfied Feb 01 11 exercised Feb 12 10 £3.18 £0.0025 £0.0025 £4.19 £5.38 £2.59 £4.19 lapsed TSR criteria not satisfied TSR criteria not satisfied TSR criteria not satisfied exercised Feb 12 10 £0.0025 £0.0025 Expiry date Feb 11 09 Jun 25 09 Aug 01 09 Sep 30 14 Aug 01 12 Sep 30 14 Feb 11 09 Jun 25 09 Aug 01 09 Sep 30 14 Aug 01 12 Sep 30 14 Jan 28 14 Aug 01 09 Sep 30 14 Aug 01 12 Sep 30 14 Mar 02 11 Jan 23 12 Dec 04 12 Jan 28 14 Aug 01 11 Sep 30 14 Sep 30 14 Jan 29 09 Mar 02 11 Dec 04 12 Jan 28 14 Sep 30 14 Sep 30 14 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 43 Directors’ Remuneration Report continued Directors’ share options continued CR Jones RT Lamont (retired January 14 2009) SM Brady DE Alfano At start of year 32,000 60,000 8,000 6,000 20,000 15,000 2,533 46,126 – – Exercised/ Granted lapsed during At end of year/date year of retirement during year – – – – – – (32,000) (60,000) – – – – – – 8,000 6,000 20,000 Exercise price Date from which exercisable £4.19 £4.31 £5.38 £3.35 £2.59 lapsed lapsed TSR criteria not satisfied now TSR criteria not satisfied Expiry date Jan 29 09 Jun 25 09 Mar 02 11 Jan 23 12 Dec 04 12 15,000 £4.19 TSR criteria Jan 28 14 – – 5,133 46,126 (2,533) (46,126) – – – * – 5,133 ¶ 46,126 ‡ not satisfied lapsed exercised Feb 01 12 Feb 12 10 £3.69 £0.0025 £1.87 £0.0025 189,659 51,259 (140,659) 100,259 10,000 5,000 15,863 – – – (10,000) – – 5,000 – 6,544 (15,863) – – † 6,544 ‡ 30,863 6,544 (25,863) 11,544 16,000 8,000 6,000 20,000 10,000 2,255 46,474 46,474 – – – – – – (16,000) – – – – – – – 46,475 – (46,474) (46,474) – – 8,000 6,000 20,000 10,000 2,255 ∏ – – 46,475 ‡ 155,203 46,475 (108,948) 92,730 10,000 8,000 5,000 10,000 10,000 – – – – – (10,000) – – – 8,000 5,000 – 10,000 – 10,000 £4.19 £5.38 £0.0025 £0.0025 lapsed TSR criteria not satisfied exercised Feb 12 10 £4.19 £5.38 £3.35 £2.59 £4.19 lapsed TSR criteria not satisfied now TSR criteria not satisfied TSR criteria not satisfied Feb 01 10 exercised exercised Feb 12 10 £4.19 £0.0025 £0.0025 £0.0025 £4.19 £5.62 £5.38 £2.59 lapsed now TSR criteria not satisfied TSR criteria not satisfied £4.19 TSR criteria not satisfied Aug 01 09 Sep 30 14 Aug 01 12 Sep 30 14 Jan 29 09 Mar 02 11 Sep 30 14 Sep 30 14 Jan 29 09 Mar 02 11 Jan 23 12 Dec 04 12 Jan 28 14 Aug 01 10 Sep 30 14 Sep 30 14 Sep 30 14 Jan 29 09 Jan 05 10 Mar 02 11 Dec 04 12 Jan 28 14 45,882 – – 35,049 (45,882) – – 35,049 ‡ £0.0025 £0.0025 exercised Feb 12 10 Sep 30 14 Sep 30 14 88,882 35,049 (55,882) 68,049 44 Euromoney Institutional Investor PLC GG Mueller MJ Carroll CHC Fordham JL Wilkinson Directors’ share options continued At start of year/ appointment 10,000 6,000 20,000 Granted/ trued-up Exercised/ At end during lapsed during of year/date year of retirement year Exercise price Date from which exercisable Expiry date 10,000 £5.38 TSR criteria Mar 02 11 – – – – – – 6,000 20,000 £3.35 £2.59 74,874 – (10,688) 48,777 (64,186) – – † 48,777 ‡ £0.0025 £0.0025 110,874 38,089 (64,186) 84,777 4,000 8,000 4,000 20,000 10,000 – – – – – (4,000) – – – 8,000 4,000 £4.19 £5.62 £5.38 – – 20,000 £2.59 10,000 £4.19 41,435 – – 22,036 (41,435) – – 22,036 ‡ £0.0025 £0.0025 87,435 22,036 (45,435) 64,036 10,000 6,000 20,000 10,000 2,533 49,646 – – – (3,135) 5,133 23,581 (2,533) (46,511) – – – * – † 5,133 ¶ 23,581 ‡ £3.69 £0.0025 £1.87 £0.0025 98,179 25,579 (49,044) 74,714 8,000 8,000 8,000 – – – – – – 8,000 8,000 £3.35 £2.59 8,000 £4.19 43,789 – – 43,789 (43,789) – – 43,789 ‡ £0.0025 £0.0025 67,789 43,789 (43,789) 67,789 not satisfied now TSR criteria not satisfied exercised Feb 12 10 Jan 23 12 Dec 04 12 Sep 30 14 Sep 30 14 lapsed now Jan 29 09 Jan 05 10 TSR criteria Mar 02 11 not satisfied TSR criteria not satisfied TSR criteria not satisfied exercised Feb 12 10 Sep 30 14 Sep 30 14 Dec 04 12 Jan 28 14 not satisfied now TSR criteria not satisfied TSR criteria not satisfied lapsed exercised Feb 01 12 Feb 12 10 now TSR criteria not satisfied TSR criteria not satisfied exercised Feb 12 10 Jan 23 12 Dec 04 12 Jan 28 14 Aug 01 09 Sep 30 14 Aug 01 12 Sep 30 14 Jan 23 12 Dec 04 12 Jan 28 14 Sep 30 14 Sep 30 14 10,000 £5.38 TSR criteria Mar 02 11 – – – – – – – – 6,000 20,000 £3.35 £2.59 10,000 £4.19 Total 1,856,285 428,075 (1,442,489) 841,871 * ∏ § ¶ † ‡ issued under the Euromoney Institutional Investor PLC Save As You Earn scheme 2006. issued under the Euromoney Institutional Investor PLC Save As You Earn scheme 2007. issued under the Euromoney Institutional Investor PLC Save As You Earn scheme 2008. issued under the Euromoney Institutional Investor PLC Save As You Earn scheme 2009. Options granted relate to those that were issued under the second tranche of the CAP which vested on February 13 2009, three months following the announcement of the company’s results. The number of options granted to each director was provisional and was trued-up following adjustment for the allocation of options belonging to leavers and adjustments to profits of the respective directors’ individual businesses as required by the remuneration committee. As such the actual number of options granted was different from that reported last year. Options granted are those expected to be issued under the third tranche of the CAP which vest on February 12 2010, three months following the announcement of the company’s results. The number of options granted to each director is provisional and will require a true-up to reflect adjustments to the respective directors’ individual businesses profits between year end and December 31 2009 as required by the remuneration committee. As such the actual number of options granted could vary from that disclosed. Annual Report and Financial Statements 2009 45 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Directors’ Remuneration Report continued Directors’ share options continued Options exercised during the year: PM Fallon PR Ensor NF Osborn DC Cohen CR Brown CR Jones RT Lamont SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson Number of options exercised Date of exercise 46,126 Feb 13 2009 46,126 May 28 2009 18,800 Feb 13 2009 60,685 Feb 20 2009 61,347 Feb 20 2009 46,126 Mar 13 2009 15,863 Feb 13 2009 92,948 Feb 20 2009 45,882 Feb 20 2009 64,186 Feb 13 2009 41,435 Feb 20 2009 46,511 Mar 13 2009 43,789 Feb 20 2009 Market price per share on date of exercise (£) Gain on exercise (£) Number of shares retained 2.19 2.02 2.19 1.78 1.78 1.76 2.19 1.78 1.78 2.19 1.78 1.76 1.78 100,901 93,059 41,125 107,868 109,044 81,066 34,700 165,215 81,555 140,407 73,651 81,743 77,835 46,126 46,126 18,800 35,678 33,400 46,126 15,863 54,646 27,188 64,186 5,000 46,511 25,744 629,824 1,188,169 465,394 The market price of the company’s shares on September 30 2009 was £3.73. The high and low share prices during the year were £3.80 and £1.47 respectively. There were 428,075 options granted during the year (2008: 640,914). The aggregate gain made by directors on the exercise of share options in the year was £1,188,869 (2008: £2,100,777). In addition, the following directors hold options to subscribe for common stock of $0.001 each in Internet Securities, Inc., a subsidiary of the company. All of these options are fully vested and exercisable. JC Botts GG Mueller NF Osborn Total At start of year Exercised during year At end of year Exercise price Date from which exercisable Expiry date 6,000 (6,000) – $7.40 exercised May 13 09 5,063 5,000 – – 5,063 5,000 $7.07 $8.95 now Feb 02 14 now Sep 05 10 16,063 (6,000) 10,063 46 Euromoney Institutional Investor PLC Directors’ share options continued Options exercised during the year: Number of options exercised Date of exercise Market price per share on date of exercise ($) Gain on exercise (£) Number of shares retained JC Botts 6,000 Feb 28 2009 12.28 29,280 – No options in Internet Securities, Inc. were granted during the year. In February 2009, GG Mueller sold 220,000 shares in Internet Securities, Inc to Euromoney Institutional Investor PLC for an independently assessed market price of $12.28 per share. Information not subject to audit Directors’ interests in the company The interests of the directors and their families in the ordinary shares of the company and its subsidiaries as at September 30 were as follows: Beneficial PM Fallon PR Ensor NF Osborn DC Cohen CR Brown (died July 16 2009) CR Jones RT Lamont (retired January 14 2009) SM Brady DE Alfano GG Mueller MJ Carroll CHC Fordham JL Wilkinson The Viscount Rothermere Sir Patrick Sergeant CJF Sinclair (retired September 30 2008) JP Williams (resigned September 30 2008) JC Botts JC Gonzalez MWH Morgan (appointed October 1 2008) DP Pritchard (appointed December 22 2008) Non-beneficial Sir Patrick Sergeant Ordinary shares of 0.25p each 2008 2009 579,124 148,403 52,675 110,225 – 114,013 – 34,907 74,817 174,563 15,000 97,030 51,508 22,708 165,304 – – 15,503 – 7,532 – 532,998 102,277 33,875 74,547 79,205 67,887 41,366 – 47,629 110,377 10,000 50,519 25,764 20,864 265,304 7,494 3,075 15,503 – – – 1,663,312 1,488,684 20,000 20,000 At September 30 2009 GG Mueller was beneficially interested in 160,000 shares of Internet Securities, Inc. a subsidiary of the group (2008: 380,000 shares). E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 47 Directors’ Remuneration Report continued Directors’ interests in Daily Mail and General Trust plc The interests of the directors, to be disclosed under chapter 9.8.6 of the UKLA Listing Rules, in the shares of Daily Mail and General Trust plc as at September 30 were as follows: The Viscount Rothermere1&2 PM Fallon Sir Patrick Sergeant MWH Morgan1&2 CJF Sinclair1&2 JP Williams1&2 Ordinary shares of 12.5p each ‘A’ ordinary non-voting shares of 12.5p each 2009 2008 2009 2008 11,903,132 – – 764 – – 11,903,132 – – – – – 75,977,758 41,500 36,000 902,007 – – 76,213,053 41,500 80,000 – 477,207 243,072 1. The figures in the table above include ‘A’ shares committed by executives under a long-term incentive plan, details of which are set out in Daily Mail and General Trust plc’s annual report. 2. The figures in the table above include ‘A’ shares awarded to executives under the DMGT Executive Bonus Scheme. For the Viscount Rothermere and MWH Morgan respectively, 25,013 and 816,575 of these shares were subject to restrictions as explained in Daily Mail and General Trust plc’s annual report. The comparable figures for the Viscount Rothermere, CJF Sinclair and JP Williams at October 1 2008 were 26,839, 43,312 and 21,414 respectively. The Viscount Rothermere had non-beneficial interests as a trustee at September 30 2009 in 5,540,000 ‘A’ ordinary non-voting shares of 12.5p each (2008: 5,540,000 shares) plus 639,208 ordinary shares of 12.5p each (2008: 639,208 shares). Daily Mail and General Trust plc has been notified that, under section 824 of the Companies Act 2006 and including the interests shown in the table above, The Viscount Rothermere is deemed to have been interested in 12,542,340 ordinary shares of 12.5p each (2008: 12,542,340 shares). At September 30 2009 and September 30 2008, The Viscount Rothermere was beneficially interested in 756,700 ordinary shares of Rothermere Continuation Limited, the company’s ultimate parent company. The Viscount Rothermere and MWH Morgan had options over 311,000 and 136,000 respectively ‘A’ ordinary non-voting shares in Daily Mail and General Trust plc at September 30 2009 (2008: The Viscount Rothermere, CJF Sinclair and JP Williams had options over 436,000, 898,000 and 365,000 shares respectively). The exercise price of these options ranges from £5.73 to £10.30. Further details of these options are listed in the Daily Mail and General Trust plc group accounts. There have been no changes in the directors’ interests since September 30 2009. John Botts Chairman of the Remuneration Committee November 11 2009 48 Euromoney Institutional Investor PLC Independent Auditors’ Report Independent auditors’ report to the members of Euromoney Institutional Investor PLC We have audited the group financial statements of Euromoney Institutional Investor PLC for the year ended September 30 2009 which comprise the Group Income Statement, the Group Balance Sheet, the Group Cash Flow Statement, the Group Statement of Recognised Income and Expense and the related notes 1 to 31. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the group financial statements: y give a true and fair view of the state of the group’s affairs as at September 30 2009 and of its loss for the year then ended; y have been properly prepared in accordance with IFRSs as adopted by the European Union; and y have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: y certain disclosures of directors’ remuneration specified by law are not made; or y we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: y the directors’ statement contained within the report of the Directors in relation to going concern; and y the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Other matter We have reported separately on the parent company financial statements of Euromoney Institutional Investor PLC for the year ended and on the information in the Directors’ Remuneration Report that is described as having been audited. Ian Waller Senior Statutory Auditor for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom November 11 2009 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 49 Group Income Statement for the year ended September 30 2009 Total revenue Operating profit before acquired intangible amortisation, share option expense and exceptional items Acquired intangible amortisation Share option expense Exceptional items Operating profit before associates Share of results in associates Operating profit Finance income Finance expense Net finance costs (Loss)/profit before tax Tax credit on (loss)/profit Deferred tax asset recognition Tax credit on (loss)/profit (Loss)/profit after tax from continuing operations Profit for the year from discontinued operations (Loss)/profit for the year Attributable to: Equity holders of the parent Equity minority interests Basic (loss)/earnings per share – continuing operations Basic (loss)/earnings per share – continuing and discontinued operations Diluted (loss)/earnings per share – continuing operations Diluted (loss)/earnings per share – continuing and discontinued operations Adjusted diluted earnings per share Dividend per share (including proposed dividends) Notes 2009 £000’s 2008 £000’s 3 317,594 332,064 3 11 5 3, 4 7 7 7 3 8 3 15 10 10 10 10 10 9 79,447 (15,891) (2,697) (33,901) 26,958 219 27,177 2,281 81,308 (12,749) (5,361) (2,477) 60,721 308 61,029 5,594 (46,819) (29,197) (44,538) (23,603) (17,361) 37,426 10,412 – 10,412 (6,949) 1,207 1,921 5,358 7,279 44,705 245 (5,742) 44,950 (6,287) 545 43,719 1,231 (5,742) 44,950 (6.83)p (5.73)p (6.67)p (5.59)p 40.39p 14.00p 41.69p 41.92p 40.37p 40.60p 44.36p 19.25p A detailed reconciliation of the group’s underlying results is set out in the appendix to the Chairman’s Statement on page 7. 50 Euromoney In stitutional Investor PLC Group Balance Sheet as at September 30 2009 Non-current assets Intangible assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax assets Net pension surplus Derivative financial instruments Current assets Trade and other receivables Amounts on loans owed by DMGT group undertakings Current income tax assets Cash at bank and in hand Derivative financial instruments Current liabilities Acquisition option commitments Trade and other payables Amounts on loans owed to DMGT group undertakings Current income tax liabilities Accruals Deferred income Derivative financial instruments Provisions Committed loan facility Loan notes Bank overdrafts Net current liabilities Total assets less current liabilities Non-current liabilities Acquisition option commitments Other non-current liabilities Committed loan facility Deferred tax liabilities Net pension deficit Derivative financial instruments Provisions Net assets Shareholders’ equity Called up share capital Share premium account Other reserve Capital redemption reserve Own shares Liability for share based payments Fair value reserve Translation reserve Retained earnings Equity shareholders’ surplus Equity minority interests Total equity Notes 2009 £000’s 2008 £000’s 11 11 12 13 21 27 18 16 29 18 25 17 29 18 20 19 19 19 25 19 21 27 18 20 22 24 24 24 24 24 24 24 24 291,338 134,310 19,750 209 18,474 – 569 272,096 135,482 21,661 303 16,459 2,527 368 464,650 448,896 59,000 – 6,311 12,545 569 69,141 155,772 1,928 21,211 1,451 78,425 249,503 (11,237) (59,214) – (6,139) (46,972) (82,599) (9,917) (2,359) – (5,719) (482) (22,276) (30,619) (155,772) (2,558) (50,016) (89,488) (15,165) (1,198) (184,594) (7,579) (1,032) (224,638) (560,297) (146,213) (310,794) 318,437 138,102 (706) (1,012) (171,404) (21,777) (364) (14,592) (3,591) (7,572) (1,301) – (27,887) – (9,773) (3,505) (213,446) (50,038) 104,991 88,064 284 52,445 64,981 8 (74) 23,646 (39,508) 44,734 (42,511) 104,005 986 104,991 263 38,575 64,981 8 (74) 20,676 (19,579) 17,113 (36,916) 85,047 3,017 88,064 The accounts were approved by the board of directors on November 11 2009. Richard Ensor Colin Jones Directors Annual Report and Financial Statements 2009 51 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Group Cash Flow Statement for the year ended September 30 2009 Cash flow from operating activities Operating profit Share of results in associates Profit on disposal of long-term investment Acquired intangible amortisation Licences and software amortisation Share option expense Goodwill impairment Intangible impairment Reduction in goodwill arising from a deferred tax adjustment Depreciation of property, plant and equipment Exceptional depreciation of property, plant and equipment Increase/(decrease) in provisions Loss/(profit) on disposal of property, plant and equipment Operating cash flows before movements in working capital Decrease in receivables (Decrease)/increase in payables Cash generated from operations Income taxes received/(paid) Net cash from operating activities Investing activities Dividends paid to minorities Dividends received from associate Interest received Purchase of intangible assets Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of long-term investment Purchase of additional interest in subsidiary undertakings Acquisition of subsidiary undertakings Proceeds from disposal of discontinued operations Net cash used in investing activities Financing activities Dividends paid Interest paid Interest paid on loan notes Issue of new share capital Settlement of derivative assets/liabilities Amounts received on intergroup tax equalisation swaps Redemption of loan notes Loan repaid to DMGT group company Loan received from DMGT group company Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate movements Cash and cash equivalents at end of year Cash and cash equivalents include bank overdrafts. 52 Euromoney In stitutional Investor PLC 2009 £000’s 2008 £000’s 27,177 (219) – 15,891 256 2,697 21,929 1,235 – 2,544 1,210 1,476 125 74,321 15,983 (17,727) 72,577 1,263 61,029 (308) (1,589) 12,749 207 5,361 2,952 – 2,784 2,759 – (1,419) (1,662) 82,863 3,224 13,697 99,784 (12,231) 73,840 87,553 (1,806) 313 801 (146) (1,260) 21 – (19,890) – 1,259 (20,708) (6,771) (8,887) (291) 5 (35,861) 23,088 (1,767) (117,239) 83,903 (2,056) 257 4,212 (156) (4,240) 2,846 1,589 (5,997) (556) 245 (3,856) (19,950) (10,129) (534) 72 (5,591) – (4,324) (217,236) 171,218 (63,820) (86,474) (10,688) 20,179 2,572 (2,777) 20,776 2,180 12,063 20,179 Note to the Group Cash Flow Statement Net Debt Net debt at beginning of year Decrease in cash and cash equivalents Decrease in amounts owed to DMGT group company Redemption of loan notes Interest paid on loan notes Other non-cash changes Effect of foreign exchange rate movements Net debt at end of year 2009 £000’s (171,994) (10,688) 33,336 1,767 291 (4,748) (13,024) 2008 £000’s (204,579) (2,777) 46,018 4,324 534 (5,805) (9,709) (165,060) (171,994) Net debt comprises cash at bank and in hand, bank overdrafts, committed borrowings and loan notes. Non-cash changes represent interest added to the principal amounts owed to DMGT and accrued interest on loan notes. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 53 Group Statement of Recognised Income and Expense for the year ended September 30 2009 Change in fair value of hedges Gains on revaluation of intangible assets Net exchange differences on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Actuarial (losses)/gains on defined benefit pension schemes Tax on items taken directly to equity Net income recognised directly in equity Transfer of loss/(gain) on cash flow hedges from fair value reserves to income statement (Loss)/profit for the year Total recognised income and expense for the year Attributable to: Equity holders of the parent Equity minority interests 2009 £000’s 2008 £000’s (9,285) 2,544 27,621 (16,690) (3,382) 3,792 4,600 3,502 (5,742) (17,455) 1,692 32,448 (19,115) 1,589 1,282 441 (2,877) 44,950 2,360 42,514 1,815 545 2,360 41,283 1,231 42,514 54 Euromoney In stitutional Investor PLC Notes to the Accounts 1 Accounting policies General information Euromoney Institutional Investor PLC (the ‘company’) is a company incorporated in the United Kingdom (UK). The group financial statements consolidate those of the company and its subsidiaries (together referred to as the ‘group’) and equity-account the group’s interest in associates. The parent company financial statements present information about the entity and not about its group. The group financial statements have been prepared and approved by the directors in accordance with the International Financial Reporting Standards adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation. The company has elected to prepare its parent company financial statements in accordance with UK GAAP. Judgements made by the directors in the application of these accounting policies that have a significant effect on the financial statements, and estimates with a significant risk of material adjustment in the next year, are discussed in note 2. In the current year, IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ is effective for the current period. The adoption of this interpretation has not led to any changes in the group’s accounting policies. At the date of authorisation of these financial statements, the following new accounting standards, or amendments and interpretations to existing standards have not been applied as they are not yet effective: IFRS 3 ‘Business Combinations’ (effective for annual periods beginning on or after July 1 2009); Amendment to IAS 23 ‘Borrowing Costs’ (effective for annual periods beginning on or after January 1 2009); Amendments to IAS 1 ‘Presentation of Financial Statements’ (effective for annual periods beginning on or after January 1 2009); Amendments to IAS 27 ‘Consolidated and Separate Financial Statements’ (effective for annual periods beginning on or after July 1 2009); Amendment to IFRS 2 ‘Vesting Conditions and Cancellations’ (effective for annual periods beginning on or after January 1 2009); Amendments to IAS 32 ‘Financial Instruments: Recognition and Measurement’ and IAS 1 ‘Presentation of Financial Statements’ relating to puttable financial instruments and obligations arising on liquidation (effective for annual periods beginning on or after January 1 2009); Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement relating to eligible hedged items’ (effective for annual periods beginning on or after July 1 2009); IFRS 8 ‘Operating Segments’ (effective for annual periods beginning on or after January 1 2009); IFRIC 11 ‘IFRS 2 – Group and Treasury Share Transactions’ (effective for annual periods beginning on or after March 1 2007); IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ (effective for annual periods beginning on or after January 1 2008); The directors anticipate that the adoption of these standards in future periods will have no material impact on the financial statements of the group except for additional disclosures. In addition, certain other standards and interpretations were issued during the period which either do not apply to the group or are not expected to have any material effect. Basis of preparation The accounts have been prepared under the historical cost convention, except for certain financial instruments which have been measured at fair value. The accounting policies set out below have been applied consistently to all periods presented in these group financial statements. The directors continue to adopt the going concern basis in preparing this report as explained in detail on page 31. Basis of consolidation The consolidated accounts incorporate the accounts of the company and entities controlled by the company (its ‘subsidiaries’). Control is achieved where the company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. An associate is an entity over which the group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Where the group owns a non-controlling interest in the equity share capital of a non-quoted company and does not exercise significant influence, it is held as an investment and stated in the balance sheet at the lower of cost and net realisable value. The results of subsidiary and associated undertakings acquired during the year are incorporated from the effective date of acquisition. Acquisitions are accounted for under the acquisition method, with consideration given and the assets and liabilities acquired being recorded at fair value. Minority interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. Minority interests consists of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority interest in the subsidiary’s equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 55 Notes to the Accounts continued 1 Accounting policies continued Foreign currencies The functional and presentation currency of Euromoney Institutional Investor PLC and its UK subsidiaries is sterling (£). The functional currency of subsidiaries and associates is the currency of the primary economic environment in which they operate. Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates ruling at the balance sheet date. The income statements of overseas operations are translated into sterling at the weighted average exchange rates for the year and their balance sheets are translated into sterling at the exchange rates ruling at the balance sheet date. All exchange differences arising on consolidation are taken to equity. In the event of the disposal of an operation, the related cumulative translation differences are recognised in the income statement in the period of disposal. Gains and losses arising on foreign currency borrowings and derivative instruments, to the extent that they are used to provide a hedge against the group’s equity investments in overseas undertakings, are taken to equity together with the exchange difference arising on the net investment in those undertakings. All other exchange differences are taken to the income statement. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation of property, plant and equipment is provided on the straight-line basis over their expected useful lives at the following rates per year: Freehold land Freehold buildings Long-term leasehold premises Short-term leasehold premises Office equipment Motor vehicles do not depreciate 2% over term of lease over term of lease 11% – 33% 20% All property, plant and equipment are reviewed for impairment in accordance with IAS 36 ‘Impairment of Assets’ when there are indications that the carrying value may not be recoverable. Intangible assets Goodwill Goodwill represents the excess of the fair value of purchase consideration over the net fair value of identifiable assets and liabilities acquired. Goodwill is recognised as an asset at cost and subsequently measured at cost less accumulated impairment. For the purposes of impairment testing, goodwill is allocated to those cash generating units that have benefited from the acquisition. Assets are grouped at the lowest level for which there are separately identifiable cash flows. The carrying value of goodwill is reviewed for impairment at least annually or where there is an indication that goodwill may be impaired. If the recoverable amount of the cash generating unit is less than its carrying amount, then the impairment loss is allocated first to reduce the carrying amount of the goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis. Any impairment is recognised immediately in the income statement and may not subsequently be reversed. On disposal of a subsidiary undertaking, the attributable amount of goodwill is included in the determination of the profit and loss on disposal. Goodwill arising on foreign subsidiary investments held in the consolidated balance sheet are retranslated into sterling at the applicable period end exchange rates. Any exchange differences arising are taken directly to equity as part of the retranslation of the net assets of the subsidiary. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts having been tested for impairment at that date. Goodwill written off to reserves under UK GAAP before October 1 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. 56 Euromoney In stitutional Investor PLC 1 Accounting policies continued Other intangible assets The group makes an assessment of the fair value of intangible assets arising on acquisitions. An intangible asset will be recognised as long as the asset is separable or arises from contractual or other legal rights, and its fair value can be measured reliably. Amortisation is charged so as to write off the costs of intangible assets over their estimated useful lives, using the straight-line or reducing balance method. All intangible assets are reviewed for impairment in accordance with IAS 36 ‘Impairment of assets’ when there are indications that the carrying value may not be recoverable. The costs of acquiring and developing software that is not integral to the related hardware is capitalised separately as an intangible asset. These intangibles are stated at cost less accumulated amortisation and impairment losses. Amortisation Amortisation of intangible assets is provided on a reducing balance basis or straight-line basis as appropriate over their expected useful lives at the following rates per year: Brands Data provider contracts Customer relationships Licences and software Subscription contracts 20 – 30 years 5 years 3 - 16 years 3 years 1 year Business combinations achieved in stages Where a business combination is achieved by more than one exchange transaction, goodwill is calculated separately for each transaction with the appropriate share of the acquiree’s net assets based on the net fair values at the time of each exchange transaction. Any adjustment to an increase in fair values related to previously held interests is credited to the fair value reserve. A decrease in carrying amounts arising on the revaluation of such assets is charged as an expense to the income statement to the extent that it exceeds the balance held in the fair value reserve, if any, relating to a previous revaluation of that asset. Purchases and sale of shares in a controlled entity Where the group’s interest in a controlled entity increases, which does not result in a change of control, the group calculates the goodwill arising as the difference between the cost of the additional interest acquired and the fair value of the group’s interest in the subsidiary’s net assets at the date of the change in interest. All of the assets and liabilities are fair valued at the date of acquisition of the additional controlling stake. Financial assets Trade and other receivables Trade receivables are recognised and carried at original invoice amount, less provision for impairment. A provision is made and charged to the income statement when there is objective evidence that the group will not be able to collect all amounts due according to the original terms. Cash and cash equivalents Cash and cash equivalents includes cash, short-term deposits and other short-term highly liquid investments with an original maturity of three months or less. For the purpose of the group cash flow statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts. Financial liabilities and equity Committed borrowings and bank overdrafts Interest-bearing loans and overdrafts are recorded at the amounts received, net of direct issue costs. Direct issue costs are amortised over the period of the loans and overdrafts to which they relate. Finance charges, including premiums payable on settlement or redemption are charged to the income statement as incurred using the effective interest rate method and are added to the carrying value of the borrowings or overdraft to the extent they are not settled in the period which they arise. Trade payables Trade payables are not interest-bearing and are stated at their fair value. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 57 Notes to the Accounts continued 1 Accounting policies continued Derivatives financial instruments The group uses various derivative financial instruments to manage its exposure to foreign exchange and interest rate risks, including forward foreign currency contracts and interest rate swaps. All derivative instruments are recorded in the balance sheet at fair value. The recognition of gains or losses on derivative instruments depends on whether the instrument is designated as a hedge and the type of exposure it is designed to hedge. The effective portion of gains or losses on cash flow hedges are deferred in equity until the impact from the hedged item is recognised in the income statement. The ineffective portion of such gains and losses is recognised in the income statement immediately. Gains or losses on the qualifying part of net investment hedges are recognised in equity together with the gains and losses on the underlying net investment. The ineffective portion of such gains and losses is recognised in the income statement immediately. Changes in the fair value of the derivative financial instruments that do not qualify for hedge accounting are recognised in the income statement as they arise. The premium or discount on interest rate instruments is recognised as part of net interest payable over the period of the contract. Interest rate swaps are accounted for on an accruals basis. Liabilities in respect of put option agreements Liabilities for put options over the remaining minority interests in subsidiaries are recorded in the balance sheet at their estimated discounted present value. These discounts are unwound and charged to the income statement as notional interest over the period up to the date of the potential future payment. Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is calculated under the provisions of IAS 12 ‘Income tax’ and is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. No provision is made for temporary differences on unremitted earnings of foreign subsidiaries or associates where the group has control and the reversal of the temporary difference is not foreseeable. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current assets and liabilities on a net basis. Provisions A provision is recognised in the balance sheet when the group has a present legal or constructive obligation as a result of a past event, and it is probable that economic benefits will be required to settle the obligation. If material, provisions are determined by discounting the expected future cash flows at a pre tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 58 Euromoney In stitutional Investor PLC 1 Accounting policies continued Pensions Contributions to pension schemes in respect of current and past service, ex-gratia pensions, and cost of living adjustments to existing pensions are based on the advice of independent actuaries. Payments to the Euromoney Pension Plan and the Metal Bulletin Group Personal Pension Plan, both defined contribution pension schemes, are charged as an expense as they fall due. The company operates the Metal Bulletin Pension Scheme, a defined benefit scheme. The cost of providing benefits is determined by triennial valuations using the attained age method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. The company also participates in the Harmsworth Pension Scheme, a defined benefit pension scheme which is operated by Daily Mail and General Trust plc. As there is no contractual agreement or stated policy for charging the net defined benefit cost for the plan as a whole to the individual entities, the company recognises an expense equal to its contributions payable in the period and does not recognise any unfunded liability of this pension scheme on its balance sheet. Share-based payments The group makes share-based payments to certain employees. These payments are measured at their estimated fair value at the date of grant, calculated using an appropriate option pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of the number of shares that will eventually vest. At the period end the vesting assumptions are revisited and the charge associated with the fair value of these options updated. In accordance with the transitional provisions of IFRS 1, IFRS 2 ‘Share-based payments’ has been applied to all grants of options after November 7 2002, that were unvested at October 1 2004, the date of transition to IFRS. For cash settled share-based payments a liability equal to the portion of the services received is recognised at the current fair value as determined at each balance sheet date. Revenue Revenue represents income from advertising, subscriptions, sponsorship and delegate fees, net of value added tax. y Advertising revenues are recognised in the income statement on the date of publication. y Subscription revenues are recognised in the income statement on a straight-line basis over the period of the subscription. y Sponsorship and delegate revenues are recognised in the income statement over the period the event is run. Revenues invoiced but relating to future periods are deferred and treated as deferred income in the balance sheet. Leased assets Operating lease rentals are charged to the income statement on a straight-line or other systematic basis as allowed by IAS 17 ‘Leases’. Dividends Dividends are recognised as an expense in the period in which they are approved by the company’s shareholders. Interim dividends are recorded in the period in which they are paid. Own shares held by Employees’ Share Ownership Trust Transactions of the group-sponsored trust are included in the group financial statements. In particular, the trust’s holdings of shares in the company are debited direct to equity. Earnings per share The earnings per share and diluted earnings per share calculations follow the provisions of IAS 33 ‘Earnings per share’. The diluted earnings per share figure is calculated by adjusting for the dilution effect of the exercise of all ordinary share options, SAYE options and the Capital Appreciation Plan options granted by the company, but excluding the ordinary shares held by the Euromoney Employees’ Share Ownership Trust. Exceptional items Exceptional items are items of income or expense considered by the directors, either individually or if of a similar type in aggregate, as being either material or significant and which require disclosure in order to provide a view of the group’s results excluding these items. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 59 Notes to the Accounts continued 2 Key judgemental areas adopted in preparing these accounts The group prepares its group financial statements in accordance with IFRS, the application of which often requires judgements to be made by management when formulating the group’s financial position and results. Under IFRS, the directors are required to adopt those accounting policies most appropriate to the group’s circumstances for the purpose of presenting fairly the group’s financial position, financial performance and cash flows. In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy, accounting estimate or assumption to be followed could materially affect the reported results or net asset position of the group should it later be determined that a different choice would have been more appropriate. Management considers the accounting estimates and assumptions discussed below to be its key judgemental areas and, accordingly, provides an explanation of each below. Management has discussed its critical accounting estimates and associated disclosures with the group’s audit committee. The discussion below should also be read in conjunction with the group’s disclosure of IFRS accounting policies, which is provided in note 1. Acquisitions The group’s accounting policy is that on acquisition of a subsidiary or business, the purchase consideration is allocated over the net fair value of identifiable assets, liabilities and contingent liabilities acquired, with any excess purchase consideration representing goodwill. Fair value Determining the fair value of assets, liabilities and contingent liabilities acquired requires management’s judgement and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash flows, recoverability of assets, and unprovided liabilities and commitments particularly in relation to tax and VAT. Intangible assets The group makes an assessment of the fair value of intangible assets arising on acquisitions. An intangible asset will be recognised as long as the asset is separable or arises from contractual or other legal rights, and its fair value can be measured reliably. The measurement of the fair value of intangible assets acquired requires significant management judgement particularly in relation to the expected future cash flows from the acquired marketing databases (which are generally based on managements’ estimate of marketing response rates), trademarks, brands, repeat and well established events. At September 30 2009 the net book value of intangible assets was £134.0 million (2008: £135.1 million). Goodwill Goodwill is recognised as an asset at cost and subsequently measured at cost less accumulated impairment. For the purposes of impairment testing, goodwill is allocated to those cash generating units that have benefited from the acquisition. The carrying value of goodwill is reviewed for impairment at least annually or where there is an indication that goodwill may be impaired. Goodwill is impaired where the carrying value of goodwill is higher than the net present value of future cash flows of those cash generating units to which it relates. Key areas of judgement in calculating the net present value are the forecast cash flows, the long-term growth rate of the applicable businesses and the discount rate applied to those cash flows. During the year the group recognised a goodwill impairment of £21.9 million (2008: £3.0 million) (note 5) and a reduction in goodwill arising from a deferred tax adjustment of £nil (2008: £2.8 million) (note 5). Goodwill held on the balance sheet at September 30 2009 was £291.3 million (2008: £272.1 million). Acquisition option commitments The group is party to a number of put and call options over the remaining minority interests in some of its subsidiaries. IAS 39 requires the discounted present value of these acquisition option commitments to be recognised as a liability on the balance sheet with a corresponding decrease in reserves. The discounts are unwound as a notional interest charge to the income statement. Key areas of judgement in calculating the discounted present value of the options are the expected future cash flows and earnings of the business, the period remaining until the option is exercised and the discount rate. At September 30 2009 the discounted present value of these acquisition option commitments was £11.9 million (2008: £29.8 million). Share-based payments The group makes share-based payments to certain employees. These payments are measured at their estimated fair value at the date of grant, calculated using an appropriate option pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of the number of shares that will eventually vest. The key assumptions used in calculating the fair value of the options are the discount rate, the group’s share price volatility, dividend yield, risk free rate of return, and expected option lives. These assumptions are set out in note 23. Management regularly perform a true-up of the estimate of the number of shares that are expected to vest, which is dependent on the anticipated number of leavers. The charge for share-based payments for the year ended September 30 2009 is £2.7 million (2008: £5.4 million). Defined benefit pension scheme The surplus or deficit in the defined benefit pension scheme that is recognised through the statement of recognised income and expense is subject to a number of assumptions and uncertainties. The calculated liabilities of the scheme are based on assumptions regarding salary increases, inflation rates, discount rates, the long-term expected return on the scheme’s assets and member longevity. Details of the assumptions used are shown in note 27. Such assumptions are based on actuarial advice and are benchmarked against similar pension schemes. 60 Euromoney In stitutional Investor PLC 2 Key judgemental areas adopted in preparing these accounts continued Taxation The group’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the group’s total tax charge necessarily involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until resolution has been reached with the relevant tax authority or, as appropriate, through a formal legal process. The final resolution of some of these items may give rise to material profit and loss and/or cash flow variances. The group is a multi-national group with tax affairs in many geographical locations. This inherently leads to a higher than usual complexity to the group’s tax structure and makes the degree of estimation and judgement more challenging. The resolution of issues is not always within the control of the group and it is often dependent on the efficiency of the legislative processes in the relevant taxing jurisdictions in which the group operates. Issues can, and often do, take many years to resolve. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result, there can be substantial differences between the tax charge in the income statement and tax payments. The group has certain significant open items in several tax jurisdictions and as a result the amounts recognised in the group financial statements in respect of these items are derived from the group’s best estimation and judgement, as described above. However, the inherent uncertainty regarding the outcome of these items means eventual resolution could differ from the accounting estimates and therefore affect the group’s results and cash flows. Recognition of deferred tax assets The recognition of net deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised. Historical differences between forecast and actual taxable profits have not resulted in material adjustments to the recognition of deferred tax assets. At September 30 2009, the group had a deferred tax asset of £18.5 million (2008: £16.5 million). Treasury Interest rate exposure Interest rate swaps and caps are used to manage the group’s exposure to fluctuations in interest rates on its floating rate borrowings. The maturity profile of these derivatives is matched with the expected future debt profile of the group. The group’s policy is to fix the interest rates on approximately 80% of its term debt looking forward over five years. The expected future debt profile of the group is based on estimates of both timings and size of future, as yet unknown, acquisitions offset by an estimate of the cash generated by the group over a five year period. If management materially underestimate the group’s future debt profile this would lead to too few interest rate instruments being in place and the group more exposed to swings in interest rates. An overestimate of the group’s future debt profile would lead to associated costs in unwinding the excess interest rate instruments. At September 30 2009, the fair value of the group’s interest rate swaps was a liability of £7.6 million (2008: £2.9 million). Forward contracts The group is exposed to foreign exchange risk in the form of transactions in foreign currencies entered into by group companies and by the translation of the results of foreign subsidiaries into sterling for reporting purposes. The group does not hedge the translation of the results of foreign subsidiaries, consequently, fluctuations in the value of pounds sterling versus currencies could materially affect the amount of these items in the consolidated financial statements, even if their values have not changed in their original currency. The group does endeavour to match foreign currency borrowings to investments in order to provide a natural hedge for the translation of the net assets of overseas subsidiaries. Approximately two-thirds of the group’s revenues are in US dollars. Subsidiaries normally do not hedge transactions in foreign currencies into the functional currency of their own operations. However, at a group level a series of US dollar forward contracts is put in place up to 18 months forward partially to hedge its dollar revenues into sterling. The timing and value of these forward contracts is based on managements estimate of its future US dollar revenues over a 18 month period. If management materially underestimated the group’s future US dollar revenues this would lead to too few forward contracts being in place and the group being more exposed to swings in US dollar to sterling exchange rates. An overestimate of the group’s US dollar revenue would lead to associated costs in unwinding the excess forward contracts. At September 30 2009, the fair value of the group’s forward contracts was a liability of £15.8 million (2008: £10.9 million) and the foreign exchange loss on restructured hedging arrangements from unwinding excess forward contracts was £7.9 million (2008: £nil) (note 7). Details of the financial instruments used are set out in note 18 to the accounts. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 61 Notes to the Accounts continued 3 Segmental analysis Primary reporting format Segmental information is presented in respect of the group’s business divisions and reflects the group’s management and internal reporting structure. The group is organised into five business divisions: Financial publishing; Business publishing; Training; Conferences and seminars; and Databases and information services. This is considered to be the primary reporting format. Financial publishing and Business publishing consist primarily of advertising and subscription revenue. The Training division consists primarily of delegate revenue. Conferences and seminars consists of both sponsorship income and delegate revenue. Databases and information services consists of subscription revenue. A breakdown of the group’s revenue by type is set out below. Secondary reporting format The group divides the operation of its businesses across three main geographical areas: United Kingdom; North America; and Rest of World (which primarily includes Asia). These geographical areas are considered as the secondary reporting format. Inter segment sales are charged at prevailing market rates and shown in the eliminations columns below. Revenue by division and source: Financial publishing Business publishing Training Conferences and seminars Databases and information services Sold/closed businesses Corporate revenue Foreign exchange losses on forward contracts United Kingdom 2008 £000’s 2009 £000’s North America 2008 2009 £000’s £000’s Rest of World 2009 £000’s 2008 £000’s Eliminations 2009 £000’s 2008 £000’s Total 2009 £000’s 2008 £000’s 43,330 42,765 19,038 28,584 10,185 – 1,625 49,217 40,361 27,078 31,511 7,529 47 1,665 34,892 14,601 8,838 33,379 54,707 – 331 36,401 12,598 10,581 38,386 40,733 – 299 1,856 1,760 4,180 12,918 22,589 – 2 1,956 1,963 3,553 18,147 17,867 – 2 (4,718) (2,798) (374) (30) – – (1,958) (3,415) 75,360 (1,834) 56,328 (460) 31,682 (145) 74,851 (2) 87,481 – (8) – (1,966) 84,159 53,088 40,752 87,899 66,127 39 – (8,108) – – – – – – – (8,108) – Total revenue 137,419 157,408 146,748 138,998 43,305 43,488 (9,878) (7,830) 317,594 332,064 Revenue by type: Subscriptions Advertising Sponsorship Delegates Other Sold/closed businesses Foreign exchange losses on forward contracts Total revenue Investment income (note 7) Total revenue and investment income Revenue by destination: Sale of goods Sale of services Sold/closed businesses Foreign exchange losses on forward contracts Total revenue Investment income (note 7) 2009 £000’s 2008 £000’s 152,305 123,067 66,504 45,813 86,350 10,291 39 – 54,817 38,454 69,588 10,538 – (8,108) 317,594 332,064 597 246 317,840 332,661 United Kingdom 2008 £000’s 2009 £000’s North America 2008 2009 £000’s £000’s Rest of World 2009 £000’s 2008 £000’s Eliminations 2009 £000’s 2008 £000’s Total 2009 £000’s 2008 £000’s 48,035 11,216 – 52,893 88,568 85,650 47,942 42,719 – – 8,884 47 91,392 71,308 73,170 53,650 – – (8,826) (1,052) – (6,477) 219,169 203,374 (1,345) 106,533 128,651 39 (8) – (8,108) – – – – – – – (8,108) – 51,143 31 61,824 131,287 133,592 145,042 144,478 32 213 106 459 2 (9,878) – (7,830) 317,594 332,064 597 246 – Total revenue and investment income 51,174 62,283 131,289 133,698 145,255 144,510 (9,878) (7,830) 317,840 332,661 62 Euromoney In stitutional Investor PLC 3 Segmental analysis continued Operating profit1 by division and source: Financial publishing Business publishing Training Conferences and seminars Databases and information services Sold/closed businesses Unallocated corporate costs United Kingdom 2008 £000’s 2009 £000’s North America 2008 2009 £000’s £000’s Rest of World 2008 2009 £000’s £000’s Total 2009 £000’s 2008 £000’s 15,436 18,614 3,838 7,832 6,629 (45) 18,573 15,467 7,720 9,067 4,595 81 (25,122) (24,132) 4,682 4,351 1,164 8,532 24,990 – 3,391 5,644 3,402 1,838 10,718 14,032 – 5,675 212 412 1,229 (505) 4,602 – (795) 287 527 883 3,263 2,479 – 20,330 23,377 6,231 15,859 36,221 (45) 24,504 19,396 10,441 23,048 21,106 81 1,189 (22,526) (17,268) Operating profit before acquired intangible amortisation, share option expense and exceptional items Acquired intangible amortisation2 Share option expense Exceptional items (note 5) 27,182 (5,474) (2,042) (595) 47,110 31,371 (8,913) (4,396) (3,538) (504) 2,306 (25,813) 41,309 (7,107) (1,555) (4,783) 5,155 (1,504) (151) (7,493) 8,628 81,308 79,447 (1,246) (15,891) (12,749) (5,361) (2,697) (2,477) – (33,901) (268) Operating profit before associates 19,071 25,743 11,880 27,864 (3,993) 7,114 26,958 60,721 Share of results in associates Net finance costs (note 7) (Loss)/profit before tax Tax credit (note 8) (Loss)/profit after tax 219 308 (44,538) (23,603) (17,361) 37,426 7,279 10,412 (6,949) 44,705 Acquired intangible amortisation of £15,891,000 (2008: £12,749,000) can be allocated as follows: Financial publishing £638,000 (2008: £1,267,000); Business publishing £5,203,000 (2008: £3,395,000); Conferences and seminars £478,000 (2008: £291,000); Databases and information services £9,430,000 (2008: £7,647,000); Unallocated corporate costs £142,000 (2008: £149,000). Share option expense of £2,697,000 (2008: £5,361,000) can be allocated as follows: Financial publishing £798,000 (2008: £1,320,000); Business publishing £365,000 (2008: £603,000); Training £679,000 (2008: £1,122,000); Conferences and seminars £396,000 (2008: £655,000); Databases and information services income £41,000 (2008: expense £805,000); Unallocated corporate costs £500,000 (2008: £856,000). The exceptional loss of £33,901,000 (2008: £2,477,000) can be allocated as follows: Financial publishing £1,120,000 (2008: £nil); Business publishing £241,000 (2008: gain £475,000); Training £71,000 (2008: £nil); Conferences and seminars £23,697,000 (2008: £2,952,000); Databases and information services £1,181,000 (2008: £nil); Unallocated corporate costs £7,591,000 (2008: £nil). 1 Operating profit before acquired intangible amortisation, share option expense and exceptional items (refer to the appendix to the Chairman’s Statement). 2 Acquired intangible amortisation represents amortisation on acquisition related non-goodwill assets such as brands, databases, customer relationships and trademarks. Financial Business publishing publishing £000’s £000’s Training £000’s seminars £000’s Closed services businesses £000’s £000’s Conferences Databases and and information Non- operating assets/ (liabilities) £000’s Total £000’s Net assets/(liabilities) by division: As at September 30 2009 Assets Liabilities 59,082 (93,430) 56,920 (83,972) 17,947 (33,821) 52,165 (95,173) 298,164 (85,026) 4,796 (7,098) 54,001 (39,564) 543,075 (438,084) Net assets/(liabilities) (34,348) (27,052) (15,874) (43,008) 213,138 (2,302) 14,437 104,991 Capital expenditure (excluding intangibles) Depreciation (excluding intangibles) Exceptional depreciation Amortisation Impairment losses Acquisition option commitments (2) (30) (167) (639) – (1,710) (4) (32) – (5,347) – (5,646) (18) (33) – (478) – – (126) (85) (84) (3) (23,164) (1,354) (288) (405) (28) (9,569) – (3,233) – – – (4) – – (822) (1,959) (931) (107) – – (1,260) (2,544) (1,210) (16,147) (23,164) (11,943) Annual Report and Financial Statements 2009 63 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Notes to the Accounts continued 3 Segmental analysis continued Net assets/(liabilities) by division continued Financial Business publishing publishing £000’s £000’s Conferences and seminars £000’s Training £000’s Databases and information Closed services businesses £000’s £000’s Non- operating assets/ (liabilities) £000’s Total £000’s Net assets/(liabilities) by division: As at September 30 2008 Assets Liabilities 111,251 (139,510) 85,587 (108,996) 54,400 (60,080) 79,688 (101,687) 307,000 (111,786) 5,057 (3,801) 55,416 (84,475) 698,399 (610,335) Net assets/(liabilities) (28,259) (23,409) (5,680) (21,999) 195,214 1,256 (29,059) 88,064 Capital expenditure (excluding intangibles) Depreciation (excluding intangibles) Amortisation Impairment losses Acquisition option commitments (4) (28) (1,270) – (3,628) (24) (34) (3,548) (2,784) (9,535) (5) (22) – – – (53) (77) (291) (2,952) (7,952) (496) (696) (7,726) – (8,733) – – – – – (3,658) (1,902) (121) – – (4,240) (2,759) (12,956) (5,736) (29,848) Non-operating assets and liabilities principally include deferred tax, corporation tax, external bank loans, loans to and from DMGT, dividends receivable, deferred consideration and acquisition option commitments. Net assets/(liabilities) by location: Assets Liabilities Net assets/(liabilities) United Kingdom 2008 2009 £000’s £000’s North America 2009 £000’s 2008 £000’s Rest of World Total 2009 £000’s 2008 £000’s 2009 £000’s 2008 £000’s 189,579 (238,834) 306,649 (332,795) 326,972 (152,867) 356,495 (223,882) 26,524 (46,383) 35,255 (53,658) 543,075 (438,084) 698,399 (610,335) (49,255) (26,146) 174,105 132,613 (19,859) (18,403) 104,991 88,064 Capital expenditure by location 554 3,111 438 637 268 492 1,260 4,240 64 Euromoney In stitutional Investor PLC 4 Operating profit Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit before associates Total 2009 £000’s 317,594 (89,161) 228,433 (4,836) (196,639) Total 2008 £000’s 332,064 (102,648) 229,416 (5,938) (162,757) 26,958 60,721 Administrative expenses include a profit on sale of property of £nil (2008: £1,670,000), profit on disposal of long-term investment of £nil (2008: £1,589,000), reduction in goodwill arising from a deferred tax adjustment of £nil (2008: £2,784,000), goodwill and intangible impairment of £23,164,000 (2008: £2,952,000) and restructuring and other costs of £10,737,000 (2008: £nil) (note 5). Operating profit is stated after charging/(crediting): Staff costs (note 6) Intangible amortisation Acquired intangible amortisation Licenses and software Goodwill and intangible impairment (note 5) Reduction in goodwill arising from a deferred tax adjustment Depreciation of property plant and equipment Exceptional depreciation of property plant and equipment Auditors’ remuneration: Group audit Non-audit Property operating lease rentals Loss on sale of property, plant and equipment Exceptional profit on sale of property (note 5) Restructuring and other costs (note 5) Foreign exchange loss/(gain) Impairment loss recognised on trade receivables Reversal of impairment loss recognised on trade receivables Audit and non-audit services relate to: Fees payable for the audit of the company’s annual accounts Fees payable for other services to the group The audit of subsidiaries pursuant to local legislation Total audit fees Other audit services Tax services Other services Total non-audit fees In addition to the above amounts, non-audit fees of £nil (2008: £76,000) were capitalised in respect of acquisitions. 2009 £000’s 2008 £000’s 113,907 115,326 15,891 256 23,164 – 2,544 1,210 739 140 6,662 125 – 10,737 1,108 4,684 (1,295) 2009 £000’s 486 253 739 105 35 140 12,749 207 2,952 2,784 2,759 – 830 215 6,035 8 (1,670) – (979) 3,662 (758) 2008 £000’s 593 237 830 186 29 215 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 65 Notes to the Accounts continued 5 Exceptional items Exceptional items are items of income or expense considered by the directors, either individually or if of a similar type in aggregate, as being either material or significant and which require disclosure in order to provide a view of the group’s results excluding these items. Profit on sale of property Profit on disposal of long-term investment Reduction in goodwill arising from a deferred tax adjustment (note 11) Goodwill and intangible asset impairment (note 11) Restructuring and other costs 2009 £000’s – – – (23,164) (10,737) (33,901) 2008 £000’s 1,670 1,589 (2,784) (2,952) – (2,477) The group has reviewed the carrying value of goodwill and intangible assets and as a result has impaired capitalised goodwill and intangible assets, mostly in connection with the group’s US-based structured finance event businesses and its Asia-based conference organiser and training business, by £23,164,000 (2008: £2,952,000) with a corresponding tax credit of £6,374,000 (2008: £nil). During the year, in response to tough trading conditions, the directors have restructured the group’s operations resulting in the rationalisation of its property portfolio (exceptional cost of £3,715,000), a reduction in group headcount (exceptional cost of £3,371,000), and other exceptional costs (£3,651,000) giving rise to total exceptional restructuring and other costs of £10,737,000 (£2008: £nil) and a related tax credit of £4,138,000 (2008: £nil). 6 Staff costs (i) Directors’ emoluments The emoluments of the directors of Euromoney Institutional Investor PLC were as follows: Directors’ salaries and fees, benefits in kind and profit shares Pension contributions (excluding waiver of profit shares) Details of directors’ remuneration are set out in the Directors’ Remuneration Report on pages 34 to 48. (ii) Number of staff (including directors and temporary staff) By business segment: Financial publishing Business publishing Training Conferences and seminars Databases and information services Central By geographical location: United Kingdom North America Rest of World (iii) Staff costs (including directors and temporary staff) Salaries, wages and incentives Social security costs Pension contributions Share-based compensation costs 66 Euromoney In stitutional Investor PLC 2009 £000’s 10,346 110 10,456 2008 £000’s 13,177 100 13,277 2009 Average 2008 Average 410 260 132 365 705 338 485 267 161 433 669 347 2,210 2,362 2009 Average 2008 Average 766 682 762 839 774 749 2,210 2,362 2009 £000’s 101,104 7,755 2,351 2,697 2008 £000’s 99,221 9,041 1,703 5,361 113,907 115,326 7 Finance income and expense Finance income Interest income: Interest receivable from DMGT group undertakings Interest receivable from short-term investments Expected return on pension scheme assets Fair value gains on financial instruments: Ineffectiveness of interest rate swaps Finance expense Interest expense: Interest payable on committed borrowings Interest payable to DMGT group undertakings Interest payable on loan notes Interest on pension scheme liabilities Foreign exchange loss on restructured hedging arrangements Net movements in acquisition option commitment values Imputed interest on acquisition option commitments Interest on tax underpaid Foreign exchange loss on tax equalisation contracts Other gains on tax equalisation contracts Net loss on tax equalisation contracts Fair value losses on financial instruments: Ineffectiveness of interest rate swaps Net finance costs 2009 £000’s 2008 £000’s 654 246 1,162 219 2,281 (12,297) (1,294) (197) (1,189) (7,863) (2,202) (638) (1,364) (19,854) 79 (19,775) 3,825 597 1,172 – 5,594 (12,252) (3,825) (478) (1,150) – (1,730) (995) – (11,966) 3,426 (8,540) – (227) (46,819) (29,197) (44,538) (23,603) The foreign exchange loss on tax equalisation contracts of £19,854,000 (2008: £11,966,000) relates to foreign exchange losses on hedges on intra-group financing. This foreign exchange loss is matched by an equal and opposite tax credit so that there is no financial impact on earnings per share. The foreign exchange loss and the tax credit are excluded from underlying profit and the underlying tax expense (note 8). The foreign exchange losses on restructured hedging arrangements of £7,863,000 (2008: £nil) arise from forward contracts classified as ineffective under IAS 39 ‘Financial Instruments’ following the directors’ review of the group’s US dollar revenue capacity in its UK-based businesses. Reconciliation of net finance costs in income statement to underlying net finance costs Total net finance costs in the income statement Add back: Foreign exchange losses on restructured hedging arrangements Net movements in acquisition option commitment values Imputed interest on acquisition option commitments Foreign exchange loss on tax equalisation contracts Underlying net finance costs 2009 £000’s 2008 £000’s (44,538) (23,603) 7,863 2,202 638 19,854 30,557 (13,981) – 1,730 995 11,966 14,691 (8,912) E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 67 Notes to the Accounts continued 8 Tax on (loss)/profit on ordinary activities Current tax (credit)/expense UK corporation tax expense Foreign tax (credit)/expense Adjustments in respect of prior years Deferred tax (credit)/expense Current year Adjustments in respect of prior years Total tax credit in income statement 2009 £000’s 340 (3,016) 550 (2,126) (10,446) 2,160 2008 £000’s 860 5,265 (2,234) 3,891 (9,858) (1,312) (8,286) (11,170) (10,412) (7,279) The effective tax rate for the year is a credit of 60% (2008: credit of 19%). The underlying tax rate for 2009 is 27% (2008: 27%) as set out below: Reconciliation of tax credit in income statement to underlying tax expense Total tax credit in income statement Add back: Tax on intangible amortisation Tax on exceptional items Tax on acquisition option commitments Tax credit on foreign exchange loss on tax equalisation swap Tax on foreign exchange losses on restructured hedging arrangements Tax on US goodwill amortisation Tax adjustments in respect of prior years Deferred tax asset recognition Underlying tax expense Underlying profit before tax (refer to the appendix to the Chairman’s Statement) Underlying effective tax rate 2009 £000’s 2008 £000’s (10,412) (7,279) 4,684 10,512 (2,503) 19,854 2,202 (4,567) (2,710) – 27,472 17,060 62,988 27% 6,950 1,181 – 11,966 – (3,376) 3,546 5,358 25,625 18,346 67,343 27% Following a reassessment of the recoverability of the potential deferred tax asset on overseas tax losses and other short-term timing differences, an additional asset of £nil (2008: £5,358,000) has been recognised. A credit of £19,854,000 (2008: £11,966,000) relating to tax on foreign exchange losses has been treated as exceptional as it is hedged by £19,854,000 (2008: £11,966,000) of foreign exchange losses on tax equalisation contracts included within net finance costs (note 7). The group presents the above underlying effective tax rate to help users of this report better understand its tax charge. In arriving at this rate, the group removes the tax effect of items which are adjusted for in arriving at the underlying profit disclosed in the appendix to the Chairman’s Statement. However, the current tax effect of goodwill and intangible items is not removed. The group considers that the resulting underlying effective tax rate is more representative of its tax payable position, as the deferred tax effect of the goodwill and intangible items is not expected to crystallise. 68 Euromoney In stitutional Investor PLC 8 Tax on (loss)/profit on ordinary activities continued The actual tax credit for the year is different from 28% of (loss)/profit before tax for the reasons set out in the following reconciliation: (Loss)/profit before tax Tax at 28% (2008: 29%) Factors affecting tax charge: Rates of tax on overseas profits Associate income reported net of tax US State taxes Goodwill and intangibles Disallowable expenditure Tax effects of intra-group transactions eliminated on consolidation Reversal of deferred tax asset on exercise of acquisition put options Recognition of previously unrecognised tax losses Recognition of previously unrecognised deferred tax Gains on disposal covered by brought forward losses Deferred tax credit arising from changes in tax laws Prior year adjustments Total tax credit for the year 9 Dividends Amounts recognisable as distributable to equity holders in period Final dividend for the year ended September 30 2008 of 13.00p (2007: 13.00p) Interim dividend for year ended September 30 2009 of 6.25p (2008: 6.25p) Employees’ Share Ownership Trust dividend Proposed final dividend for the year ended September 30 Employees’ Share Ownership Trust dividend 2009 £000’s (17,361) (4,861) (1,307) (61) 1,281 2,024 1,594 (14,295) 2,503 – – – – 2,710 (10,412) 2009 £000’s 13,697 6,971 20,668 (11) 20,657 8,816 (5) 8,811 2008 £000’s 37,426 10,854 224 (89) 1,134 (69) 2,559 (8,567) – (2,855) (2,503) (960) (3,461) (3,546) (7,279) 2008 £000’s 13,388 6,573 19,961 (11) 19,950 13,689 (8) 13,681 The proposed final dividend of 7.75p (2008: 13.00p) is subject to approval at the Annual General Meeting on January 21 2010 and has not been included as a liability in these financial statements in accordance with IAS 10 ‘Events after the balance sheet date’. The directors have resolved to offer the scrip dividend alternative, as approved by shareholders on January 28 2009, to the final dividend payment. Full details of the scrip dividend alternative can be found in the shareholders’ circular sent to shareholders in December 2009 and on the company’s website. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 69 Notes to the Accounts continued 10 (Loss)/earnings per share (Loss)/earnings attributable to equity holders of the parent Less earnings from discontinued operations Basic (loss)/earnings – continuing operations Acquired intangible amortisation Exceptional items Imputed interest on acquisition option commitments Net movements in acquisition option commitment values Foreign exchange loss on restructured hedging arrangements Tax on above adjustments Tax deduction on US goodwill Tax adjustment in respect of prior years Deferred tax assets recognition Adjusted earnings Weighted average number of shares Shares held by the Employees’ Share Ownership Trust Effect of dilutive share options Diluted weighted average number of shares Basic (loss)/earnings per share – continuing operations Effect of dilutive share options Diluted (loss)/earnings per share – continuing operations Effect of acquired intangible amortisation Effect of exceptional items Effect of imputed interest on acquisition option commitments Effect of net movements in acquisition option commitment values Effect of foreign exchange loss on restructured hedging arrangements Effect of tax on the above adjustments Effect of tax deduction on US goodwill Effect of tax adjustment in respect of prior years Effect of deferred tax assets recognition Adjusted diluted earnings per share Basic (loss)/earnings per share – continuing and discontinued operations Effect of dilutive share options Diluted (loss)/earnings per share – continuing and discontinued operations 2009 £000’s (6,287) (1,207) (7,494) 15,891 33,901 638 2,202 7,863 (14,895) 4,567 2,710 – 45,383 Number 000’s 109,750 (59) 109,691 2,682 2008 £000’s 43,719 (245) 43,474 12,749 2,477 995 1,730 – (8,131) 3,376 (3,546) (5,358) 47,766 Number 000’s 104,348 (59) 104,289 3,398 112,373 107,687 Pence per share Pence per share (6.83) 0.16 (6.67) 14.14 30.17 0.57 1.96 7.00 (13.25) 4.06 2.41 – 40.39 (5.73) 0.14 (5.59) 41.69 (1.32) 40.37 11.84 2.30 0.92 1.61 – (7.55) 3.14 (3.29) (4.98) 44.36 41.92 (1.32) 40.60 The adjusted diluted earnings per share figure has been disclosed since the directors consider it to give a more meaningful indication of the underlying trading performance. 70 Euromoney In stitutional Investor PLC 11 Goodwill and other intangibles Cost/carrying amount At October 1 Additions Acquisitions (note 14) Disposals Exchange differences At September 30 Amortisation and impairment At October 1 Amortisation charge for the year Impairment losses Reduction in goodwill arising from a deferred tax adjustment Disposals Exchange differences At September 30 Net book value/ carrying amount at September 30 Intangibles acquired on acquisition 2009 £000’s Licences & software 2009 £000’s 165,677 – 5,149 – 12,912 183,738 30,584 15,891 1,235 – – 2,036 1,738 146 – (12) 156 2,028 1,349 256 – – (12) 117 Intangibles acquired on acquisition 2008 £000’s 146,958 – 4,125 – 14,594 Goodwill 2009 £000’s 278,351 – 18,060 – 23,111 319,522 165,677 6,255 – 21,929 – – – 15,473 12,749 – – – 2,362 Licences & software 2008 £000’s 1,414 156 – – 168 1,738 1,014 207 – – – 128 49,746 1,710 28,184 30,584 1,349 Goodwill 2008 £000’s 248,656 – 5,037 – 24,658 278,351 519 – 2,952 2,784 – – 6,255 133,992 318 291,338 135,093 389 272,096 The carrying amounts of goodwill by business are as follows: CEIC Internet Securities MIS Petroleum Economist Gulf Publishing HedgeFund Intelligence Information Management Network MAR BCA Metal Bulletin publishing businesses FOW Total Derivatives TelCap Asia Business Forum Benchmark Financials Other Total 2009 £000’s 13,150 8,488 2,575 236 4,769 14,718 29,525 187 144,565 52,710 196 8,180 10,448 1,122 460 9 2008 £000’s 11,799 5,180 2,310 236 4,279 14,718 33,615 168 129,715 52,710 196 5,698 5,140 5,911 413 8 291,338 272,096 Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (businesses) that are expected to benefit from that business combination. During the year the goodwill in respect of each of the above businesses was tested for impairment in accordance with IAS 36 ‘Impairment of assets’. The methodology applied to the value in use calculations, reflecting past experience and external sources of information, included: y Forecasts by business based on pre-tax cash flows derived from approved budgets for 2010. Management believe these budgets to be reasonably achievable; y Subsequent cash flows for between one and three additional years increased in line with growth expectations of the applicable business; y The pre-tax discount rate of 10.5%, reflecting the companies weighted average cost of capital; and y Long-term growth rate of 3%. Impairment Due to current market conditions an impairment of capitalised goodwill of £21,929,000 (2008: £2,952,000) was recognised in the year. This is limited mainly to the US-based activities in the structured finance sector where its main customers are experiencing a fall in demand and its Asia-based conference organiser and training business which has suffered a decline in its customers spend on training. Both these businesses are part of the conferences and seminars business division. Annual Report and Financial Statements 2009 71 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Notes to the Accounts continued 11 Goodwill and other intangibles continued Sensitivities Certain businesses, after the annual impairment review required under IAS 36, had a limited value in use in excess of carrying value of £1.8 million. For these businesses management has set out below the change in assumptions required, in isolation, in order for the estimated carrying value to be equal or less than the value in use. The change in assumptions are summarised as follows: Increase in the WACC by 1% point. y y Decrease in the long-term growth rate by 1%. The result of the change in assumptions of a 1% decrease in growth rates would result in an additional impairment of £1.1 million. A 1% increase in WACC would result in an additional impairment of £1.9 million. Management believes the general market conditions seem to have stabilised and therefore a decrease in growth rates to 2% or a WACC of 11.5% would be severe. Management will continue to conduct regular reviews to monitor this matter. 12 Property, plant and equipment 2009 Cost At October 1 2008 Additions Disposals Exchange differences At September 30 2009 Depreciation At October 1 2008 Charge for the year Exceptional charge for the year1 Disposals Exchange differences At September 30 2009 Net book value at September 30 2009 Net book value at September 30 2008 Freehold land and buildings 2009 £000’s Long-term leasehold premises 2009 £000’s Short-term leasehold premises 2009 £000’s Office equipment 2009 £000’s Motor vehicles 2009 £000’s 6,357 26 – – 6,383 37 81 – – – 118 6,265 6,320 2,701 12 – 14 2,727 258 157 – – 5 420 2,307 2,443 15,126 141 (637) 596 15,226 5,504 791 931 (556) 138 6,808 8,418 9,622 17,340 1,049 (3,642) 1,111 15,858 14,064 1,514 279 (3,608) 849 13,098 2,760 3,276 8 32 (32) 1 9 8 1 – (1) 1 9 – – 1 Exceptional depreciation relates to the rationalisation of the group’s property portfolio (note 5). 2008 Cost At October 1 2007 Additions Acquisitions Disposals Exchange differences At September 30 2008 Depreciation At October 1 2007 Charge for the year Disposals Exchange differences At September 30 2008 Net book value at September 30 2008 Net book value at September 30 2007 Freehold land and buildings 2008 £000’s Long-term leasehold premises 2008 £000’s Short-term leasehold premises 2008 £000’s Office equipment 2008 £000’s Motor vehicles 2008 £000’s 5,045 2,457 – (1,145) – 6,357 19 58 (40) – 37 6,320 5,026 2,685 – – – 16 2,701 214 38 – 6 258 2,443 2,471 14,088 390 – – 648 15,126 4,270 979 (8) 263 5,504 9,622 9,818 15,505 1,393 3 (802) 1,241 17,340 11,903 1,684 (715) 1,192 14,064 3,276 3,602 7 – – – 1 8 7 – – 1 8 – – The directors do not consider the market value of freehold land and buildings to be significantly different from its book value. Total 2009 £000’s 41,532 1,260 (4,311) 1,722 40,203 19,871 2,544 1,210 (4,165) 993 20,453 19,750 21,661 Total 2008 £000’s 37,330 4,240 3 (1,947) 1,906 41,532 16,413 2,759 (763) 1,462 19,871 21,661 20,917 72 Euromoney In stitutional Investor PLC 13 Investments At October 1 Share of profits after tax retained Dividends At September 30 Investments in associated undertakings 2009 £000’s Investments in associated undertakings 2008 £000’s 303 219 (313) 209 252 308 (257) 303 Associated undertakings The associated undertaking at September 30 2009 was Capital NET Limited whose principal activity is the provision of electronic database services. The group has a 48.4% (2008: 48.4%) interest in Capital NET Limited. Capital NET Limited does not have a coterminous year end with the group. The total assets, liabilities, revenues and profit after tax generated by Capital NET Limited from its latest available audited accounts at December 31 are set out below. Total assets Total liabilities Total revenues Profit after tax Associates 2009 £000’s Associates 2008 £000’s 548 (237) 2,047 536 645 (222) 2,202 587 Assets available for sale The group has a 50% interest in Capital DATA Limited. The ordinary share capital of Capital DATA is divided into 50 ‘A’ shares and 50 ‘B’ shares with the group owning the 50 ‘A’ shares. Under the terms of the Articles of Association of Capital DATA, the ‘A’ shares held by the group do not carry entitlement to any share of dividends or other distribution of profits of Capital DATA. The group does not have the ability to exercise significant influence nor is it involved in the day to day running of Capital DATA. As such the investment in Capital DATA is accounted for as an asset available for sale with a £nil carrying value (2008: £nil). Under a separate licence agreement the group is entitled to 28.2% of Capital DATA’s revenues being £3,761,000 in the year (2008: £3,440,000). At December 31 2008, based on its latest available audited accounts, Capital DATA Limited had £964,000 of issued share capital and reserves (December 31 2007: £1,103,000), and its profit for the year then ended was £1,906,000. (December 31 2007: £1,808,000). E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 73 Notes to the Accounts continued 13 Investments continued Details of the company and its principal subsidiary undertakings included in these consolidated financial statements at September 30 2009 are as follows: Company Euromoney Institutional Investor PLC Direct investments Adhesion (UK) Limited Coaltrans Conferences Limited Euromoney Funding US Limited Euromoney Hedging Limited Euromoney Institutional Investor (Jersey) Limited Euromoney Lending (UK) Limited Euromoney Publications (Jersey) Limited Euromoney Yen Finance Limited Fantfoot Limited Glenprint Limited HedgeFund Intelligence Limited The Petroleum Economist Limited Tipall Limited Indirect investments Adhesion Group SA American Metal Market, LLC AMM Marketwatch, LLC Asia Business Forum (Singapore) Pte Limited BCA Research, Inc. BPR Benchmark Limitada Business Conventions International SA Carlcroft Limited CEIC Holdings Limited EII Holdings, Inc. EII US, Inc. Euromoney Buffalo 1 Limited Euromoney Buffalo 2 Limited Euromoney (Singapore) Pte Limited Euromoney Funding (UK) Limited Euromoney Institutional Investor (Ventures) Limited Euromoney Training, Inc. Euromoney, Inc. GSCS Benchmarks Limited Gulf Publishing Company EIMN, Inc. Institutional Investor, Inc. Internet Securities, Inc. Latin American Financial Publications, Inc. Managed Account Reports, LLC MB Marketwatch Limited Metal Bulletin Holdings Corporation Metal Bulletin Investments Limited Metal Bulletin Limited MIS Training (UK) Limited Storas Holdings Pte Limited TelCap Limited Total Derivatives Limited Associates Capital NET Limited Proportion held Principal activity and operation Country of incorporation n/a Publishing, training and events Great Britain 100% 95% 100% 100% 100%† 100% 100%^ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 100% 100% 100%* 100% 100%* 100%* 100% 100% 100% 100% 100% 100% 100% 100% 100% 98% 100% 100% 100% 100% 100% 100% 100% 100% 85% 89% Conventions Conferences Investment holding company Investment company Publishing Investment holding company Non-trading Investment company Investment holding company Publishing Publishing Publishing Property holding Conventions Publishing Information Services Conferences Information Services Information Services Conventions Publishing Information Services Holding company Investment holding company Investment holding company Investment holding company Training Investment holding company Investment holding company Training Training Publishing Publishing Conferences Publishing Information Services Publishing Non-trading Information Services Investment holding company Investment holding company Publishing Training Investment holding company Publishing Publishing Great Britain Great Britain Great Britain Great Britain Jersey Great Britain Jersey Great Britain Great Britain Great Britain Great Britain Great Britain Great Britain France US US Singapore Canada Colombia France Great Britain Hong Kong US US Great Britain Great Britain Singapore Great Britain Great Britain US US Great Britain US US US US US US Great Britain US Great Britain Great Britain Great Britain Singapore Great Britain Great Britain 48% Databases Great Britain All holdings are of ordinary shares. In addition to the above, the group has a small number of branches outside the United Kingdom. * 100% preference shares held in addition. † Euromoney Institutional Investor (Jersey) Limited’s principal country of operation is Hong Kong. ^ Euromoney Publications (Jersey) Limited’s principal country of operation is Great Britain. 74 Euromoney In stitutional Investor PLC 14 Acquisitions Increase in equity holdings In January 2009, the group purchased the remaining 20% of the equity share capital of Information Management Network LLC (IMN), the structured finance, indexing and real estate events business, for a cash consideration of $11,107,000 (£7,704,000), resulting in additional provisional goodwill of $10,016,000 (£6,948,000) and bringing total goodwill to $47,222,000 (£29,525,000). In January 2009, the group exercised its option to purchase the third tranche (10.9%) of Total Derivatives Limited increasing its equity holding from 78.3% to 89.2%. The equity was purchased for £2,834,000 resulting in additional provisional goodwill of £2,482,000 and bringing total goodwill to £8,180,000. In February 2009, the group purchased a further 15% of the equity share capital of TelCap Limited for a cash consideration of £5,952,000 payable in April 2009, resulting in additional provisional goodwill of £5,308,000 and bringing total goodwill to £10,448,000. The group’s equity shareholding in TelCap Limited increased to 85%. In February 2009, the group purchased a further 3.93% of the equity share capital of Internet Securities, Inc. (ISI) for a cash consideration of $4,344,000 (£3,013,000), resulting in additional provisional goodwill of the same amount and bringing the total goodwill to $13,575,000 (£8,488,000). The group’s equity shareholding in ISI increased to 97.8%. In May 2009, the group purchased the remaining 10% of the equity share capital of Asia Business Forum (ABF), a leading conference organiser and training business for the Asia region, for a cash consideration of SG$846,000 (£387,000), resulting in additional provisional goodwill of SG$675,000 (£309,000) and bringing total goodwill to SG$2,528,000 (£1,122,000). Book value Intangible assets Cash Other assets Liabilities Total Provisional fair value adjustments Intangible assets Deferred tax Provisional fair value of net assets Net assets acquired % £000’s Provisional goodwill Consideration (satisfied by cash) IMN £000’s Total Derivatives £000’s TelCap £000’s ABF £000’s – 1,503 5,324 (5,981) 846 4,892 (1,957) 2,935 3,781 20% 756 6,948 7,704 6,701 3,549 685 (5,643) 5,292 (2,846) 797 (2,049) 3,243 10.85% 352 2,482 2,834 2,025 2,458 2,116 (5,127) 1,472 3,914 (1,096) 2,818 4,290 15% 644 5,308 5,952 1,433 455 501 (977) 1,412 (811) 178 (633) 779 10% 78 309 387 If the acquisitions in the table above had been completed on the first day of the financial year, group revenues for the period would have remained unchanged and group loss attributable to equity holders of the parent would have been reduced by £271,000. 15 Discontinued operations In September 2009 the group received a final payment of £1,207,000 after related costs from the sale of the Atalink Limited, following the agreement of their completion accounts. There is no related tax charge. The business and net assets of Atalink Limited were sold in March 2007 and were treated as a discontinued operation up to that date. The group’s income statement does not include any trading results from discontinued operations other than the profit on disposal from the proceeds above. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 75 Notes to the Accounts continued 16 Trade and other receivables Amounts falling due within one year Trade receivables Less: provision for impairment of trade receivables Trade receivables – net of provision Other debtors Prepayments and accrued income 2009 £000’s 48,419 (8,189) 40,230 11,326 7,444 59,000 2008 £000’s 56,286 (6,593) 49,693 11,689 7,759 69,141 The average credit period on sales of goods and services is 30 days. Trade receivables beyond 60 days overdue are provided for based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience. Credit terms for customers are determined in individual territories. Concentration of credit risk with respect to trade receivables is limited due to the group’s customer base being large and diverse. Due to this, management believe there is no further credit risk provision required in excess of the normal provision for doubtful receivables. There are no customers who represent more than 5% of the total balance of trade receivables. As at September 30 2009, trade receivables of £24,480,000 (2008: £29,487,000) were not yet due. As of September 30 2009, trade receivables of £12,415,000 (2008: £17,625,000) were past due for which the group has not provided as there has been no significant change in their credit quality and the amounts are still considered recoverable. These relate to a number of independent customers for whom there is no recent history of default. The average age of these receivables is 59 days (2008: 71 days). The group does not hold any collateral over these balances. The ageing of these trade receivables is as follows: Past due less than a month Past due more than a month but less than two months Past due more than two months but less than three months Past due more than three months 2009 £000’s 8,618 2,510 703 584 2008 £000’s 9,276 3,487 2,780 2,082 12,415 17,625 As at September 30 2009, trade receivables of £11,524,000 (2008: £9,174,000) were impaired and partially provided for. The amount of the provision was £8,189,000 (2008: £6,593,000). It was assessed that a portion of the receivables is expected to be recovered. The ageing of these receivables is as follows: Past due less than a month Past due more than a month but less than two months Past due more than two months but less than three months Past due more than three months Movements on the group provision for impairment of trade receivables are as follows: At October 1 Impairment losses recognised Impairment losses reversed Amounts written off as uncollectible Exchange differences At September 30 2009 £000’s 1,119 2,644 2,005 5,756 11,524 2009 £000’s (6,593) (4,684) 1,295 1,967 (174) (8,189) 2008 £000’s 346 541 663 7,624 9,174 2008 £000’s (4,287) (3,662) 758 783 (185) (6,593) In determining the recoverability of a trade receivable, the group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts. The allowance for doubtful debts does not include individually impaired trade receivables which have been placed under liquidation as these trade receivables are written off directly to the income statement. 76 Euromoney In stitutional Investor PLC 17 Trade and other payables Trade creditors Amounts owed to DMGT group undertakings Other creditors The directors consider the carrying amount of trade and other payables approximates their fair values. 18 Financial instruments Derivative financial instruments The derivative financial assets/(liabilities) at September 30 comprised: 2009 £000’s 3,747 26,429 29,038 59,214 2008 £000’s 5,489 3,271 21,859 30,619 Current Interest rate swaps Forward foreign exchange contracts – fair value through profit and loss Forward foreign exchange contracts – cash flow hedge Forward foreign exchange contracts – net investment hedge Non-current Interest rate swaps Forward foreign exchange contracts – fair value through profit and loss Forward foreign exchange contracts – cash flow hedge 2009 2008 Assets £000’s Liabilities £000’s Assets £000’s Liabilities £000’s – – 569 – 569 7 – 562 569 (1,661) (3,312) (4,944) – (9,917) (5,934) (1,198) (7,460) (14,592) 108 138 1,205 – 1,451 189 – 179 368 (189) (9,410) (4,707) (859) (15,165) (3,018) – (6,755) (9,773) 1,138 (24,509) 1,819 (24,938) Financial risk management objectives Full details of the objectives, policies and strategies pursued by the group in relation to financial instruments are set out on page 58 of the accounting policies and page 61 of the key judgemental areas. In summary, the group’s tax and treasury committee normally meets twice a year and is responsible for recommending policy to the board. The group’s treasury policies are directed to giving greater certainty of future costs and revenues and ensuring that the group has adequate liquidity for working capital and debt capacity for funding acquisitions. The treasury department does not act as a profit centre, nor does it undertake any speculative trading activity and it operates within policies and procedures approved by the board. Interest rate swaps are used to manage the group’s exposure to fluctuations in interest rates on its floating rate borrowings. Further details are set out in the interest rate risk section on page 80. Forward contracts are used to manage the group’s exposure to fluctuations in exchange rate movements. Further details are set out in the foreign exchange rate risk section on page 79. Capital risk management The group manages its capital to ensure that entities in the group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The group’s overall strategy remains unchanged from 2008. The capital structure of the group consists of debt, which includes the borrowings disclosed in note 19, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 and 24 respectively. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 77 Notes to the Accounts continued 18 Financial instruments continued Net debt to EBITDA* ratio The group’s tax and treasury committee reviews the capital structure at least twice a year. As part of the debt covenants under the loan facility provided by Daily Mail and General Trust plc (DMGT), the board has to ensure that net debt to EBITDA* does not exceed 4 times on a rolling 12 month basis. The group expects to remain within these limits. The net debt to EBITDA covenant is defined to allow the rate used in the translation of US dollar EBITDA, including hedging contracts, to be used also in the calculation of net debt, thereby removing any distortion to the covenant from increases in net debt due to short-term movements in the US dollar. The net debt to EBITDA* ratio at September 30 is as follows: Committed loan facility Loan notes Total debt Cash and cash equivalents Net debt EBITDA* Net debt to EBITDA* ratio 2009 £000’s (165,151) (5,719) (170,870) 12,063 2008 £000’s (184,594) (7,579) (192,173) 20,179 (158,807) (171,994) 79,769 79,221 1.99 2.17 * EBITDA (Earnings before interest, tax, depreciation, amortisation) = underlying operating profit before depreciation and amortisation of licences and software. Categories of financial instruments The group’s financial assets and liabilities at September 30 are as follows: Financial assets Derivative instruments – fair value through profit and loss Derivative instruments in designated hedge accounting relationships Loans and receivables (including cash and cash equivalents) Financial liabilities Derivative instruments – fair value through profit and loss Derivative instruments in designated hedge accounting relationships Acquisition option commitments Loans and payables (including overdrafts) 2009 £000’s 2008 £000’s – 1,138 65,569 138 1,681 239,743 66,707 241,562 (4,510) (19,999) (11,943) (283,791) (9,410) (15,528) (29,848) (429,612) (320,243) (484,398) Market price risk Market price risk is the possibility that changes in currency exchange rates, interest rates or commodity prices will adversely affect the value of the group’s financial assets, liabilities or expected future cash flows. The group’s primary market risks are interest rate fluctuations and exchange rate movements. Derivatives are used to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist. Derivatives used by the group for hedging a particular risk are not specialised and are generally available from numerous sources. The fair values of interest rate swaps, currency options and forward exchange contracts are set out in this note and represent the value for which an asset could be sold or liability settled between knowledgeable willing parties in an arm’s length transaction calculated using the market rates of interest and exchange at September 30 2009. The group has no other material market price risks. Market risk exposures are measured using sensitivity analysis. There has been no change to the group’s exposure to market risks or the manner in which it manages and measures the risks during the year. 78 Euromoney In stitutional Investor PLC 18 Financial instruments continued Foreign exchange rate risk The group’s principal foreign exchange exposure is to US dollar. The group generates approximately two-thirds of its revenues in US dollars, including approximately 30% of the revenues in its UK-based businesses, and approximately 60% of its operating profits are US dollar-denominated. The group is therefore exposed to foreign exchange risk on the US dollar revenues in its UK businesses, and on the translation of the results of its US dollar- denominated businesses. The group does not hedge the translation of the results of foreign subsidiaries. Consequently, fluctuations in the value of sterling versus other currencies could materially affect the translation of these results in the consolidated financial statements. The group endeavours to match foreign currency borrowings to investments in order to provide a natural hedge for the translation of the net assets of overseas subsidiaries with the related foreign currency interest cost arising from these borrowings providing a partial hedge against the translation of foreign currency profits. The carrying amounts of the group’s US dollar denominated monetary assets and monetary liabilities at the reporting date are as follows: US dollar Liabilities Assets 2009 £000’s 2008 £000’s 2009 £000’s 2008 £000’s (238,928) (319,647) 499,659 412,386 Approximately two-thirds of the group’s revenues are in US dollars. Subsidiaries normally do not hedge transactions in foreign currencies into the functional currency of their own operations. However, at a group level, a series of US$ forward contracts are put in place to sell forward surplus US dollars. In 2008, the group hedged fully for the coming 12 months and partially for a further 36 months. This year, the directors reviewed the group’s hedging policy and as a result reduced the period of partial hedging from up to 48 months to between 12 and 18 months and reduced the percentage of revenues hedged in the first 12 months to 80%. The transition to the revised policy will take a number of months, with forward deals in excess of 18 months being allowed to naturally unwind. The timing and value of these forward contracts is based on managements estimate of its future US dollar revenues over a 18 month period and is regularly reviewed and revised with any changes in estimates resulting in either additional forward contracts being taken out or existing contracts’ maturity dates being moved forward or back. The group also has a significant operation in Canada whose revenues are mainly in US dollars. At a group level a series of US dollar forward contracts is put in place up to 18 months forward to hedge the operation’s Canadian cost base. In addition, each subsidiary is encouraged to invoice sales in its local functional currency where possible. Forward exchange contracts are gross settled at maturity. The following table details the group’s sensitivity to a 10% increase and decrease in sterling against US dollar. A 10% sensitivity has been determined by the board as the sensitivity rate appropriate when reporting an estimated foreign currency risk internally and represents management’s assessment of a reasonably possible change in foreign exchange rates at the reporting date. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the group where the denomination of the loan is not in the functional currency of the lender/borrower. Where sterling strengthens 10% against the relevant currency a positive number below indicates an increase in profit and equity. For a 10% weakening of sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative. Impact of 10% strengthening of sterling against US dollar Change in profit for the year in income statement Change in equity 2009 £000’s 106 897 2008 £000’s (1,652) 606 The change in the loss to a profit from the sensitivity analysis is due to a change in the net working capital balance moving from a net asset to a net liability. The increase in the profit in equity from the sensitivity analysis is due to the decrease of the value of net investment value in US dollar companies and the increase in the value of the derivative financial liabilities. Forward foreign exchange contracts It is the policy of the group to enter into forward foreign exchange contracts to cover specific foreign currency payments and receipts. This year, the directors reviewed the group’s hedging policy and as a result reduced the period of hedging from up to 48 months to 18 months and reduced the percentage of revenues hedged in the first 12 months to 80%. The transition to the revised policy will take a number of months, with forward deals in excess of 18 months being allowed to naturally unwind. In 2008 the group designated certain forward contracts as a hedge of its net investment in US subsidiaries which had US dollar as their functional currency. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 79 Notes to the Accounts continued 18 Financial instruments continued Cash Flow Hedges Sell USD buy GBP Less than a year More than a year but less than two years More than two year but less than three years More than three years but less than four years Sell USD buy CAD† Less than a year More than a year but less than two years More than two year but less than three years More than three years but less than four years Sell EUR buy GBP Less than a year More than a year but less than two years Net Investment hedge Sell USD buy GBP Less than a year Fair value through profit and loss Sell GBP buy JPY Less than a year 2009 1.988 1.923 1.838 – 1.066 1.146 1.074 – Average exchange rate 2008 Foreign currency 2008 2009 USD 000’s USD 000’s Contract value 2009 £000’s 2008 £000’s Fair value 2009 £000’s 2008 £000’s 1.894 1.895 1.922 1.847 52,000 48,500 33,000 – 88,225 61,150 46,500 34,000 26,152 25,220 17,956 – 46,587 32,267 24,195 18,408 (6,356) (5,079) (2,695) – (2,961) (2,559) (2,365) (1,183) 1.032 1.035 1.036 1.030 21,600 17,700 13,500 – 36,500 24,500 10,500 13,500 12,865 11,329 8,100 – 19,872 13,381 5,739 7,337 (632) 200 (380) – (541) (268) (88) (113) EUR 000’s EUR 000’s £000’s £000’s £000’s £000’s 1.159 1.132 – – 10,500 4,500 – – 9,062 3,974 – – (700) (141) – – USD 000’s USD 000’s £000’s £000’s £000’s £000’s – 1.899 – 25,000 – 13,163 – (859) JPY 000’s JPY 000’s £000’s £000’s £000’s £000’s – 188.301* – 11,847,350 – 53,507 – (9,272) † Rate used for conversion from CAD to GBP is 1.7166 (2008: 1.8951). * In 2008 this represents outstanding foreign currency to buy JPY and GBP. As at September 30 2009, the aggregate amount of unrealised losses under forward foreign exchange contracts deferred in the fair value reserve relating to future revenue transactions is £11,273,000 (2008: £10,078,000). It is anticipated that the transactions will take place over the next 36 months at which stage the amount deferred in equity will be released in the income statement. As at September 30 2009, the aggregate amount of unrealised losses under ineffective cash flow hedges still in place at the year end is £4,510,000 (2008: £nil), which have been recognised in the income statement. Interest rate risks The group’s borrowings are in both sterling and US dollars with the related interest tied to US and UK LIBOR. This results in the group’s interest charge being at risk to fluctuations in interest rates. It is the group’s policy to hedge approximately 80% of its interest exposure, converting its floating rate debt into fixed debt by means of interest rate swaps. The maturity dates are spread in order to avoid interest rate basis risk and also to negate short-term changes in interest rates. The predictability of interest costs is deemed to be more important than the possible opportunity cost foregone of achieving lower interest rates and this hedging strategy has the effect of spreading the group’s exposure to fluctuations arising from changes in interest rates and hence protects the group’s interest charge against sudden increases in rates but also prevents the group from benefiting immediately from falls in rates. The group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section on page 82. Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents directors’ assessment of a reasonably possible change in interest rates at the reporting date. If interest rates had been 100 basis points higher or lower and all other variables were held constant, the group’s: y Profit for the year ended September 30 2009 would decrease or increase by £199,000 (2008: £420,000). This is mainly attributable to the group’s exposure to interest rates on its variable rate borrowings; and y Other equity reserves would decrease or increase by £2,501,000 (2008: £3,617,000) mainly as a result of the changes in the fair value of interest rate swaps. The group’s sensitivity to interest rates has not materially changed during the period due to the group benefiting from similar levels of fixed rates. 80 Euromoney In stitutional Investor PLC 18 Financial instruments continued Interest rate swap contracts Under interest rate swap contracts, the group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the discount curves at reporting date and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date: Cash flow hedges US dollar: Receive floating pay fixed Less than 1 year 1 to 2 years 2 to 5 years GBP: Receive floating pay fixed Less than 1 year 1 to 2 years 2 to 5 years Average contracted fixed interest rate Notional principal amount Fair value 2009 % 4.28 3.64 4.21 2008 % 4.08 4.81 4.77 2009 £000’s 40,640 31,262 40,640 2008 £000’s 30,856 30,856 47,686 2009 £000’s (1,276) (1,448) (2,812) 2008 £000’s (182) (866) (1,745) Average contracted fixed interest rate Notional principal amount Fair value 2009 % 5.73 5.68 5.53 2008 % 5.61 5.73 5.61 2009 £000’s 15,000 12,000 10,000 2008 £000’s 14,000 15,000 22,000 2009 £000’s (385) (779) (888) 2008 £000’s 100 23 (240) The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is LIBOR. The group will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the group’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest payments on the loan occur simultaneously and the amount deferred in equity is recognised in the income statement over the period that the floating rate interest payments on debt impact the income statement. As at September 30 2009, the aggregate amount of unrealised interest under swap contracts deferred in the fair value reserve relating to future interest payable is £7,580,000 (2008: £2,683,000). It is anticipated that the transactions will take place over the next 36 months at which stage the amount deferred in equity will be released to the income statement. As at September 30 2009, the aggregate amount of unrealised interest under ineffective swaps still in place at the year end is £8,000 (2008: £227,000) which has been recognised in the income statement. Credit Risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group seeks to limit interest rate and foreign currency risks described above by the use of financial instruments and as a result has a credit risk from the potential non-performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. The group also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Credit risks are controlled by monitoring the amounts outstanding, with and the credit quality of, these counterparties. For the group’s cash and cash equivalents these are principally licensed commercial banks and investment banks with strong long-term credit ratings, and for derivative financial instruments with DMGT who have treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than AA. The group also has credit risk with respect to trade and other receivables, prepayments and accrued income. The concentration of credit risk from trade receivables is limited due to the group’s large and broad customer base. Trade receivable exposures are managed locally in the business units where they arise. Allowance is made for bad and doubtful debts based on management’s assessment of the risk of non-payment taking into account the ageing profile, experience and circumstance. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, recorded in the balance sheet. The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The group defines counterparties as having similar characteristics if they are related entities. Concentration of credit risk did not exceed 5% of gross monetary assets at any time during the year. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 81 Notes to the Accounts continued 18 Financial instruments continued Liquidity risk The group has significant intercompany borrowings and is an approved borrower under a DMGT, $400 million dedicated multi-currency borrowing facility. The facility is divided into four quantums of sterling and US dollar funds with three and five year terms with a total maximum borrowing capacity of $310 million (£194 million) and £59 million. Interest is payable on this facility at a variable rate of between 1.3% and 3.0% above LIBOR dependent on the ratio of adjusted net debt to EBITDA. The facility’s covenant requires the group’s net debt to be no more than four times adjusted EBITDA on a rolling 12 month basis. Failure to do so would result in the group being in breach of the facility potentially resulting in the facility being withdrawn or impediment of management decision making by the lender. Management regularly monitor the covenant and prepare detailed debt forecasts to ensure that sufficient headroom is available and that the covenants are not close or potentially close to breach. The group’s strategy is to use excess operating cash to pay down its debt. The group has a cash conversion rate (the percentage by which cash generated by operations covers operating profit before acquired intangible amortisation, share option expense and exceptional items) of 91% (2008: 123%), due to much of its subscription, conference and training revenue being paid in advance. The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013. Under the DMGT facility, at September 30 2009, the group has £81.4 million of undrawn but committed facilities available to draw upon if required. This is more than sufficient for the group to meet expected and unexpected short-term working capital requirements. However, given the level of uncertainty in the global economy and financial markets, there is a risk that the undrawn portion of the facility may be unavailable or withdrawn if DMGT experience funding difficulties themselves. It is, however, unlikely that this would impact the group as DMGT have a wide range of funding sources, other than bank debt, available to them. In addition, if DMGT were unable to fulfil its commitment to the group the directors are confident that the group is in a position that would enable it to secure adequate facilities outside of DMGT, albeit at an increased cost to the business due to high interest charges imposed given the crisis in the credit markets. The following table details the group’s remaining contractual maturity for its non-derivative financial liabilities, mainly variable borrowings. This table has been drawn up based on the undiscounted contractual cash flows of the financial liabilities including both interest and principal cash flows. To the extent that the interest rates are floating, the undiscounted amount is derived from interest rate curves at September 30 2009. The contractual maturity is based on the earliest date on which the group may be required to settle. 2009 Variable rate borrowings Acquisition option commitments Non interest bearing liabilities (Trade creditors and accruals) 2008 Variable rate borrowings Acquisition option commitments Non interest bearing liabilities (Trade creditors and accruals) Weighted average effective interest rate % 3.80 – – Weighted average effective interest rate % 5.79 – – Less than one year £000’s 6,201 11,346 106,186 Less than one year £000’s 348,977 22,499 80,635 1–3 years £000’s 171,404 794 – Total £000’s 177,605 12,140 106,186 1–3 years £000’s – 8,128 – Total £000’s 348,977 30,627 80,635 At September 30 2009, £149,111,000 (2008: £159,029,000) of borrowings were designated in US dollars with the remainder in sterling. The average rate of interest paid on the debt was 5.95% (2008: 5.90%). 82 Euromoney In stitutional Investor PLC 18 Financial instruments continued The following tables detail the group’s remaining contractual maturity for its non-derivative financial assets, mainly medium term deposits for amounts on loans owed by DMGT group undertakings and minority interest. This table has been drawn up based on the undiscounted contractual maturities of the financial assets including interest that will be earned on those assets except where the group anticipate that the cash flow will occur in a different period. 2009 Variable interest rate instruments (cash at bank) Non interest bearing assets 2008 Variable interest rate instruments (cash at bank and short-term deposits) Fixed interest rate instruments (term deposits) Non interest bearing assets Weighted average effective interest rate % 1.38 – 1.60 1.87 – Less than one year £000’s 12,545 53,024 65,569 175,936 1,047 62,760 239,743 The following table details the group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows/(outflows) on the derivative instrument that settle on a net basis and the undiscounted gross inflows and (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves existing at the reporting date. 2009 Net settled Interest rate swaps Gross settled Foreign exchange forward contracts inflows Foreign exchange forward contracts outflows 2008 Net settled Interest rate swaps Foreign exchange forward contracts Gross settled Foreign exchange forward contracts inflows Foreign exchange forward contracts outflows Less than 1 month £000’s 1–3 months £000’s 3 months to 1 year £000’s 1–5 years £000’s Total £000’s – (1,551) (3,812) (3,375) (8,738) 5,341 (6,060) 11,796 (12,644) 68,625 (74,593) 78,211 (86,208) 163,973 (179,505) (719) (2,399) (9,780) (11,372) (24,270) – (9,272) 8,272 (8,583) (9,583) (62) – (279) – (843) – (1,184) (9,272) 20,154 (21,067) 76,112 (79,264) 104,150 (109,498) 208,688 (218,412) (975) (3,431) (6,191) (20,180) Fair value of financial instruments The fair values of non-derivative financial assets and financial liabilities are determined as follows: y The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets is determined with reference to quoted market prices; y The fair value of other financial assets and financial liabilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and y The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values. The fair values of derivative financial assets and financial liabilities are determined as follows: y Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching y maturities of the contracts; and Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 83 Notes to the Accounts continued 19 Bank overdrafts and loans Bank overdrafts – current liability Committed loan facility – current liability Committed loan facility – non-current liability Loan notes – current liability 2009 £000’s 482 2008 £000’s 1,032 – 184,594 171,404 – 5,719 7,579 Committed loan facility The group’s debt is provided through a dedicated multi-currency committed facility from Daily Mail and General Trust plc. The facility was renewed in December 2008 on terms broadly similar to those of the previous facility. The previous facility was due to expire in August 2009 and hence classified in September 2008 as a current liability. On renewal the directors took the opportunity to reduce the size of the facility from £300 million to $400 million. The new facility is divided into four quantums of sterling and US dollar funds with three and five year terms with a total maximum borrowing capacity of $310 million (£194 million) and £59 million. Interest is payable on this facility at a variable rate of between 1.25% and 3.0% above LIBOR dependant on the ratio of adjusted net debt to EBITDA. The facility’s covenant requires the group’s net debt to be no more than four times adjusted EBITDA on a rolling 12 month basis. At September 30 2009, the group’s net debt to adjusted EBITDA was 1.99 times and the uncommitted undrawn facility available to the group was £81,419,000 (2008: £115,406,000). The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013. Loan notes Loan notes were issued in October and November 2006 to fund the purchase of Metal Bulletin plc. Interest is payable on these loan notes at a variable rate of 0.75% below LIBOR payable in June and December. Loan notes can be redeemed at the option of the loan note holder twice a year on the interest payment dates above. At least 20 business days’ written notice prior to the redemption date is required. During the year ended September 30 2009 £1,767,000 (2008: £4,324,000) of these loan notes were redeemed reducing the debt to £5,719,000 (2008: £7,579,000). 20 Provisions At October 1 2008 Provision Used in the year Exchange differences At September 30 2009 Maturity profile of provisions Within 1 year (included in current liabilities) Between 1 and 2 years (included in non-current liabilities) Between 2 and 5 years (included in non-current liabilities) Onerous lease provision £000’s 633 2,603 (69) (229) 2,938 Other provisions £000’s 4,070 (692) (366) – 3,012 2009 £000’s 2,359 1,198 2,393 5,950 Group total £000’s 4,703 1,911 (435) (229) 5,950 2008 £000’s 1,198 1,198 2,307 4,703 Onerous lease provision The onerous lease provision relates to certain buildings within the property portfolio which either at acquisition were rented at non-market rates, or are no longer occupied by the group. Other provisions The provision consists of social security arising on share option liabilities and dilapidations on leasehold properties. 84 Euromoney In stitutional Investor PLC 21 Deferred taxation The net deferred tax liability at September 30 2009 comprised: Capitalised goodwill and intangibles Tax deductible goodwill amortisation Tax losses Financial instruments Other short-term temporary differences Deferred tax Comprising: Deferred tax assets Deferred tax liabilities 2008 £000’s (37,228) 9,405 3,728 2,956 9,711 (11,428) 16,459 (27,887) (11,428) Income statement £000’s 6,621 (2,694) 1,424 (433) 3,368 8,286 Acquisitions and disposals £000’s Exchange differences £000’s (1,806) – – – – (1,806) (3,993) 1,109 423 (181) 495 (2,147) Equity £000’s 303 – 105 2,400 984 3,792 2009 £000’s (36,103) 7,820 5,680 4,742 14,558 (3,303) 18,474 (21,777) (3,303) At the balance sheet date, the group has unused US tax losses available for offset against future profits. At September 30 2009 a deferred tax asset of £4,515,000 (2008: £3,728,000) has been recognised. The US losses can be carried forward for a period of 20 years from the date they arose. The US losses have expiry dates between 2010 and 2029. At the balance sheet date, the group has unused UK tax losses available for offset against future profits. At September 30 2009 a deferred tax asset of £1,165,000 (2008: £nil) has been recognised. UK losses have no expiry dates. At the balance sheet date, a net deferred tax asset of £12,794,000 (2008: £12,731,000) has been recognised in respect of US tax deductible goodwill amortisation, capitalised intangible assets and other short-term timing differences. The directors are of the opinion that based on recent and forecast trading, it is probable that the level of profits in the future years are sufficient to enable the asset to be recovered. No deferred tax liability is recognised on temporary differences of £24,363,000 (2008: £121,912,000) relating to the unremitted earnings of overseas subsidiaries as the group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. The temporary differences at September 30 2009 are significantly reduced from the previous year as a result of a change to UK tax legislation which largely exempts from UK tax, overseas dividends received on or after July 1 2009. The temporary differences at September 30 2009 represent only the unremitted earnings of those overseas subsidiaries where remittance to the UK of those earnings may still result in a tax liability, principally as a result of dividend withholding taxes levied by the overseas tax jurisdictions in which these subsidiaries operate. 22 Called up share capital Authorised 137,365,200 ordinary shares of 0.25p each (2008: 137,365,200 ordinary shares of 0.25p each) Allotted, called up and fully paid 113,757,463 ordinary shares of 0.25p each (2008: 105,300,896 ordinary shares of 0.25p each) 2009 £000’s 2008 £000’s 343 343 284 263 During the year, 8,456,567 ordinary shares of 0.25p each (2008: 2,328,418 ordinary shares) with an aggregate nominal value of £21,141 (2008: £5,821) were issued as follows: 6,257,957 ordinary shares (2008: nil) under the company’s 2008 scrip dividend alternative for a cash consideration of £nil (2008: £nil) and 2,198,610 ordinary shares (2008: 2,328,418 ordinary shares) following the exercise of share options granted under the company’s share option schemes for a cash consideration of £5,497 (2008: £71,680). E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 85 Notes to the Accounts continued 23 Share-based payments Equity settled options The following options are outstanding at September 30 and are options to subscribe for new ordinary shares of 0.25p each in the company: Number of ordinary shares under option: 2009 Granted/ (trued-up) Lapsed 2008 during year during year during year Exercised 140,000 160,000 540,000 111,648 204,000 110,000 356,000 319,000 1,121 70,869 70,138 92,312 – 190,780 2,500,000 – – – – – – – – – – – – 445,322 – – – – – – – – – – – – – – (115,779) (258,731) (2,082,831) – – 1,521,498‡ (140,000) (160,000) (540,000) (8,000) (15,000) (4,000) (12,000) (28,000) (1,121) (70,869) (43,110) (48,341) (54,612) – – – Weighted average market price at Option date of price (£) exercise (£) 4.19 3.96 4.31 5.63 5.38 3.35 2.59 4.19 3.38 3.69 4.19 3.18 1.87 0.0025 0.0025 0.0025 – – – – – – – – – – – – – 2.01 1.85 – 2009 – – – 103,648 189,000 106,000 344,000 291,000 – – 27,028 43,971 390,710 75,001 158,438 1,521,498 Period during which option may be exercised: Before January 28 2009 Before February 10 2009 Before June 24 2009 Before January 4 2010 Before March 1 2011 Before January 22 2012 Before December 3 2012 Before January 27 2014 Between February 1 2008 and July 31 2008 Between February 1 2009 and July 31 2009 Between February 1 2010 and July 31 2010 Between February 1 2011 and July 31 2011 Between February 1 2012 and July 31 2012 Before September 30 20141 Before September 30 20141 Before September 30 20141 4,865,868 1,708,089 (2,198,610) (1,125,053) 3,250,294 The options outstanding at September 30 2009 had a weighted average exercise price of £1.55 and a weighted average remaining contractual life of 3.97 years. ‡ Options granted relate to those that are likely to be issued under the third (and final) tranche of the CAP 2004 which vest on February 12 2010, three months following the announcement of the company’s results. The number of options granted is provisional and will primarily require a true-up to reflect adjustments of the individual businesses profits during the period to December 31 2009 as required by the Remuneration Committee. As such the actual number of options vested could vary from that disclosed. Number of ordinary shares under option: 2008 Lapsed 2007 during year during year during year Exercised Granted Weighted average market price at Option date of price (£) exercise (£) 2008 Period during which option may be exercised: Before January 6 2008 Before January 28 2009 Before February 10 2009 Before June 24 2009 Before January 4 2010 Before March 1 2011 Before January 22 2012 Before December 3 2012 Before January 27 2014 Before July 31 2007 Between February 1 2008 and July 31 2008 Between February 1 2009 and July 31 2009 Between February 1 2010 and July 31 2010 Between February 1 2011 and July 31 2011 Before September 30 20141 Before September 30 20141 17,984 150,000 160,000 540,000 119,648 209,000 116,000 376,000 335,000 1,138 26,143 77,250 125,563 – 2,500,000 – – – – – – – – – – – – – – 119,410 – 2,500,000 – – – – – – – – – (1,138) (16,607) – (1,453) – (2,309,220) – (17,984) (10,000) – – (8,000) (5,000) (6,000) (20,000) (16,000) – (8,415) (6,381) (53,972) (27,098) – – – 140,000 160,000 540,000 111,648 204,000 110,000 356,000 319,000 – 1,121 70,869 70,138 92,312 190,780 2,500,000 4,753,726 2,619,410 (2,328,418) (178,850) 4,865,868 3.96 4.19 3.96 4.31 5.63 5.38 3.35 2.59 4.19 3.24 3.38 3.69 4.19 3.18 0.0025 0.0025 – – – – – – – – – 5.10 3.98 – 5.10 – 3.85 – The options outstanding at September 30 2008 had a weighted average exercise price of £1.80 and a weighted average remaining contractual life of 4.37 years. 1 CAP 2004 options shown in the above tables relate to those options that have vested only (see page 37 in the Directors’ Remuneration Report for further information on CAP 2004 options). 86 Euromoney In stitutional Investor PLC 23 Share-based payments continued Capital Appreciation Plan 2004 (CAP 2004) The CAP 2004 executive share option scheme was approved by shareholders on February 1 2005. Each of the CAP awards comprises an option to subscribe for ordinary shares of 0.25p each in the company for an exercise price of 0.25p per ordinary share. The awards become exercisable on satisfaction of certain performance conditions and lapse to the extent unexercised on September 30 2014. The initial performance condition was achieved in the financial year 2007 and the option pool (a maximum of 7.5 million shares) was allocated between the holders of outstanding awards. One third of the awards vested immediately. The primary performance target was achieved again in 2008 and, after applying the additional performance condition, 2,241,269 options from the second tranche of options vested in February 2009. The primary performance target was also achieved this year and 1,521,498 options for the third (final) tranche of options in 2009 will vest in February 2010, the maximum number of options potentially vesting adjusted for the businesses not achieving the additional performance criteria (page 37). For those individual participants businesses where the additional performance conditions for the second and final tranche have not been met, the vesting is deferred until the profits are at least 75% of that achieved in 2007 but no later than by reference to the year ending September 30 2012. Share Option Schemes The group has 11 share option schemes for which an IFRS2 ‘Share based payments’ charge has been recognised. Details of these schemes are set out in the Directors Remuneration report on pages 36 and 37. The fair value per option granted and the assumptions used in the calculation are shown below: The executive and Save as You Earn Options were valued using the Black-Scholes option-pricing model. Expected volatility was determined by calculating the historical volatility of the group’s share price over a period of 12 years. The executive options’ fair values have been discounted at a rate of 10% to reflect their performance conditions. The expected term of the option used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The credit recognised in the year in respect of these options was £142,000 (2008: expense £281,000). Executive Options 8 SAYE 9 10 Date of grant Market value at date of grant (p) Option price (p) Number of share options outstanding Option life (years) Expected term of option (grant to exercise (years)) Exercise price (p) Risk-free rate Dividend yield Volatility Fair value per option (£) December 4 2002 January 28 2004 259 259 344,000 10 5.5 259 4.10% 3.93% 30% 0.52 419 419 291,000 10 5.5 419 4.10% 3.93% 30% 0.72 January 5 December 17 December 19 2008 2007 2007 524 419 27,028 3.5 3 419 4.75% 3.35% 30% 1.51 397 318 43,971 3.5 3 318 4.25% 3.35% 30% 1.13 233 187 390,710 3.5 3 187 5.00% 5.65% 30% 0.58 The CAP options were valued using a fair value model that adjusted the share price at the date of grant for the net present value of expected future dividend streams up to the date of expected exercise. Under IFRS 2, Internet Securities, Inc. options are classified as cash settled options. As such their related fair value equates to the fair value at the balance sheet date. For both these option schemes, the expected term of the option used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share based expense recognised in the year for the CAP 2004 options was £3,112,000 (2008: £4,658,000), and for Internet Securities, Inc. options was a credit of £273,000 (2008: expense £422,000). Date of grant Market value at date of grant (p) Option price (p) Number of share options outstanding Option life (years) Expected term of option (grant to exercise (years)) Exercise price (p) Risk-free rate Dividend growth Fair value per option (£) Tranche 1 June 20 2005 401 0.25 75,001 10 3.28 0.25 5.0% 8.44% 3.28 CAP 2004 Tranche 2 Tranche 3 Internet Securities, Inc. (cash settled options) June 20 2005 401 0.25 158,438 10 4.53 0.25 5.0% 8.44% 3.02 June 20 2005 February 2 2004 May 11 2005 February 28 2006 401 0.25 1,521,498 10 5.53 0.25 5.0% 8.44% 2.82 n/a n/a 25,846 10 6.5 US$7.07 n/a n/a US$12.28 n/a n/a 926 10 5.5 US$8.72 n/a n/a US$12.28 n/a n/a 38,501 10 4.5 US$13.10 n/a n/a US$12.28 The Internet Securities, Inc. (ISI) options are over shares of ISI. The ISI options outstanding at September 30 2009 had a weighted average exercise price of $9.37 and a weighted average remaining contractual life of 2.11 years. Annual Report and Financial Statements 2009 87 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Notes to the Accounts continued 24 Statement of movement on reserves Share premium Other reserve account £000’s £000’s Capital redemp- tion reserve £000’s At September 30 2007 Retained profit for the year Recognition of acquisition option commitments Exercise of acquisition option commitments Exchange differences arising on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Change in fair value of hedges Transfer of gain on cash flow hedges from fair value reserves to income statement Change in fair value of intangible assets Credit for share-based payments Dividends paid Change in actuarial assumptions in defined benefit scheme Exercise of share options Tax on items going through reserves At September 30 2008 Retained loss for the year Exercise of acquisition option commitments Exchange differences arising on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Change in fair value of hedges Transfer of loss on cash flow hedges from fair value reserves to income statement Change in fair value of intangible assets Credit for share-based payments Scrip/cash dividends paid Change in actuarial assumptions in defined benefit scheme Tax on items going through reserves 38,509 – – – 64,981 – – – – – – – – – – – 66 – – – – – – – – – – – 38,575 – – 64,981 – – – – – – – – 13,870 – – – – – – – – – – – At September 30 2009 52,445 64,981 8 – – – – – – – – – – – – – 8 – – – – – – – – – – – 8 Liability for share based shares payments £000’s £000’s Own (74) – – – 15,737 – – – Fair value reserve £000’s Trans- lation Retained reserve earnings £000’s £000’s 18,176 (15,335) (69,975) 43,719 (500) 6,919 – – – – – – Total £000’s 52,027 43,719 (500) 6,919 – – – – – – – – – – – – – (19,115) – (17,455) 32,448 – – – 32,448 – (19,115) – (17,455) – – 4,939 – (2,877) 1,692 – – (2,877) – – 1,692 – – – 4,939 – – (19,950) (19,950) – – – – – – – – – 1,589 – 1,282 1,589 66 1,282 (74) 20,676 – – – – (19,579) 17,113 – – – – (36,916) 84,784 (6,287) 20,939 (6,287) 20,939 – – – – – – – – – – – – (16,690) (9,285) – 27,621 – – 27,621 – – (16,690) (9,285) – – – 2,970 – 3,502 2,544 – – – – – – – – – (20,657) 3,502 2,544 2,970 (6,787) – – – – – – (3,382) 3,792 (3,382) 3,792 (74) 23,646 (39,508) 44,734 (42,511) 103,721 The investment in own shares is held by the Euromoney Employees’ Share Ownership Trust (ESOT). At September 30 2009 the ESOT held 58,976 shares (2008: 58,976 shares) carried at a historic cost of £1.25 per share with a market value of £220,000 (2008: £192,000). The trust waived the rights to receive dividends. Interest and administrative costs are charged to the profit and loss account of the ESOT as incurred. The other reserve represents the share premium arising on the shares issued for the purchase of Metal Bulletin plc in October 2006. 25 Acquisition option commitments The group is party to a number of put options over the remaining minority interests in some of its subsidiaries. IAS 39 ‘Financial Instruments’ requires the recognition of acquisition liabilities. The group regularly performs a review of the underlying businesses with option commitments and in 2009 the review resulted in a net increase in the fair value of the group’s option commitments of £2,202,000 (2008: £1,730,000). This increase is reported as finance expense in the income statement. No new option commitments (2008: £500,000) were recognised relating to subsidiaries acquired in the year and existing options have been exercised totalling £20,939,000 (2008: £6,919,000). As at September 30 2009, the discounted present value of the remaining put option commitments is £11,943,000 (2008: £29,848,000). These discounts are unwound as a notional interest charge to the income statement. 88 Euromoney In stitutional Investor PLC 26 Commitments At September 30 the group has committed to make the following payments in respect of operating leases on land and buildings: Within one year Between 2 and five years After 5 years 2009 £000’s 5,749 20,005 12,395 38,149 2008 £000’s 5,623 18,519 15,619 39,761 The group’s operating leases do not include any significant leasing terms or conditions. At September 30 the group had contracted with tenants to receive the following payments in respect of operating leases on land and buildings: Within one year Between 2 and five years After 5 years 2009 £000’s 415 1,688 2,209 4,312 2008 £000’s 364 1,480 1,937 3,781 27 Retirement benefit schemes Defined contribution schemes The group operates the following defined contribution schemes: Euromoney PensionSaver, Euromoney Pension Plan, the Metal Bulletin Group Personal Pension Plan in the UK and the 401(k) savings and investment plan in the US. It also participates in the Harmsworth Pension Scheme, a defined benefit scheme which is operated by Daily Mail and General Trust plc (DMGT) but is accounted for in Euromoney Institutional Investor PLC as a defined contribution scheme. The pension charge in respect of defined contribution schemes for the year ended September 30 comprised: Euromoney Pension Plan/PensionSaver Metal Bulletin Group Personal Pension Plan Private schemes Harmsworth Pension Scheme 2009 £000’s 971 35 1,063 207 2,276 2008 £000’s 575 39 801 203 1,618 Euromoney PensionSaver and Euromoney Pension Plan Euromoney PensionSaver was launched on October 1 2008 to replace the Euromoney Pension Plan as the principal pension arrangement offered to employees of the group. Under both plans, contributions are paid by the employer and employees. However, Euromoney PensionSaver is a group personal pension arrangement rather than the trust-based arrangement used by the Euromoney Pension Plan. Under both schemes, employees are able to contribute a minimum of 3% of salary with an equal company contribution in the first three years of employment and thereafter at twice the employee contribution rate, up to a maximum employer contribution of 10% of salary. The Euromoney Pension Plan is a part of the DMGT Pension Trust, an umbrella trust under which DMGT UK trust-based defined contribution plans are held. Insured death benefits previously held under this trust have been transferred to a new trust-based arrangement specifically for life assurance purposes. The process of transferring out the remaining assets of the Euromoney Pension Plan is now in its final stages following which the Plan will be wound up. Assets of both plans are invested in funds selected by members and held independently from the company’s finances. The investment and administration of both plans is undertaken by Fidelity Pension Management. Metal Bulletin Group Personal Pension Plan The Metal Bulletin Group Personal Pension Plan is a defined contribution arrangement under which contributions are paid by the employer and employees. The scheme is closed to new members. The plan is contracted-in to the State Second Pension and its assets are invested under trust in funds selected by members and held independently from the company’s finances. The investment and administration of the plan is undertaken by Skandia Life Group. Private schemes Institutional Investor, Inc. contributes to a 401(k) savings and investment plan for its employees which is administered by an independent investment provider. Employees are able to contribute up to 15% of salary with the company matching up to 50% of the employee contributions, up to 5% of salary. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 89 Notes to the Accounts continued 27 Retirement benefit schemes continued Stakeholder pensions The company provides access to a stakeholder pension plan for relevant employees who are not eligible for other pension schemes operated by the group. Harmsworth Pension Scheme The Harmsworth Pension Scheme is a defined benefit scheme operated by DMGT providing service-related benefits based on final pensionable salary. The assets of the scheme are held independently from the company’s finances and are administered by a trustee company. The scheme is no longer offered to new employees of the company. The contributions payable to the scheme are determined by the trustee company after taking advice from an independent qualified actuary, and following agreement with the company. The most recent actuarial valuation of the scheme, upon which the current contributions are based, was carried out as at March 31 2007 using the projected unit credit method. On September 14 2009 DMGT announced a number of changes affecting the Harmsworth Pension Scheme that are designed to help secure the financial health of this scheme into the future and to control the cost of its operation. DMGT decided that the scheme would remain open for future accrual of pension benefits for current employees. However, from October 1 2009 new employees will no longer be offered the option to transfer from PensionSaver plans to the Harmsworth Pension Scheme after five years’ service. Existing members of the scheme will continue to be able to earn additional pension benefits in the scheme but their pay increases counting towards pension will be limited to those at or below the prevailing rate of inflation, with inflation capped at 5%. In addition, the company plans to introduce a series of measures principally designed to limit the company’s exposure to people living longer than is expected. The measures will be discussed with scheme trustees and a formal process of employee consultation will begin as soon as the proposals have been finalised. The funding strategy agreed with the Trustee of the principal scheme made allowance for assumed future investment returns on the scheme’s assets of 3.3% p.a. above price inflation, compared with the real return of some 2.6% p.a. implicit within the calculation of the Technical Provisions (i.e. the value of the scheme’s benefit liabilities). DMGT agreed with the Trustee that this margin would be covered by a contingent asset and DMGT has put in place a letter of credit (to be updated annually) of an amount sufficient to cover any potential shortfall in this additional investment return arising prior to the next triennial valuation. As at October 4 2009, the letter of credit had a value of £32.1 million (2008: £21.8 million). Cash contributions paid by the Company to the Harmsworth Pension Scheme as required by the schedule of contributions remain at the same level of 18.0% of members’ scheme salaries (2008: 18.0%) with employees contributing either 5% or 7.5% depending on which section of the scheme they are in. However, since January 1 2009 a majority of members have agreed to a salary sacrifice arrangement whereby the company pays the equivalent of the employee’s contribution in exchange for a corresponding reduction in salary. In addition, DMGT agreed to make a series of funding payments amounting to £3.2 million over a period of 27 months commencing in September 2009 in exchange for which the Trustees agreed to accept the cancellation of letters of credit that had been provided by DMGT following the merger of the two main pension schemes of the DMGT group in November 2007. The first payment of £1.0 million under this agreement was made on September 29 2009. Other key financial assumptions adopted were as follows: Long-term assumed rate of: Price inflation Salary increases Pension increases (on excess over guaranteed minimum pension) Discount rate for accrued liabilities – Pre-retirement – Post-retirement 2009 2008 3.0% p.a. 4.3% p.a. 3.0% p.a. 3.0% p.a. 4.3% p.a. 3.0% p.a. 6.4% p.a. 4.8% p.a. 6.4% p.a. 4.8% p.a. The financial assumptions shown above used in the most recent actuarial valuation were selected to provide a basis for funding the schemes and are not intended to reflect the company’s experience or policy regarding pay in any one financial year. The valuation of the scheme showed that the combined accumulated assets of the scheme as at March 31 2007 represented 99% of the scheme’s Technical Provisions in respect of past service benefits. However, in common with the majority of defined benefit schemes, there was a sharp deterioration over the following twelve months, with the equivalent funding level falling to 84% as at March 31 2008. Members are able to make additional voluntary contributions (AVCs) into unit-linked funds held within each scheme. No benefit obligation arises to the DMGT, or the company, from these AVCs and the related unit-linked AVC assets have been excluded from the valuation of assets and liabilities reported below. The group’s pension charge for the Harmsworth Pension Scheme for the year ended September 30 2009 was £207,000 (2008: £203,000).   The group is unable to identify its share of the underlying assets and liabilities in the Harmsworth Pension Scheme. The scheme is operated on an aggregate basis with no segregation of the assets to individual participating employers and, therefore, the same contribution rate is charged to all participating employers (i.e. the contribution rate charged to each employer is affected by the experience of the schemes as a whole). The scheme is therefore accounted for as a defined contribution scheme by the company. This means that the pension charge reported in these financial statements is the same as the cash contributions due in the period. 90 Euromoney In stitutional Investor PLC          27 Retirement benefit schemes continued The ultimate parent company, DMGT, is required to account for the Harmsworth Pension Scheme under IAS 19 ‘Employee Benefits’. The IAS 19 disclosures in the Annual Report and Accounts of DMGT have been based on calculations performed as part of the work being carried out for the formal valuation of the scheme as at March 31 2007, and adjusted to October 4 2009 by the actuary. The calculations are adjusted to allow for the assumptions and actuarial methodology required by IAS 19.  These showed that the market value of the scheme’s assets was £1,228.4 million (2008: £1,322.5 million) and that the actuarial value of these assets represented 78% (2008: 99%) of the benefits that had accrued to members (also calculated in accordance with IAS 19). Defined benefit scheme The company operates the Metal Bulletin plc Pension Scheme (closed to new members), a defined benefit scheme. Metal Bulletin plc Pension Scheme The Metal Bulletin plc Pension Scheme (MBPS) is a defined benefit scheme providing service-related benefits based on final pensionable salary. The assets of the scheme are held independently from the company’s finances, being invested with the Norwich Union Life Insurance Society, Schroder Investment Management Ltd, and certain other specific investments managed directly by the Trustees. Contributions to the scheme are charged to the income statement so as to spread the cost of pensions over employees’ working lives with the group. The contributions are determined by an independent qualified actuary on the basis of triennial valuations using the attained age method. The most recent actuarial valuation of the scheme, upon which the current contributions are based, was carried out as at June 1 2007. The company cash contribution rate to the scheme during the year was 22.8% (2008: 22.8%) of pensionable salaries. This MBPS is closed to new members. The figures in this note are based on calculations carried out in connection with the actuarial valuation of the scheme as at June 1 2007 and adjusted to September 30 2009 by the actuary. The key financial assumptions adopted were as follows: Long-term assumed rate of: Pensionable salary growth Pension escalation in payment (pre January 1997 members) Pension escalation in payment (pensions earned from May 30 2002 to June 30 2006) (post January 1997 members) Pension escalation in payment (pensions earned from June 30 2006) (post January 1997 members) Discount rate for accrued liabilities Inflation Pension increase in deferment 2009 2008 4.4% p.a. 5.0% p.a. 5.0% p.a. 5.0% p.a. 3.1% p.a. 2.5% p.a. 5.6% p.a. 3.1% p.a. 3.1% p.a. 3.7% p.a. 2.5% p.a. 7.0% p.a. 3.7% p.a. 3.7% p.a. The discount rate for scheme liabilities reflects yields at the balance sheet date on high quality corporate bonds. All assumptions were selected after taking actuarial advice. The fair value of the assets held by the MBPS and the long-term expected rate of return on each class of assets are shown in the following table: 2009 Value at September 30 2009 (£’000) % of assets held Long-term rate of return expected at September 30 2009 Equities 5,474 25.4% 8.00% With profits policy Bonds Cash Total 11,616 53.9% 5.50% 2,091 9.7% 5.75% 2,371 11.0% 3.50% 21,552 100.0% Equities Bonds With profits policy Cash Total 2008 Value at September 30 2008 (£’000) % of assets held Long-term rate of return expected at September 30 2008 4,449 22.8% 8.70% 7,512 38.5% 5.00% 2,400 12.3% 5.75% 5,151 26.4% 5.00% 19,512 100.0% A reconciliation of the net pension surplus reported in the balance sheet is shown in the following table: Present value of defined benefit obligation Assets at fair value (Deficit)/surplus reported in the balance sheet 2009 £000’s (21,916) 21,552 2008 £000’s (16,985) 19,512 (364) 2,527 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 91 Notes to the Accounts continued 27 Retirement benefit schemes continued Metal Bulletin plc Pension Scheme continued The International Financial Reporting Interpretations Committee, in its document IFRIC 14, has interpreted the extent to which a company can recognise a pension surplus on its balance sheet. In 2008, having taken account of the rules of the scheme, the fact that the scheme remains open to new accrual, and the levels of service cost and cash contributions, the company considered that recognition of the scheme’s surplus on its balance sheet at September 30 2008 was in accordance with the interpretations of IFRIC 14. The deficit for the year excludes a related deferred tax asset of £102,000 (2008: liability £708,000). Changes in the present value of the defined benefit obligation are as follows: Present value of obligation at September 30 Service cost Interest cost Benefits paid Members contributions Actuarial movement 2009 £000’s (16,985) (75) (1,189) 490 (15) (4,142) 2008 £000’s (19,501) (85) (1,150) 463 (19) 3,307 Present value of obligation at September 30 (21,916) (16,985) Changes in the fair value of plan assets are as follows: Fair value of plan assets at September 30 Expected return on plan assets Contributions: Employer Members Actual return less expected return on pension scheme assets Benefits paid Fair value of plan assets at September 30 2009 £000’s 19,512 1,162 593 15 760 (490) 2008 £000’s 19,865 1,172 637 19 (1,718) (463) 21,552 19,512 The actual return on plan assets was a gain of £1,922,000 (2008: loss £546,000) representing the expected return plus the associated actuarial gain or loss during the year. The amounts charged to the income statement based on the above assumptions are as follows: Current service costs (charged to administrative costs) Interest cost (note 7) Expected return on plan assets (note 7) Total charge recognised in income statement 2009 £000’s 75 1,189 (1,162) 102 2008 £000’s 85 1,150 (1,172) 63 Pension costs and the size of any pension surplus or deficit are sensitive to the assumptions adopted. The table below indicates the effect of changes in the principal assumptions used above. Mortality Change in pension obligation at September 30 from a 1 year change in life expectancy Change in pension cost from a 1 year change Salary increases Change in pension obligation at September 30 from a 0.25% change Change in pension cost from a 0.25% year change Discount rate Change in pension obligation at September 30 from a 0.1% change Change in pension cost from a 0.1% change Inflation Change in pension obligation at September 30 from a 0.1% change Change in pension cost from a 0.1% change 2009 £000’s 2008 £000’s 548 33 44 5 416 4 197 11 346 25 26 4 290 5 n/a n/a +/- +/- +/- +/- +/- 92 Euromoney In stitutional Investor PLC 27 Retirement benefit schemes continued Metal Bulletin plc Pension Scheme continued Amounts recognised in the statement of recognised income and expense (SORIE) are shown in the following table: Actual return less expected return on pension scheme assets Experience adjustments on liabilities Gains arising from changes in assumptions Total gains recognised in SORIE Cumulative actuarial gain recognised in SORIE at beginning of year Cumulative actuarial gain recognised in SORIE at end of year History of experience gains and losses: Present value of defined benefit obligation Fair value of scheme assets (Deficit)/surplus in scheme Experience adjustments on defined benefit obligation Percentage of present value of defined benefit obligation Experience adjustments on fair value of scheme assets Percentage of the fair value of the scheme assets 2009 £000’s 760 (18) (4,124) (3,382) 5,747 2,365 2008 £000’s (1,717) (36) 3,342 1,589 4,158 5,747 2009 £000’s (21,916) 21,552 2008 £000’s (16,985) 19,512 2007 £000’s (19,501) 19,865 (364) 2,527 (18) 0.1% 760 (3.5%) (36) 0.2% (1,717) 8.8% 364 498 2.6% 792 (4.0%) The group expects to contribute approximately £577,000 (2008: expected contribution in 2009 of £614,000) to the MBPS during the 2010 financial year. 28 Contingent liabilities and assets Claims in Malaysia Four writs claiming damages for libel were issued in Malaysia against the company and three of its employees in respect of an article published in one of the company’s magazines, International Commercial Litigation, in November 1995. The writs were served on the company on October 22 1996. Two of these writs have been discontinued. The total outstanding amount claimed on the two remaining writs is Malaysian ringgits 82.0 million (£14,804,000). No provision has been made for these claims in these financial statements as the directors do not believe the company has any material liability in respect of these writs. 29 Related party transactions The group has taken advantage of the exemption allowed under IAS 24 ‘Related party disclosures’ not to disclose transactions and balances between group companies that have been eliminated on consolidation. Other related party transactions and balances are detailed below: (i) The group has a credit agreement with DMG Jersey Finance Limited (note 19). As at September 30 2009 the amounts owing under the facility were: $238,488,000 (£149,111,000) (2008: $243,155,000 (£136,413,000)), and £22,293,000 (2008: £48,181,000). A commitment fee of £319,000 (2008: £191,000) was paid on the unused portion of the available facility. (ii) The group expensed £324,000 (2008: £237,400) for services provided by Daily Mail and General Trust plc. (iii) At September 30 2009 the group had £143,290,000 (2008: £154,788,000) fixed rate interest rate swaps outstanding with Daily Mail and General Holdings Limited amounting to $170,000,000 (2008: $185,000,000) at interest rates between 1.4% and 5.4% and termination dates between March 30 2010 and March 28 2013 and £37,000,000 (2008: £51,000,000) at interest rates between 4.9% and 6.2% and termination dates between March 30 2010 and September 28 2012. During the year the group paid $4,721,000 (2008: paid $1,263,000) and received £1,226,000 (2008: £124,000) of interest from Daily Mail and General Holdings Limited and related companies in respect of interest rate swaps. (iv) In September 2008, the group agreed a loan facility from Daily Mail & General Investment Limited and provided the same loan facility to Bouverie Holdings Inc, a DMGT group company. During the year the group paid and received $40,315,000 (£24,935,000), including principal and interest. The amount owing and receivable at September 30 2009 was $nil (2008: $40,315,000 (£22,617,000)). (v) In April 2008, the group agreed a loan facility from Daily Mail and General Holdings Limited and granted a loan facility to Harmsworth Quays Printing Limited. During the year the group paid £153,448,000 and received ¥28,407,310,000 (£197,630,000) respectively, including principal and interest. The amount owing at September 30 2009 was £nil and receivable at September 30 2009 was ¥nil (2008: owing £133,155,000; receivable ¥25,159,696,000 (£133,155,000)). At the same time last year, the group entered into a swap agreement with Harmsworth Quays Printing Ltd to buy ¥53,925,947,000 and sell £316,051,000. These swaps were closed in October 2008 with offset deals and resulted in a loss during the year of £45,315,000, of which £21,409,000 was settled during the year and £23,906,000 is due for payment on October 2 2009. E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 93 Notes to the Accounts continued 29 Related party transactions continued (vi) There is an annual put option agreement over the sale of Internet Securities, Inc. (ISI) shares between the company and GG Mueller, a director of the company. The annual put option value is based on the valuation of ISI as determined by an independent financial adviser. Under the terms of the agreement consideration caps have been put in place that require the maximum consideration payable to option holders to be capped at an amount such that the results of any relevant class tests would, at the relevant time, fall below the requirement for shareholder approval. In February 2009, under the put option agreement, GG Mueller sold 220,000 ISI shares valued at $12.28 for a total consideration of $2,701,600. Also in February, JC Botts, a non-executive director, exercised 6,000 ISI options with an exercise price of $7.04 and sold the shares under the above put option mechanism at $12.28 per share for a total consideration of $73,680 realising a gain of $29,290. No ISI shares or options were sold or exercised by GG Mueller or JC Botts in the year to September 2008. (vii) The compensation paid or payable for key management is set out below. Key management includes the executive and non-executive directors as set out in the remuneration report and other key divisional directors who are not on the board. Key management compensation Salaries and short-term employee benefits Non-executive director’s fees Post-employment benefits Other long-term benefits (all share-based) Of which: Executive directors Non-executive directors Divisional directors 2009 £000’s 12,969 161 180 1,196 14,506 11,043 161 3,302 14,506 2008 £000’s 15,451 178 170 1,956 17,755 14,385 178 3,192 17,755 Details of the remuneration of directors is given in the Directors’ Remuneration Report. 30 Events after the balance sheet date The directors propose a final dividend of 7.75p per share (2008: 13.00p) totalling £8,816,000 (2008: £13,689,000) for the year ended September 30 2009. The dividend will be submitted for formal approval at the Annual General Meeting to be held on January 21 2010. In accordance with IAS 10 ‘Events after the balance sheet date’, these financial statements do not reflect this dividend payable but will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending September 30 2010. During 2009, a final dividend of 13.00p (2008: 13.00p) per share totalling £13,697,000 (2008: £13,388,000) was paid in respect of the dividend declared for the year ended September 30 2008. There were no other events after the balance sheet date. 31 Ultimate parent undertaking and controlling party The directors regard the ultimate parent undertaking as Rothermere Continuation Limited, which is incorporated in Bermuda. The ultimate controlling party is The Viscount Rothermere. The largest and smallest group of which the company is a member and for which group accounts are drawn up is that of Daily Mail and General Trust plc, incorporated in Great Britain and registered in England and Wales. Copies of the report and accounts are available from: The Company Secretary Daily Mail and General Trust plc Northcliffe House, 2 Derry Street London W8 5TT www.dmgt.co.uk 94 Euromoney In stitutional Investor PLC Independent Auditors’ Company Report Independent auditors’ report to the members of Euromoney Institutional Investor PLC We have audited the parent company financial statements of Euromoney Institutional Investor PLC for the year ended September 30 2009 which comprise the Parent Company Balance Sheet and the related notes 1 to 20. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with sections 495, 496 and 497 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. Opinion on financial statements In our opinion the parent company financial statements: y give a true and fair view of the state of the parent company’s affairs as at September 30 2009 and of its profit for the year then ended; y have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and y have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: y the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006 and y the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the parent company financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: y adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or y the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or y certain disclosures of directors’ remuneration specified by law are not made; or y we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the group financial statements of Euromoney Institutional Investor PLC for the year ended September 30 2009. Ian Waller (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom November 11 2009 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 95 Company Balance Sheet as at September 30 2009 Fixed assets Intangible assets Tangible assets Investments Derivative financial instruments Current assets Debtors Derivative financial instruments Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Net assets Capital and reserves Called up share capital Share premium account Other reserve Capital redemption reserve Capital reserve Own shares Liability for share-based payments Fair value reserve Profit and loss account Equity shareholders’ funds Notes 2009 £000’s 2008 £000’s 5 6 7 16 8 16 9 9 12 14 14 14 14 14 14 14 14 17 2,765 13,832 791,948 121 2,765 14,463 658,498 189 808,666 675,915 334,807 201 335,008 (633,738) 128,251 12,918 141,169 (540,839) (298,730) (399,670) 509,936 (187,020) 276,245 (11,996) 322,916 264,249 284 52,445 64,981 8 1,842 (74) 14,457 (10,228) 199,201 263 38,575 64,981 8 1,842 (74) 12,251 (6,286) 152,689 322,916 264,249 Euromoney Institutional Investor PLC has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these accounts. The profit after taxation of Euromoney Institutional Investor PLC included in the group loss for the year is £67,169,000 (2008: £37,201,000). The accounts were approved by the board of directors on November 11 2009. Richard Ensor Colin Jones Directors 96 Euromoney In stitutional Investor PLC Notes to the Company Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost convention except for derivatives financial instruments which have been measured at fair value and in accordance with applicable United Kingdom accounting standards and the United Kingdom Companies Act 2006. The according policies set out below have, unless otherwise stated, been applied consistently through current and prior year. The company has taken advantage of the exemption from presenting a cash flow statement under the terms of FRS 1 (Revised) ‘Cash Flow Statements’. The company is also exempt under the terms of FRS 8 ‘Related Party Disclosures’ from disclosing related party transactions with entities that are 100% owned by the group. Further, the company, as a parent company of a group drawing up consolidated financial statements that meet the requirements of IFRS 7, is exempt from disclosures that comply with its UK GAAP equivalent, FRS 29 ‘Financial Statements: Disclosures’. Going concern, debt covenants and liquidity The financial position of the company are set out in detail in this annual report. The company meets its day-to-day working capital requirements through the group’s $400 million dedicated multi-currency borrowing facility with Daily Mail and General Trust plc group of which the company is a part. The facility is divided into four quantums of sterling and US dollar funds with three and five year terms with a total maximum borrowing capacity of $310 million (£194 million) and £59 million respectively. The facility’s covenant requires the group’s net debt to be no more than four times adjusted EBITDA on a rolling 12 month basis. At September 30 2009, the group’s net debt to adjusted EBITDA was 1.99 times and the uncommitted undrawn facility available to the group was £81.4 million. The three year quantums of the facility are due for renewal in December 2011 and the five year quantums in December 2013. The current economic conditions create uncertainty particularly over: a) the level of demand for the group’s products; b) the exchange rate between sterling and US dollars and the impact on the translation of US dollar profits and losses from its US-dollar-based businesses and transactions, including the gains or losses from the group’s forward contracts used to partially hedge these; and c) the availability of bank finance in the foreseeable future. The group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the group should be able to operate within the level and covenants of its current borrowing facility and continue to provide support to the company. After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the company’s accounts. Turnover Turnover represents income from advertising, subscriptions, sponsorship and delegate fees, net of value added tax. y Advertising revenues are recognised in the income statement on the date of publication. y Subscription revenues are recognised in the income statement on a straight-line basis over the period of the subscription. y Sponsorship and delegate revenues are recognised in the income statement over the period the event is run. Turnover invoiced but relating to future periods are deferred and treated as deferred income in the balance sheet. Leased assets Operating lease rentals are charged to the profit and loss account on a straight-line or other systematic basis as allowed by SSAP 21 ‘Accounting for Leases and Hire Purchase Contracts’. Pension schemes Details of the company’s pension schemes are set out in note 27 to the group accounts. The company participates in the Harmsworth Pension Scheme, a defined benefit pension scheme which is operated by Daily Mail and General Trust plc. As there is no contractual agreement or stated policy for charging the net defined benefit cost for the plan as a whole to the individual entities, the company recognises an expense equal to its contributions payable in the period and does not recognise any unfunded liability of this pension scheme on its balance sheet. Tangible fixed assets Tangible fixed assets are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation of tangible fixed assets is provided on the straight-line basis over their expected useful lives at the following rates per year: Freehold land Freehold buildings Short-term leasehold premises Office equipment do not depreciate 2% over term of lease 11% - 33% E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 97 Notes to the Company Accounts continued 1 Accounting policies continued Goodwill Where the company has divisionalised the unincorporated businesses of its subsidiaries, the investment in the subsidiary then has the substance of goodwill and is reclassified accordingly. Goodwill arising in these circumstances is not amortised in the company where the directors are of the view that the goodwill has an indefinite economic life, but is reviewed annually for impairment. The non-amortisation of goodwill represents a departure from the Companies Act 2006 but is necessary to give a true and fair view under the provisions of FRS 10 ‘Goodwill and Intangible Assets’. It is not possible to quantify the impact of this departure, as it would depend on the life adopted. As at September 30 2009, the total of such goodwill was £2,765,000 (2008: £2,765,000). Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred taxation is calculated under the provisions of FRS 19 ‘Deferred Taxation’, and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when the timing differences crystallise based on current tax rates and law. Deferred tax is not provided on timing differences on unremitted earnings of subsidiaries and associates where there is no commitment to remit these earnings. Deferred tax assets are only recognised to the extent that it is regarded as more likely than not that they will be recovered. Foreign currencies Transactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction or, if hedged forward, at the rate of exchange of the related foreign exchange contract. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates ruling at the balance sheet date. Derivatives and other financial instruments The company uses various derivative financial instruments to manage its exposure to foreign exchange and interest rate risks, including forward foreign currency contracts and interest rate swaps. All derivative instruments are recorded in the balance sheet at fair value. Recognition of gains or losses on derivative instruments depends on whether the instrument is designated as a hedge and the type of exposure it is designed to hedge. The effective portion of gains or losses on cash flow hedges are deferred in equity until the impact from the hedged item is recognised in the profit and loss account. The ineffective portion of such gains and losses is recognised in the profit and loss account immediately. Gains or losses on the qualifying part of net investment hedges are recognised in equity together with the gains and losses on the underlying net investment. The ineffective portion of such gains and losses is recognised in the profit and loss account immediately. Changes in the fair value of the derivative financial instruments that do not qualify for hedge accounting are recognised in the profit and loss account as they arise. The premium or discount on interest rate instruments is recognised as part of net interest payable over the period of the contract. Interest rate swaps are accounted for on an accruals basis. Liabilities for put options over the remaining minority interests in subsidiaries are recorded in the balance sheet at their estimated discounted present value. These discounts are unwound and charged to the income statement as notional interest over the period up to the date of the potential future payment. In respect of options over further interests in joint ventures and associates, only movements in their fair value are recognised. Trade and other receivables Trade receivables are recognised and carried at original invoice amount, less provision for impairment. A provision is made and charged to the profit and loss account when there is objective evidence that the company will not be able to collect all amounts due according to the original terms. Cash at bank and in hand Cash at bank and in hand includes cash, short-term deposits and other short-term highly liquid investments with an original maturity of three months or less. Dividends Dividends are recognised as an expense in the period in which they are approved by the company’s shareholders. Interim dividends are recorded in the period in which they are paid. Provisions A provision is recognised in the balance sheet when the company has a present legal or constructive obligation as a result of a past event, and it is probable that economic benefits will be required to settle the obligation. If it is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 98 Euromoney In stitutional Investor PLC 1 Accounting policies continued Share-based payments The company makes share-based payments to certain employees. These payments are measured at their estimated fair value at the date of grant, calculated using an appropriate option pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of the number of shares that will eventually vest. At the period end the vesting assumptions are revisited and the charge associated with the fair value of these options updated. In accordance with the transitional provisions of FRS 20 ‘Share-based payments’ has been applied to all grants of options after November 7 2002, that were unvested at October 1 2004, the date of application of FRS 20. 2 Staff costs Salaries, wages and incentives Social security costs Pension contributions Share based compensation costs (note 13) 2009 £000’s 31,329 2,261 934 2,206 36,730 2008 £000’s 33,561 3,994 638 3,077 41,270 Details of directors’ remuneration are set out in the Directors’ Remuneration Report on pages 40 to 42 and in note 6 of the group accounts. The ultimate parent company, Daily Mail and General Trust plc, is required to account for the Harmsworth Pension Scheme under IAS 19 ‘Employee Benefits’.  The IAS 19 disclosures in the Annual Report and Accounts of Daily Mail and General Trust plc have been based on calculations performed as part of the work being carried out for the formal valuation of the scheme as at March 31 2007, and adjusted to September 30 2009 by the actuary. The calculations are adjusted to allow for the assumptions and actuarial methodology required by IAS 19.  These showed that the market value of the scheme’s assets was £1,228.4 million (2008: £1,322.5 million) and that the actuarial value of these assets represented 78% (2008: 99%) of the benefits that had accrued to members (also calculated in accordance with IAS 19). The valuations and disclosures required under IAS 19 for the financial statements of Daily Mail and General Trust plc are not materially different to the valuations and disclosures required under FRS 17. The group is unable to identify its share of the underlying assets and liabilities in the Harmsworth Pension Scheme. The scheme is operated on an aggregate basis with no segregation of the assets to individual participating employers and, therefore, the same contribution rate is charged to all participating employers (i.e. the contribution rate charged to each employer is affected by the experience of the schemes as a whole). The scheme is therefore accounted for as a defined contribution scheme by the company. This means that the pension charge reported in these financial statements is the same as the cash contributions due in the period. 3 Number of staff (including directors and temporary staff) Financial publishing Business publishing Training Conferences and seminars Databases and information services Central 4 Remuneration of auditors Fees payable for the audit of the company’s annual accounts 5 Intangible assets Cost at October 1 2008 and September 30 2009 Amortisation at October 1 2008 and September 30 2009 Net book value at September 30 2008 and September 30 2009 The company does not amortise its goodwill (note 1). 2009 Average 2008 Average 162 144 80 106 45 229 766 202 148 96 113 38 213 810 2009 £000’s 486 2008 £000’s 593 Goodwill £000’s 5,050 2,285 2,765 Annual Report and Financial Statements 2009 99 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Notes to the Company Accounts continued 6 Tangible assets Cost At October 1 2008 Additions Disposals At September 30 2009 Depreciation At October 1 2008 Charge for the year Disposals At September 30 2009 Net book value at September 30 2009 Net book value at September 30 2008 7 Investments At October 1 2008 Additions Disposals Impairment losses At September 30 2009 Freehold land and buildings £000’s Short-term leasehold premises £000’s Office equipment £000’s 6,357 26 – 6,383 37 81 – 118 6,265 6,320 8,912 19 (609) 8,322 3,211 415 (529) 3,097 5,225 5,701 8,311 507 (3,247) 5,571 5,869 607 (3,247) 3,229 2,342 2,442 Total £000’s 23,580 552 (3,856) 20,276 9,117 1,103 (3,776) 6,444 13,832 14,463 Investments in associated undertakings £000’s 29 – – – 29 Subsidiaries £000’s 658,469 450,711 (175,764) (141,497) 791,919 Total £000’s 658,498 450,711 (175,764) (141,497) 791,948 Details of the principal subsidiary and associated undertakings of the company at September 30 2009 can be found in note 13 to the group accounts. 8 Debtors Due within one year: Trade debtors Amounts owed by DMGT group undertakings Amounts owed by subsidiary undertakings Other debtors Deferred tax (note 11) Prepayments and accrued income 2009 £000’s 2008 £000’s 11,083 1,390 305,101 250 15,035 1,948 11,584 – 107,455 343 6,296 2,573 334,807 128,251 100 Euromoney Institutional Investor PLC 9 Creditors Due within one year: Committed facility (see note 19 in the group accounts) Bank overdraft Trade creditors Amounts owed to DMGT group undertakings Amounts owed to subsidiary undertakings Other creditors Corporation tax Accruals Deferred income Other taxation and social security Derivative financial instruments (note 16) Acquisition option commitments Loan notes Provisions (note 10) Due after more than one year: Committed facility (see note 19 in the group accounts) Provisions (note 10) Derivative financial instruments (note 16) 10 Provisions At October 1 2008 Provision Used in the year At September 30 2009 Maturity profile of provisions: Within 1 year Between 1 and 2 years Between 2 and 5 years Other provisions The provision consists of social security arising on share option liabilities and dilapidations on leasehold properties. 2009 £000’s 2008 £000’s – 12,445 1,515 2,523 560,013 8,686 – 20,266 9,958 981 8,918 1,354 5,719 1,360 184,594 5,880 1,582 158,947 120,817 3,484 1,892 24,997 22,784 1,101 5,006 978 7,579 1,198 633,738 540,839 2009 £000’s 171,404 1,653 13,963 2008 £000’s – 2,872 9,124 187,020 11,996 Other provisions £000’s 4,070 (691) (366) 3,013 2008 £000’s 1,198 1,198 1,674 4,070 2009 £000’s 1,360 – 1,653 3,013 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 101 Notes to the Company Accounts continued 11 Deferred tax The deferred tax asset at September 30 2009 comprised: Accelerated capital allowances Tax losses Other short-term timing differences Provision for deferred tax Movement in deferred tax: Deferred tax asset at October 1 Deferred tax credit in the profit and loss account Deferred tax credit to equity Deferred tax asset at September 30 2009 £000’s (848) 7,307 8,576 15,035 £000’s 6,296 6,092 2,647 15,035 2008 £000’s (723) – 7,019 6,296 £000’s 3,826 1,707 763 6,296 A deferred tax asset of £15,035,000 (2008: £6,296,000) has been recognised in respect of depreciation in excess of UK capital allowances, tax losses and other short-term timing differences. The directors are of the opinion that based on recent and forecast trading, the level of profits in future years are more likely than not to be sufficient to enable the asset to be recovered. 12 Share capital Authorised 137,365,200 ordinary shares of 0.25p each (2008: 137,365,200 ordinary shares of 0.25p each) Allotted, called up and fully paid 113,757,463 ordinary shares of 0.25p each (2008: 105,300,896 ordinary shares of 0.25p each) 2009 £000’s 2008 £000’s 343 343 284 263 During the year, 8,456,567 ordinary shares of 0.25p each (2008: 2,328,418 ordinary shares) with an aggregate nominal value of £21,141 (2008: £5,821) were issued as follows: 6,257,957 ordinary shares (2008: nil) under the company’s 2008 scrip dividend alternative for a cash consideration of £nil (2008: £nil) and 2,198,610 ordinary shares (2008: 2,328,418 ordinary shares) following the exercise of share options granted under the company’s share option schemes for a cash consideration of £5,497 (2008: £71,680). 13 Share-based payments An explanation of the company’s share-based payment arrangements are set out in the Directors’ Remuneration Report on pages 36 and 37. The number of shares under option, the fair value per option granted and the assumptions used to determine their values is given in note 23 to the group accounts. Their dilutive effect on the number of weighted average shares of the company is given in note 10 to the group accounts. Equity settled options The executive and Save as You Earn Options were valued using the Black-Scholes option-pricing model. Expected volatility was determined by calculating the historical volatility of the group’s share price over a 12 year period. The executive options’ fair values have been discounted at a rate of 10% to reflect their performance conditions. The expected term of the option used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The credit recognised in the year in respect of these options was £142,000 (2008: expense £281,000). Executive Options 8 SAYE 9 10 Date of grant Market value at date of grant (p) Option price (p) Number of share options outstanding Option life (years) Expected term of option (grant to exercise (years)) Exercise price (p) Risk-free rate Dividend yield Volatility Fair value per option (£) December 4 2002 January 28 2004 259 259 174,000 10 5.5 259 4.10% 3.93% 30% 0.52 419 419 153,000 10 5.5 419 4.10% 3.93% 30% 0.72 102 Euromoney Institutional Investor PLC January 5 December 17 December 19 2008 2007 2007 524 419 27,028 3.5 3 419 4.75% 3.35% 30% 1.51 397 318 43,971 3.5 3 318 4.25% 3.35% 30% 1.13 234 187 390,710 3.5 3 187 5.00% 5.65% 30% 0.58 13 Share based payments continued Capital Appreciation Plan (CAP 2004) The Capital Appreciation Plan (CAP 2004) options were valued using a fair value model that adjusted the share price at the date of grant for the net present value of expected future dividend streams up to the date of expected exercise. The expected term of the option used in the models has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share based expense in the year for the CAP 2004 options was £2,348,000 (2008: £2,796,000). Date of grant Market value at date of grant (p) Option price (p) Number of share options outstanding Option life (years) Expected term of option (grant to exercise (years)) Exercise price (p) Risk-free rate Dividend growth Fair value per option (£) Tranche 1 CAP 2004 Tranche 2 Tranche 3 June 20 2005 June 20 2005 June 20 2005 401 0.25 50,147 10 3.28 0.25 5.0% 8.44% 3.28 401 0.25 65,123 10 4.53 0.25 5.0% 8.44% 3.02 401 0.25 1,501,029 10 5.53 0.25 5.0% 8.44% 2.82 The following options are outstanding at September 30 and are options to subscribe for new ordinary shares of 0.25p each: Outstanding at October 1 Granted during the year Exercised during the year Expired during the year Outstanding at September 30 Number of share options 2009 Number of share options 2008 3,215,130 1,259,214 (1,551,772) (1,004,053) 3,107,755 1,620,439 (1,354,214) (158,850) 1,918,519 3,215,130 The weighted average share price at the date of exercise for share options exercised during the year was £1.86 (2008: £3.80). The options outstanding at September 30 2009 had a weighted average exercise price of £1.19 (2008: £1.95), and a weighted average remaining contractual life of 4.1 years (2008: 4.0 years). 14 Statement of movement on reserves At September 30 2007 Retained profit for the year Gain on cash flow hedges Credit for share-based payments Dividends paid Exercise of share options Tax on items going through reserves At September 30 2008 Retained profit for the year Gain on cash flow hedges Credit for share-based payments Scrip/cash dividends paid Tax on items going through reserves Share premium account £000’s 38,509 – – – – 66 – 38,575 – – – 13,870 – Other reserve £000’s 64,981 – – – – – – 64,981 – – – – – Capital redemp- tion Capital reserve Reserve £000’s £000’s Liability for share based shares payment £000’s £000’s Own Fair Profit value and loss reserves account £000’s £000’s Total £000’s 8 – – – – – – 8 – – – – – 1,842 – – – – – – 1,842 – – – – – (74) – – – – – – (74) – – – – – 9,174 – – 3,077 – – – 12,251 – – 2,206 – – (1,051) 135,372 248,761 37,201 37,201 (6,537) – 3,077 – (19,950) (19,950) – 66 1,368 66 – (6,537) – – – 1,302 (6,286) 152,689 263,986 67,169 67,169 (6,589) – 2,206 – (6,787) (20,657) 2,647 – – (6,589) – – 2,647 At September 30 2009 52,445 64,981 8 1,842 (74) 14,457 (10,228) 199,201 322,632 The investment in own shares is held by the Euromoney Employees’ Share Ownership Trust (ESOT). At September 30 2009 the ESOT held 58,976 shares (2008: 58,976 shares) carried at a historic cost of £1.25 per share with a market value of £220,000 (2008: £192,000), and waived the rights to receive dividends. Interest and administrative costs are charged to the profit and loss account of the ESOT as incurred. Of the reserves above £14,457,000 (2008: £12,251,000) of the liability for share-based payments and £80,083,000 (2008: £51,126,000) of the profit and loss account is distributable to equity shareholders of the company. The remaining balance of £119,118,000 (2008: £101,563,000) is not distributable. Annual Report and Financial Statements 2009 103 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Notes to the Company Accounts continued 15 Commitments At September 30 the company has committed to make the following payments in respect of operating leases on land and buildings: 2009 £000’s – 17 1,033 1,050 2008 £000’s 148 17 892 1,057 Operating leases which expire: Within one year Between two and five years Over five years 16 Financial instruments Derivative financial instruments The derivative financial assets/(liabilities) at September 30 2009 comprised: 2009 Assets £000’s Liabilities £000’s Interest rate swaps Forward foreign exchange contracts – cash flow hedge Forward foreign exchange contracts – net investment Currency swap with subsidiary undertakings Current portion Non-current portion 7 315 – – 322 201 121 2008 Assets £000’s 296 996 – 11,815 (7,595) (15,286) – – (22,881) 13,107 (8,918) 12,918 (13,963) 189 Liabilities £000’s (3,207) (10,064) (859) – (14,130) (5,006) (9,124) As at September 30 2009, the aggregate amount of unrealised losses under forward foreign exchange contracts deferred in the fair value reserve relating to future revenue transactions is £6,130,000 (2008: £4,438,000). It is anticipated that the revenue transactions will take place during the next 36 months at which stage the amount deferred in equity will be released in the income statement. The ineffective portion recognised directly in the company’s profit or loss that arose from cash flow hedges in the year was a loss of £6,700,000 (2008: loss £11,961,000). The company holds all the interest rate swaps for the group and full details regarding these can be found in note 18 to the group accounts. There were no derivatives outstanding at the balance sheet date that were designated as fair value hedges. Hedge of net investment in foreign entity The company has US dollar denominated borrowings which it has designated as a hedge of the net investment of its subsidiaries which have US dollars as their functional currency. The change in fair value of these hedges resulted in a decreased liability of £1,246,000 (2008: £12,936,000) which has been deferred in reserves and will only be recognised in the company’s profit and loss account if the related investment is sold. There was no ineffectiveness in these hedges recognised in the profit and loss account (2008: £2,563,000). Fair values of non-derivative financial assets and financial liabilities Where market values are not available, fair values of financial assets and financial liabilities have been calculated by discounting expected future cash flows at prevailing interest rates and by applying year end exchange rates. The carrying amounts of short-term borrowings approximate the book value. 104 Euromoney Institutional Investor PLC 17 Reconciliation of movements in equity shareholders’ funds Profit for the financial year Dividends paid Issue of shares Gains on cash flow hedges Tax on items taken directly to equity Credit to equity for share based payments Net increase in equity shareholders’ funds Opening equity shareholders’ funds Closing equity shareholders’ funds 18 Related party transactions Related party transactions and balances are detailed below: 2009 £000’s 67,169 (20,657) 2008 £000’s 37,201 (19,950) 46,512 17,251 13,891 (6,589) 2,647 2,206 71 (6,537) 1,368 3,077 58,667 264,249 15,230 249,019 322,916 264,249 (i) The company has a credit agreement with DMG Jersey Finance Limited (note 19 to the group accounts). As at September 30 2009 the amounts owing under the facility was: $238,488,000 (£149,111,000) (2008: $243,155,000 (£136,413,000)), and £22,293,000 (2008: £48,181,000). A commitment fee of £319,000 (2008: £191,000) was payable on the unused portion of the available facility. (ii) The group expensed £324,000 (2008: £237,400) for services provided by Daily Mail and General Trust plc. (iii) At September 30 2009 the company had £143,290,000 (2008: £154,788,000) fixed rate interest rate swaps outstanding with Daily Mail and General Holdings Limited and related companies; comprising $170,000,000 (2008: $185,000,000) at interest rates between 1.4% and 5.4% and termination dates between March 30 2010 and March 28 2013, and £37,000,000 (2008: £51,000,000) at interest rates between 4.9% and 6.2% and termination dates between March 30 2010 and September 28 2012. During the year the company paid $4,721,000 (2008: paid $1,263,000) and received £1,226,000 (2008: received £124,000) of interest from Daily Mail and General Holdings Limited and related companies in respect of interest rate swaps. (iv) In September 2009, the group agreed a new loan facility from Daily Mail & General Investment Limited. During the year the group paid $40,315,000 (£29,934,775), including principal and interest. The amount owing at September 30 2009 was $nil (£nil) (2008: $40,315,000 (£22,617,000)). (v) In April 2008, the group agreed a new loan facility from Daily Mail and General Holdings Limited. During the year the company paid £153,448,000 including principal and interest. The amount owing at September 30 2009 was £nil (2008: £133,155,000). (vi) During the year the company entered into the following trading transactions with related undertakings that are not 100% owned within the group: Coaltrans Conferences Limited The following balances were outstanding at the end of the year: Coaltrans Conferences Limited Sales 2009 £000’s 271 2008 £000’s 255 Amounts owed to related undertakings 2008 2009 £000’s £000’s 647 3,494 E C N A M R O F R E P R U O E C N A N R E V O G R U O S T N U O C C A P U O R G S T N U O C C A Y N A P M O C Annual Report and Financial Statements 2009 105 Notes to the Company Accounts continued 19 Post balance sheet event The directors propose a final dividend of 7.75p per share (2008: 13.00p) totalling £8,816,000 (2008: £13,689,000) for the year ended September 30 2009. The dividend will be submitted for formal approval at the Annual General Meeting to be held on January 21 2010. In accordance with FRS 21 ‘Post balance sheet events’, these financial statements do not reflect this dividend payable but will be accounted for in shareholders’ equity as an appropriation of retained earnings in the year ending September 30 2010. During 2009, a final dividend of 13.00p (2008: 13.00p) per share totalling £13,697,000 (2008: £13,388,000) was paid in respect of the dividend declared for the year ended September 30 2008. 20 Ultimate parent undertaking and controlling party The directors regard the ultimate parent undertaking as Rothermere Continuation Limited, which is incorporated in Bermuda. The ultimate controlling party is The Viscount Rothermere. The largest and smallest group of which the company is a member and for which group accounts are drawn up is that of Daily Mail and General Trust plc, incorporated in Great Britain and registered in England and Wales. Copies of the report and accounts are available from: The Company Secretary Daily Mail and General Trust plc Northcliffe House, 2 Derry Street London W8 5TT www.dmgt.co.uk 106 Euromoney Institutional Investor PLC Five Year Record Group income statement extracts Total revenue 196,266 222,276 305,594 332,064 317,594 2005 £000’s 2006 £000’s 2007 £000’s 2008 £000’s 2009 £000’s Operating profit before acquired intangible amortisation, share option expense and exceptional items Acquired intangible amortisation Share option expense Exceptional items Operating profit before associates Share of results in associates Operating profit Net finance costs (Loss)/profit on ordinary activities before tax Tax credit/(expense) on profit/(loss) (Loss)/profit after tax from continuing operations Profit from discontinued operations (Loss)/profit for the year Attributable to: Equity holders of the parent Equity minority interests (Loss)/profit for the year 39,348 – (1,380) (315) 37,653 624 38,277 (3,843) 34,434 (2,417) 32,017 – 43,812 (144) (4,428) (716) 38,524 1,208 39,732 (4,498) 35,234 3,512 38,746 – 78,606 (15,716) (10,176) 855 53,569 490 54,059 (12,931) 41,128 (8,223) 32,905 500 81,308 (12,749) (5,361) (2,477) 60,721 308 61,029 (23,603) 37,426 7,279 44,705 245 32,017 38,746 33,405 44,950 30,181 1,836 37,430 1,316 31,822 1,583 43,719 1,231 32,017 38,746 33,405 44,950 79,447 (15,891) (2,697) (33,901) 26,958 219 27,177 (44,538) (17,361) 10,412 (6,949) 1,207 (5,742) (6,287) 545 (5,742) Basic (loss)/earnings per share Diluted (loss)/earnings per share Adjusted diluted (loss)/earnings per share Diluted weighted average number of ordinary shares Dividend per share 34.19p 34.10p 26.28p 88,508,359 16.20p 42.11p 41.90p 28.61p 89,340,024 17.00p 30.66p 29.86p 35.04p 104,888,887 19.00p 41.69p 40.37p 44.36p 107,687,024 19.25p (6.83)p (6.67)p 40.39p 112,372,620 14.00p Group balance sheet extracts Intangible assets Non-current assets Accruals Deferred income liability Other net current assets/(liabilities) Non-current liabilities Net assets/(liabilities) 66,508 27,647 (23,225) (37,491) 3,924 (73,313) 71,598 63,406 (29,478) (45,324) 7,334 (94,310) 380,022 38,129 (43,424) (73,382) 23,965 (269,530) 407,578 41,318 (50,016) (89,488) (171,290) (50,038) 425,648 39,002 (46,972) (82,599) (16,642) (213,446) (35,950) (26,774) 55,780 88,064 104,991 Annual Report and Financial Statements 2009 107 Financial Calendar and Shareholder Information 2009 final results announcement Thursday November 12 2009 Final dividend ex-dividend date Wednesday November 18 2009 Final dividend record date Friday November 20 2009 Announcement of the final scrip reference price Wednesday December 9 2009 for the scrip alternative Last date for receipt by the company’s registrars 3.00 p.m. on Thursday January 14 2010 of scrip mandate forms 2010 Annual General Meeting (approval of final dividend) Thursday January 21 2010 Payment of final dividend Thursday February 4 2010* 2010 interim results announcement Thursday May 13 2010 Interim dividend ex-dividend date Wednesday May 19 2010 Interim dividend record date Friday May 21 2010 Payment of 2010 interim dividend Wednesday June 23 2010* 2010 final results announcement Thursday November 11 2010* Loan note interest paid to holders of loan notes on: Thursday December 31 2009 Wednesday June 30 2010 * Provisional dates and are subject to change. Shareholder queries Administrative enquiries about the holding of Euromoney Institutional Investor PLC shares should be directed in the first instance to the company’s registrar whose address is: Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Telephone: 0871 664 0300 (Calls cost 10p per minute plus network extras) (from outside the UK: +44 (0) 20 8639 3399) E-mail: ssd@capitaregistrars.com www.capitaregistrars.com Loan note redemption information Loan notes can be redeemed twice a year on the interest payment dates above by depositing the Notice of Repayment printed on the Loan Note Certificate at the company’s registered office. At least 20 business days’ written notice prior to the redemption date is required. Registered office Nestor House Playhouse Yard Blackfriars London EC4V 5EX Company’s website www.euromoneyplc.com 108 Euromoney Institutional Investor PLC Welcome to Euromoney Institutional Investor PLC Euromoney Institutional Investor PLC is listed on the London Stock Exchange and is a member of the FTSE 250 share index. It is a leading international business-to-business media group focused primarily on the international finance, metals and commodities It publishes more than 70 magazines, sectors. newsletters and including Euromoney, Institutional Investor and Metal Bulletin. It also runs an extensive portfolio of conferences, seminars and training courses and is a leading provider of electronic information and data covering international finance, metals and commodities, and emerging markets. Its main offices are located in London, New York, Montreal and Hong Kong and nearly half of its revenues are derived from emerging markets. journals, Contents OUR PERFORMANCE Highlights Our Divisions Chairman’s Statement Appendix to Chairman’s Statement - Reconciliation of Group Income Statement to Underlying Results Directors’ Report OUR GOVERNANCE Directors and Advisors Corporate Governance Directors’ Remuneration Report Independent Auditors’ Report 01 02 04 07 08 26 28 34 49 GROUP ACCOUNTS 50 Group Income Statement 51 Group Balance Sheet 52 Group Cash Flow Statement Note to the Group Cash Flow Statement 53 Group Statement of Recognised Income and Expense Notes to the Group Accounts 54 55 COMPANY ACCOUNTS Independent Auditors’ Company Report 95 96 Company Balance Sheet 97 Notes to the Company Accounts OTHER Five Year Record Financial Calendar and Shareholder Information 107 108 16991EUROMONEcvr.indd 2 16991EUROMONEcvr.indd 2 16991 10/12/09 Proof 8 16991 10/12/09 Proof 8 10/12/2009 10:36 10/12/2009 10:36 Annual Report & Accounts 2009 Euromoney Institutional Investor PLC www.euromoneyplc.com Euromoney Institutional Investor PLC Nestor House, Playhouse Yard, London EC4V 5EX A n n u a l R e p o r t & A c c o u n t s 2 0 0 9 E u r o m o n e y I n s t i t u t i o n a l I n v e s t o r P L C 16991EUROMONEcvr.indd 1 16991EUROMONEcvr.indd 1 16991 10/12/09 Proof 8 16991 10/12/09 Proof 8 10/12/2009 10:36 10/12/2009 10:36 

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