Euromoney Institutional Investor Annual Report 2012

Plain-text annual report

Annual Report & Accounts 2012 Euromoney Institutional Investor PLC A n n u a l R e p o r t & A c c o u n t s 2 0 1 2 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 Euromoney AR2012.indd 3 13/12/2012 15:54:26 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC is listed on the London Stock Exchange and 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. The group publishes more than 70 titles in both print and online format, including Euromoney, Institutional Investor and Metal Bulletin, and is a leading provider of electronic research and data under the BCA Research, Ned Davis Research and ISI Emerging Markets brands. It also runs an extensive portfolio of conferences, seminars and training courses for financial markets. The group’s main offices are in London, New York, Montreal and Hong Kong and more than a third of its revenues are derived from emerging markets. Contents Contents Our Performance Group Accounts Highlights Our Divisions Chairman’s Statement Appendix to Chairman’s Statement — Reconciliation of Group Income Statement to Adjusted Results Directors’ Report Our Governance Directors’ Responsibility Statement Directors and Advisors Corporate Governance Corporate Social Responsibility Directors’ Remuneration Report 01 02 04 07 08 27 28 30 36 41 Independent Auditor’s Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Note to the Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Accounts Independent Auditor‘s Company Report Company Balance Sheet Notes to the Company Accounts Other Five Year Record Financial Calendar and Shareholder Information 53 54 55 56 57 59 60 61 121 122 123 133 134 Euromoney AR2012.indd 4 13/12/2012 15:54:26 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Record Profits Highlights Record Proﬁts “The record results for the year reﬂect the challenging market conditions as well as the successful implementation of our strategy. Investment in online information businesses and emerging markets has created a global portfolio with a resilient business model. Subscription revenues now account for more than 50% of group revenues, and more than a third of our revenues is derived from emerging markets. In 2013, we will continue to invest in our products to ensure that we are well placed to beneﬁt from any improvement in the global economy.” Richard Ensor Chairman Revenue £394.1m Adjusted Operating Profit* £118.2m Operating Profit £95.9m 363.1 394.1 330.0 100.1 109.0 118.2 82.1 77.8 95.9 2010 2011 2012 2010 2011 2012 2010 2011 2012 Adjusted Profit before Tax* £106.8m Profit before Tax £92.4m Adjusted Diluted Earnings Per Share* 65.9p 86.6 92.7 106.8 92.4 71.4 68.2 53.5 56.1 65.9 2010 2011 2012 2010 2011 2012 2010 2011 2012 Diluted Earnings Per Share 55.2p 49.5 37.3 55.2 Dividend 21.75p Net Debt £30.8m 18.0 18.75 21.75 128.8 119.2 2010 2011 2012 2010 2011 2012 2010 2011 30.8 2012 * See reconciliation of Consolidated Income Statement to adjusted results on page 7. Euromoney AR2012.indd 1 21833.04 13/12/12 Proof 7 01 13/12/2012 15:54:27 s t h g i l h g H i 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 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Our Divisions Activities FINANCIAL PUBLISHING £77.1m Revenue 20% of group turnover TRAINING £31.2m Revenue 8% of group turnover runs division training a The 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 includes an Financial publishing 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, Air Finance and the hedge fund title EuroHedge. BUSINESS PUBLISHING £64.6m Revenue 16% of group turnover The business publishing division produces print and online information for 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 AR2012.indd 2 13/12/2012 15:54:28 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com CONFERENCES and SEMINARS £92.3m Revenue 23% of group turnover RESEARCH and DATA £130.3m Revenue 33% of group turnover the The group runs a large number of sponsored conferences and seminars financial international for 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 programme and speakers, and outstanding networking opportunities. Such events include: Euromoney’s Covered Bond Congress; the Global Borrowers and Investors Forum; the Annual Global Hedge Fund Summit; the European Airfinance Conference; and Global ABS and ABS East for the asset-backed securities market. In the commodities sector, events include Metal Bulletin’s International Ferro Alloys conference and the world’s leading annual coal conferences, Coaltrans and Coaltrans Asia; TelCap runs International Telecoms Week, the worldwide meeting place for telecom carriers and service providers; and MIS runs a leading event for the information security sector in the US, InfoSec World. The group provides a number of subscription-based research and data services for financial markets. Montreal-based BCA Research is one of the world’s leading independent providers of global macro economic research. In 2011, the group expanded its independent research activities with the acquisition of US-based Ned Davis Research, a leading provider of independent financial research to institutional and retail investors. 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 includes CEIC, one of the leading providers of time-series macro- economic data for emerging markets. The group also offers global capital market databases through a venture with its partner, Dealogic (Holdings) plc. Ned Davis Research Group s n o i s i v i D r u O 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 Euromoney AR2012.indd 3 21833.04 13/12/12 Proof 7 03 13/12/2012 15:54:30 Principal Brands Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Chairman’s Statement Richard Ensor Highlights Euromoney Institutional Investor PLC, the £394.1 million. Underlying revenues, excluding at 30%. Costs, particularly headcount, have Total revenues for the year increased by 9% to The adjusted operating margin was unchanged international online information and events acquisitions, increased by 3%. The acquisition remained tightly controlled throughout the year. group, achieved a record adjusted proﬁt of Ned Davis Research (NDR) in August 2011 At the same time, the group has increased its before tax of £106.8 million for the year to has helped increase the proportion of revenues investment in technology and new products as September 30 2012, against £92.7 million in generated from subscriptions to more than part of its online growth strategy. 2011. Adjusted diluted earnings a share were 50% for the ﬁrst time. Headline subscription 65.9p (2011: 56.1p). The directors recommend revenues increased by 17% to £199.7 million Net debt at September 30 was £30.8 million an 18% increase in the ﬁnal dividend to and underlying subscriptions, excluding NDR, compared with £88.5 million at March 31 and 14.75p, giving a total for the year of 21.75p by 5%. (2011: 18.75p), to be paid to shareholders on February 14 2013. £119.2 million at September 30 2011. In the absence of any signiﬁcant acquisitions, net debt has fallen by £88.4 million since the start of the year, reﬂecting the group’s strong cash ﬂows and an operating cash conversion rate* in excess of 100%. The group’s net debt is now at its lowest level for more than a decade and its robust balance sheet provides plenty of headroom for the group to pursue its acquisition strategy. As highlighted in previous trading updates, market conditions became noticeably tougher from June. The uncertainty over Europe remains, as does a solution to the pending US ﬁscal cliff. Meanwhile global ﬁnancial institutions face the combined challenges of difﬁcult markets, increased capital requirements and a tougher regulatory environment. Inevitably they have responded by cutting costs, particularly people, and exiting some parts of their business. However, the outlook for emerging markets, which account for more than a third of the group’s revenues, is more positive. The board expects this challenging trading background to continue at least into the early part of 2013. 04 Euromoney AR2012.indd 4 13/12/2012 15:54:31 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Strategy The group’s strategy remains the building of Driving revenue growth from existing as well Acquisitions remain a key part of the group’s as new products is a key part of the group’s strategy. The most recent was the purchase of a robust and tightly focused global online strategy. Since 2010, the group has been Global Grain for £5.7 million in February. Global information business with an emphasis on investing heavily in technology and content Grain’s main asset, Global Grain Geneva, is the emerging markets. This strategy is being delivery platforms, particularly for the mobile world’s leading event for international grain executed through increasing the proportion of user, and in new digital products as part of its traders. The event is held in November each year revenues derived from electronic subscription transition to an online information business. In and is on track to exceed last year’s attendance products; using technology efﬁciently to assist 2012, as in 2011, the group spent approximately by at least 10%, while an event for the Asia- the online migration of the group’s print £10 million on this transition. This level of Paciﬁc region was launched successfully in products as well as developing new electronic expenditure is expected to continue in 2013. In March and two further new events are planned information services; investing in products of addition, the group has recently started work on for 2013. the highest quality; eliminating products with a a project to build a new platform for authoring, low margin or too high a dependence on print storing and presenting its content, with a view While the market for acquisitions of specialist advertising; maintaining tight cost control at all to both improving the quality of its existing online information businesses remains times; retaining and fostering an entrepreneurial subscription products and increasing the speed competitive and valuations challenging, the culture; and using a healthy balance sheet and to market of new online information services. group will continue to use its robust balance strong cash ﬂows to fund selective acquisitions. This project is expected to have a capital cost of sheet and strong cash ﬂows to pursue further approximately £6 million in 2013. transactions in 2013. t n e m e t a t S s ’ n a m r i a h C 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 Euromoney AR2012.indd 5 21833.04 13/12/12 Proof 7 05 13/12/2012 15:54:31 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Chairman’s Statement continued Capital Appreciation Plan (CAP) The CAP is the group’s long-term incentive Management On October 15 2012, the company announced Subscriptions account for half the group’s revenues and therefore provide some protection scheme designed to retain and reward those the sad news of the death of its chairman, against weak markets in 2013, as does the who drive proﬁt growth and is an integral part Padraic Fallon, after a long battle with cancer. group’s reliance on emerging markets for of the group’s successful growth and investment He had worked for the company for nearly 40 more than a third of its revenues. However, strategy. years and been executive chairman since 1992. the negative trends in advertising and delegate revenues in the last quarter are expected to The terms of CAP 2010 broadly required an Mr Fallon had already announced his intention continue into the ﬁrst quarter of ﬁnancial adjusted proﬁt before tax (and before CAP to retire at the AGM in January 2013, and a year 2013, although the outlook for event expense) of £100 million to be achieved, from succession plan was announced in August after sponsorship is more positive. First quarter a base proﬁt of £62.3 million in 2009, within consultation with shareholders. Under this plan, trading has started in line with the board’s the four year period ending in September 2013. I would assume the role of executive chairman expectations but as usual at this time, forward The strong ﬁnancial performance of the group and Christopher Fordham, an executive director revenue visibility beyond the ﬁrst quarter is meant the initial CAP proﬁt target was achieved since 2003 and the director responsible for the limited, other than for subscriptions. in 2011, two years earlier than expected. The group’s acquisition strategy, would take over CAP proﬁt target for 2012 was increased to my responsibilities as managing director. This For 2013, the group plans to continue £105 million following the acquisition of NDR, succession plan has now been implemented. its programme of investing in the digital and this target has also been achieved. Further changes to the board are anticipated transformation of its publishing businesses and over the next few months, including the in improving the quality of its products. The Although the CAP proﬁt target was ﬁrst achieved appointment of at least one new independent board is conﬁdent its strategy for investing in in 2011, the rules of the plan prevent CAP non-executive director. options from vesting more than one year early. new products and digital publishing and using its strong balance sheet to fund acquisitions, Individual CAP awards were therefore based on the proﬁts for 2012, creating a strong incentive Outlook The uncertainty over Europe remains, as does a its exposure to emerging markets, and its tight control of operating costs will continue to sustain for proﬁt growth this year. Accordingly, the ﬁrst solution to the pending US ﬁscal cliff. Meanwhile it through these difﬁcult market conditions. 50% of CAP awards will vest in February 2013 global ﬁnancial institutions face the combined As the world economy begins an albeit slow and be satisﬁed by the issue of approximately 3.5 challenges of difﬁcult markets, increased recovery, ﬁnancial and other markets will also million new ordinary shares and £15 million in capital requirements and a tougher regulatory gradually improve, enhancing our prospects. cash. The second 50% of CAP awards is subject environment. Inevitably they have responded to an additional performance test for 2013 and by cutting costs, particularly people, and exiting will vest in February 2014 provided the additional some parts of their business. The board expects performance test is satisﬁed, thereby providing this challenging trading background to continue further incentive for proﬁt growth in 2013. at least into the early part of 2013. The board believes the CAP has been an important driver of the ﬁvefold increase in the group’s proﬁts since it was introduced in 2004. Subject to shareholder approval, the board expects to put a new long-term incentive plan in place from 2014. Richard Ensor Chairman November 14 2012 * The operating cash conversion rate is the percentage by which cash generated from operations covers adjusted operating proﬁt. 06 Euromoney AR2012.indd 6 13/12/2012 15:54:32 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Appendix to Chairman’s Statement Reconciliation of Consolidated Income Statement to adjusted results for the year ended September 30 2012 The reconciliation below sets out the adjusted results of the group and the related adjustments to the statutory Income Statement that the directors consider necessary in order to provide an indication of the adjusted trading performance. Adjusted £000 Notes Adjust- ments £000 2012 Total £000 Adjusted £000 Adjust- ments £000 2011 Total £000 Total revenue 3 394,144 – 394,144 363,142 – 363,142 Operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items Acquired intangible amortisation Long-term incentive expense Additional accelerated long-term incentive expense Exceptional items 3 12 6 5 118,175 – 118,175 108,967 – – (14,782) (14,782) – (12,221) (6,301) – – – – (6,301) (9,491) – – (6,603) (3,295) – – (1,617) (1,617) 108,967 (12,221) (9,491) (6,603) (3,295) Operating profit before associates 111,874 (16,399) 95,475 99,476 (22,119) 77,357 Share of results in associates Operating profit 459 – 459 408 – 408 112,333 (16,399) 95,934 99,884 (22,119) 77,765 Finance income Finance expense Net finance costs Profit before tax Tax expense on profit Profit after tax Attributable to: Equity holders of the parent Equity non-controlling interests Diluted earnings per share – continuing operations 8 8 1,500 (7,064) (5,564) 2,975 (977) 1,998 4,475 (8,041) (3,566) 1,761 (8,961) (7,200) – (2,368) (2,368) 106,769 (14,401) 92,368 92,684 (24,487) 9 (23,359) 831 (22,528) (24,164) 1,637 83,410 (13,570) 69,840 68,520 (22,850) 1,761 (11,329) (9,568) 68,197 (22,527) 45,670 83,242 (13,570) 69,672 68,441 (22,850) 45,591 168 – 168 79 – 79 83,410 (13,570) 69,840 68,520 (22,850) 45,670 11 65.91p (10.74)p 55.17p 56.05p (18.71)p 37.34p Adjusted ﬁgures are presented before the impact of amortisation of acquired intangible assets (comprising trademarks and brands, databases and customer relationships), the additional accelerated long-term incentive expense, restructuring and other exceptional operating costs, movements in acquisition deferred consideration, and net movements in acquisition option commitment values. In respect of earnings, adjusted 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, 6, 8, 9, 11 and 12 to the Annual Report. t n e m e t a t S s ’ n a m r i a h C 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 Euromoney AR2012.indd 7 21833.04 13/12/12 Proof 7 07 13/12/2012 15:54:32 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report The directors submit their annual report and whole. It has been prepared solely to provide group’s main ofﬁces are in London, New York, group accounts for the year ended September additional information to shareholders to assess Montreal and Hong Kong and more than a 30 2012. the company’s strategy and the potential for that third of its revenues are derived from emerging strategy to succeed, and the Directors’ Report markets. Details of the group’s legal entities can Certain statements made in this document are should not be relied upon by any other party for be found in note 14. forward-looking statements. Such statements are any other purpose. The Corporate Governance based on current expectations and are subject to Report forms part of this Directors’ Report. a number of risks and uncertainties that could cause actual events or results to differ materially from any expected future events or results referred 1. Principal activities 2. Business model The group’s activities are categorised into ﬁve operating divisions: Financial Publishing; to in these forward-looking statements. Unless Euromoney Institutional Investor PLC is listed Business Publishing; Conferences and Seminars; otherwise required by applicable law, regulation on the London Stock Exchange and a member Training; and Research and Data (see pages or accounting standard, the directors do not of the FTSE 250 share index. It is a leading 2 and 3 for further details). The group has many undertake any obligation to update or revise international business-to-business media group mutually exclusive valuable brands (see pages any forward-looking statements, whether as a focused primarily on the international ﬁnance, 2 and 3) allowing the directors to extend the result of new information, future development metals and commodities sectors. It publishes value of existing products and to leverage or otherwise. Nothing in this document shall be more than 70 titles in both print and online these into new areas – both on a geographical regarded as a proﬁt forecast. format, including Euromoney, Institutional basis and a new product basis, for example Investor and Metal Bulletin, and is a leading publishing businesses often run branded The Directors’ Report has been prepared for the provider of electronic research and data under events covering their area of specialism. The group as a whole and, therefore, gives greater the BCA Research, Ned Davis Research and group has a sizeable and valuable marketing emphasis to those matters which are signiﬁcant ISI Emerging Markets brands. It also runs an database allowing new and existing products to Euromoney Institutional Investor PLC and extensive portfolio of conferences, seminars to be matched with relevant companies and its subsidiary undertakings when viewed as a and training courses for ﬁnancial markets. The individuals on a tailored basis. 08 Euromoney AR2012.indd 8 13/12/2012 15:54:34 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com The group primarily generates revenues from ﬁnancial institutions, governments, ﬁnancial no longer ﬁt, the group divests. The group is four revenue streams: advertising; subscriptions; advisory ﬁrms, hedge fund organisations, law investing heavily in its program to migrate its sponsorship; and delegates. ﬁrms, commodity traders, other corporate print products online, develop new electronic organisations and for the group’s niche focused information services, and to take advantage of Advertising revenues represent the fees that products relevant niche corporate entities across mobile and cloud technology. customers pay to place an advert in one or the length of the respective supply chain. more of the group’s publications, either in print or online. Advertising revenue is primarily generated from the Financial Publishing and Business Publishing divisions. Subscription revenues are the fees that customers pay to receive access to the group’s information, either through online access to various databases, through regular delivery of soft copy research, publications and newsletters or hard copy magazines. Subscriptions are also received from customers who belong to Institutional Investor’s exclusive specialised membership groups. Subscription revenue is primarily generated from the Financial Publishing, Business Publishing and Research and Data divisions. Sponsorship revenues represent fees paid by customers to sponsor an event. A payment of sponsorship entitles the sponsor to high-proﬁle speaking opportunities at the conference, unique branding before, during and after the event and an unparalleled networking opportunity to meet the sponsor’s clients and representatives. Sponsorship revenue is generated from the Conferences and Seminars division and the publishing businesses which run smaller events. Delegate revenues represent fees paid by customers to attend a conference, training course or seminar. Delegate revenues are derived from the Conferences and Seminars and Training divisions and from smaller events run by the publishing businesses. Details of the group’s revenues by revenue stream and by division are set out in note 3. The group’s main ofﬁces are located in London, 3. Strategy New York, Montreal and Hong Kong. The key elements of the group’s strategy are: ● driving top-line revenue growth from both The group’s costs are tightly managed with a new and existing products; constant focus on margin control. The group ● building robust subscription and repeat beneﬁts from having a ﬂexible cost base, revenues and reducing the dependence on outsourcing the printing of publications, hiring advertising; external venues for events, and choosing to ● improving operating margins through tight engage freelancers, contributors, external trainers cost control; and speakers to help deliver its products. Other ● investing in new businesses, technology than its main ofﬁces, the group avoids the ﬁxed and the online migration of its publishing costs of ofﬁces in most of the markets in which it activities; operates. This allows the group to scale up resource ● leveraging technology to launch specialised or reduce overhead as the economic environment new electronic information services; in which it operates demand. ● making acquisitions that supplement the group’s existing businesses; The group has strong covenants and takes ● strengthening the company’s market advantage of its ability to borrow money cheaply using these funds to invest in new products and fund acquisitions. The group’s subscription position in key areas which have the capacity for organic growth using the existing knowledge base of the group; revenues are normally received in advance, at ● managing its cash ﬂows to keep its debt the beginning of the subscription service, and within a net debt to EBITDA limit of three a typical subscription contract would be for a times; and 12 month period. This helps provide the group with strong cash ﬂows and normally leads to cash generated from operations being in excess of adjusted operating proﬁt – a cash conversion percentage in excess of 100%. ● providing incentives to foster an entrepreneurial culture and retain key people (see section 4.4.6 of the Directors’ Report). 4. Business review The board does not micro-manage each business, instead devolving operating decisions to the local 4.1 Group results and dividends The group proﬁt for the year attributable to management of each business, while taking shareholders amounted to £69.7 million (2011: advantage of a strong central control environment £45.6 million). The directors recommend a ﬁnal for monitoring performance and underlying dividend of 14.75 pence per ordinary share risk. This encourages an entrepreneurial culture (2011: 12.50 pence), payable on Thursday where businesses have the right kind of support February 14 2013 to shareholders on the register The group has a global customer base with and managers are motivated and rewarded for on Friday November 23 2012. This, together with revenue derived from almost 200 countries, growth and initiative. with approximately 60% from the US, Canada, the interim dividend of 7.00 pence per ordinary share (2011: 6.25 pence) which was declared on UK and the rest of Europe and more than a The group invests for the long-term in businesses May 17 2012 and paid on July 19 2012, brings third of its revenue from emerging markets. and products that meet certain ﬁnancial and the total dividend for the year to 21.75 pence per Its customer base predominantly consists of strategic criteria. Equally, where businesses ordinary share (2011: 18.75 pence). t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 9 21833.04 13/12/12 Proof 7 09 13/12/2012 15:54:34 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued 4.2 Key performance indicators The group monitors its performance against its strategy using the following key performance indicators: Revenue growth and mix Subscriptions Advertising Sponsorship Delegates Other/closed Foreign exchange losses on forward contracts Gross margin1 Adjusted operating margin2 Like-for-like growth in proﬁts3 Headcount4 Net debt to EBITDA5 CAP proﬁt6 and Adjusted PBT7 n o i l l i M £ 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 Revenue 2012 £m 199.7 58.4 47.6 80.1 9.7 (1.4) 394.1 Mix 2012 % 51% 15% 12% 20% 2% – 100% Revenue 2011 £m Mix 2011 % Revenue growth % 171.0 62.7 48.8 75.0 9.4 (3.8) 363.1 2012 75.1% 30.0% £5.7m 2,133 0.27:1 47% 17% 13% 20% 3% – 100% 2011 73.9% 30.0% £7.6m 2,111 1.01:1 +17% (7%) (2%) +7% +3% – +9% Change 1.2% – 22 CAP Proﬁt Adjusted PBT CAP 2004 Original Target CAP 2004 Revised Target CAP 2010 Target CAP 2010 Revised Target 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1. Gross margin: gross proﬁt as a percentage of revenue. Gross proﬁt and revenue are both as per note 4 to the ﬁnancial statements. 2. Adjusted operating margin: operating proﬁt before acquired intangible amortisation, long-term incentive 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 adjusted operating proﬁt growth that relates to organic growth, rather than acquisitions. Adjusted operating proﬁt is from continuing operations and excludes closed businesses, acquired intangible amortisation, exceptional items, long-term incentive expense, unallocated corporate costs and interest and is adjusted for signiﬁcant timing differences. 4. Headcount: number of permanent people employed at the end of the period excluding 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, depreciation, amortisation and also before exceptional items and the accelerated long-term incentive expense, but after the normal long-term incentive expense. 6. CAP proﬁt: proﬁt before tax excluding acquired intangible amortisation, long-term incentive expense, exceptional items, net movements in acquisition option commitments values, imputed interest on acquisition option commitments, foreign exchange loss interest charge on tax equalisation contracts and foreign exchange on restructured hedging arrangements as set out in the Group Income Statement, note 5 and note 8. 7. Adjusted PBT: CAP proﬁt after the deduction of long-term incentive expense as set out on page 7. 10 Euromoney AR2012.indd 10 13/12/2012 15:54:35 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 4.3 KPIs explained The key performance indicators are all within the board’s expectations and support its successful strategy. These indicators are discussed in detail in the Chairman’s Statement on pages 4 to 6, and in section 4.4 below. 4.4 Development of the business of the group 4.4.1 Trading review Total revenues for the year increased by 9% to £394.1 million. After a 13% increase in the ﬁrst half, the headline rate of revenue growth dropped to 5% in the second as markets became tougher and the impact of the acquisition of NDR in August 2011 diminished. Underlying revenues, excluding NDR, increased by 1% in the second half against 6% in the ﬁrst. Revenues Subscriptions Advertising Sponsorship Delegates Other/closed Foreign exchange losses on forward currency contracts Total revenue Less: revenue from acquisitions Underlying revenue 2012 £m 199.7 58.4 47.6 80.1 9.7 (1.4) 394.1 (24.3) 369.8 2011 £m 171.0 62.7 48.8 75.0 9.4 (3.8) 363.1 (4.6) 358.5 Headline change H1 22% (9%) 1% 19% – – 13% 6% H2 12% (5%) (5%) (4%) 5% – 5% 1% Year 17% (7%) (2%) 7% 3% – 9% 3% Change at constant exchange rates Year 16% (8%) (4%) 6% 2% – 8% 2% t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 11 21833.04 13/12/12 Proof 7 11 13/12/2012 15:54:35 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued Subscriptions increased by 17% to nearly increased by 3% during the year, mostly due delegates and increased by 7% to £92.3 £200 million and accounted for more than to the acquisition of NDR at the end of 2011. million, with adjusted operating proﬁts up half the group’s revenues for the ﬁrst time. Underlying subscription revenues, excluding NDR, increased by 5%, with the growth driven 4.4.2 Business division review Financial Publishing: revenues fell by 8% 9% to £29.0 million. After a strong ﬁrst half, markets became more challenging during the third quarter, the most important of the year largely by the group’s electronic information to £77.1 million and adjusted operating for the events businesses. Financial market services such as BCA Research and CEIC Data. proﬁts by 12% to £24.9 million. Advertising, events, with a heavy emphasis on sponsorship which accounts for approximately half the revenues, have been under pressure from cost The 7% fall in advertising revenues reﬂects division’s revenues, has been under pressure cutting among global ﬁnancial institutions. two very different trends. Financial titles have all year from cuts in spend by global ﬁnancial In contrast, events in sectors outside ﬁnance, experienced falls of as much as 20% in the face institutions as well as a gradual shift away from particularly in the commodities and energy of deep cuts by global ﬁnancial institutions. But print advertising across the sector. As a result, sectors, have performed better. The division this has been partly offset by increases in online ﬁnancial advertising fell by 13%, although the also generates nearly 20% of its revenues from advertising, a greater appetite for print advertising impact of more severe cuts by Wall Street banks subscriptions to membership organisations from emerging markets and growth in advertising was offset by a stronger performance from for the asset management industry, and from sectors outside ﬁnance, particularly energy. emerging markets which helped sustain titles these have continued to grow, helped by Event revenues broadly comprise an equal from subscription products were ﬂat, helped by Investor’s Investor Intelligence Network, a mix of sponsorship and paying delegates. the launch of new products. Event sponsorship, which is heavily ﬁnancial private online community for senior executives from institutional investors and asset owners such as Euromoney and Asiamoney. Revenues a signiﬁcant investment in Institutional market focused, has suffered in a similar way Business Publishing: the group’s activities worldwide. to advertising, although to a lesser degree. outside ﬁnance cover a number of sectors Events, particularly those outside the ﬁnancial including metals, commodities, energy, Research and Data: revenues are derived sector which tend to be more delegate driven, telecoms and law, and provide a strong predominantly from subscriptions and increased performed well in the ﬁrst half but growth has counterbalance to the more volatile ﬁnancial by 25% to £130.3 million. Underlying growth, been more difﬁcult to achieve in the second publishing division. Revenues increased by 9% excluding NDR, was 6%. The trends seen in the and some smaller events were cut. to £64.6 million and adjusted operating proﬁts ﬁrst half have continued, with the main drivers by 5% to £24.5 million, with growth achieved of growth being BCA, the group’s independent The group derives nearly two-thirds of its total from both advertising, particularly in the energy macroeconomic research house, CEIC, the revenue in US dollars and movements in the sector, and subscriptions, for which Metal emerging market data provider, and the capital sterling–US dollar rate can have a signiﬁcant Bulletin is the biggest driver. This year is the ﬁrst market databases run as a joint venture with impact on reported revenues. However, this that proﬁts from Business Publishing have been Dealogic. Renewal rates for all these products was not the case in 2012 and headline revenue similar to those from Financial Publishing. have held up well, although new sales have growth rates are similar to those at constant been harder to generate. Adjusted operating currency (see table above). Training: the group‘s training division proﬁts increased by 30% to £55.4 million predominantly serves the global ﬁnancial sector. including a £9.0 million contribution from NDR. The group’s adjusted operating margin was However, more than half its revenues are derived 30.0%, the same as 2011. The increased from emerging markets, and this has helped spend on technology and digital products has mitigate the impact of cuts in bank headcount 4.4.3 Financial review The adjusted proﬁt before tax of £106.8 million reduced margins in the publishing businesses, and training budgets. Training revenues fell by compares to a statutory proﬁt before tax of while in the research and data division margins 4% to £31.2 million and adjusted operating £92.4 million. A detailed reconciliation of the have improved following investments made proﬁts by 11% to £7.0 million. The decline in group’s adjusted and statutory results is set out in the previous two years. In the face of operating margin from 24% to 22% was largely in the appendix to the Chairman’s Statement. challenging markets, costs and margins have due to the completion at the end of 2011 of The statutory proﬁt is generally lower than remained tightly controlled throughout the a long-term training contract in Asia, and the the adjusted proﬁt before tax because of the year. Permanent headcount at September 30 margin in the second half recovered to 25%. impact of acquired intangible amortisation. was 2,133 against 2,111 a year ago, with most Exceptional charges of £1.6 million (2011: £3.3 of the increase coming in the second half. The Conferences and Seminars: revenues million) were incurred, mainly as a result of the average headcount (including temporary staff) comprise both sponsorship and paying restructuring of one of the group’s businesses. 12 Euromoney AR2012.indd 12 13/12/2012 15:54:35 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com The long-term incentive expense of £6.3 million The adjusted effective tax rate for the year related foreign currency ﬁnance costs provide a (2011: £9.5 million before additional accelerated was 22% against 26% in 2011. The tax rate partial hedge against the translation of overseas expense of £6.6 million) relates largely to the depends on the geographic mix of proﬁts and proﬁts. The translation impact on overseas amortisation of the £30 million cost of the the group has beneﬁted this year from the proﬁts of a one cent movement in the average company’s CAP scheme. The reduction in this reduction in the UK corporate tax rate from US dollar exchange rate is approximately £0.5 year’s expense partly reﬂects the acceleration of 26% to 24%. The effective tax rate has also million on an annualised basis. The average cost last year following the earlier than expected beneﬁted from an increase in the tax deduction sterling–US dollar rate for the year was $1.58 vesting of CAP 2010 (see below), as well as a for goodwill amortisation on acquisitions in the (2011: $1.61) which increased operating proﬁts credit of £1.8 million for options lapsing under US, following the purchase of NDR. The UK tax by approximately £1.5 million, most of it in the CAP 2004. This early vesting means the CAP rate will fall to 23% in April 2013, although this second half. 2010 expense for 2013 is expected to fall to beneﬁt will be more than offset by the expiry of approximately £2.0 million. the US tax deduction for goodwill amortisation from the acquisition of Institutional Investor 15 Adjusted net ﬁnance costs for the group’s years ago. committed borrowing facility fell by £1.6 million 4.4.4 Net debt, cash flow and dividend Net debt at September 30 was £30.8 million compared with £88.5 million at March 31, to £5.6 million, reﬂecting the rapid reduction The group continues to generate two-thirds of and has fallen by £88.4 million since the start in net debt, most of it in the second half. The its revenues, including approximately 30% of the of the year. The group’s net debt is now at its average cost of funds for the year fell to 4.8% revenues from its UK businesses, and more than lowest level since the acquisition of Institutional (2011: 5.7%) as the group’s cheaper ﬂoating half its operating proﬁts in US dollars. The group Investor in 1997. The sharp fall in net debt rate debt comprised a higher portion of total hedges its exposure to the US dollar revenues in during the year was helped by the offer of the debt following the acquisition of NDR. its UK businesses by using forward contracts to scrip dividend alternative and the absence of any sell surplus US dollars. This delays the impact of signiﬁcant acquisitions. Cash generated from Statutory net ﬁnance costs of £3.6 million (2011: movements in exchange rates for at least a year. operations increased by £4.2 million to £122.2 £9.6 million) include a £2.9 million credit for the The group does not hedge the foreign exchange million and the operating cash conversion rate reduction in the expected consideration payable risk on the translation of overseas proﬁts, (the percentage by which cash generated from under the option agreement to acquire the although it does endeavour to match foreign operations covers adjusted operating proﬁt), outstanding 15% minority interest in NDR. The currency borrowings with investments and the was 103% (2011: 108%). For 2013, the ending group acquired 85% of NDR for £68.5 million in August 2011 and the integration with the rest of the group, including the consolidation of the back ofﬁce functions, the restructuring of the sales teams and the opening of a sales ofﬁce in London was completed according to plan. However, it has taken longer than expected to convert the business to the standard subscription model used by BCA, and to expand the sales team. This, combined with difﬁcult markets in the US, has meant that the revenue growth from NDR in 2012 has been less than that expected at the time of acquisition, although the outlook for growth in 2013 and beyond remains positive. As a result, the expected amount payable under the NDR earn-out arrangement has fallen to £7.9 million, of which £4.3 million is payable in 2013. t r o p e R ’ s r o t c e r i D 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 SSA Markets – a comprehensive daily news and data service launched by Euroweek Euromoney AR2012.indd 13 21833.04 13/12/12 Proof 7 13 13/12/2012 15:54:36 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued of the scrip dividend, combined with the £7.5 earnings for dividend purposes were reduced debtors primarily reﬂecting improved collections million cash payment following the vesting of by £1.1 million in 2012, and will be similarly across the group and a £1.2 million reduction the ﬁrst tranche of CAP options and an increase reduced by £4.0 million in 2013 and £1.5 in the debtors provision. Other debtors fell by in technology capital expenditure, will reduce million in 2014. the group’s free cash ﬂows. £4.9 million reﬂecting the receipt of local taxes, and prepayments and accrued income increased The ﬁnal dividend will be paid on February by £2.0 million, primarily due to an increase The group’s debt is provided through a $300 14 2013 to shareholders on the register at in accrued subscription revenue. Net current million (£190 million) dedicated multi-currency November 23 2012. As announced at the time income tax assets and liabilities fell from a net committed facility from its parent company, of the interim results, acceptance levels for the asset position of £1.8 million to a net liability Daily Mail and General Trust plc (DMGT). This scrip dividend alternative have been low and of £6.4 million following receipts in the year facility expires in December 2013, after which the company will no longer be offering a scrip and further provision for tax due from trading the group has the option to access a further dividend. $300 million facility from DMGT for the period through April 2016. The option to take up this facility must be exercised by November 2013. 4.4.5 Balance sheet The net assets of the group were £287.9 million activities; total acquisition option commitments fell from £11.0 million to £7.9 million mainly reﬂecting the revised commitment to purchase the remaining equity shareholding in NDR; net compared to £225.6 million in 2011. The main derivative ﬁnancial instrument (due less than The company’s policy is to distribute a third of its movements in the balance sheet items were: one year and more than one year) fell from a after-tax earnings by way of dividends each year. intangible assets fell by £20.7 million, reﬂecting liability of £6.9 million to an asset of £2.1 million Pursuant to this policy, the board recommends amortisation costs of £14.8 million offset by the following maturity of several forward currency a ﬁnal dividend of 14.75 pence a share (2011: recognition of £5.2 million of goodwill and £1.3 and interest rate swap contracts during the year 12.50 pence) giving a total dividend for the million of acquired intangible assets following coupled with a reduction in the mark to market year of 21.75 pence a share (2011: 18.75 the acquisition of Global Grain; and property, loss of the group’s future interest rate swaps pence). Last year the additional accelerated CAP plant and equipment fell by £2.4 million to and forward currency contracts; committed loan expense of £6.6 million was not charged against £18.0 million, largely as a result of regular capital facility fell £86.9 million to £43.2 million, net earnings for dividend purposes. As explained at expenditure across the group of £1.7 million cash generated by the group from operations the time, this expense would instead be charged offset by depreciation of £3.4 million. Trade and of £122.2 million offset by £9.0 million used against earnings for dividend purposes over the other receivables fell by £5.5 million to £66.0 in investing activities, £96.4 million spent on period to which it originally related. Accordingly, million due to a £4.7 million decrease in trade ﬁnancing activities and £15.3 million on tax; net 14 Euromoney AR2012.indd 14 13/12/2012 15:54:38 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com pension deﬁcit increased from £1.9 million to a Purchase of associate – Global Grain Asia essential or for investment purposes. Headcount deﬁcit of £4.8 million reﬂecting a £5.5 million Also on February 29 2012, the group acquired at September 2012 was 2,133, an increase increase in the pension obligation offset by a 50% of Global Grain Asia, a new event for grain of only 22 since September 2011, the main £2.6 million increase in the asset value. industry professionals in the Asia-Paciﬁc region, increases being in technology to support the 4.4.6 Capital Appreciation Plan (CAP) The CAP is a highly geared performance- for €671,000 (£567,000). The group has the stepped up investment in that area and at NDR option to purchase the remaining 50% equity as the directors expand its sales force into new holding of GGA Pte. Limited in March 2014 regions. and if exercised expects to pay €1,021,000 based share option scheme which both directly (£813,000). rewards executives for the growth in proﬁts of the businesses they manage, and links this to Provisional fair value and goodwill update – the delivery of shareholder value by satisfying Ned Davis Research (NDR) rewards in a mix of shares in the company and In August 2011, the group acquired 85% of 4.4.9 Marketing and digital development In 2012 group marketing strategy has focused on widening the prospect pool through the group’s communities focus and driving online cash. The current CAP, CAP 2010, aims to mirror the equity share capital of NDR, the US-based revenue through new product innovation. the success of CAP 2004 for both shareholders provider of independent ﬁnancial research and management by delivering exceptional to institutional investors, for an initial cash proﬁt growth over the performance period. consideration of US$112.0 million (£68.5 Further details of CAP 2004 and CAP 2010 are million). Following true-up adjustments during set out in the Company Shares Schemes section the year to the cash payable following the ﬁnal in the Directors’ Remuneration Report. working capital calculation, the cash receivable from non-controlling interests, the ﬁnalisation 4.4.7 Acquisitions and disposals Acquisitions remain an important part of the of the sellers’ tax liability, the accounting policy alignment of property, plant and equipment and group’s growth strategy. In particular the board the recognition of previously unrecognised tax believes that acquisitions are valuable for taking liabilities, the related goodwill was increased by the group into new sectors, for bringing new £1.0 million to £35.3 million. technologies into the group and for increasing the group’s revenues by buying into rapidly Further details of the above acquisitions are set growing niche businesses. The group continues out in note 15. The group continues to push boundaries to maintain customer acquisition by adopting a more nurturing approach to marketing – with the explosion of niche online communities and online audience development. The marketing and digital development team create and manage 70 communities with over 140,000 members, growing at a 6% monthly average. These communities reach ﬁnance, business and commodities professionals across the globe. In addition, the online products have now achieved over 14% growth in unique visitors. In 2012 the group spent £9.9 million in online product development to drive multi- to look for strategic acquisitions in the areas of international ﬁnance and commodities, and in emerging markets. Increase in equity holdings During the year the group spent £840,000 device access to the group’s product portfolio, dedicated community services and launch new on an additional 1.12% interest in Internet premium data-based subscriber services. The Acquisitions Purchase of new business – Global Grain Securities Inc., the emerging market content group’s dedicated online customer network for aggregator and data business, taking its holding aviation ﬁnance has now engaged over 3,300 Geneva to 99.92%. On February 29 2012, the group acquired Global Grain Geneva, the world’s leading event for international grain traders. The 4.4.8 Headcount The number of people employed is monitored senior members and provides a platform to keep them updated on industry news, events, share opinions and network together. The group’s innovative Investor Intelligence Network initial consideration paid was €6,159,000 monthly to ensure there are sufﬁcient resources has 1,300 members, with a combined US$18 (£5,134,000). A further net consideration of to meet the forthcoming demands of each trillion in assets, providing a private online €93,000 (£77,000) is expected to be paid business and to make sure that the businesses forum where institutional investors can question dependent upon the audited results of the continue to deliver sufﬁcient proﬁts to their peers in a conﬁdential environment and business for the year to February 2013. The support the people they employ. During 2012 engage with investment managers on their acquisition of Global Grain is consistent with the the directors have focused on maintaining mandates. The mobile and tablet applications group’s strategy of building fast growing global headcount at a similar level to that in 2011, continue to roll out and have provided greater event businesses. hiring new heads only where considered online engagement, with a 70% growth in t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 15 21833.04 13/12/12 Proof 7 15 13/12/2012 15:54:38 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued average time spent online from 2011. The usage behaviour of mobile applications has been complementary to online site usage, 4.4.10 Systems and information technology The group continues to increase its investment increase speed to market. Responsive design and HTML5 have both been adopted within the digital development process with mobile engaging users whilst travelling or not at their in technology with particular emphasis on cloud, versions of key websites launched as well as desks. The applications have also provided mobile, social and data as well as the people over 14 mobile applications. an opportunity for greater advertising and that manage its delivery and management. sponsorship revenues. Continued investment has been made A number of new products were launched as in migrating the digital and corporate Customers remain at the heart of the group’s well as existing digital assets redesigned during infrastructure to a new supplier who will provide strategy – the group now request online the year to support continued business demand. an enterprise class, service-orientated hybrid customer feedback, provide prototype and beta cloud architecture. Microsoft Ofﬁce 365, remote stages of innovation and have invested in online Project Delphi was initiated in 2012 and is at working solutions and Windows 7 have all been segmentation and analytics through Webtrends the core of this digital strategy. The project will successfully piloted and will be fully rolled out in across all sites. introduce a new digital application platform 2013. The new CRM and events platform have for authoring, storing and presenting content continued to be rolled out across the group Efﬁciencies have continued within marketing and data based upon a uniﬁed web content with increased functionality. Investment in the services – with customer service, contact management system, standards based XML data e-commerce, tax and permissioning systems research and event sales, accounting for 48% repository and semantic engine. It will enable the also continued. The online store technology will of all event delegate revenue, now outsourced repurposing of existing content and data with provide a way to promote better cross-selling of to Philippines and India. granular discovery and aggregation, remove products across the group. existing barriers to product segmentation and 16 Euromoney AR2012.indd 16 13/12/2012 15:54:41 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com A framework has been adopted for service Interest rate swaps are used to manage the The group does not hedge the foreign exchange management in order to minimise business group’s exposure to ﬂuctuations in interest rates risk on the translation of overseas proﬁts, disruption and generate cost efﬁciencies across on its ﬂoating rate borrowings. The maturity although it does endeavour to match foreign the group. There has also been an increased proﬁle of these derivatives is matched with currency borrowings with investments and the focus on information security with frequent the expected future debt proﬁle of the group. related foreign currency ﬁnance costs provide a penetration tests and audits conducted. The The group’s policy is to ﬁx the interest rates on partial hedge against the translation of overseas group’s digital assets are compliant with the approximately 80% of its term debt looking proﬁts. As a result of this hedging strategy, new Privacy and Electronic Communication forward over ﬁve years. The maturity dates any proﬁt or loss from the strengthening or Regulations. Policies regarding social media use are spread in order to avoid interest rate basis weakening of the US dollar will largely be have similarly been reviewed and Euromoney is risk and also to mitigate short-term changes in delayed until the following ﬁnancial year and actively building out capability in this area. interest rates. beyond. These steps have increased the group’s ﬂexibility, At September 30 2012, the group had 69% of Details of the ﬁnancial instruments used are set scalability and resilience allowing technical its gross debt ﬁxed by the use of interest rate out in note 19 to the accounts. staff to instead focus on core front-ofﬁce hedges. The predictability of interest costs is and revenue-generating activities rather than deemed to be more important than the possible commodity maintenance. opportunity cost forgone of achieving lower Tax The adjusted effective tax rate based on 4.4.11 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 interest rates and this hedging strategy has adjusted proﬁt before tax and excluding the effect of spreading the group’s exposure deferred tax movements on intangible assets, to ﬂuctuations arising from changes in interest prior year items and exceptional items is 22% rates and hence protects the group’s interest (2011: 26%). The group’s reported effective tax charge against sudden increases in rates but also rate decreased to an expense of 24% compared prevents the group from beneﬁting immediately to an expense of 33% in 2011. A reconciliation committee members are the chairman, from falls in rates. to the underlying effective rate is set out in note 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 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. 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. 9 to the accounts. The group generates approximately two- thirds of its revenues in US dollars, including The total net deferred tax balance held is a approximately 30% of the revenues in its UK- liability of £9.6 million (2011: £9.0 million) and based businesses, and approximately 60% of relates primarily to capitalised intangible assets its operating proﬁts are US dollar-denominated. and rolled over capital gains, net of deferred The group is therefore exposed to foreign tax assets held in respect of US tax losses and exchange risk on the US dollar revenues in its short-term timing differences and the future UK businesses, and on the translation of the deductions available for the CAP. 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. The group hedges 80% of forecast US dollar revenues for the coming 12 months and up to 50% for a further six months. t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 17 21833.04 13/12/12 Proof 7 17 13/12/2012 15:54:41 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued 5. Principal risks and uncertainties The principal risks and uncertainties the group faces vary across the different businesses and are identiﬁed in the group’s risk register. Management of signiﬁcant risk is regularly on the agenda of the board and other senior management meetings. The geographical spread and diverse portfolio of businesses within the group help to dilute the impact of some of the group’s key risks. The group’s principal risks and uncertainties are summarised below: DOWNTURN IN ECONOMY OR MARKET SECTOR The group generates significant income from certain key geographical regions and market sectors for its publishing, events, research and data businesses. POTENTIAL IMPACT MITIGATION Uncertainty in global financial markets increases the risk of a downturn The group has a diverse product mix and operates in many geographical or potential collapse in one or more areas of the business. If this occurs locations. This reduces dependency on any one sector or region. income is likely to be adversely affected and for events businesses some Management has the ability to cut costs quickly if required or to abandonment costs may also be incurred. switch the group’s focus to new or unaffected markets, e.g. through development of new vertical markets or transferring events to better performing regions. TRAVEL RISK The conference, seminar and training businesses account for approximately a third of the group’s revenues and profits. The success of these events and courses relies heavily on the confidence in and ability of delegates and speakers to travel internationally. POTENTIAL IMPACT MITIGATION Significant disruptions to or reductions in international travel for any Where possible, contingency plans are in place to minimise the disruption reason could lead to events and courses being postponed or cancelled from travel restrictions. Events can be postponed or moved to another and could have a significant impact on the group’s performance. location, or increasingly can be attended remotely using online technologies. Cancellation and abandonment insurance is in place for Past incidents such as transport strikes, extreme weather including the group’s largest events. hurricanes, terrorist attacks, fears over SARS and swine flu, and natural disasters such as the disruption from volcanic ash in Europe, have all had a negative impact on the group’s results, although none materially. 18 Euromoney AR2012.indd 18 13/12/2012 15:54:41 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com COMPLIANCE WITH LAWS AND REGULATIONS Group businesses are subject to legislation and regulation in the jurisdictions in which they operate. The key laws and regulations that may have an impact on the group cover areas such as libel, bribery and corruption, competition, data protection, privacy (including e-privacy), health and safety and employment law. Additionally, specific regulations from the Audit Bureau of Circulations apply to published titles (see incorrect circulation claims below). POTENTIAL IMPACT MITIGATION A breach of legislation or regulations could have a significant impact on Compliance with laws and regulations is taken seriously throughout the the group in terms of additional costs, management time and group. The group’s Code of Conduct (and supporting policies) sets out reputational damage. In recent years responsibilities for managing data protection have increased significantly. The emergence of new online technology is further driving legislation and responsibilities for managing data privacy. appropriate standards of business behaviour and highlights the key legal and regulatory issues affecting group businesses. Divisional and local management is responsible for compliance with applicable local laws and regulations, overseen by the executive committee and the board. Failure to comply with data protection and privacy laws could result in The group has strict policies and controls in place for the management of significant financial penalties and reputational damage. data protection and privacy across the group with staff receiving relevant training. This year the group rolled out website technology across all its online businesses to comply with new EU e-privacy regulations (PECR). Controls are also in place surrounding compliance with the Audit Bureau of Circulation’s regulations and other regulatory bodies to which the group adhere. DATA INTEGRITY, AVAILABILITY AND SECURITY The group uses large quantities of data including customer, employee and commercial data in the ordinary course of its business. The group also publishes data (see published content risk below). The integrity, availability and security of this data is key to the success of the group. POTENTIAL IMPACT MITIGATION Any challenge to the integrity or availability of information that the The group has comprehensive information security standards and policies group relies upon could result in operational and regulatory challenges, in place which are reviewed on a regular basis. Access to key systems costs to the group, reputational damage to the businesses and the and data is restricted, monitored, and logged with auditable data trails. permanent loss of revenue. The wider use of social media has increased Restrictions are in place to prevent unauthorised data downloads. this risk as negative comments made about the group’s products can The group is subject to regular internal information security audits, now spread more easily. supplemented by expert external resource. Although technological innovations in mobile working, the introduction Comprehensive backup plans for IT infrastructure and business data are of cloud-based technologies and the growing use of social media in place to protect the businesses from unnecessary disruption. present exciting opportunities for the group, they also introduce new information security risks that need to be managed carefully. The group has professional indemnity insurance. t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 19 21833.04 13/12/12 Proof 7 19 13/12/2012 15:54:41 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued LONDON, NEW YORK, MONTREAL OR HONG KONG WIDE DISASTER The group’s main offices are located in London, New York, Montreal and Hong Kong. A significant incident affecting these regions could lead to disruption to group operations. POTENTIAL IMPACT MITIGATION An incident affecting one or more of the key offices could disrupt the Business continuity plans are in place for all businesses. These plans are ordinary operations of the businesses at these locations; a region wide refreshed annually and a programme is in place for testing. If required, disaster affecting all offices could have much worse implications with employees can work remotely. serious management and communication challenges for the group and a potential adverse affect on results. The group has robust IT systems with key locations (including the UK, US, Canada and Asia) benefiting from offsite data backups, remote recovery The risk of office space becoming unusable for a prolonged period and sites and third-party 24-hour support contracts for key applications. a lack of suitable alternative accommodation in the affected area could also cause significant disruption to the business and interfere with delivery of products and services. Incidents affecting key clients or staff in these regions could also give rise to the risk of not achieving forecast results. Recently the group’s business continuity planning helped its New York office to recover quickly and effectively from the significant disruption caused by Hurricane Sandy. PUBLISHED CONTENT RISK The group generates a significant amount of its revenue from publishing, be it magazines, journals or information and data published online. As a result, there is an inherent risk of error which, in some instances, may give rise to claims for libel. The rapid development of social media has further increased this risk. The transition to online publishing means content is being distributed far quicker and wider than ever before. This has introduced new challenges for securing and delivering content and effective management of content rights and royalties. The business also publishes databases and data services with a particular focus on high value proprietary data. There is the potential for errors in data collection and data processing. The group publishes industry pricing benchmarks for the metals markets and runs more than 100 reader polls and awards each year. POTENTIAL IMPACT MITIGATION A successful libel claim could damage the group’s reputation. The rise in The group runs mandatory annual libel courses for all journalists and use of social media, and in particular blogging, has further increased this editors. Controls are in place, including legal review, to approve content risk. Damage to the reputation of the group arising from libel could lead that may carry a libel risk. The group also has editorial controls in place to a loss of revenue, including income from advertising. In addition there for publishing using social media and this activity is monitored carefully. could be costs incurred in defending the claim. The failure to manage content redistribution rights and royalty tightly. Royalty and redistribution agreements are in place to mitigate The group’s policy is to own its content and manage redistribution rights agreements could lead to overpayment of royalties, loss of intellectual risks arising from online publishing. property and additional liabilities for redistribution of content. The integrity of the group’s published data is critical to the success of the and processing of data used in its database, research and data services. The group has implemented tight controls for the verification, cleaning group’s database, research and data services. The group also publishes extensive pricing information and indices for the global metals industries. Errors in published data, price assessments or indices could affect the reputation of the group leading to fewer subscribers and lower revenues. The group’s processes and methodologies for assessing metals prices and calculating indices are clearly defined and documented. All employees involved with publishing pricing information receive relevant training. Robust contractual disclaimers are in place for all businesses that publish pricing data. 20 Euromoney AR2012.indd 20 13/12/2012 15:54:41 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com PUBLISHED CONTENT RISK continued POTENTIAL IMPACT MITIGATION Any challenge to the integrity of polls and awards could damage the Polls and awards are regularly audited and a firewall is in place between reputation of the product challenged and by association the rest of the the commercial arm of the business and the editors involved in the polls group, resulting in legal costs and a permanent loss of revenue. and awards. Key staff are aware of the significant nature of published content risk and strong internal controls are in place for reporting to senior management if a potential issue arises. The group also has libel insurance and professional indemnity cover. INCORRECT CIRCULATION OR AUDIENCE CLAIMS The group publishes over 70 titles and sells advertising based partly on circulation and online audience figures. An incorrect claim for circulation or audience could adversely affect the group’s reputation. POTENTIAL IMPACT MITIGATION A claim resulting from an incorrect circulation or audience claim could The group audits the circulation figures of every publication regularly and lead to the permanent loss of advertisers and other revenue streams. monitors related internal controls. A strict approval system is in place for all media packs. 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 including online traffic reporting. LOSS OF KEY STAFF The group is reliant on key management and staff across all of its businesses. Many products are dependent on specialist, technical expertise. POTENTIAL IMPACT MITIGATION The inability to recruit and retain talented people could affect the group’s Long-term incentive plans are in place for key staff to encourage ability to maintain its performance and deliver growth. retention. The directors remain committed to recruitment and retention of high quality management and talent, and provide a programme of When key staff leave or retire, there is a risk that knowledge or career opportunity and progression for employees including extensive competitive advantage is lost. training and international transfer opportunities. Succession planning is in place for senior management. The group announced in August that PR Ensor, managing director, would succeed PM Fallon as executive chairman with CHC Fordham, an executive director since 2003, succeeding PR Ensor as managing director. This followed an independent and rigorous selection process. These succession plans have now been implemented. t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 21 21833.04 13/12/12 Proof 7 21 13/12/2012 15:54:41 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued FAILURE OF CENTRAL BACK-OFFICE TECHNOLOGY The business has invested significantly in central back-office technology to support the transition of the business from print to online publishing. The back-office provides customer and product management, digital rights management, e-commerce and performance and activity reporting. The platform supports a large share of the group’s online requirements including key activities for publishing, events and data businesses. The back-office technology is critical to the successful functioning of the online business and hence carries a significant amount of risk. POTENTIAL IMPACT MITIGATION A failure of the back-office technology may affect the performance, data The group continues to invest significantly in its central back-office integrity or availability of the group’s products and services. Any extensive technology. The platform is planned, managed and run by a dedicated, failure is likely to affect a large number of the businesses and customers, skilled team and its progress and performance is closely monitored by the and lead directly to a loss of revenues. executive committee and the board. Online customers are accessing the group’s digital content in an The group continues to invest in digital rights management technology to increasing number of ways, including using websites, apps and e-books. ensure its content is adequately secured and changing customer The group relies on effective digital rights management technology to requirements for accessing the group’s products and services are met. provide flexible and secure access to its content. An inability to provide flexible access rights to the group’s content could lead to products being The group has recently made a substantial investment in new e-commerce less competitive or allow unauthorised access to content, reducing technology and hosting infrastructure to ensure the back-office platform subscription revenues as a result. continues to perform effectively over the next five years. A reduction in back-office technology investment increases the risk of the online platform becoming ineffective with the group becoming less competitive. This could lead to fewer customers and declining group revenues. ACQUISITION AND DISPOSAL RISK As well as launching and building new businesses, the group continues to make strategic acquisitions where opportunities exist to strengthen the group. The management team review a number of potential acquisitions each year with only a small proportion of these going through to the due diligence stage and possible subsequent purchase. The strategy also results in the disposal of businesses that no longer fit the group’s investment criteria. POTENTIAL IMPACT MITIGATION There is a risk that an acquisition opportunity could be missed. The Senior management perform detailed in-house due diligence on all group could also suffer an impairment loss if an acquired business does possible acquisitions and call on expert external advisers where deemed not generate the expected returns or fails to operate or grow in its necessary. Acquisition agreements are usually structured so as to retain markets and products areas. Additionally, there is a risk that a newly key employees in the acquired company and there is close monitoring acquired business is not integrated into the group successfully or that of performance at board level of the entity concerned post acquisition. the expected risks of a newly acquired entity may be misunderstood. As a consequence a significant amount of management time could be The board regularly reviews the group’s existing portfolio of businesses to diverted from other operational matters. identify under-performing businesses or businesses that no longer fit with the group’s strategy and puts in place divestment plans accordingly. The group is also subject to disposal risk, possibly failing to achieve optimal value from disposed businesses, failing to identify the time at which businesses should be sold or under estimating the impact on the remaining group from such a disposal. 22 Euromoney AR2012.indd 22 13/12/2012 15:54:41 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com FAILURE OF ONLINE STRATEGY The emergence of new technologies such as tablet and other mobile devices and the proliferation of social media is changing how customers access and use the group’s products and services. The group has established a strategy to meet the many challenges of migrating the publishing businesses from traditional print media to online and to ensure the non-publishing businesses take advantage of new technology when advantageous to do so. This strategy has been pursued for a number of years. POTENTIAL IMPACT MITIGATION The group’s online strategy addresses a number of challenges arising The group is already embracing these challenges and overall sees the from the group’s transition from print media to an online business and Internet and other technological advances as an opportunity not a threat. changing customer behaviour. Competition has increased, with free content becoming more available on made and will continue for as long as necessary (see 4.4.10 of the the Internet and new competitors benefiting from the lower barriers to Directors’ Report). New content management technology is being entry. A failure to manage pricing effectively or successfully differentiating implemented across the group to enable more effective publishing to the group’s products and services could negatively affect business results. web, print and the rapidly increasing number of mobile platforms coming Significant investment in the group’s online strategy has already been on to the market. Many of the group’s businesses already produce soft The customer environment is changing fast with an increasing number copies of publications to supplement the hard copies as well as provide spending more time using the Internet. Print circulation is declining information and content via apps. and a failure to convert customers from print risks a permanent loss of customers to competition. The group’s acquisition strategy has increased the number of online information providers in the business. However, while online revenues The transition from the traditional monthly publishing cycle to continuous are important, the group’s product mix reduces dependency on this publishing has affected editorial practices significantly. A failure to income. For example, the group generates a third of its profits from its continue to manage this transition effectively could make the business event businesses and face-to-face meetings remain an important part of less efficient and less competitive. customers’ marketing activities. Further changes in technology including the widespread use of tablets and other mobile devices and the impact of social media such as LinkedIn and Twitter is changing customer behaviour and will introduce new challenges for all businesses. A failure in the group’s online strategy to meet these challenges could result in a permanent loss of revenue. TREASURY OPERATIONS The group treasury function is responsible for executing treasury policy which seeks to manage the group’s funding, liquidity and treasury derivatives risks. More specifically, these include currency exchange rate fluctuations, interest rate risks, counterparty risk and liquidity and debt levels. These risks are described in more detail in note 19 to the financial statements. POTENTIAL IMPACT MITIGATION If the treasury policy does not adequately mitigate the financial risks The tax and treasury committee is responsible for reviewing and approving summarised above or is not correctly executed, it could result in group treasury policies which are executed by the group treasury. unforeseen derivative losses or higher than expected finance costs. The treasury function undertakes high value transactions hence there is made. The treasury function is also subject to regular internal audit. Segregation of duties and authorisation limits are in place for all payments an inherent high risk of payment fraud or error having an adverse impact on group results. t r o p e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 23 21833.04 13/12/12 Proof 7 23 13/12/2012 15:54:41 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued UNFORESEEN TAX LIABILITIES The group operates within many tax jurisdictions and earnings are therefore subject to taxation at differing rates across these jurisdictions. POTENTIAL IMPACT MITIGATION The directors endeavour to manage the tax affairs of the group in an External tax experts and in-house tax specialists, reporting to the tax and efficient manner, however, due to an ever more complex international treasury committee, work together to review all tax arrangements within tax environment there will always be a level of uncertainty when the group and keep abreast of changes in global tax legislation. 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. 6. Future development in the business An indication of the trading outlook for the group is given in the Chairman’s Statement on page 6. In 2013 the directors will manage the business to facilitate growth and to continue to shape the business to remain competitive in the economic environments in which it operates. The group is well placed to diversify its product and geographical base and remains committed to its strategy set out on page 9. 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. Post balance sheet events Events arising after September 30 2012 are set out in note 30. 8. 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. 9. Customers and suppliers The group operates through a large number of The directors who served during the year are listed businesses in many geographical locations. As such, on page 47. The directors’ interests are given on the relationships with key customers and suppliers page 51. There were no changes in the executive is decentralised such that there is no overarching or non-executive directors during the year. policy on how the group manages these relationships. This enables each business to tailor Following best practice under the June 2010 UK their approach to suit customers’ and suppliers’ Corporate Governance Code and in accordance speciﬁc needs and requirements. Each key customer with the company’s Articles of Association, all and supplier has an account manager allocated directors submit themselves for re-election to them ensuring that open communication is annually. Accordingly, all directors will retire maintained throughout the relationship. at the forthcoming Annual General Meeting and, being eligible, will offer themselves for Each business agrees payment terms with re-election. In addition, in accordance with the its suppliers and it is group policy to make June 2010 UK Combined Code on Corporate payments in accordance with these terms. The Governance, before the re-election of a non- group had 59 days of purchases in creditors at executive director, the chairman is required to September 30 2012 (2011: 77 days). conﬁrm to shareholders that, following formal performance evaluation, the non-executive directors’ performance continues to be effective and demonstrates commitment to the role. Accordingly, the non-executive directors 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 41 to 52. 10. Employees’ involvement and training Equal opportunities The group is an equal opportunity employer. It seeks to employ a workforce which reﬂects the diverse community at large, because the contribution of the individual is valued, irrespective of sex, age, marital status, disability, sexual preference or orientation, race, colour, religion, ethnic or national origin. It does not discriminate in recruitment, promotion or other employee matters. The group endeavours to provide a working environment free from unlawful discrimination, victimisation or harassment. 24 Euromoney AR2012.indd 24 13/12/2012 15:54:42 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Quality and integrity of employees The competence of people is ensured through high recruitment standards and a commitment Human rights and health and safety requirements The group is committed to the health and to management and business skills training. The safety and the human rights of its employees group has the advantage of running external and communities in which it operates. Health training businesses and uses this in-house and safety issues are monitored to ensure resource to train cost effectively its employees on compliance with all local health and safety a regular basis. Employees are also encouraged regulations. External health and safety advisers actively to seek external training as necessary. are used where appropriate. The UK businesses beneﬁt from a regular assessment of the High-quality and honest personnel are an working environment by experienced assessors essential part of the control environment. and regular training of all existing and new UK The high ethical standards expected are employees in health and safety matters. communicated by management and through the employee handbook which is provided to all employees. The employee handbook includes speciﬁc policies on matters such as the use of the group’s information technology resources, data protection policy, the UK Bribery Act, and disciplinary and grievance procedures. The group operates an internal intranet site which is used to communicate with employees and provide 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 guidance and assistance on day-to-day matters promotion of disabled employees. facing employees. The group has a speciﬁc whistle blowing policy that is supported by an externally monitored and run whistle blowing hotline. The whistle blowing policy is updated regularly and is reviewed by the audit committee. t r o p e R ’ s r o t c e r i D 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 11. 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 Chairman’s Statement on pages 4 to 6. The ﬁnancial position of the group, its cash ﬂows and liquidity position are set out in detail in this report. The group meets its day-to-day working capital requirements through its US$300 million dedicated multi-currency borrowing facility with Daily Mail and General Trust plc group (DMGT). The facility is divided into US dollar and sterling funds with a total maximum borrowing capacity of US$250 million (£155 million) and £33 million respectively and matures in December 2013. 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 2012, the group’s net debt to adjusted EBITDA covenant was 0.27 times and the committed undrawn facility available to the group was £144.7 million. In addition, the group has agreed terms with DMGT that provide it with access to US$300 million of funding should the group require it during the period from December 2013 through April 2016. The group’s forecasts and projections, looking out to September 2015 and 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. 25 13/12/2012 15:54:43 Euromoney AR2012.indd 25 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Report continued 12. Capital structure and significant shareholdings Details of the company’s share capital are given in note 23. 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. Significant shareholdings at November 13 2012 Nature of holding Number of shares % of voting rights Name of holder DMG Charles Limited Direct 84,638,741 68.07 13. EU Takeovers Directive ● the company has a number of agreements that take effect, alter or terminate upon a 16. Directors’ indemnities change of control of the company following The company has directors’ and ofﬁcers’ liability a takeover bid, such as commercial and corporate reimbursement insurance for contracts, bank loan agreements, property the beneﬁt of its directors and those of other lease arrangements, directors’ service associated companies. This insurance has been agreements and employee share plans. in place throughout the year and remains in None of these agreements are deemed to force at the date of this report. be signiﬁcant in terms of their potential impact on the business of the group as a whole; and 17. Annual General Meeting ● details of the directors’ entitlement to The company’s next Annual General Meeting compensation for loss of ofﬁce following a will be held on January 31 2013. takeover or contract termination are given in the Directors’ Remuneration Report. 18. Auditor 14. Authority to purchase and allot own shares A resolution to reappoint Deloitte LLP as the company’s auditor is expected to be proposed at the forthcoming Annual General Meeting. Pursuant to s992 of the Companies Act 2006, The company’s authority to purchase up to 10% which implements the EU Takeovers Directive, of its own shares expires at the conclusion of the company is required to disclose certain the company’s next Annual General Meeting. A additional information which is not covered resolution to renew this authority for a further 19. Disclosure of information to the auditor elsewhere in this annual report. Such disclosures period will be put to shareholders at this meeting. In the case of each of the persons who is a are as follows: director of the company at November 14 2012: At the Annual General Meeting of the company on ● there are no restrictions on the transfer January 26 2012, the shareholders authorised the ● so far as each of the directors is aware, there of securities (shares or loan notes) in the directors to allot shares up to an aggregate nominal company, including: (i) limitations on the amount of £90,971 expiring at the conclusion of is no relevant audit information (as deﬁned in the Companies Act 2006) of which the holding of securities; and (ii) requirements the Annual General Meeting to be held in 2013. company’s auditor is unaware; and to obtain the approval of the company, A resolution to renew this authority for a further ● each of the directors has taken all the or of other holders or securities in the period will be put to shareholders at this meeting. company, for a transfer of securities; ● there are no people who hold securities carrying special rights with regard to control of the company; 15. Political and charitable contributions 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 auditor is aware of the information. ● the company’s employee share schemes do During the year the group raised charitable not give rights with regard to control of the company that are not exercisable directly contributions of £1,085,000 (2011: £1,108,000). This conﬁrmation is given and should be There were no political contributions in either interpreted in accordance with the provisions of by employees; year. See pages 36 to 40 for details of the group’s s418 of the Companies Act 2006. there are no restrictions on voting rights; charitable projects. the directors are not aware of any agreements between holders or securities that may result in restrictions on the transfer of securities or on voting rights; ● ● 26 By order of the board Colin Jones Company Secretary November 14 2012 Euromoney AR2012.indd 26 13/12/2012 15:54:43 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Responsibility Statement The directors are responsible for preparing the In preparing the group ﬁnancial statements, annual report and the ﬁnancial statements in International Accounting Standard 1 requires Responsibility statement We conﬁrm that to the best of our knowledge: accordance with applicable law and regulations. that directors: Company law requires the directors to prepare ● properly select and apply accounting ﬁnancial statements for each ﬁnancial year. Under policies; that law the directors are required to prepare ● present information, including accounting the group ﬁnancial statements in accordance policies, in a manner that provides relevant, with International Financial Reporting Standards reliable, comparable and understandable (“IFRSs”) as adopted by the European Union information; ● 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 and Article 4 of the IAS Regulation and have ● provide additional disclosures when ● the management report, which is elected to prepare the parent company ﬁnancial compliance with the speciﬁc requirements statements in accordance with United Kingdom in IFRSs are insufﬁcient to enable users Generally Accepted Accounting Practice (United to understand the impact of particular Kingdom Accounting Standards and applicable transactions, other events and conditions law). Under company law the directors must not on the entity’s ﬁnancial position and approve the accounts unless they are satisﬁed ﬁnancial performance; and that they give a true and fair view of the state of ● make an assessment of the company’s 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 affairs of the company and of the proﬁt or loss ability to continue as a going concern. uncertainties that they face. t n e m e t a t S y t i l i b i s n o p s e R ’ s r o t c e r i D of the company for that period. The directors are responsible for keeping By order of the Board In preparing the parent company ﬁnancial adequate accounting records that are sufﬁcient statements, the directors are required to: to show and explain the company’s transactions and disclose with reasonable accuracy at any ● select suitable accounting policies and then time the ﬁnancial position of the company apply them consistently; and enable them to ensure that the ﬁnancial ● make judgments and accounting estimates statements comply with the Companies Act Richard Ensor that are reasonable and prudent; 2006. They are also responsible for safeguarding Director ● state whether applicable UK Accounting the assets of the company and hence for November 14 2012 Standards have been followed, subject taking reasonable steps for the prevention and to any material departures disclosed and detection of fraud and other irregularities. explained in the ﬁnancial statements; and ● prepare the ﬁnancial statements on The directors are responsible for the the going concern basis unless it is maintenance and integrity of the corporate and inappropriate to presume that the company ﬁnancial information included on the company’s Colin Jones will continue in business. website. Legislation in the United Kingdom Company Secretary governing the preparation and dissemination of November 14 2012 ﬁnancial statements may differ from legislation in other jurisdictions. 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 Euromoney AR2012.indd 27 21833.04 13/12/12 Proof 7 27 13/12/2012 15:54:44 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors and Advisors Executive Directors Mr PR Ensor ‡ Chairman Mr PR Ensor (aged 64) joined the company in 1976 and was appointed an Mr CR Jones Mr CR Jones (aged 52) is the ﬁnance director and a chartered accountant. He joined the company in July 1996 and was appointed ﬁnance director executive director in 1983. He was appointed managing director in 1992 in November 1996. He is also the group’s chief operating ofﬁcer and chairman on October 15 2012. He is chairman of the nominations and company secretary. He is a director of Institutional Investor, Inc., committee. He is also a director of Internet Securities, Inc., BCA Research, Information Management Network, Inc., Internet Securities, Inc. and BCA Inc., Ned Davis Research Inc., and Davis, Mendel & Regenstein Inc., and Research, Inc. an outside member of the Finance Committee of Oxford University Press. Mr CHC Fordham Managing Director Mr CHC Fordham (aged 52) joined the company in 2000 and was Ms DE Alfano Ms DE Alfano (aged 56) 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 and chairman of appointed an executive director in July 2003 and managing director Institutional Investor, Inc. on October 15 2012. He was previously the director responsible for acquisitions and disposals as well as running some of the company’s businesses, including the recently acquired Ned Davis Research. Mr NF Osborn Mr NF Osborn (aged 62) 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 RBC OJSC, a Moscow-listed media company. Mr DC Cohen Mr DC Cohen (aged 54) joined the company in 1984 and was appointed an executive director in September 1989. He is managing director of the training division. Ms JL Wilkinson Ms JL Wilkinson (aged 47) joined the company in 2000 and was appointed an executive director in March 2007. She is group marketing director, CEO of Institutional Investor’s publishing activities and president of Institutional Investor, Inc. Mr B AL-Rehany Mr B AL-Rehany (aged 55) was appointed an executive director in November 2009. He is chief executive ofﬁcer and a director of BCA Research, Inc. which he joined in January 2003. Euromoney acquired BCA Research, Inc. in October 2006. 28 Euromoney AR2012.indd 28 13/12/2012 15:54:44 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Non-executive Directors The Viscount Rothermere ‡ The Viscount Rothermere (aged 44) was appointed a non-executive Mr JC Gonzalez § Mr JC Gonzalez (independent) (aged 66) was appointed a non-executive director in September 1998 and is a member of the nominations director in November 2004 and is a member of the audit committee. committee. He is chairman of Daily Mail and General Trust plc. He is chairman and chief executive of American Orient Capital Partners Sir Patrick Sergeant ‡ Sir Patrick Sergeant (aged 88) is a non-executive director and president. He founded the company in 1969 and was managing director until 1985 Holdings Limited, an investment and ﬁnancial advisory services ﬁrm based in Hong Kong covering the Asia Paciﬁc region, and a director of a number of publicly listed companies in the Philippines. when he became chairman. He retired as chairman in September 1992 when he was appointed as president and a non-executive director. He is a Mr MWH Morgan †‡ Mr MWH Morgan (aged 62) was appointed a non-executive director on member of the nominations committee. October 1 2008. He is a member of the remuneration and nominations Mr JC Botts §†‡ Mr JC Botts (aged 71) was appointed a non-executive director in December 1992 and is chairman of the remuneration committee and a member of the audit and nominations committees. He is senior adviser of Allen & Company in London, a director of Songbird Estates plc and a director of committees. 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 (independent) (aged 68) was appointed a non-executive several private companies. He was formerly a non-executive chairman of director in December 2008. He is chairman of the audit committee and United Business Media plc. a member of the remuneration committee. He is chairman of Songbird Estates plc and of AIB Group (UK) 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 Advisors and registered office President Sir Patrick Sergeant Company Secretary CR Jones Registered Ofﬁce Nestor House, Playhouse Yard, London EC4V 5EX Registered Number 954730 Auditor Deloitte LLP, 2 New Street Square, London EC4A 3BZ Solicitors Nabarro, Lacon House, Theobald’s Road, London WC1 8RW Brokers UBS, 1 Finsbury Avenue, London EC2M 2PP Registrars Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA e c n a m r o f r e P r u O s r o s i v d A d n a s r o t c e r i D 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 Euromoney AR2012.indd 29 21833.04 13/12/12 Proof 7 29 13/12/2012 15:54:44 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate Governance The Financial Reporting Council’s 2010 UK There are clear divisions of responsibility within Corporate Governance Code (“the Code”) is the board such that no one individual has Committees part of the Listing Rules (“the Rules”) of the unfettered powers of decision. The board, Financial Services Authority. The paragraphs although larger than average, does not consider Executive committee The executive committee meets each month below and in the Directors’ Remuneration Report itself to be unwieldy and believes it is beneﬁcial to discuss strategy, results and forecasts, risks, on pages 41 to 52 set out how the company has to have representatives from key areas of possible acquisitions and divestitures, costs, applied the principles laid down by the Code. the business at board meetings. There is a staff numbers, recruitment and training and The company continues substantially to comply procedure for all directors in the furtherance of other management issues. It also discusses with the Code, save for the exceptions disclosed their duties to take independent professional corporate and social responsibility including the in the Directors’ Compliance Statement on advice, at the company’s expense. They also group’s various charity initiatives. It is chaired by page 34. Directors The board and its role Details of directors who served during the have access to the advice and services of the the group chairman and comprises all executive company secretary. In accordance with best directors plus other divisional directors. It is not corporate governance practice under the 2010 empowered to make decisions except those that UK Corporate Governance Code all directors can be made by the members in their individual will submit themselves for annual re-election. capacities as executives with powers approved Newly appointed directors are submitted for by the board of the company. The discussions year are set out on page 47. During the year election at the ﬁrst available opportunity after of the committee are summarised by the group the board comprised the chairman, managing their appointment. director, seven other executive directors and chairman and reported to each board meeting, together with recommendations on matters six non-executive directors. Two of the six The board meets every two months and there reserved for board decisions. non-executive directors are independent, one is is frequent contact between meetings. Board the founder and ex-chairman of the company, meetings take place in London, New York, two are directors of Daily Mail and General Trust Montreal and Hong Kong, and occasionally in plc (DMGT), an intermediate parent company, other locations where the group has operations. and one has served on the board for more The board has delegated certain aspects of the than the recommended term of nine years under group’s affairs to standing committees, each the Code. of which operates within deﬁned terms of reference. Details of these are set out below. PM Fallon, the chairman, who was due to However, to ensure its overall control of the retire at the AGM in January 2013, died on group’s affairs, the board has reserved certain October 14 2012. The company announced on matters to itself for decision. Board meetings October 15 2012 that its previously announced are held to set and monitor strategy, identify, succession plans would be accelerated and evaluate and manage material risks, to review that PR Ensor would succeed PM Fallon as trading performance, ensure adequate funding, chairman and CHC Fordham would succeed examine major acquisition possibilities and 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. This committee meets when required and during the year comprised PM Fallon (chairman of the committee), PR Ensor and four non-executive directors, being Sir Patrick Sergeant, The Viscount Rothermere, MWH Morgan and JC Botts. The committee’s terms of reference are available on the company’s website at: www.euromoneyplc. PR Ensor as managing director, both with approve reports to shareholders. Procedures com/reports/Nominationcommittee.pdf. immediate effect. are established to ensure that appropriate information is communicated to the board in a timely manner to enable it to fulﬁl its duties. 30 Euromoney AR2012.indd 30 13/12/2012 15:54:44 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com This committee met three times during the year: in November 2011 to extend PM Fallon’s service Audit committee Details of the members and role of the audit Sir Patrick Sergeant has served on the board in various roles since founding the company contract to January 2013; in December 2011 committee are set out on page 34. The in 1969 and has been a non-executive director to recommend to the board the re-election of committee’s terms of reference are available since 1992. As founder and president of the directors retiring by rotation; and in July 2012 on the company’s website at: http://www. company, the board believes his insight and to recommend to the board the appointment euromoneyplc.com/reports/Auditcommittee. external contacts remain invaluable. However, of PR Ensor as chairman and CHC Fordham as pdf. managing director. due to his length of service, Sir Patrick Sergeant does not meet the Code’s deﬁnition of The process for appointing a successor to the Tax and treasury committee Details of the members and role of the tax and independence. chairman was conducted by a sub-committee treasury committee are set out in the Directors’ The Viscount Rothermere has a signiﬁcant of the nominations committee, led by JC Report on page 17. Botts, the company’s longest serving non- executive director, supplemented by the company’s independent non-executives, JC Non-executive directors The non-executive directors bring both shareholding in the company through his beneﬁcial holding in DMGT and because of this he is not considered independent. Gonzalez and DP Pritchard, and excluding independent views and the views of the The Viscount Rothermere and MWH Morgan the DMGT representatives on the committee. company’s major shareholder to the board. are also executive directors of DMGT, an This sub-committee engaged an external The non-executive directors who served during intermediate parent company. However, the search and board consulting ﬁrm to assist the year, whose biographies can be found on company is run as a separate, distinct and with the appointment of both the chairman page 29 of the accounts, were The Viscount decentralised subsidiary of DMGT and these and managing director. This ﬁrm undertook a Rothermere, Sir Patrick Sergeant, JC Botts, JC directors have no involvement in the day-to- comprehensive review of candidates including Gonzalez (independent), MWH Morgan and DP day management of the company. They bring interviews, upward appraisal and external Pritchard (independent). search of candidates. The sub-committee met valuable experience and advice to the company and the board does not believe these non- several times during the year to consider the At least once a year the company’s chairman executive directors are able to exert undue progress of the external search ﬁrm. meets the non-executive directors without the inﬂuence on decisions taken by the board, Remuneration committee The remuneration committee meets twice a year executive directors meet without the company’s impaired by their positions with DMGT. However, chairman present at least annually to appraise their relationship with DMGT means they do not and additionally as required. It is responsible for the chairman’s performance and on other meet the Code’s deﬁnition of independence. executive directors being present. The non- nor does it consider their independence to be determining the contract terms, remuneration occasions as necessary. and other beneﬁts for executive directors, including performance-related incentives. This The board considers JC Gonzalez and DP committee also recommends and monitors the Pritchard to be independent non-executive level of remuneration for senior management directors. and overall, including group-wide share option schemes. The composition of the JC Botts has been on the board for more than committee, details of directors’ remuneration the recommended term of nine years under the and interests in share options and information Code and the board believes that his length of on directors’ service contracts are set out in service enhances his role as a non-executive the Directors’ Remuneration Report on pages director. However, due to his length of service, 41 to 52. The committee’s terms of reference JC Botts does not meet the Code’s deﬁnition of are available on the company’s website at: independence. http://www.euromoneyplc.com/reports/ Remunerationcommittee.pdf. e c n a m r o f r e P r u O e c n a n r e v o G e t a r o p r o C 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 Euromoney AR2012.indd 31 21833.04 13/12/12 Proof 7 31 13/12/2012 15:54:44 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate Governance continued 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 2012: Board Executive committee Remuneration committee Nominations committee Audit committee Tax & treasury committee Number of meetings held during year Executive directors PM Fallon – chairman (died October 14 2012) PR Ensor – managing director NF Osborn DC Cohen CR Jones – finance director DE Alfano CHC Fordham JL Wilkinson B AL-Rehany Non-executive directors The Viscount Rothermere Sir Patrick Sergeant JC Botts JC Gonzalez MWH Morgan DP Pritchard 7 3 6 7 7 7 7 7 7 7 5 3 5 4 6 7 10 4 10 10 9 10 10 10 10 10 – – – – – – 3 – – – – – – – – – – – 3 – 3 3 3 1 1 – – – – – – – 3 3 3 – 3 – 3 – – – – – – – – – – – 3 1 – 3 3 1 3 – – 3 – – – – – – – – – 3 Board and committee effectiveness Communication with shareholders During the year the board, through its The company’s chairman, together with the chairman, assessed its performance and that board, encourages regular dialogue with of its committees. The chairman surveyed shareholders. Meetings with shareholders are each board member and evaluated the held, both in the UK and in the US, to discuss strengths and weaknesses of the board and annual and interim results and highlight its members. In addition, each of the main signiﬁcant acquisitions or disposals, or at the committees completed a detailed questionnaire request of institutional shareholders. Private encompassing key areas within their mandates. shareholders are encouraged to participate The chairman concluded that the board and in the Annual General Meeting. In line with its committees had been effective throughout best practice all shareholders have at least 20 the year. working days’ notice of the Annual General Meeting at which the executive directors, non- In view of the chairman’s deteriorating health, executive directors and committee chairs are the board did not assess the chairman’s available for questioning. performance this year. However, as part of directors, develop an understanding of the investors’ and potential investors’ view of the company. 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 Code, the board has implemented a continuing process for identifying, evaluating and managing the material risks faced by the the succession planning exercise undertaken The company’s chairman and ﬁnance director by the nominations committee, the role and report to fellow board members matters raised responsibilities of the chairman and managing by shareholders and analysts to ensure members director were considered at length. of the board, in particular the non-executive group. 32 Euromoney AR2012.indd 32 13/12/2012 15:54:44 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com The board has reviewed the effectiveness of quarter. The board considers longer-term the group’s system of internal control and has ﬁnancial projections as part of its regular Internal audit The group’s internal audit function is managed taken account of material developments which discussions on the group’s strategy and by DMGT’s internal audit department, working have taken place since September 30 2011. It funding requirements. has considered the major business and ﬁnancial closely with the company’s ﬁnance director. Internal audit draws on the services of the risks, the control environment and the results of A risk committee, comprising the company’s group’s central ﬁnance teams to assist in internal audit. Steps have been taken to embed chairman, managing director and ﬁnance completing the audit assignments. Internal audit internal control and risk management further director, is responsible for managing and aims to provide an independent assessment as into the operations of the group and to deal addressing risk matters as they arise. with areas of improvement which have come to to whether effective systems and controls are in place and being operated to manage signiﬁcant management’s and the board’s attention. During the year and up to the approval of this operating and ﬁnancial risks. It also aims to annual report and accounts the board has not support management by providing cost effective Key procedures which the directors have identiﬁed nor been advised of any failings or recommendations to mitigate risk and control established with a view to providing effective weaknesses in the group’s system of internal weaknesses identiﬁed during the audit process, internal control, and which have been in place control which it has determined to be signiﬁcant. as well as provide insight into where cost throughout the year and up to the date of this Therefore a conﬁrmation of necessary actions efﬁciencies and monetary gains might be made report, are as follows: has not been considered appropriate. by improving the operations of the business. The board of directors ● the board normally meets six times a year to Investment appraisal The managing director, ﬁnance director and consider group strategy, risk management, business group managers consider proposals ﬁnancial performance, acquisitions, business for acquisitions and new business investments. development and management issues; Proposals beyond speciﬁed limits are put to ● the board has overall responsibility for the the board for approval and are subject to due group and there is a formal schedule of diligence by the group’s ﬁnance team and, matters speciﬁcally reserved for decision by if necessary, independent advisors. Capital the board; expenditure is regulated by strict authorisation ● each executive director has been given controls. For capital expenditure above speciﬁed responsibility for speciﬁc aspects of the levels, detailed written proposals must be group’s affairs; submitted to the board and reviews are carried 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 ● the board reviews and assesses the group’s out to monitor progress against business plan. committee. principal risks and uncertainties at least annually; ● 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 ● 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 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. e c n a m r o f r e P r u O e c n a n r e v o G e t a r o p r o C 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 Euromoney AR2012.indd 33 21833.04 13/12/12 Proof 7 33 13/12/2012 15:54:45 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate Governance continued Accountability and audit Audit Committee The audit committee comprises DP Pritchard The appointment of Deloitte as the group’s The audit committee’s terms of reference are external auditor (incumbents since the last audit available at www.euromoneyplc.com/reports/ tender in 1998) is kept under annual review and, Auditcommittee.pdf. if satisfactory, the committee will recommend (chairman, independent), JC Botts, JC Gonzalez the reappointment of the audit ﬁrm. The (independent), and SW Daintith, the ﬁnance appointment of Deloitte followed a formal director of DMGT. Three of the four members tender process undertaken in 1998 and, rather are non-executive directors. All members of the than adopting a policy on tendering frequency, Statement by the directors on compliance with the Code committee have a high level of ﬁnancial literacy, the annual review of the effectiveness of the The UK Listing Rules require the board to report SW Daintith is a chartered accountant and a external audit is supplemented by a periodic on compliance throughout the accounting year member of the ICAEW, and DP Pritchard has comprehensive reassessment by the committee. with the applicable principles and provisions considerable audit committee experience. The last such reassessment was performed of the 2010 UK Corporate Governance Code in ﬁnancial year 2009, when having received issued by the Financial Reporting Council. Save The committee meets at least three times each assurances on the continued quality of the for the exceptions outlined below, the group ﬁnancial year and is responsible for reviewing audit, the committee determined to recommend has complied throughout the ﬁnancial year the interim report, the annual report and the reappointment of the incumbent ﬁrm. As ended September 30 2012 with the provisions accounts and other related formal statements the appointment of the auditor is for one year set out in Section 1 of the Code. before their submission to the board, and only, being subject to annual approval at the reviewing and overseeing controls necessary to company’s Annual General Meeting, there is no Provision B.1.2 states that half the board, ensure the integrity of the ﬁnancial information contractual commitment to the current audit excluding the chairman, should be comprised reported to the shareholders. ﬁrm and, as such, the committee may undertake of non-executive directors determined by the an audit tender at any time at its discretion. In board to be independent. During the year the The audit committee advises the board on performing its review, the committee evaluated board comprised 15 directors, of whom six were the appointment or reappointment of the the adequacy of the audit ﬁrm’s key processes non-executive and only two were considered external auditor and on their remuneration, and controls in certain key areas including, independent under the Code. However, there both for audit and non-audit work. It has set but not limited to: arrangements for ensuring are clear divisions of responsibility within and applied a formal policy, which focuses on independence and objectivity; including the the board such that no one individual has the effectiveness, independence and objectivity rotation of key audit partners; appropriateness unfettered powers of decision. The board, of the external audit and includes a policy on of the planned audit scope and its execution; although large, does not consider itself to be employment of former audit staff, an annual the robustness and perceptiveness of the unwieldy and believes it is beneﬁcial to have assessment of the qualiﬁcations, expertise auditor in their handling of the key accounting representatives from key areas of the business and resources of the external auditor, the and audit judgements; and the quality of their at board meetings. type of non-audit work permissible and a reporting. The committee concluded that it de minimis level of fees acceptable. Any non- was in the group’s and shareholders’ interests JC Botts has been on the board for more than audit work performed outside this remit is not to tender the external audit in 2012 and the recommended term of nine years under the assessed and where appropriate approved by recommends the reappointment of Deloitte as Code and the board believes that his length of the committee. Fees paid to Deloitte for audit the group’s auditor. services, audit related services and other non- service enhances his role as a non-executive director. However, due to his length of service, audit services are set out in note 4. During The audit committee is also responsible for JC Botts does not meet the Code’s deﬁnition of 2012 Deloitte did not provide signiﬁcant non- monitoring and assessing the effectiveness of independence. audit services. The group’s non-audit fee policy internal audit, and reviews the internal audit is available on the company’s website (www. programme and receives periodic reports on euromoneyplc.com/reports/nonauditfee.pdf). its ﬁndings. It reviews the whistle blowing The committee considers the required audit arrangements available to staff. partner rotation plans. It also discusses the nature, scope and ﬁndings of the audit with the external auditor and considers and determines relevant action in respect of any control issues raised by the external auditor. 34 Euromoney AR2012.indd 34 13/12/2012 15:54:45 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Sir Patrick Sergeant has served on the board Contrary to provision A.4.1, the board has not Provisions C.3.1 and D.2.1 require the in various roles since founding the company identiﬁed a senior independent non-executive remuneration and audit committees to comprise in 1969 and has been a non-executive director director. However, JC Botts, although not entirely of independent non-executive directors. since 1992. As founder and president of the independent due to his length of service, acts as The remuneration committee is comprised of company, the board believes his insight and senior non-executive director. three non-executive directors, one of whom can external contacts remain invaluable. However, be considered independent under the Code. due to his length of service, Sir Patrick Sergeant Provision B.2.1 requires that the majority of the During the year, the audit committee comprised does not meet the Code’s deﬁnition of nominations committee should be comprised of four members, only three of which were non- independence. independent non-executive directors. Although executive directors of the company only two of the committee consists of four non-executive whom can be considered independent under The Viscount Rothermere has a signiﬁcant and two executive directors, none of these the Code. shareholding in the company through his non-executive directors can be considered beneﬁcial holding in DMGT and because of this independent under the Code. On behalf of the board he is not considered independent. Provision B.3.2 states that the terms and The Viscount Rothermere and MWH Morgan conditions of appointment of non-executive are also executive directors of DMGT, an directors should be available for inspection. intermediate parent company. However, the As explained in the Directors’ Remuneration company is run as a separate, distinct and Report, the non-executive directors do not have decentralised subsidiary of DMGT and these service contracts. directors have no involvement in the day-to- day management of the company. They bring valuable experience and advice to the company and 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. Richard Ensor Chairman November 14 2012 e c n a m r o f r e P r u O e c n a n r e v o G e t a r o p r o C 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 Euromoney AR2012.indd 35 21833.04 13/12/12 Proof 7 35 13/12/2012 15:54:45 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate and Social Responsibility The group is diverse and operates through Each ofﬁce within the group is encouraged a large number of businesses in many to reduce waste, reuse paper and only print FTSE4Good geographical locations. Each business provides documents and emails where necessary. The The group was included important channels of communication to main ofﬁces across the group also recycle for the ﬁrst time in the different sections of society throughout the waste where possible. This year the UK, US and FTSE4Good index in 2011 world. The success of the group’s businesses Canadian ofﬁces recycled 91,000kg of paper and continues to be a owes much to understanding and engaging and card, which is equivalent to more than constituent of the index in with the communities they serve both locally 1,000 trees. and globally. The paragraphs below provide more detailed Carbon footprint explanations on key areas of corporate The company, as part of the wider Daily Mail and responsibility. Environmental responsibility General Trust plc group (DMGT), participates in a DMGT group-wide carbon footprint analysis completed by ICF International. This exercise has been undertaken every year since 2006 using the widely recognised GHG protocol The group does not operate directly in industries methodology developed by the World Resource where there is the potential for serious industrial Institute and the World Business Council for pollution. It does not print products in-house or Sustainable Development. have any investments in printing works. It takes its environmental responsibility seriously and In addition, the company, through DMGT, is part complies with all relevant environmental laws and of the Carbon Disclosure Project (CDP) and has regulations in each country in which it operates. been submitting full responses to them since Wherever economically feasible, account is 2007 and is included in the FTSE CDP Carbon taken of environmental issues when placing Strategy Index Series. contracts with suppliers of goods and services 2012. The group has maintained its ESG rating of 3/5 and increased its group percentile rating from 39% to 51% in the ICB ‘Global Super Sector’. FTSE Group conﬁrms that Euromoney Institutional Investor PLC has been independently assessed according to the FTSE4Good criteria, and has satisﬁed the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index company FTSE Group, FTSE4Good is an equity index series that is designed to facilitate investment in companies that meet globally recognised corporate responsibility standards. Companies in the FTSE4Good Index Series have met stringent environmental, social and governance criteria, and are positioned to capitalise on the beneﬁts of responsible business practice. Social responsibility The group continues to expand its charitable activities and raised over £1 million for local and and these suppliers are regularly reviewed and The directors are committed to reducing the international charitable causes during the year. monitored. For instance, the group’s two biggest group’s carbon emissions and managing its These contributions came from Euromoney’s print contracts are outsourced to companies carbon footprint. The company, as part of the own charitable budget, individual employee who have environment management systems wider DMGT group, committed to reducing its fundraising efforts and also from clients who compliant with the ISO 14001 standard. The carbon footprint by 10% from the baseline year generously made donations in support of the paper used for the group’s publications is of 2007 by the end of 2012. The company, as company’s charitable projects. produced from pulp obtained from sustainable part of the DMGT group, achieved the targeted forests, manufactured under strict, monitored 10% reduction two years early. This year the We continue to encourage employees to be and accountable environmental standards. footprint fell by 1% compared to last year, involved actively in supporting charities by after adjusting for acquisitions and disposals fundraising themselves (e.g. running a marathon The group is not a heavy user of energy; and updating emission factors, and by 19% or triathlon), while the group contributed by way however, it does manage its energy requirements compared to the 2007 baseline. This year the of donations to a series of employee-chosen sensibly using low-energy ofﬁce equipment company, as part of the wider DMGT group, has charitable causes. In the past year funding where possible and using a common sense set a new stretching target to reduce its carbon was expanded to two new charitable projects; approach to ofﬁce energy management. For footprint by a further 10% from the 2012 base Anchor House, a homeless charity in the East instance, the UK group uses new secure multi- by the end of 2016. End of London, and a blindness treatment functional device technology which enables two sided printing and allows employees to delete unwanted documents at the printer before printing. This initiative should reduce paper, ink and electricity usage. 36 project in South Omo, Ethiopia. Euromoney AR2012.indd 36 13/12/2012 15:54:45 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com We continue to work and partner with recognised charitable organisations that have expertise within certain sectors, thus ensuring that the implementation and management of a charitable project is carried out efﬁciently and that donated funds reach the communities at which the charitable cause is aimed. At the same time, we are careful to address the sustainability aspects in each charitable project to ensure a long lasting beneﬁcial impact. Below is a summary of some of the charitable activities undertaken in the past year. Water and Sanitation, Kechene, Addis Ababa, Ethiopia Euromoney continued to support the African and Medical Research Foundation (AMREF) for a second year with its sustainable water and sanitation project in Addis Ababa, Ethiopia. Through staff activities and events such as awards dinners, the group exceeded its donation target of £212,000. The project is focused on Kechene, the largest slum in Addis Ababa. So far, the programme has involved rebuilding two water springs, the construction of ﬁve shower blocks and seven sanitation kiosks, with two more showers and ﬁve more kiosks to follow. Nineteen local water and sanitation committees are also in place to manage these facilities. Alongside this work, the project has trained twelve hygiene workers to promote information on sanitation and water-borne diseases. In total, the full facilities and promotional work are expected to bring clean water and better health to 22,000 people. Kechene new water and sanitation facilities. y t i l i b i s n o p s e R l a i c o S d n a e t a r o p r o C 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 Euromoney AR2012.indd 37 21833.04 13/12/12 Proof 7 37 13/12/2012 15:54:46 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate and Social Responsibility continued Little Rock School, Kibera, Nairobi, Kenya This project involves the construction of new school premises for Little Rock School and is planned to be completed in January 2013. The original Little Rock premises consisted of ﬁve separate rented buildings spread across the slum area of Kibera in Nairobi. The new purpose-built school will have facilities for nearly 500 pupils and include 16 classrooms with up to 30 pupils each, from infant day care through to the ﬁrst year of primary school. In addition, with a new a computer room, assembly area, physiotherapy room and administration block, the educational effectiveness and operation of the school will be transformed. Little Rock is much more than a school. In addition to day teaching, it provides a feeding programme, after-schools clubs, term holiday tutoring, a public library, community engagement, parent support groups and an income generating workshop. This holistic approach empowers children, families and the community to work together to improve the lives of some of the most vulnerable children in the world, not only while they attend Little Rock but with skills and resources they carry forward into further schooling. The coordination of the Little Rock construction programme is carried out by AbleChildAfrica, a UK headquartered charity which specialises exclusively in advocating for and supporting disabled children and disabled young people in Africa. Little Rock new school premises — perspective view. Pupils of Little Rock. 38 Euromoney AR2012.indd 38 13/12/2012 15:54:46 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Water Well Project in Kimbunga Valley, Mombasa, Kenya Euromoney supports this charity project by funding the construction of a rain- fed dam and the training of farmers in how to regenerate the surrounding land to make it suitable to grow crops. This has enabled the community in the Kimbunga Valley, near Mombasa, to have food and water security and surplus crops, and provide an income – something they have never had before. This has immediately helped over 600 people within local communities. However, experience shows that an additional 400–500 people will gravitate to the area due to the improved and sustainable livelihoods now available. This is part of a wider initiative that Euromoney is working on in partnership with The Haller Foundation to help communities in the area lift themselves out of poverty – working towards an integrated model for sustainable development that enable communities to become self- sufﬁcient, typically over a ﬁve year period. Anchor House, Canning Town, London E16 At the EuroWeek 25th Anniversary Community members digging the dam by hand. Awards Dinner over £175,000 was raised for the Anchor House homeless charity which aims to turn its 1960s-style building into a 21st century facility providing workshops for vocational The dam filled with rainwater. courses; an e-learning zone; new kitchen training facility and 25 new ‘move on’ studio ﬂats for residents. Anchor House is transforming itself into a residential life-skills centre for the homeless. It annually supports up to 220 people each year and provides a stable and safe environment to help them develop aspirations, conﬁdence and self-esteem, thus enabling them to move towards leading independent and self- fulﬁlling lives. y t i l i b i s n o p s e R l a i c o S d n a e t a r o p r o C 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 Euromoney AR2012.indd 39 21833.04 13/12/12 Proof 7 39 13/12/2012 15:54:47 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Corporate and Social Responsibility continued Trachoma Project, South Omo, Ethiopia At its July 2012 Awards Dinner, Euromoney raised over £480,000 to fund the ﬁrst two years of a ﬁve-year charity project which will start in 2013. The project aims to provide clean water and sanitation facilities in order to help eradicate trachoma (a chronic, contagious inﬂammatory eye disease which can lead to blindness). The project will be run jointly by AMREF and ORBIS and aims to improve the water and sanitation facilities for 230,000 people within the South Omo community, improve the primary eye-care services for 644,000 people, treat over 550,000 people suffering from trachoma with antibiotics, surgically treat 13,000 adult sufferers of trachoma and train 16 eye care workers and 600 teachers to identify trachoma symptoms. AMREF E-Health Projects TelCap has supported AMREF’s e-health projects with a donation from each of its conferences. At the Capacity Africa conference held in Dar es Salaam a fun run was organised where 25 conference delegates and three of the TelCap team ran a 5km route around Dar es Salaam in 30°C heat. The fun run and a charity rafﬂe held during the event raised nearly US$9,000 in funds for AMREF. In addition TelCap donated over £8,500 to AMREF. The Legal Media Group, including International Financial Law Review, Managing Intellectual Property and International Tax Review, raised over £6,000 for AMREF at their annual awards dinners. The Voluntary Reading Scheme Partnering with the children’s literacy charity Volunteer Other US Charity Initiatives Institutional Investor (II) matched donations made by its employees to more than 150 Reading Help, ten volunteers from Euromoney charities around the world. In doing so it spend an hour a week reading to children who encouraged and rewarded the spirit of giving are struggling with their reading at The New and generosity amongst staff. Matching gifts North Academy in London. were made to relief organizations, groups in support of the arts, foundations for disease research, environmental organizations, child welfare agencies, scholarship funds and a number of umbrella charities. II also sponsored scholarships at nearby Baruch College and offered internships to deserving students. In addition, II raised donations at their annual awards dinners: US$16,000 for the Little Kids Rock charity, which transforms children’s lives by restoring and revitalizing music education in disadvantaged public school; US$18,000 for the Expect Miracles Foundation, which is one of the leading advocates in the ﬁght against cancer within the ﬁnancial services industry; and US$25,000 for Sparks children’s medical research charity. Worldfund Latin Finance contributed over US$10,000 to the Worldfund charity which supports high-quality and results-driven education in Latin America – the key to transforming lives and reducing poverty. Through Worldfund’s investment in schools, after-school academic programs and teacher/ principal training, they directly help 340,000 impoverished students annually in the region. Forest Research Institute Malaysia Petroleum Economist donated over £7,000 to the Forest Research Institute Malaysia, a jungle reforestation charity, at the World Gas Conference in June 2012. Bali Sports Foundation and Priscilla Hall Foundation Coaltrans Conferences and its clients gave a donation of US$16,183 to the Bali Sports Peace Foundation, which provides sporting opportunities for underprivileged children in Bali and Papua New Guinea and US$14,883 to the Priscilla Hall Memorial Foundation, which aims to help underprivileged children of Indonesia. Hope and Homes for Children EuroWeek raised over £36,000 for the Hope and Homes for Children charity at their awards dinner. This charity works with children, their families, communities and governments across Central and Eastern Europe and Africa. In addition, one employee raised over £4,000 by participating in the Hope and Homes Triathlon. Orbis – Saving Sight Worldwide Euromoney Seminars and Airﬁnance Journal continue to support Orbis which works to prevent and treat blindness. £10,000 was raised at the annual Airﬁnance conference charity dinner in Dublin which will enable 50 eye-care workers to be trained and cover the cost of 15,000 antibiotic treatments. 40 Euromoney AR2012.indd 40 13/12/2012 15:54:49 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report Introduction the growth in the group’s proﬁts contributed The company also has an executive share option by that director. The two consistent objectives scheme which was approved by shareholders in This Remuneration Report sets out the group’s in its remuneration policy since the company’s January 1996. The performance criteria under policy and structure for the remuneration of inception in 1969 have been the maximisation which options granted under this scheme may executive and non-executive directors together of earnings per share and the creation of be exercised are set out on page 44. This scheme with details of directors’ remuneration packages shareholder value. and service contracts. The report has been prepared in accordance with Schedule 8 (Quoted Companies: Directors’ Remuneration Report) to Maximising earnings per share The ﬁrst objective is achieved through a proﬁt the Large and Medium-sized Companies and sharing scheme that links the pay of executive expired in 2006, and no options have been issued under it since February 2004 although options previously granted may be exercised before various dates to February 2014. Groups (Accounts and Reports) Regulations directors and key managers to the growth in The directors believe that these proﬁt sharing and 2008 and shareholders will be invited to approve proﬁts of the group or relevant parts of the share option arrangements are responsible for this report at the Annual General Meeting on group. This scheme is completely variable with much of the company’s success since 1969. These January 31 2013. Remuneration committee During the year the remuneration committee no guaranteed ﬂoor and no ceiling. All those arrangements align the interests of the directors on proﬁt shares are aware that if proﬁts rise, so and managers with those of shareholders and are does their pay. Similarly if proﬁts fall, so do their considered an important driver of the company’s proﬁt shares. growth. t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D comprised JC Botts (chairman), MWH Morgan, To support the policy of proﬁt sharing, the and DP Pritchard (independent). All members of group is divided into approximately 100 proﬁt the committee are non-executive directors of centres. The manager of each proﬁt centre is the company. MWH Morgan is also a director of paid a proﬁt share based on the proﬁt centre’s Daily Mail and General Trust plc (DMGT) but has proﬁt growth. Each proﬁt centre is in turn part no personal ﬁnancial interests in the company of a larger business unit and each business (other than as a shareholder), and no day-to-day unit manager or executive director has a proﬁt involvement in running the business. For the year share based on the unit’s proﬁt growth. The under review, the committee also sought advice proﬁt sharing scheme is closely aligned with the and information from the company’s chairman, group’s strategy in that it encourages managers managing director and ﬁnance director. The and directors to grow their businesses, to committee’s terms of reference permit its manage costs tightly, to launch new products members to obtain professional external advice and to search for acquisitions. on any matter, at the company’s expense, and they did so in 2012 as part of the independent executive search process undertaken in Creating shareholder value The second objective is encouraged through the connection with the succession planning for the Capital Appreciation Plan (CAP). company’s chairman. The group itself can use external advice and information in preparing proposals for the remuneration committee. It does apply external benchmarking although no material assistance from a single source was received in 2012. Remuneration policy The group believes in aligning the interests of management with those of shareholders. It is the group’s policy to construct executive The CAP is a highly geared performance- based share option scheme which both directly rewards executives for the growth in proﬁts of the businesses they manage, and links this to the delivery of shareholder value by satisfying rewards in a mix of shares in the company and cash. The current CAP, CAP 2010, aims to mirror the success of CAP 2004 for both shareholders and management by delivering exceptional proﬁt growth over the performance period. Further details of CAP 2004 and CAP 2010 are remuneration packages such that a signiﬁcant set out on pages 42 to 44. part of a director’s compensation is based on Detailed remuneration arrangements of executive directors Base salary and benefits The base salary and beneﬁts is generally not the most signiﬁcant part of a director’s overall compensation package, and variable proﬁt share makes up much of their total pay. For example, of the total remuneration of the nine executive directors who served in the year, 89% was derived from variable proﬁt shares, as illustrated in the following table: Fixed salary & benefits Variable profit share 4% 4% 30% 26% 29% 19% 17% 62% 26% 11% 96% 96% 70% 74% 71% 81% 83% 38% 74% 89% PM Fallon (died October 14 2012) PR Ensor NF Osborn DC Cohen CR Jones DE Alfano CHC Fordham JL Wilkinson B AL-Rehany Total 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 Euromoney AR2012.indd 41 21833.04 13/12/12 Proof 7 41 13/12/2012 15:54:49 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report continued Each executive director receives a salary, which pays up to 1% of proﬁts up to the threshold £79 million, with the base increasing at 5% per is usually below the market average, which and 5% of proﬁts in excess of this threshold. year. This is broadly equivalent to a 2% proﬁt is reviewed annually by the remuneration Some of the directors have schemes which have share above the base. At the same time, his salary committee. Certain non-cash beneﬁts are also been in place for a number of years and pay was increased from £151,300 to £375,000. provided including private health care. proﬁt shares at slightly higher rates or which are subject to additional thresholds. CR Jones (ﬁnance director) receives a proﬁt Pension Each UK-based director is entitled to participate The proﬁt shares of PM Fallon (executive in the Euromoney Pension Plan (a money chairman) and PR Ensor (managing director) purchase plan) or their own private pension are based on the adjusted pre-tax post non- share linked to the pre-tax adjusted EPS of the group. A ﬁxed sum is payable for every percentage point the EPS is above 11 pence and an additional ﬁxed sum is payable for every scheme. Directors based overseas are entitled to controlling interests proﬁt of the group, percentage point that EPS is above 20 pence. participate in the pension scheme arrangements thereby matching their proﬁt share with the applicable to the country where they work. pre-tax return the group generates for its JL Wilkinson has a proﬁt share from the Details of pension scheme contributions can be shareholders. PM Fallon is entitled to 5.09% businesses she manages directly plus, as group found on page 48 of this report. There are no (2011: 5.16%) of the adjusted pre-tax proﬁt. marketing director, an incentive based on the other post-retirement beneﬁts. PR Ensor is entitled to 3.01% (2011: 3.05%) of growth in the group’s subscription and delegate Profit share The proﬁt sharing scheme links the pay of each the adjusted pre-tax proﬁt up to a threshold of revenues. £38.9 million (2011: £37.0 million) and an additional 1.13% (2011: 1.14%) of the adjusted NF Osborn, DC Cohen, DE Alfano and B AL- executive director to the growth in proﬁts of the pre-tax proﬁt in excess of this threshold. Rehany receive proﬁt shares from the businesses businesses that they manage. Each executive director’s proﬁt share 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. In the event proﬁts fall from one year to another, there is no clawback of proﬁt share paid in respect of previous years, but the executive’s proﬁt share will decrease at a faster rate than Following PM Fallon’s death on October 14 2012, the company announced that the succession plans announced on August 1 2012 would be accelerated and PR Ensor would succeed PM Fallon as executive chairman with immediate effect. PR Ensor’s remuneration arrangements as executive chairman will be unchanged from those as managing director. PM Fallon’s salary they manage directly. Company share schemes The board considers that share schemes are an important part of overall compensation and align the interests of directors and managers with those of shareholders. Details of each director’s share options can be found on pages the rate of reduction in proﬁts of the businesses and proﬁt share accrued until his date of death. 49 to 51. he/she manages. Each director’s proﬁt share is subject to remuneration committee approval, and can be revised at any time if the director’s responsibilities are changed. CHC Fordham has a proﬁt share from the businesses he manages directly plus, as 2010 Capital Appreciation Plan (CAP 2010) acquisitions director, an incentive linked to the CAP 2010 was approved by shareholders on performance of acquisitions in the period post- January 21 2010 as a direct replacement for There is no deferral of proﬁt share, which is paid acquisition. Under the company’s previously CAP 2004. in full in the December or January following the announced succession plan, and following the year in which it is earned, once the ﬁnancial death of PM Fallon on October 14 2012, CHC Awards under CAP 2010 were granted on March statements and proﬁt shares have been subject Fordham succeeded PR Ensor as managing 30 2010 to approximately 200 directors and to audit. The deferral element of the directors’ director with immediate effect. In his new role, senior employees who have direct and signiﬁcant remuneration is achieved through the delayed CHC Fordham’s incentive arrangements have responsibility for the proﬁts of the group. Each vesting and additional performance conditions been revised to increase the proportion of his CAP 2010 award comprises two equal elements: under the CAP 2010. total remuneration paid as ﬁxed salary and an option to subscribe for ordinary shares of Each executive director receives a proﬁt threshold for the businesses they manage. This threshold is set at the time the director takes on responsibility for the business concerned, usually based on the proﬁts of the previous 12 reduce the variable incentive. However, the basis 0.25 pence each in the company at an exercise for his variable incentive is not the same as that price of 0.25 pence per ordinary share; and a of PR Ensor as managing director. Instead, he right to receive a cash payment. No individual will receive a proﬁt share based on the growth may receive an award over more than 6% of in the company’s pre-tax earnings per share the award pool. In accordance with the terms of (EPS), from a base pre-tax EPS of 64.3 pence, CAP 2010, no consideration was payable for the months. The standard proﬁt share arrangement equivalent to an adjusted pre-tax proﬁt of grant of the awards. 42 Euromoney AR2012.indd 42 13/12/2012 15:54:49 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com The award pool comprises 3,500,992 ordinary The primary performance condition for ﬁnancial The number of options received under CAP 2010 shares with an option value (calculated at date of grant using an option pricing valuation model) of £15 million, and cash of £15 million, limiting year 2012 was increased to adjusted pre- tax proﬁts1 of £105.0 million following the acquisition of NDR in August 2011. The primary is provisional and reﬂects management’s best estimate taking into consideration the proﬁts of the individual proﬁt centres for ﬁnancial year the total accounting cost of the scheme to performance condition was achieved again 2012, the respective weighting of these proﬁts £30 million over its life. Awards will vest in two equal tranches. The ﬁrst becomes exercisable on satisfaction of the primary performance in ﬁnancial year 2012 when adjusted pre-tax proﬁts1 were £113.0 million, resulting in the second tranche of CAP 2010 awards vesting between participants and the offsetting number of options delivered under the CSOP 2010. The remuneration committee require management condition, but no earlier than February 2013, and becoming exercisable from February 2014 to apply true-up adjustments to these awards and lapses to the extent unexercised by subject to the additional performance condition to reﬂect the results during the three month September 30 2020. The second tranche of being achieved in ﬁnancial year 2013. period to December 2012. The provisional awards becomes exercisable in the February number of options anticipated to be received by following the next ﬁnancial year in which The additional performance condition, the directors under CAP 2010 are given in the the primary performance condition is again applicable for the vesting of the second tranche directors’ share option table on pages 49 to 51. satisﬁed, but no earlier than February 2014. of awards, requires the proﬁts of each business The fair value per option granted and the The second tranche only vests on satisfaction in the subsequent vesting period be at least assumptions used to calculate its value are set t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D of the primary performance condition and an 75% of that achieved in the year the ﬁrst out in note 24. additional performance condition (see below). tranche of awards become exercisable. As the initial allocation of awards to participants will be calculated with reference to the proﬁts achieved in ﬁnancial year 2012, the earliest the additional performance condition can be applied is by reference to the proﬁts achieved in ﬁnancial year 2013, the primary performance condition having been met for a second time in ﬁnancial year 2012. Thus the CAP 2010 is designed so that proﬁt growth must be sustained if awards are to vest in full. The number of options received under the share award of CAP 2010 is reduced by the number of options vesting with participants from the 2010 Company Share Option Plan (see below and note 24). The primary performance condition required the group to achieve adjusted pre-tax proﬁts1 of £100 million, from a 2009 base proﬁt of £62.3 million, by no later than the ﬁnancial year ending September 30 2013, and that adjusted pre-tax proﬁts1 remained above this level for a second year. The primary performance condition was ﬁrst achieved in ﬁnancial year 2011, two years earlier than expected, when adjusted pre-tax proﬁts1 were £101.3 million. However, the internal rules of the plan were modiﬁed to prevent the awards vesting more than one year early so although the primary condition had been achieved the award pool would be allocated between the holders of outstanding awards by reference to their contribution to the growth in proﬁts of the group from the 2009 base year to the proﬁts achieved in ﬁnancial year 2012 and these awards would become exercisable in February 2013. 2010 Company Share Option Plan (CSOP 2010) The shareholders approved the CSOP 2010 at the Annual General Meeting on January 21 2010. The CSOP 2010 plan was approved by HM Revenue & Customs on June 21 2010. Awards were granted under the CSOP 2010 on June 28 20102 to approximately 135 directors and senior employees of the group who have direct and signiﬁcant responsibility for the proﬁts of the group. Each CSOP 2010 option enables each participant to purchase up to 4,9722 shares in the company at a price of £6.032 per share, the market value at the date of grant. No consideration was payable for the grant of these awards. The options will vest and become exercisable at the same time as the corresponding share award under the CAP 2010 providing the CSOP option is in the money at that time and does not vest before June 28 2013. Once vested the CSOP option remains exercisable for a period of one month and then lapses. If the CSOP option is not in the money at the time of vesting of the corresponding CAP 2010 share award it continues to subsist and becomes exercisable at the same time as the second tranche of the CAP 2010 share award. 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 Euromoney AR2012.indd 43 21833.04 13/12/12 Proof 7 43 13/12/2012 15:54:49 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report continued The CSOP 2010 has the same performance The CAP 2004 proﬁt target was achieved in 2007 criteria as that of the CAP 2010 as set out and the option pool (a maximum of 7.5 million 1996 executive share option scheme Some of the executive directors have options above. The number of CSOP 2010 awards that shares) was allocated between the holders of from a previous executive share option scheme will vest proportionally reduces the number of outstanding awards by reference to their proﬁt approved by shareholders in 1996. This scheme shares that vest under the CAP 2010. The CSOP contribution to the achievement of the primary expired in 2006 and no share options have been is effectively a delivery mechanism for part of performance condition, subject to the condition issued under it since February 2004 although the CAP 2010 award. The CSOP 2010 options have an exercise price of £6.032, which will be satisﬁed by a funding award mechanism which is in place and results in the net gain3 on these options being delivered in the equivalent that no individual had an option over more than options granted may be exercised before various 10% of the option pool. One third of the awards dates to February 2014. These options are vested immediately. The primary performance exercisable subject to the performance condition target was achieved again in 2008 and, after that the Total Shareholder Return (TSR) of the applying the additional performance condition, company exceeds the average TSR for the number of shares to participants as if the 2,241,269 options from the second tranche of FTSE 250 index for the same period. For the same gain had been delivered using CAP 2010 options vested in February 2009. The primary performance condition to be satisﬁed, the TSR options. The amount of the funding award will performance target was achieved again in 2009 of the company must exceed that of the FTSE depend on the company’s share price at the and, after applying the additional performance 250 on a cumulative basis, measured from the date of exercise. condition, 1,527,152 options from the third (ﬁnal) date of grant of the option, in any four out of six tranche of options vested in February 2010. The consecutive months starting 30 months after the additional performance condition was applied option grant date. to proﬁts for ﬁnancial years 2010 and 2011 for those individual participants where the additional Shown below is the group’s TSR for the ﬁve performance conditions had not previously been years to September 2012 compared to the TSR met and 303,321 and 244,152 options vested in of the FTSE 250 index over the same period. February 2011 and February 2012 respectively. This index has been presented as it comprises Applying the additional performance test to the comparator group for the performance proﬁts for ﬁnancial year 2012, a further 54,599 condition attached to the executive share options are expected to vest in February 2013. option scheme. The TSR calculations assume the reinvestment of dividends. For the executive directors, the value of the second and third tranches of the CAP 2004 Details of options held and exercised under this award that vested in February 2012 is set out scheme can be found on pages 49 to 51 of this in the directors’ share option table on pages report. The fair value per option granted and 49 to 51 and has been trued-up from the the assumptions used to calculate its value are estimates provided in last year’s annual report. set out in note 24. The provisional number of options vesting in February 2013 for those directors who have CAP 2004 options that did not previously vest are also set out in this table. The number of CAP 2004 options vesting in February 2013 is provisional and will depend on any true-up adjustments required by the remuneration committee to be made to reﬂect the results for the three month period to December 2012. Financial year 2012 is the last year for which the additional performance test can be applied. As a result, an estimated 629,507 unvested CAP 2004 options at September 30 2012 will lapse. 2004 Capital Appreciation Plan (CAP 2004) CAP 2004 was approved by shareholders on February 1 2005 and replaced the 1996 executive share option scheme. Each CAP 2004 award comprised an option to subscribe for ordinary shares of 0.25 pence each in the company for an exercise price of 0.25 pence per ordinary share. No consideration was paid for the grant of the awards. No further awards may be granted under CAP 2004. CAP 2004 awards vest in three equal tranches. The ﬁrst tranche became exercisable on satisfaction of the primary performance condition in 2007, and lapse to the extent unexercised on September 30 2014. The other two tranches of awards became exercisable following the results achieved in ﬁnancial years 2008 and 2009, but only to the extent that the additional performance condition was also achieved. The primary performance condition, broadly, required the company to achieve adjusted pre-tax proﬁts1 of £57.0 million by no later than the ﬁnancial year ending September 30 2008 and remain at least this level for two further vesting periods. The additional performance condition required that the proﬁts of the respective participants’ businesses in the subsequent two vesting periods be at least 75% of that achieved in the year the primary performance condition was ﬁrst met. 44 Euromoney AR2012.indd 44 13/12/2012 15:54:50 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Euromoney Institutional Investor PLC — Total Shareholder Return % n r u t e R r e d o h e r a h S l l a t o T 200 180 160 140 120 100 80 60 40 20 0 2 8 3 1 3 1 D M D M D M D M D M 3 0 3 1 3 1 3 0 3 1 3 1 3 0 3 1 3 1 3 0 3 1 3 1 S e p t 2 e c 0 0 7 2 0 0 7 3 0 J u a r c h n e 2 0 0 8 3 0 J u n e 3 0 J u S e p t 2 2 0 0 8 0 0 8 e c 2 0 0 8 a r 2 0 0 9 S e p t 2 2 0 0 9 0 0 9 e c 2 0 a r c h n e 0 9 2 0 1 0 S e p t 2 e c 2 0 1 0 0 1 0 2 0 1 0 3 0 J u a r c h n e 2 0 1 1 S e p t 2 2 0 1 1 0 1 1 e c 2 0 1 1 a r 2 0 1 2 p t 2 2 0 1 2 0 1 2 2 9 J u n e SAYE 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 participated in this scheme during the year were PM Fallon, PR Ensor, NF Osborn, DC Cohen, CR Jones and CHC Fordham, details of which can be found on pages 49 to 51 of this report. DMGT SIP DMGT, the group’s parent company, operates a share incentive plan in which all UK-based employees of the Euromoney group can participate. Employees can contribute up to £125 a month from their gross pay to purchase DMGT ‘A’ shares. These shares are received tax free by the employee after ﬁve years. The executive directors who participated in this scheme during the year were PM Fallon, PR Ensor and CR Jones, details of which can be the notice period. Directors’ service contracts found on page 52 of this report. are reviewed from time to time and updated exceptional amortisation, 1. Adjusted pre-tax proﬁts are before acquired intangible items, movements in acquisition option commitment values, imputed interest on acquisition option commitments, foreign exchange loss interest charge on tax equalisation contracts, foreign exchange on restructured hedging arrangements, and the cost of the CAP itself. 2. The Canadian version of the CSOP 2010 has a grant date of March 30 2010 and an exercise price of £5.01, the market value of the company’s shares at the date of grant, and enables each Canadian participant to purchase up to 19,960 shares in the company. 3. The net gain on the CSOP options is the market price of the company’s shares at the date of exercise less the exercise price (£6.032) multiplied by the number of options exercised. Directors’ service contracts The company’s policy is to employ executive directors on 12 month rolling service contracts. The remuneration committee seeks to minimise termination payments and believes these should be restricted to the value of remuneration for where necessary. A service contract terminates automatically on the director reaching their respective retirement age. On August 1 2012, the company announced that PR Ensor would succeed PM Fallon as chairman and CHC Fordham would succeed PR Ensor as managing director, both following the January 2013 AGM. At the same time, PR Ensor’s service contract was extended to September 30 2015. PM Fallon died on October 14 2012 at which point the succession plans announced on August 1 2012 were implemented with immediate effect. With the exception of Sir Patrick Sergeant, none of the non-executive directors has a service contract. The remuneration of the non-executive directors is determined by the board based on the time commitment required by the non-executive, their role, and market conditions. Each non-executive receives a base annual fee of £28,000, with an additional annual fee of £6,500 payable to the chairs of the remuneration and audit committees. Euromoney AR2012.indd 45 21833.04 13/12/12 Proof 7 45 13/12/2012 15:54:50 Company FTSE 250 2 8 S e t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D 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 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report continued Executive directors PM Fallon (died October 14 2012)3 PR Ensor June 2 1986 12 Jan 13 1993 12 NF Osborn4 Jan 4 1991 12 Date of service contract Notice period (months) Retirement age Benefits accruing if contract terminated1 Benefits accruing if contract terminated due to incapacity2 65 67 62 12 months’ salary, pension and 9 months’ salary, profit share, and profit share. pension. 12 months’ salary, pension and 6 months’ salary, profit share and profit share. pension. 12 months’ salary, pension and a 1 month’s salary, pension, and a pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. DC Cohen Nov 2 1992 12 62 12 months’ salary, pension and a 1 month’s salary, pension, and a pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. CR Jones Aug 27 1997 12 62 12 months’ salary, pension and a 6 months’ salary, pension, and a pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. DE Alfano5 Jan 10 2001 12 62 12 months’ salary, pension and a Salary, pension and profit share earned pro-rated profit share up to the up to the date of termination only. date of termination. CHC Fordham Sept 21 2004 12 62 12 months’ salary, pension and a 6 months’ salary, pension, and pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. JL Wilkinson July 26 2000 12 62 12 months’ salary, pension and a 6 months’ salary, pension, and a pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. B AL-Rehany6 Nov 11 2009 12 62 12 months’ salary, pension and a 6 months’ salary, pension, and pro- pro-rated profit share up to the rated profit share up to the date of date of termination. termination. Non-executive director Sir Patrick Sergeant Jan 10 1993 12 n/a 12 months’ expense allowance. Expense allowance up to the date of termination. 1. On termination, proﬁt share is calculated as though the director has been employed for the full ﬁnancial year and then pro-rated according to the date of termination unless otherwise stated. 2. These reduced beneﬁts also apply if the director gives less than their required notice period to the company. In the event of death in service, beneﬁts accrue to the date of death. If a contract is terminated for reasons of bankruptcy or serious misconduct, it is terminated with immediate effect and with no payment in lieu of notice. 3. PM Fallon had a second service contract with a subsidiary of the group, Euromoney Institutional Investor (Jersey) Limited (EIIJ), dated May 4 1993. This service contract had the same terms as his contract with Euromoney Institutional Investor PLC. PM Fallon’s service contracts terminated on his death on October 14 2012. 4. NF Osborn has a second service contract with a subsidiary of the group, Euromoney Inc., dated January 4 1991 which may be 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. 5. DE Alfano’s service agreement is with Institutional Investor, Inc. 6. B AL-Rehany’s service agreement is with BCA Research, Inc. 46 Euromoney AR2012.indd 46 13/12/2012 15:54:50 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Information subject to audit (pages 47 to 51) Directors’ remuneration table Executive directors PM Fallon (died October 14 2012) PR Ensor3 NF Osborn4,5 DC Cohen2 CR Jones2 SM Brady (resigned November 15 2010) DE Alfano CHC Fordham JL Wilkinson B AL-Rehany Non-executive directors The Viscount Rothermere Sir Patrick Sergeant JC Botts JC Gonzalez MWH Morgan DP Pritchard Salary and fees1 2012 £ 222,000 198,418 132,559 123,628 258,000 – 138,994 151,300 231,002 260,662 28,000 28,000 34,500 28,000 28,000 34,500 1,897,563 Year to September 30 Benefits in kind 2012 £ 1,823 1,019 1,019 1,274 1,274 – 8,367 1,274 8,527 1,908 – – – – – – 26,485 Profit share 2012 £ 5,636,600 4,630,646 313,407 348,796 643,278 – 636,808 743,792 146,301 752,127 – – – – – – 13,851,755 Total 2012 £ 5,860,423 4,830,083 446,985 473,698 902,552 – 784,169 896,366 385,830 1,014,697 28,000 28,000 34,500 28,000 28,000 34,500 15,775,803 t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D Total 2011 £ 5,354,630 4,396,681 509,539 536,539 811,508 17,040 770,737 782,953 541,218 935,295 28,000 28,000 34,500 28,000 28,000 34,500 14,837,140 Fees as a director include fees paid as a director of subsidiary companies. Beneﬁts in kind include payments by the company for private health care. 1. The salaries of the executive directors are reviewed in April each year. None of the directors received a salary increase in April 2012. The increases in salaries since the 2011 annual report reﬂect the full year impact of salary increases granted in April 2011, and in the case of overseas directors also reﬂect movements in exchange rates over the relevant periods. 2. The salaries of DC Cohen and CR Jones include amounts of £7,928 and £18,000, respectively, following their decisions to cease contributions to the Harmsworth Pension Scheme with respect from April 2012 and to receive a cash allowance of 15% of base salary in lieu of company contributions to this fund. 3. PR Ensor is also an external member of the Finance Committee of Oxford University Press. During the year he retained earnings of £20,000 (2011: £20,000) in relation to this role. This amount is not included in the table above. 4. 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 his behalf. The waiver has not been deducted from his proﬁt share amount above. 5. NF Osborn is a non-executive director of RBC OJSC, a Moscow-listed media company. During the year he retained earnings of US$50,000 (2011: US$25,000) in relation to this role. He also serves on the management board of A&N International Media Limited, a fellow group company, for which he received fees for the year of £25,000 (2011: £25,000); and as an advisor to the boards of both DMG Events and dmgi, fellow group companies, for which he received a combined fee of US$45,000 (2011: US$40,000). These amounts are not included in the table 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 Euromoney AR2012.indd 47 21833.04 13/12/12 Proof 7 47 13/12/2012 15:54:50 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report continued 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. Pension contributions paid by the company on behalf of executive directors during the year were as follows: PM Fallon (died October 14 2012) PR Ensor NF Osborn DC Cohen2 CR Jones2 SM Brady (resigned November 15 2010) DE Alfano CHC Fordham JL Wilkinson B AL-Rehany Harmsworth Pension Scheme 2012 £ Euromoney Pension Plan 2012 £ – – – 7,928 12,375 – – – – – 20,303 – – 9,399 – – – – 15,130 14,982 – 39,511 Private schemes 2012 £ – – – – – – 3,938 – – 7,173 11,111 Total 2012 £ – – 9,399 7,928 12,375 – 3,938 15,130 14,982 7,173 70,925 Total 2011 £ – – 9,237 15,872 34,418 1,148 3,383 14,630 12,221 7,043 97,952 Under the Harmsworth Pension Scheme, the following pension beneﬁts were earned by the directors: Increase in accrued annual pension during the year £ Accrued annual pension at September 30 2012 £ Pension cash accrual September 30 2012 £ Transfer value September 30 2012 £ Transfer value September 30 2011 £ Increase in transfer value (net of directors’ contributions) £ Director PM Fallon (died October 14 2012)1 DC Cohen2 CR Jones2 1,000 1,500 1,900 12,000 31,300 43,400 – 49,100 63,700 208,000 621,000 771,000 202,000 548,000 691,000 6,000 73,000 80,000 The accrued annual pension entitlement is that which would be paid annually on retirement based on service to September 30 2012 and ignores any increase for future inﬂation. The pension cash accrual represents the sum which would be available on retirement based on service to September 30 2012 to secure retirement beneﬁts, ignoring 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 include the pension cash accrual and 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. The pension cash accrual has been included in 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. 1. PM Fallon’s pension beneﬁts related to a deferred pension in the Mail Newspapers Pension Scheme for pensionable service between April 1 1978 and April 1 1986, after which no further contributions were made to this scheme by the company or PM Fallon. 2. Company contributions to the Harmsworth Pension Scheme on behalf of DC Cohen and CR Jones were made until March 31 2012. From April 1 2012, these directors received a cash allowance in lieu of company pension contributions. 48 Euromoney AR2012.indd 48 13/12/2012 15:54:51 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ share options The directors hold options to subscribe for new ordinary shares of 0.25 pence each in the company as follows: PM Fallon (died October 14 2012) PR Ensor NF Osborn DC Cohen CR Jones DE Alfano CHC Fordham JL Wilkinson At start of year Granted/ trued up during year Exercised during year At end of year Exercise price Date from which exercisable Expiry date 5,133 5,133 – 5,133 5,133 3,430 4,972 – 8,401 – 21,936 10,000 5,000 7,969 – 11,286 3,454 14,740 – 52,449 20,000 15,000 5,133 23,162 4,972 28,134 96,401 10,000 – 9,435 9,434 28,869 5,133 1,480 – 19,612 4,972 24,584 55,781 15,013 4,972 19,984 39,969 – – 1,810 1,810 – (3,430) (673) 673 (4,775) 1,810 (6,395) – – – 15,896 (4,100) – (4,101) 1,810 9,505 – – – (1,629) – (1,630) (3,259) – 128 363 364 855 – – 621 5,338 – 5,337 11,296 (2,598) – (2,597) (5,195) (5,133) (5,133) – (5,133) (5,133) – – – – – (5,133) (10,000) – (7,969) – – – – – (17,969) (20,000) – (5,133) – – – (25,133) (10,000) (128) – – (10,128) (5,133) (1,480) – – – – (6,613) – – – – – – 1,810 1,810 – – 4,299 673 3,626 1,810 10,408 – 5,000 – 15,896 7,186 3,454 10,639 1,810 43,985 – 15,000 – 21,533 4,972 26,504 68,009 – – 9,798 9,798 19,596 – – 621 24,950 4,972 29,921 60,464 12,415 4,972 17,387 34,774 § § * § ^ † † ^ * ‡ ‡ ^ † ^ * § ^ † ^ ‡ ^ ^ § ‡ ‡ ^ † ^ ^ † ^ £1.87 £1.87 £4.97 £1.87 £0.0025 £6.03 £6.03 £0.0025 £4.97 £2.59 £4.19 £0.0025 £0.0025 £0.0025 £6.03 £0.0025 £4.97 £2.59 £4.19 £1.87 £0.0025 £6.03 £0.0025 £4.19 £0.0025 £0.0025 £0.0025 £1.87 £0.0025 £0.0025 £0.0025 £6.03 £0.0025 £0.0025 £6.03 £0.0025 exercised exercised Feb 01 15 exercised Feb 14 13 Jun 28 13 Feb 13 14 Feb 13 14 Feb 01 15 exercised now exercised Feb 14 13 Feb 14 13 Jun 28 13 Feb 13 14 Feb 01 15 exercised now exercised Feb 14 13 Jun 28 13 Feb 13 14 exercised exercised Feb 14 13 Feb 13 14 exercised exercised Feb 14 13 Feb 14 13 Jun 28 13 Feb 13 14 Aug 01 12 Aug 01 12 Aug 01 15 Aug 01 12 Sept 30 20 Feb 14 20 Feb 14 20 Sept 30 20 Aug 01 15 Dec 04 12 Jan 28 14 Sept 30 14 Sept 30 14 Sept 30 20 Feb 14 20 Sept 30 20 Aug 01 15 Dec 04 12 Jan 28 14 Aug 01 12 Sept 30 20 Feb 14 20 Sep 30 20 Jan 28 14 Sept 30 14 Sept 30 20 Sept 30 20 Aug 01 12 Sept 30 14 Sept 30 14 Sept 30 20 Feb 14 20 Sept 30 20 Feb 14 13 Jun 28 13 Feb 13 14 Sept 30 20 Feb 14 20 Sept 30 20 t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D 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 Euromoney AR2012.indd 49 21833.04 13/12/12 Proof 7 49 13/12/2012 15:54:51 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ Remuneration Report continued Directors’ share options continued At start of year 6,688 19,960 26,647 53,295 358,966 Granted/ trued up during year Exercised during year At end of year Exercise price Date from which exercisable Expiry date 7,570 – 7,570 15,140 23,757 – – – – (75,242) 14,258 ^ 19,960 † 34,217 ^ 68,435 307,481 £0.0025 £5.01 £0.0025 Feb 14 13 Feb 14 13 Feb 13 14 Sept 30 20 Feb 14 20 Sept 30 20 B AL-Rehany Total Directors’ long-term incentive – cash settled Under the terms of CAP 2010, the directors have been granted the following cash awards: At start of year £ Granted/ trued up during year £ Exercised during year £ At end of year £ NF Osborn NF Osborn DC Cohen DC Cohen CR Jones CR Jones DE Alfano DE Alfano CHC Fordham CHC Fordham JL Wilkinson JL Wilkinson B AL-Rehany B AL-Rehany 35,997 35,997 63,154 63,154 120,540 120,540 40,423 40,423 105,329 105,329 85,624 85,625 114,171 114,171 1,130,477 (17,577) (17,578) (17,568) (17,568) (6,982) (6,982) 1,556 1,556 22,870 22,870 (11,130) (11,132) 32,434 32,434 7,203 – – – – – – – – – – – – – – – 18,420 18,419 45,586 45,586 113,558 113,558 41,979 41,979 128,199 128,199 74,494 74,493 146,605 146,605 1,137,680 ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ Date from which entitled Expiry date Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Feb 14 13 Feb 13 14 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 Sept 30 20 § * ‡ ^ † Issued under the Euromoney Institutional Investor PLC SAYE scheme 2009. Issued under the Euromoney Institutional Investor PLC SAYE scheme 2012. Options granted are those expected to be issued following the satisfaction of the additional performance test (see page 44) in relation to awards outstanding from either tranche 2 or tranche 3 of the CAP 2004 which vest either on February 11 2012 or February 14 2013 as applicable, three months following the announcement of the company’s results. The number of such options granted to each director is provisional and will require a true-up to reﬂect adjustments to the respective director’s individual business proﬁts between year end and December 31 2012. As such the actual number of options granted could vary from that disclosed. The number of options and the amount of cash award granted under CAP 2010 to each director is provisional and based on the performance of the respective director’s individual businesses up to the end of the performance period (September 2012). The number of such options granted to each director is provisional and will require a true-up to reﬂect adjustments to the respective director’s individual business proﬁts between year end and December 31 2012. The number of options received under the ﬁrst tranche share award of the CAP 2010 is reduced by the number of options vesting with participants from the CSOP 2010 (note 24). As such the actual number of options and amount of the cash award issued is likely to be different to the amount granted. The number of options granted under CSOP 2010 to each director will ﬁrst vest on the third anniversary of its grant, being June 28 2013 for the UK CSOP and February 14 2013 for the Canadian CSOP, providing the CSOP is in the money at that time and sufﬁcient CAP 2010 award shares remain vested but unexercised. Once vested the option remains exercisable for a period of one month and then lapse. If the option is not exercised, the option continues to subsist and becomes exercisable at the same time as the second tranche of the CAP 2010 share award (note 24). 50 Euromoney AR2012.indd 50 13/12/2012 15:54:52 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Directors’ share options continued The market price of the company’s shares on September 30 2012 was £7.70. The high and low share prices during the year were £8.28 and £5.90 respectively. There were 23,757 options granted during the year (2011: 40,559). The aggregate gain made by the directors on the exercise of share options in the year was £387,800 (2011: £363,807) as follows: PM Fallon (died October 14 2012) PR Ensor NF Osborn DC Cohen DC Cohen CR Jones CR Jones DE Alfano DE Alfano CHC Fordham CHC Fordham Number of options exercised 5,133 5,133 5,133 10,000 7,969 5,133 20,000 128 10,000 1,480 5,133 75,242 Date of exercise Feb 07 12 Feb 02 12 Feb 02 12 Jun 21 12 Jun 21 12 Feb 02 12 Aug 10 12 Feb 10 12 Jun 07 12 Feb 10 12 Jul 09 12 Market price per share on date of exercise (£) Gain on exercise (£) Number of shares retained £7.36 £6.85 £6.85 £7.42 £7.42 £6.85 £7.47 £7.31 £7.75 £7.31 £7.84 28,194 25,562 25,562 48,236 59,073 25,562 97,600 935 35,617 10,815 30,644 387,800 5,133 – 3,883 – – 3,133 10,000 – – – 5,133 27,282 t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D 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 as at September 30 were as follows: PM Fallon (died October 14 2012) PR Ensor NF Osborn DC Cohen CR Jones DE Alfano CHC Fordham JL Wilkinson B AL-Rehany The Viscount Rothermere Sir Patrick Sergeant JC Botts JC Gonzalez MWH Morgan DP Pritchard Non-beneficial Sir Patrick Sergeant Ordinary shares of 0.25p each 2012 2011 630,383 194,529 45,354 74,490 169,272 99,256 140,377 77,275 14,791 24,248 165,304 15,503 – 7,532 – 1,658,314 625,250 194,529 41,471 124,490 156,139 99,256 135,244 77,275 14,791 23,899 165,304 15,503 – 7,532 – 1,680,683 20,000 20,000 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 Euromoney AR2012.indd 51 21833.04 13/12/12 Proof 7 51 13/12/2012 15:54:52 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 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 (died October 14 2012) PR Ensor CR Jones Sir Patrick Sergeant MWH Morgan1&2 Ordinary shares of 12.5p each ‘A’ ordinary non-voting shares of 12.5p each 2012 2011 2012 2011 11,903,132 4,000 – – – 764 11,903,132 4,000 – – – 764 75,134,502 42,234 866 821 36,000 978,104 75,134,502 41,860 488 444 36,000 927,731 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 the Daily Mail and General Trust plc annual report. 2. The ﬁgures in the table above include ‘A’ shares awarded to executives under the DMGT Executive Bonus Scheme. For MWH Morgan and The Viscount Rothermere respectively, 35,266 and 80,176 of these shares were subject to restrictions as explained in the Daily Mail and General Trust plc annual report. The Viscount Rothermere had non-beneﬁcial interests as a trustee at September 30 2012 in 5,540,000 ‘A’ ordinary non-voting shares of 12.5 pence each (2011: 5,540,000 shares) plus nil ordinary shares of 12.5 pence each (2011: 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 11,903,132 ordinary shares of 12.5 pence each (2011: 12,542,340 shares). At September 30 2012 and September 30 2011, 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 703,351 and 563,254 respectively ‘A’ ordinary non-voting shares in Daily Mail and General Trust plc at September 30 2012 (2011: 472,887 and 277,412 options respectively). The exercise price of these options ranges from £nil to £7.24. Further details of these options are listed in the Daily Mail and General Trust plc annual report. Since September 30 2012, PM Fallon, PR Ensor and CR Jones purchased, through the DMGT SIP scheme, 26, 52 and 52 additional ‘A’ ordinary non- voting shares in Daily Mail and General Trust plc respectively. PM Fallon died on October 14 2012. There have been no other changes in the directors’ interests since September 30 2012. John Botts Chairman of the Remuneration Committee November 14 2012 52 Euromoney AR2012.indd 52 13/12/2012 15:54:53 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Independent Auditor’s Report to the members of Euromoney Institutional Investor PLC We have audited the group financial statements of Euromoney Opinion on financial statements Institutional Investor PLC for the year ended September 30 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows 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 Chapter 3 of Part 16 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 auditor’s 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 auditor 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 and express an opinion on 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 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. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. In our opinion the group financial statements: ● give a true and fair view of the state of the group’s affairs as at September 30 2012 and of its proﬁt for the year then ended; ● have been properly prepared in accordance with IFRSs as adopted by the European Union; and ● 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 group 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: ● certain disclosures of directors’ remuneration speciﬁed by law are not made; or ● we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: ● the directors’ statement contained within the Directors’ Report in relation to going concern; ● the part of the Corporate Governance Statement relating to the company’s compliance with the nine provisions of the UK Corporate Governance Code speciﬁed for our review; and ● certain elements of the report to shareholders by the board on directors’ remuneration. Other matter We have reported separately on the parent company financial statements of Euromoney Institutional Investor PLC for the year ended September 30 2012 and on the information in the Directors’ Remuneration Report that is described as having been audited. Robert Matthews (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom November 14 2012 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 t r o p e R s ’ r o t i d u A t n e d n e p e d n I Euromoney AR2012.indd 53 21833.04 13/12/12 Proof 7 53 13/12/2012 15:54:53 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Income Statement for the year ended September 30 2012 Total revenue Operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items Acquired intangible amortisation Long-term incentive expense Additional accelerated long-term incentive expense Exceptional items Notes 2012 £000 2011 £000 3 394,144 363,142 3 12 24 6 5 118,175 (14,782) (6,301) – (1,617) 108,967 (12,221) (9,491) (6,603) (3,295) Operating profit before associates 3, 4 95,475 77,357 Share of results in associates Operating profit Finance income Finance expense Net finance costs Profit before tax Tax expense on profit Profit after tax Attributable to: Equity holders of the parent Equity non-controlling interests Basic earnings per share – continuing operations Diluted earnings per share – continuing operations Adjusted basic earnings per share Adjusted diluted earnings per share Dividend per share (including proposed dividends) 459 95,934 4,475 (8,041) (3,566) 408 77,765 1,761 (11,329) (9,568) 92,368 68,197 (22,528) 69,840 (22,527) 45,670 69,672 168 69,840 56.74p 55.17p 67.79p 65.91p 21.75p 45,591 79 45,670 38.02p 37.34p 57.09p 56.05p 18.75p 8 8 8 3 9 3 11 11 11 11 10 A detailed reconciliation of the group’s statutory results to the adjusted results is set out in the appendix to the Chairman’s Statement on page 7. 54 Euromoney AR2012.indd 54 13/12/2012 15:54:53 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Statement of Comprehensive Income for the year ended September 30 2012 Profit after tax Change in fair value of cash flow hedges Transfer of loss on cash flow hedges from fair value reserves to Income Statement: Foreign exchange losses in total revenue Foreign exchange losses/(gains) in operating profit Interest rate swap losses in interest payable on committed borrowings Net exchange differences on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Actuarial losses on defined benefit pension schemes Tax on items taken directly to equity Other comprehensive (expense)/income for the year Total comprehensive income for the year Attributable to: Equity holders of the parent Equity non-controlling interests 2012 £000 69,840 3,913 3,382 184 1,251 (13,650) 5,886 (3,398) (727) (3,159) 66,681 65,675 1,006 66,681 2011 £000 45,670 (1,340) 4,398 (695) 3,985 9,330 (5,691) (1,032) 1,395 10,350 56,020 55,923 97 56,020 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 e m o c n I e v i s n e h e r p m o C f o t n e m e t a t S d e t a d i l o s n o C Euromoney AR2012.indd 55 21833.04 13/12/12 Proof 7 55 13/12/2012 15:54:53 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Statement of Financial Position as at September 30 2012 Non-current assets Intangible assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax assets Derivative financial instruments Current assets Trade and other receivables Current income tax assets Cash at bank and in hand Derivative financial instruments Current liabilities Acquisition option commitments Trade and other payables Liability for cash-settled options Current income tax liabilities Group relief payable 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 Liability for cash-settled options and other non-current liabilities Preference shares 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 Reserve for share-based payments Fair value reserve Translation reserve Retained earnings Equity shareholders’ surplus Equity non-controlling interests Total equity The accounts were approved by the board of directors on November 14 2012. Richard Ensor Colin Jones Directors 56 Notes 2012 £000 2011 £000 12 12 13 14 22 19 16 19 25 17 24 18 19 21 20 20 20 25 24 20 22 27 19 21 23 333,065 136,243 17,982 735 7,344 296 495,665 65,952 2,678 13,544 2,715 84,889 (4,273) (27,700) (7,768) (9,076) – (54,170) (105,106) (656) (2,037) – (1,228) – (212,014) (127,125) 368,540 (3,595) (6,966) (10) (43,154) (16,975) (4,757) (241) (4,918) (80,616) 287,924 311 99,485 64,981 8 (74) 36,055 (18,152) 40,728 58,033 281,375 6,549 287,924 336,632 153,410 20,390 – 13,216 218 523,866 71,417 9,803 14,046 1,126 96,392 (852) (29,970) – (8,044) (1,063) (56,249) (105,507) (6,275) (810) (58,516) (1,617) (1,549) (270,452) (174,060) 349,806 (10,149) (11,039) (10) (71,543) (22,225) (1,899) (1,970) (5,396) (124,231) 225,575 303 82,124 64,981 8 (74) 33,725 (32,768) 55,216 16,218 219,733 5,842 225,575 Euromoney AR2012.indd 56 13/12/2012 15:54:54 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Statement of Changes in Equity for the year ended September 30 2012 Share premium account £000 Share capital £000 Other reserve £000 Capital redemp- tion reserve £000 Own shares £000 Reserve for share- based pay- ments £000 Fair value reserve £000 Trans- lation reserve £000 Retained earnings £000 Equity non- control- ling interests £000 Total £000 Total £000 At September 30 2011 Retained profit for the year Change in fair value of cash flow hedges Transfer of loss on cash flow hedges from fair value reserves to Income Statement: Foreign exchange losses in total revenue Foreign exchange losses in operating profit Interest rate swap losses in interest payable on committed borrowings Net exchange differences on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Actuarial losses on defined benefit pension schemes Tax on items taken directly to equity Total comprehensive income for the year Exercise of acquisition option commitments Credit for share-based payments Scrip/cash dividends paid Exercise of share options At September 30 2012 303 82,124 64,981 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6 16,304 1,057 – 2 311 99,485 64,981 8 – – – – – – – – – – – – – – 8 (74) 33,725 (32,768) 55,216 16,218 219,733 – 69,672 69,672 – – – 5,842 225,575 168 69,840 – – 3,913 – – 3,913 – 3,913 – – – – – – – – – – 3,382 – 184 – 1,251 – – – – 3,382 – 3,382 – 184 – 184 – 1,251 – 1,251 – – (14,488) – (14,488) 838 (13,650) – 5,886 – – 5,886 – 5,886 – – – – – (3,398) (3,398) – (3,398) – (727) (727) – (727) – 14,616 (14,488) 65,547 65,675 1,006 66,681 – – – 62 62 (62) – – – – 2,330 – – 2,330 (7,484) 1,059 (74) 36,055 (18,152) 40,728 58,033 281,375 – – – (23,794) – – – – – – (299) 62 2,330 (7,783) 1,121 6,549 287,924 The investment in own shares is held by the Euromoney Employees’ Share Ownership Trust (ESOT). At September 30 2012 the ESOT held 58,976 shares (2011: 58,976 shares) carried at a historic cost of £1.25 per share with a market value of £454,000 (2011: £363,000). 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. 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 y t i u q E n i s e g n a h C f o t n e m e t a t S d e t a d i l o s n o C Euromoney AR2012.indd 57 21833.04 13/12/12 Proof 7 57 13/12/2012 15:54:54 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Statement of Changes in Equity continued for the year ended September 30 2011 Share premium account £000 Share capital £000 Other reserve £000 Capital redemp- tion reserve £000 Own shares £000 Reserve for share- based pay- ments £000 Fair value reserve £000 Trans- lation reserve £000 Retained earnings £000 Total £000 (74) 25,658 (33,425) 45,904 – – 53 169,483 – 45,591 45,591 Equity non- control- ling interests £000 Total £000 – 169,483 79 45,670 296 66,082 64,981 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6 15,325 717 1 82,124 303 – – – 64,981 8 – – – – – – – – – – – – – – – – – 8 At September 30 2010 Retained profit for the year Change in fair value of cash flow hedges Transfer of loss on cash flow hedges from fair value reserves to Income Statement: Foreign exchange losses in total revenue Foreign exchange gains in operating profit Interest rate swap losses in interest payable on committed borrowings Net exchange differences on translation of net investments in overseas subsidiary undertakings Net exchange differences on foreign currency loans Actuarial losses on defined benefit pension schemes Tax on items taken directly to equity Total comprehensive income for the year Change in ownership of subsidiaries Recognition of acquisition option commitments Non-controlling interest recognised on acquisition Exercise of acquisition option commitments Credit for share-based payments Scrip/cash dividends paid Exercise of share options At September 30 2011 58 – – – – – – – – – – – – – – – (1,340) – – (1,340) – (1,340) – – 4,398 (695) – 3,985 – – – – – 4,398 – 4,398 (695) – (695) – 3,985 – 3,985 – – 9,312 – 9,312 18 9,330 – (5,691) – – (5,691) – (5,691) – – – – – – – – – – (1,032) (1,032) – (1,032) – 1,395 1,395 – 1,395 657 9,312 45,954 55,923 97 56,020 – – – – – 1,091 1,091 (208) 883 – (9,451) (9,451) – (9,451) – – – – 5,981 5,981 19 19 (19) – – – – 8,067 – – – – – (74) 33,725 (32,768) 55,216 – – – – (21,448) – 8,067 (6,117) 718 16,218 219,733 – (28) 19 8,067 (6,145) 737 5,842 225,575 Euromoney AR2012.indd 58 13/12/2012 15:54:54 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Consolidated Statement of Cash Flows for the year ended September 30 2012 Cash flow from operating activities Operating profit Share of results in associates Acquired intangible amortisation Licences and software amortisation Long-term incentive expense Intangible impairment Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Increase in provisions Operating cash flows before movements in working capital Decrease/(increase) in receivables (Decrease)/increase in payables Cash generated from operations Income taxes paid Group relief tax paid Net cash from operating activities Investing activities Dividends paid to non-controlling interests Dividends received from associate Interest received Purchase of intangible assets Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Payment following working capital adjustment from purchase of subsidiary Purchase of subsidiary undertaking Purchase of associate Net cash used in investing activities Financing activities Dividends paid Interest paid Interest paid on loan notes Issue of new share capital Payment of acquisition deferred consideration Purchase of additional interest in subsidiary undertakings Proceeds from disposal of interest in subsidiary undertakings Proceeds received from non-controlling interest Settlement of derivative assets/liabilities Redemption of loan notes Loan repaid to DMGT group company Loan received from DMGT group company Net cash used in financing activities Net increase 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. 2012 £000 2011 £000 95,934 (459) 14,782 339 6,301 – 3,408 53 844 121,202 4,905 (3,932) 122,175 (11,065) (4,204) 106,906 (299) 291 306 (819) (1,665) 2 (1,151) (5,099) (567) (9,001) (7,484) (5,218) (12) 1,059 (612) (924) – 1,828 (332) (386) (139,067) 54,700 (96,448) 1,457 12,497 (410) 13,544 77,765 (408) 12,221 302 16,094 120 2,651 11 1,033 109,789 (7,464) 15,645 117,970 (27,022) – 90,948 (28) 656 293 (557) (2,112) 95 – (64,773) – (66,426) (6,117) (6,644) (17) 718 (2,423) (50) 891 – (746) (420) (506,567) 498,067 (23,308) 1,214 11,190 93 12,497 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 s w o l F h s a C f o t n e m e t a t S d e t a d i l o s n o C Euromoney AR2012.indd 59 21833.04 13/12/12 Proof 7 59 13/12/2012 15:54:55 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Note to the Consolidated Statement of Cash Flows Net Debt Net debt at beginning of year Increase in cash and cash equivalents Decrease in amounts owed to DMGT group company Redemption of loan notes Interest paid on loan notes Accrued interest on loan notes Effect of foreign exchange rate movements Net debt at end of year Net debt comprises: Cash at bank and in hand Bank overdrafts Total cash and cash equivalents Committed loan facility Loan notes Net debt 2012 £000 2011 £000 (119,179) 1,457 84,367 386 12 (9) 2,128 (30,838) 13,544 – 13,544 (43,154) (1,228) (30,838) (128,757) 1,214 8,500 420 17 (15) (558) (119,179) 14,046 (1,549) 12,497 (130,059) (1,617) (119,179) 60 Euromoney AR2012.indd 60 13/12/2012 15:54:55 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements 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 (IFRS) 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 those 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. (a) Relevant new standards, amendments and interpretations issued and applied in the 2012 financial year: requirements for classifying and measuring ﬁnancial assets and is likely to affect the group’s accounting for its ﬁnancial assets. This standard has not yet been endorsed by the EU. The group is yet to assess IFRS 9’s full impact. IFRS 10, ‘Consolidated Financial Statements’ (effective for accounting ● periods beginning on or after January 1 2013). This standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated ﬁnancial statements of the parent company and provides additional guidance to assist in the determination of control where this is difﬁcult to assess. This standard has not yet been endorsed by the EU. The group is yet to assess IFRS 10’s full impact. ● IFRS 11, ‘Joint Arrangements’ (effective for accounting periods beginning on or after January 1 2013). This standard replaces IAS 31, ‘Interests in Joint Ventures’ and requires a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and then account for those rights and obligations in accordance with that type of joint arrangement. A joint venturer applies the equity method of accounting for its investment in a joint venture in accordance with IAS 28 ‘Investments in Associates and Joint Ventures (2011)’. Unlike IAS 31, the use of ‘proportionate consolidation’ to account for joint ventures is not permitted. ● IAS 24 (revised), ‘Related party disclosures’, effective for accounting ● IFRS 12, ‘Disclosure of Interests in Other Entities’ (effective for periods beginning on or after January 1 2011. accounting periods beginning on or after January 1 2013). This ● IFRIC 14, ‘Prepayments of a Minimum Funding Requirement standard includes the disclosure requirements for all forms of Improvements to IFRSs 2010’, effective for accounting periods interests in other entities, including joint arrangements, associates, beginning on or after January 1 2011. special purpose vehicles and other off balance sheet vehicles. This ● Amendments to IFRS 7 ‘Financial Instruments: Disclosures’, effective standard has not yet been endorsed by the EU. The group is yet to for accounting periods beginning on or after July 1 2011. assess IFRS 12’s full impact. ● Improvements to IFRSs (2010), effective for accounting periods ● IFRS 13, ‘Fair Value Measurement’ (effective for accounting periods beginning on or after January 1 2011. Key amendments include: beginning on or after January 1 2013). This standard aims to improve IFRS 1 – accounting policy changes in year of adoption and consistency and reduce complexity by providing a precise deﬁnition amendments to deemed cost (revaluation basis, regulatory assets); of fair value and a single source of fair value measurement and IFRS 3/IAS 27 – clariﬁcation of transition requirements, measurement disclosure requirements for use across IFRSs. The requirements, which of non-controlling interests, unreplaced and voluntarily replaced are largely aligned between IFRSs and US GAAP, do not extend to the share-based payment awards; ﬁnancial statement disclosures – use of fair value accounting but provide guidance on how it should clariﬁcation of content of statement of changes in equity (IAS 1), be applied where its use is already required or permitted by other ﬁnancial instrument disclosures (IFRS 7) and signiﬁcant events and standards within IFRSs or US GAAP. This standard has not yet been transactions in interim reports (IAS 34). endorsed by the EU. The group is yet to assess IFRS 13’s full impact. ● IAS 19 (revised), ‘Employee Beneﬁts’, issued in June 2011 (effective None of these newly adopted standards have had a material impact on for accounting periods beginning on or after January 1 2013). The the group’s results in this financial year. (b) Relevant new standards, amendments and interpretations issued but effective in future accounting periods: impact on the group will be as follows: to eliminate the corridor approach and recognise all actuarial gains and losses in Other Comprehensive Income as they occur; to immediately recognise all past service costs; and to replace interest cost and expected return on ● IFRS 9 ‘Financial Instruments’ issued in October 2010 (effective for plan assets with a net interest amount that is calculated by applying accounting periods beginning on or after January 1 2015). This the discount rate to the net deﬁned liability (asset). The group is yet standard is the ﬁrst step in the process to replace IAS 39 ‘Financial to assess the full impact of the amendments. Instruments: recognition and measurement’. IFRS 9 introduces new 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 61 21833.04 13/12/12 Proof 7 61 13/12/2012 15:54:55 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 1 Accounting policies continued ● Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), effective for accounting periods beginning on or after January 1 2014. This amends IFRS 10, ‘Consolidated Financial Statements’, IFRS 12, ‘Disclosure of Interests in Other Entities’ and IAS 27, ‘Separate Financial Statements’ to: provide investment entities an exemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each eligible subsidiary at fair value through proﬁt or loss in accordance with IFRS 9, ‘Financial Instruments’ or IAS 39, ‘Financial Instruments: Recognition and Measurement’; require additional disclosure about why the entity is considered an investment entity, details of the entity’s unconsolidated subsidiaries, and the nature of relationship and certain transactions between the investment entity and its subsidiaries; require an investment entity to account for its investment in a relevant subsidiary in the same way in its consolidated and separate ﬁnancial statements (or to only provide separate ﬁnancial statements if all subsidiaries are unconsolidated). 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. 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 25. ● IAS 27, ‘Separate Financial Statements (2011)’ (effective for accounting periods beginning on or after January 1 2013). The standard requires that when an entity prepares separate ﬁnancial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either at cost, or in accordance with IFRS 9 Financial Instruments. It also deals with the recognition of dividends, certain group reorganisations and includes a number of disclosure requirements. ● IAS 28, ‘Investments in Associates and Joint Ventures (2011)’ (effective for accounting periods beginning on or after January 1 2013). This standard supersedes IAS 28, ‘Investments in Associates’, and prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The standard deﬁnes ‘signiﬁcant inﬂuence’ and provides guidance on how the equity method of accounting is to be applied (including exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested for impairment. Offsetting Financial Assets and Financial Liabilities (Amendments to ● IAS 32), effective for accounting periods beginning on or after January 1 2014. This amends IAS 32, ‘Financial Instruments: Presentation’ to clarify certain aspects because of diversity in application of the requirements on offsetting, focused on four main areas: — the meaning of ‘currently has a legally enforceable right of set-off’ — the application of simultaneous realisation and settlement — the offsetting of collateral amounts — the unit of account for applying the offsetting requirements. ● Presentation of Items of Other Comprehensive Income (Amendments to IAS 1), effective for accounting periods beginning on or after July 31 2012. This amends IAS 1, ‘Presentation of Financial Statements’ to revise the way other comprehensive income is presented. ● Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance Amends IFRS 10, ‘Consolidated Financial Statements’, IFRS 11, ‘Joint Arrangements’ and IFRS 12, ‘Disclosure of Interests in Other Entities’ to provide additional transition relief in by limiting the requirement to provide adjusted comparative information to only the preceding comparative period. ● Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7), effective for accounting periods beginning on or after January 1 2013. This amends the disclosure requirements in IFRS 7, ‘Financial Instruments: Disclosures’ to require information about all recognised ﬁnancial instruments that are set off in accordance with paragraph 42 of IAS 32, ‘Financial Instruments: Presentation’. 62 Euromoney AR2012.indd 62 13/12/2012 15:54:55 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 1 Accounting policies continued Basis of consolidation (a) Subsidiaries 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. Intercompany transactions, balances and unrealised gains and losses on transactions between group companies are eliminated. The consideration paid for the earlier stages of a step acquisition, before control passes to the group, is treated as an investment in an associate. (b) Transactions and non-controlling interests Transactions with non-controlling interests in the net assets of consolidated subsidiaries are identified separately and included in the group’s equity. Non-controlling interests consist of the amount of those interests at the date of the original business combination and its share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non- controlling interests having a deficit balance. The group uses the acquisition method of accounting to account for business combinations. The amount recognised as consideration by the group equates to the fair value of the assets, liabilities and equity acquired by the group plus contingent consideration (should there be any 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 such arrangement). Acquisition related costs are expensed as incurred. and net realisable value. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair (c) Associates values at acquisition. On an acquisition-by-acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interests proportionate share of the acquiree’s net assets. To the extent the consideration (including the assumed contingent consideration) provided by the acquirer is greater than the fair value of the assets and liabilities, this amount is recognised as goodwill. Goodwill also incorporates the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income. 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 and are initially recognised at cost. The group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The group’s share of associate post-acquisition profit or losses is recognised in the Income Statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associate equals its interest in the associate, including any other unsecured receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Partial acquisitions – control unaffected Where the group acquires an additional interest in an entity in which a controlling interest is already held, the consideration paid for the additional interest is reflected within movements in equity as a reduction in non-controlling interests. No goodwill is recognised. Unrealised gains on transactions between the group and its associates are eliminated to the extent of the group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Step acquisitions – control passes to the group Where a business combination is achieved in stages, at the stage at which control passes to the group, the previously held interest is treated as if it had been disposed of, along with the consideration paid for the controlling interest in the subsidiary. The fair value of the previously held interest then forms one of the components that is used to calculate goodwill, along with the consideration and the non-controlling interest less the fair value of identifiable net assets. Dilution gains and losses arising in investments in associates are recognised in the Income Statement. 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 Euromoney AR2012.indd 63 21833.04 13/12/12 Proof 7 63 13/12/2012 15:54:55 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 1 Accounting policies continued Foreign currencies Functional and presentation currency The functional and presentation currency of Euromoney Institutional Investor PLC and its UK subsidiaries other than Fantfoot Limited is sterling. The functional currency of subsidiaries and associates is the currency of the primary economic environment in which they operate. Transactions and balances 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 Transactions in foreign currencies are recorded at the rate of exchange there are separately identifiable cash flows. The carrying value of goodwill ruling at the date of the transaction. Monetary assets and liabilities is reviewed for impairment at least annually or where there is an indication denominated in foreign currencies are translated into sterling at the rates that goodwill may be impaired. If the recoverable amount of the cash ruling at the balance sheet date. generating unit is less than its carrying amount, then the impairment loss is allocated first to reduce the carrying amount of the goodwill allocated Gains and losses arising on foreign currency borrowings and derivative to the unit and then to the other assets of the unit on a pro-rata basis. Any instruments, to the extent that they are used to provide a hedge against impairment is recognised immediately in the Income Statement and may the group’s equity investments in overseas undertakings, are taken to not subsequently be reversed. On disposal of a subsidiary undertaking, the equity together with the exchange difference arising on the net investment attributable amount of goodwill is included in the determination of the in those undertakings. All other exchange differences are taken to the profit and loss on disposal. Income Statement. Group companies Goodwill arising on foreign subsidiary investments held in the consolidated balance sheet are retranslated into sterling at the applicable period end The Income Statements of overseas operations are translated into sterling exchange rates. Any exchange differences arising are taken directly to at the weighted average exchange rates for the year and their balance equity as part of the retranslation of the net assets of the subsidiary. sheets are translated into sterling at the exchange rates ruling at the balance sheet date. All exchange differences arising on consolidation are Goodwill arising on acquisitions before the date of transition to IFRS has taken to equity. In the event of the disposal of an operation, the related been retained at the previous UK GAAP amounts having been tested for cumulative translation differences are recognised in the Income Statement impairment at that date. Goodwill written off to reserves under UK GAAP in the period of disposal. Property, plant and equipment before October 1 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Property, plant and equipment are stated at cost less accumulated Internally-generated intangible assets depreciation and any recognised impairment loss. An internally-generated intangible asset arising from the group’s software and systems development is recognised only if all of the following Depreciation of property, plant and equipment is provided on a straight- conditions are met: 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% ● An asset is created that can be identiﬁed (such as software or a website); ● It is probable that the asset created will generate future economic beneﬁts; and ● The development cost of the asset can be measured reliably. Internally-generated intangible assets are stated at cost and amortised on a straight-line basis over the useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. 64 Euromoney AR2012.indd 64 13/12/2012 15:54:55 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 1 Accounting policies continued Other intangible assets For all other intangible assets, the group initially makes an assessment 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 of their fair value at acquisition. An intangible asset will be recognised months or less. as long as the asset is separable or arises from contractual or other legal rights, and its fair value can be measured reliably. Subsequent to acquisition, amortisation is charged so as to write off the costs of other intangible assets over their estimated useful lives, using a straight-line or reducing balance method. These intangible assets are reviewed for impairment as described below. 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: Trademarks and brands Customer relationships Databases Licences and software 5 – 30 years 3 – 16 years 1 – 22 years 3 – 5 years Impairment of non-financial assets Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 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. More information on impairment is included in the impairment of financial assets section below. For the purpose of the group cash flow statement, cash and cash equivalents are as defined above, net of outstanding bank overdrafts. Financial assets The group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its assets at initial recognition and re-evaluates this designation at every reporting date. Classification Financial assets at fair value through profit and loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of the reporting period which are classified as non-current assets. The group’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 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 Euromoney AR2012.indd 65 21833.04 13/12/12 Proof 7 65 13/12/2012 15:54:55 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 1 Accounting policies continued Recognition and measurement Regular purchases and sales of financial assets are recognised on the date on which the group commits to purchase or sell the asset. All financial assets, other than those carried at fair value through profit or loss, are initially recognised at fair value plus transaction costs. Financial assets at fair value through profit and loss Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the profit and loss component of the Statement of Comprehensive Income. Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss category’ are included in the profit and loss component of the Statement of Comprehensive Income in the period in which they arise. Dividend income from assets, categorised as financial assets at fair value through profit or loss, is recognised in the profit and loss component of the Statement of Comprehensive Income as part of other income when the group’s right to receive payments is established. ● ● Signiﬁcant ﬁnancial difﬁculty of the issuer or obligor; A breach of contract, such as a default or delinquency in interest or principal payments; ● The group, for economic or legal reasons relating to the borrower’s ﬁnancial difﬁculty, granting to the borrower a concession that the lender would not otherwise consider; ● It becomes probable that the borrower will enter bankruptcy or other ﬁnancial reorganisation; ● The disappearance of an active market for that ﬁnancial asset because of ﬁnancial difﬁculties; or ● Observable data indicating that there is a measurable decrease in the estimate of future cash ﬂows from a portfolio of ﬁnancial assets since the initial recognition of those assets, although the decrease cannot yet be identiﬁed with the individual ﬁnancial assets in the portfolio, including: (i) Adverse changes in the payment status of borrowers in the portfolio; and (ii) National or local economic conditions that correlate with defaults on the assets in the portfolio. Loans and receivables Loans and receivables are carried at amortised cost using the effective The group first assesses whether objective evidence of impairment exists. interest method. Available-for-sale financial assets Available-for-sale financial assets are subsequently measured at fair value. Offsetting financial instruments The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognised in the profit Financial assets and liabilities are offset and the net amount reported in and loss component of the Statement of Comprehensive Income. If the balance sheet when there is a legally enforceable right to offset the a loan has a variable interest rate, the discount rate for measuring any recognised amounts and there is an intention to settle on a net basis, or impairment loss is the current effective interest rate determined under the realise the asset and settle the liability simultaneously. Impairment of financial assets contract. As a practical expedient, the group may measure impairment on the basis of an instrument’s fair value using an observable market price. The group assesses at each reporting period whether there is objective If the asset’s carrying amount is reduced, the amount of the loss is evidence that a financial asset or a group of financial assets is impaired. A recognised in the profit and loss component of the Statement of financial asset or a group of financial assets is impaired and impairment Comprehensive Income. losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of If in a subsequent period, the amount of the impairment loss decreases the asset (a ‘loss event’) and that loss event (or events) has an impact on and the decrease can be related objectively to an event occurring after the estimated future cash flows of the financial asset or group of financial the impairment was recognised (such as an improvement in the debtor’s assets that can be reliably estimated. credit rating), the reversal of the previously recognised impairment loss is recognised in the profit and loss component of the Statement of The criteria that the group uses to determine that there is objective Comprehensive Income. evidence of an impairment loss include: 66 Euromoney AR2012.indd 66 13/12/2012 15:54:56 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 1 Accounting policies continued Financial liabilities Committed borrowings and bank overdrafts Amounts accumulated in equity are reclassified to the Income Statement in the periods when the hedged item is recognised in the Income Statement (for example, when the forecast transaction that is hedged takes place). Interest-bearing loans and overdrafts are recorded at the amounts received, net of direct issue costs. Direct issue costs are amortised over the The gain or loss relating to the effective portion of interest rate swaps period of the loans and overdrafts to which they relate. Finance charges, hedging variable rate borrowings is recognised in the Income Statement including premiums payable on settlement or redemption are charged to accordingly, the gain or loss relating to the ineffective portion is recognised the Income Statement as incurred using the effective interest rate method in the Income Statement immediately. However, whenever the forecast and are added to the carrying value of the borrowings or overdraft to the transaction that is hedged results in the recognition of a non-financial extent they are not settled in the period in which they arise. Trade payables asset (for example fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised Trade payables are not interest-bearing and are stated at their fair value. in depreciation in the case of fixed assets. Derivative financial instruments When a hedging instrument expires or is sold, or when a hedge no longer The group uses various derivative financial instruments to manage its meets the criteria for hedge accounting, any cumulative gain or loss exposure to foreign exchange and interest rate risks, including forward existing in equity at that time remains in equity and is recognised when foreign currency contracts and interest rate swaps. the forecast transaction is ultimately recognised in the Income Statement. All derivative instruments are recorded in the balance sheet at fair value. gain or loss that was reported in equity is immediately transferred to the When a forecast transaction is no longer expected to occur, the cumulative The recognition of gains or losses on derivative instruments depends on Income Statement. whether the instrument is designated as a hedge and the type of exposure it is designed to hedge. The group designates certain derivatives as either: 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 (a) hedges of a particular risk associated with a recognised asset or are accounted for on an accruals basis. liability or a highly probable forecast transaction (cash flow hedge); or Net investment hedge (b) hedges of a net investment in a foreign operation (net investment Hedges of net investments in foreign operations are accounted for in the hedge). same way as cash flow hedges. The group documents at the inception of the transaction the relationship Gains or losses on the qualifying part of net investment hedges are between hedging instruments and hedged items, as well as its risk recognised in other comprehensive income together with the gains and management objectives and strategy for undertaking various hedging losses on the underlying net investment. The ineffective portion of such transactions. The group also documents its assessment, both at hedge gains and losses is recognised in the Income Statement immediately. inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in Changes in the fair value of the derivative financial instruments that do fair values or cash flows of hedged items. not qualify for hedge accounting are recognised in the Income Statement as they arise. The full fair value of a hedging derivative is classified as a non-current asset or liability when the derivative matures in more than 12 months, Gains and losses accumulated in equity are transferred to the Income and as a current asset or liability when the derivative matures in less than Statement when the foreign operation is partially disposed of or sold. 12 months. Trading derivatives are classified as a current asset or liability. Cash flow hedge Liabilities in respect of put option agreements Liabilities for put options over the remaining minority interests in The effective portion of gains or losses on derivatives that are designated subsidiaries are recorded in the Statement of Financial Position at their and qualify as cash flow hedges are recognised in other comprehensive estimated discounted present value. These discounts are unwound and income within the Statement of Comprehensive Income. The ineffective charged to the Income Statement as notional interest over the period up portion of such gains and losses is recognised in the Income Statement to the date of the potential future payment. immediately. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 67 21833.04 13/12/12 Proof 7 67 13/12/2012 15:54:56 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 1 Accounting policies continued Taxation Pensions The tax expense for the period comprises current and deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. 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. 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 Defined contribution plans A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate non-group related entity. 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 group 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 group 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. In other words, this scheme is treated as a defined contribution plan. Defined benefit plans Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The group operates the Metal Bulletin Pension Scheme, a defined benefit scheme. The present value 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 Statement of Comprehensive Income in the period in which they occur. The retirement benefit obligation recognised in the Statement of Financial Position 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. Share-based payments The group makes share-based payments to certain employees which are equity and cash-settled. 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. 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. liability. 68 Euromoney AR2012.indd 68 13/12/2012 15:54:56 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 1 Accounting policies continued Revenue 2 Key judgemental areas adopted in preparing these financial statements Revenue represents income from advertising, subscriptions, sponsorship The group prepares its group financial statements in accordance with and delegate fees, net of value added tax. International Financial Reporting Standards (IFRS), the application of which often requires judgements to be made by management when formulating ● Advertising revenues are recognised in the Income Statement on the the group’s financial position and results. Under IFRS, the directors are date of publication. required to adopt those accounting policies most appropriate to the ● Subscription revenues are recognised in the Income Statement on a group’s circumstances for the purpose of presenting fairly the group’s straight-line basis over the period of the subscription. financial position, financial performance and cash flows. ● Sponsorship and delegate revenues are recognised in the Income Statement over the period the event is run. In determining and applying accounting policies, judgement is often required in respect of items where the choice of specific policy, accounting Revenues invoiced but relating to future periods are deferred and treated estimate or assumption to be followed could materially affect the reported as deferred income in the Statement of Financial Position. results or net asset position of the group should it later be determined that Leased assets Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease rentals are charged to the Income Statement on a straight-line basis as allowed by IAS 17 ‘Leases’. Dividends Dividends are recognised as a liability in the period in which they are approved by the company’s shareholders. Interim dividends are recorded 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. in the period in which they are paid. Acquisitions 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 The purchase consideration for the acquisition of a subsidiary or business is allocated over the net fair value of identifiable assets, liabilities and contingent liabilities acquired. company are debited direct to equity. Fair value 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 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. Plan options granted by the company, but excluding the ordinary shares Intangible assets 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 additional disclosure in order to provide an indication of the underlying trading performance of the group. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the board and executive committee members who are responsible for strategic decisions, allocating resources and assessing performance of the operating segments. 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 management’s estimate of marketing response rates), customer relationships, trademarks, brands, and repeat and well established events. At September 30 2012 the net book value of intangible assets was £135.2 million (2012: £152.8 million). 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 69 21833.04 13/12/12 Proof 7 69 13/12/2012 15:54:56 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 2 Key judgemental areas adopted in preparing these financial statements continued These assumptions are set out in note 24. Management regularly perform a true-up of the estimate of the number of shares that are expected to Goodwill 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. Goodwill held on the Statement of Financial Position at September 30 2012 was vest, which is dependent on the anticipated number of leavers. The directors regularly reassess the expected vesting period. A plan that vests earlier than originally estimated results in an acceleration of the fair value expense of the plan recognised in the Income Statement at the time the reassessment occurs. Equally, a plan that vests later than previously estimated results in a credit to the Income Statement at the date of £333.1 million (2011: £336.6 million). reassessment. Deferred consideration The charge for long-term incentive payments for the year ended The group often pays for a portion of the equity acquired at a future date. September 30 2012 is £6.3 million (2011: £16.1 million). This deferred consideration is contingent on the future results of the entity acquired and applicable payment multipliers dependent on those results. The initial amount of the deferred consideration is recognised as a liability in the Statement of Financial Position. Each period end management reassess the amount expected to be paid and any changes to the initial amount are recognised as a finance income or expense in the Income Statement. Significant management judgement is required to determine the amount of deferred consideration that is likely to be paid, particularly in relation to the future profitability of the acquired business. Defined benefit pension scheme The surplus or deficit in the defined benefit pension scheme that is recognised through the Statement of Comprehensive Income 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. Acquisition option commitments The group is party to a number of put and call options over the remaining Taxation non-controlling interests in some of its subsidiaries. IAS 39 ‘Financial Instruments: Recognition and Measurement’ requires the discounted present value of these acquisition option commitments to be recognised as a liability on the Statement of Financial Position 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 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 flows and earnings of the business, the period remaining until the option variances. is exercised and the discount rate. At September 30 2012 the discounted present value of these acquisition option commitments was £7.9 million (2011: £11.0 million). Share-based payments 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 The group makes long-term incentive payments to certain employees. of the group and it is often dependent on the efficiency of the legislative These payments are measured at their estimated fair value at the date of processes in the relevant taxing jurisdictions in which the group operates. grant, calculated using an appropriate option pricing model. The fair value Issues can, and often do, take many years to resolve. Payments in respect determined at the grant date is expensed on a straight-line basis over the of tax liabilities for an accounting period result from payments on account expected vesting period, based on the estimate of the number of shares and on the final resolution of open items. As a result, there can be that will eventually vest. The key assumptions used in calculating the fair substantial differences between the tax charge in the Income Statement value of the options are the discount rate, the group’s share price volatility, and tax payments. dividend yield, risk free rate of return, and expected option lives. 70 Euromoney AR2012.indd 70 13/12/2012 15:54:56 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 2 Key judgemental areas adopted in preparing these financial statements continued 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 2012, the group had a deferred tax asset of £7.3 million (2011: £13.2 million). Treasury Interest rate exposure 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 sterling versus foreign 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. 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 and Euro forward contracts is put in place up to 18 months forward partially to hedge its US dollar and Euro denominated revenues into sterling. The timing and value of these forward contracts is based on managements’ estimate of its future US dollar and Euro revenues over an 18 month period. If management materially underestimate the group’s future US dollar or Euro revenues this would lead to too few forward contracts being in place and the group being more exposed to swings in US dollar and Euro to sterling exchange rates. An overestimate of the group’s US dollar or Euro revenues would lead to associated costs in unwinding the excess forward contracts. At September 30 2012, the Interest rate swaps are used to manage the group’s exposure to fluctuations fair value of the group’s forward contracts was a net asset of £2.8 million in interest rates on its floating rate borrowings. The maturity profile of (2011: £4.3 million liability). 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% Details of the financial instruments used are set out in note 19 to the of its term debt looking forward over five years. The expected future debt accounts. 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 2012, the fair value of the group’s interest rate swaps was a liability of £0.6 million (2011: £2.6 million). 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 71 21833.04 13/12/12 Proof 7 71 13/12/2012 15:54:56 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 3 Segmental analysis 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 Research and data. 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. Research and data consists of subscription revenue. A breakdown of the group’s revenue by type is set out below. Analysis of the group’s three main geographical areas is also set out to provide additional information on the trading performance of the businesses. Inter-segment sales are charged at prevailing market rates and shown in the eliminations columns below. United Kingdom North America Rest of World Eliminations Total 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 Revenue by division and source: Financial publishing Business publishing Training Conferences and seminars Research and data Sold/closed businesses Corporate revenue Foreign exchange losses on forward 48,077 46,027 20,492 38,418 17,079 – 5 50,235 43,118 19,670 37,752 15,341 – 6 31,925 18,924 7,584 42,778 87,554 – – 35,970 16,397 7,854 40,901 63,822 – – – contracts 168,710 162,351 188,765 164,944 Total revenue Investment income (note 8) 4 Total revenue and investment income 168,713 162,363 188,769 164,948 (1,388) (3,771) 12 3 4 – 2,487 1,879 3,317 11,181 25,772 – – – 44,636 146 44,782 2,403 1,702 5,264 7,680 25,203 534 6 – 42,792 158 42,950 (5,400) (2,185) (181) (76) (120) – (5) – (7,967) – (7,967) 77,089 64,645 31,212 92,301 83,784 (4,824) 59,492 (1,725) 32,538 (250) (87) 86,246 (47) 130,285 104,319 534 – – – – (12) – (1,388) (3,771) (6,945) 394,144 363,142 174 (6,945) 394,297 363,316 153 – United Kingdom North America Rest of World Total 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 Revenue by type and destination: Subscriptions Advertising Sponsorship Delegates Other Sold/closed businesses Foreign exchange losses on forward contracts Total revenue 33,685 8,303 6,605 7,085 2,025 – (1,388) 56,315 61,890 199,728 170,967 30,207 62,654 58,357 29,228 9,259 48,814 47,598 21,055 8,797 75,009 80,145 45,689 9,254 8,935 9,704 3,002 1,691 534 534 – – (3,771) (3,771) (1,388) – 55,437 167,820 146,307 170,009 161,398 394,144 363,142 78,870 24,167 18,962 20,066 4,242 – – 99,455 22,963 19,833 20,833 4,736 – – 66,588 27,091 21,160 52,227 2,943 – – 72 Euromoney AR2012.indd 72 13/12/2012 15:54:57 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 3 Segmental analysis continued Operating profit1 by division and source: Financial publishing Business publishing Training Conferences and seminars Research and data Sold/closed businesses Unallocated corporate costs Operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items Acquired intangible amortisation2 Long-term incentive expense Accelerated long-term incentive expense Exceptional items (note 5) Operating profit before associates Share of results in associates Finance income (note 8) Finance expense (note 8) Profit before tax Tax expense (note 9) Profit after tax United Kingdom North America Rest of World Total 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 17,800 16,768 5,285 12,652 9,177 – (20,789) 40,893 (2,986) (1,796) – (49) 36,062 19,613 17,233 4,887 12,626 8,915 – (17,676) 45,598 (3,259) (5,284) (3,604) (120) 33,331 6,451 7,714 1,288 13,328 40,403 – (1,157) 68,027 (11,681) (3,705) – (905) 51,736 8,073 5,799 1,335 12,202 28,325 1 (1,152) 54,583 (8,441) (3,897) (2,781) (2,574) 36,890 600 16 449 3,067 5,805 (40) (642) 9,255 (115) (800) – (663) 7,677 508 340 1,631 1,733 5,236 (162) (500) 24,851 24,498 7,022 29,047 55,385 (40) (22,588) 28,194 23,372 7,853 26,561 42,476 (161) (19,328) (521) (310) (218) (601) 7,136 8,786 118,175 108,967 (12,221) (14,782) (9,491) (6,301) (6,603) – (3,295) (1,617) 77,357 95,475 408 459 1,761 4,475 (11,329) (8,041) 68,197 92,368 (22,527) (22,528) 45,670 69,840 1. Operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items (refer to the appendix to the Chairman’s Statement). 2. Acquired intangible amortisation represents amortisation of acquisition related non-goodwill assets such as trademarks and brands, customer relationships and databases (note 12). Other segmental information by division: Financial publishing Business publishing Training Conferences and seminars Research and data Sold/closed businesses Unallocated corporate costs Acquired intangible amortisation Long-term incentive expense Exceptional items Depreciation and amortisation 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 – (2,663) – (461) (11,537) – (121) (14,782) (47) (2,817) – (354) (8,875) – (128) (12,221) (797) (940) (295) (1,492) (1,742) – (1,035) (6,301) (3,291) (1,758) (1,134) (4,202) (3,058) – (2,652) (16,095) 18 – – (94) (1,541) – – (1,617) – – – – (2,979) (601) 285 (3,295) (10) (15) (16) (52) (1,491) – (2,163) (3,747) (60) (20) (19) (49) (854) (2) (1,948) (2,952) 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 73 21833.04 13/12/12 Proof 7 73 13/12/2012 15:54:57 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 3 Segmental analysis continued United Kingdom North America Rest of World Total 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 2012 £000 2011 £000 Non-current assets (excluding financial instruments and deferred tax assets) by location: Goodwill Other intangible assets Investments Property, plant and equipment Non-current assets Capital expenditure by location 91,555 32,688 735 13,716 91,555 237,005 244,604 35,638 102,223 117,486 – 4,697 138,694 141,612 342,537 366,787 (639) – 14,419 – 3,309 (431) (810) (512) 4,505 1,332 – 957 6,794 (424) 473 333,065 336,632 286 136,243 153,410 – 735 – 1,274 20,390 17,982 2,033 488,025 510,432 (2,112) (1,665) (961) The group has taken advantage of paragraph 23 of IFRS 8 ‘Operating segments’ and does not provide segmental analysis of net assets as this information is not used by the directors in operational decision making or monitoring of the businesses performance. 4 Operating profit Revenue Cost of sales Gross profit Distribution costs Administrative expenses Operating profit before associates 2012 £000 2011 £000 394,144 (98,308) 295,836 (4,280) (196,081) 95,475 363,142 (94,881) 268,261 (4,025) (186,879) 77,357 Administrative expenses include an acquisition credit of £205,000 (2011: acquisition cost of £1,012,000), an intangible asset impairment of £nil (2011: £120,000) and restructuring and other exceptional costs of £1,822,000 (2011: £2,163,000) (note 5). 74 Euromoney AR2012.indd 74 13/12/2012 15:54:57 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 4 Operating profit continued Operating profit is stated after charging/(crediting): Staff costs (note 7) Intangible amortisation: Acquired intangible amortisation Licences and software Intangible asset impairment (note 5) Depreciation of property, plant and equipment Auditor’s remuneration: Group audit Assurance services Non-audit Property operating lease rentals Loss on disposal of property, plant and equipment Restructuring and other exceptional costs (note 5) Acquisition (credit)/costs (note 5) Foreign exchange loss/(gain) Audit and non-audit services relate to: Group audit: Fees payable for the audit of the company’s annual accounts Fees payable for other services to the group: Audit of subsidiaries pursuant to local legislation Audit services provided to all group companies Assurance services: Interim review Non-audit services: Tax services Other services Total group auditor’s remuneration 2012 £000 2011 £000 159,305 157,572 14,782 339 – 3,408 779 95 41 6,405 53 1,822 (205) 524 2012 £000 447 332 779 12,221 302 120 2,651 761 85 55 6,276 11 2,163 1,012 (1,196) 2011 £000 509 252 761 95 85 28 13 41 915 51 4 55 901 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 75 21833.04 13/12/12 Proof 7 75 13/12/2012 15:54:57 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements 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 additional disclosure in order to provide an indication of the underlying trading performance of the group. Acquisition credit/(costs) Intangible asset impairment (note 12) Restructuring and other exceptional costs 2012 £000 205 – (1,822) (1,617) 2011 £000 (1,012) (120) (2,163) (3,295) In 2012 the group recognised an exceptional expense of £1,617,000. This comprised an exceptional restructuring charge of £1,822,000 following the reorganisation of certain group functions, and acquisition legal costs of £94,000 in connection with the acquisition of Global Grain offset by a credit of £299,000 following the release of previously accrued costs in relation to the acquisition of Ned Davis Research. The group’s tax charge includes a related tax credit of £456,000. The exceptional restructuring charge of £1,822,000 includes £1,564,000 recognised in relation to the termination benefits. For the year ended September 30 2011, the group recognised costs of £1,012,000 relating to the acquisition of Ned Davis Research and exceptional restructuring and other costs of £2,163,000. In July 2011, the group purchased the Coaltrans publishing brand for £120,000 to supplement the existing Coaltrans conference brand. The group did not plan to publish under the brand and as such immediately impaired the related intangible asset. The group’s tax charge included a related tax credit of £312,000. 6 Additional accelerated long-term incentive expense In 2011 the group recognised an additional accelerated long-term incentive expense of £6,603,000. The CAP 2010 adjusted pre-tax profit* target of £100 million was achieved in financial year 2011, two years earlier than expected. Following modification, the internal rules of the plan prevent the awards vesting to employees more than one year early, so although the primary condition had been achieved the award pool was to be allocated to holders of awards based on the profits achieved in financial year 2012. (See Directors’ Remuneration Report for further information). However, despite the awards not vesting in February 2012, IFRS 2 ‘Share-based payments’ required the group to accelerate recognition of the CAP 2010 accounting charge as if the awards vested in February 2012. The total charge over the life of the scheme remains unchanged at £30 million. * Profit before tax excluding acquired intangible amortisation, CAP 2010 element of long-term incentive expense, exceptional items, profits from significant acquisitions, net movements in acquisition option commitments values and imputed interest on acquisition option commitments as set out in the Income Statement note 5 and note 8. 76 Euromoney AR2012.indd 76 13/12/2012 15:54:58 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 7 Staff costs (i) Number of staff (including directors and temporary staff) By business segment: Financial publishing Business publishing Training Conferences and seminars Research and data Central By geographical location: United Kingdom North America Rest of World (ii) Staff costs (including directors and temporary staff) Salaries, wages and incentives Social security costs Pension contributions Long-term incentive expense Details of directors’ remuneration has been disclosed in the Directors’ Remuneration Report on page 47. 2012 Average 2011 Average 351 262 123 250 890 387 2,263 349 243 122 250 845 390 2,199 2012 Average 2011 Average 806 751 706 2,263 793 663 743 2,199 2012 £000 2011 £000 140,203 10,436 2,365 6,301 159,305 129,523 9,713 2,243 16,093 157,572 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 77 21833.04 13/12/12 Proof 7 77 13/12/2012 15:54:58 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 8 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 Net movements in acquisition option commitment values (note 25) Movement in acquisition deferred consideration 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 Net movements in acquisition option commitment values (note 25) Imputed interest on acquisition option commitments (note 25) Movement in acquisition deferred consideration Interest on tax underpaid Fair value losses on financial instruments: Ineffectiveness of interest rate swaps and forward contracts Net finance costs Reconciliation of net finance costs in Income Statement to adjusted net finance costs Total net finance costs in Income Statement Add back: Net movements in acquisition option commitment values Imputed interest on acquisition option commitments Movement in acquisition deferred consideration Adjusted net finance costs 2012 £000 18 153 1,329 2,940 35 4,475 (4,728) – (9) (1,314) – (977) – (958) (55) (8,041) (3,566) 2012 £000 2011 £000 136 174 1,451 – – 1,761 (7,007) (25) (15) (1,290) (358) (181) (1,829) (317) (307) (11,329) (9,568) 2011 £000 (3,566) (9,568) (2,940) 977 (35) (1,998) (5,564) 358 181 1,829 2,368 (7,200) The reconciliation of net finance costs in the Income Statement has been provided since the directors consider it necessary in order to provide an indication of the adjusted net finance costs. 78 Euromoney AR2012.indd 78 13/12/2012 15:54:58 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 9 Tax on profit on ordinary activities Current tax expense UK corporation tax expense Foreign tax expense Adjustments in respect of prior years Deferred tax (credit)/expense Current year Adjustments in respect of prior years Total tax expense in Income Statement Effective tax rate The adjusted effective tax rate for the year is set out below: Reconciliation of tax expense in Income Statement to adjusted tax expense Total tax expense in Income Statement Add back: Tax on intangible amortisation Tax on exceptional items Tax on additional accelerated long-term incentive expense Tax on US goodwill amortisation Tax adjustments in respect of prior years Adjusted tax expense Adjusted profit before tax (refer to the appendix to the Chairman’s Statement) Adjusted effective tax rate 2012 £000 8,229 13,243 1,294 22,766 2,759 (2,997) (238) 22,528 24% 2011 £000 4,018 12,359 (709) 15,668 7,605 (746) 6,859 22,527 33% 2012 £000 2011 £000 22,528 22,527 5,146 456 – 5,602 (6,474) 1,703 831 23,359 106,769 22% 4,041 312 493 4,846 (4,664) 1,455 1,637 24,164 92,684 26% The group presents the above adjusted 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 adjusted 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 adjusted effective tax rate is more representative of its tax payable position, as the deferred tax effect on the goodwill and intangible items is not expected to crystallise. The UK income tax expense is based on a blended rate of the UK statutory rates of corporation tax during the year to September 30 2012 of 25% (2011: 27%) and reflects the reduction in the UK corporation tax rate from 26% to 24% from April 1 2012 and to 23% from April 1 2013. This change has resulted in a small deferred tax credit arising on the reduction in the carrying value of deferred tax liabilities reflecting the anticipated rate of tax at which those liabilities are expected to reverse. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 79 21833.04 13/12/12 Proof 7 79 13/12/2012 15:54:58 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 9 Tax on profit on ordinary activities continued The actual tax expense for the year is different from 25% of profit before tax for the reasons set out in the following reconciliation: Profit before tax Tax at 25% (2011: 27%) Factors affecting tax charge: Different tax rates of subsidiaries operating in overseas jurisdictions Associate income reported net of tax US state taxes Goodwill and intangibles Disallowable expenditure Other items deductible for tax purposes Effect of additional accelerated long-term incentive expense Tax impact of consortium relief Deferred tax (credit)/charge arising from changes in tax laws Adjustments in respect of prior years Total tax expense for the year 2012 £000 92,368 23,092 3,767 (115) 833 32 1,325 (3,824) – (861) (18) (1,703) 22,528 2011 £000 68,197 18,413 2,021 (110) 1,116 (48) 1,001 – 1,717 (354) 229 (1,458) 22,527 The UK government has indicated that it intends to enact a further reduction in the UK corporation tax rate of 1% to 22% by April 1 2014. The directors expect that the future tax rate changes will reduce the UK deferred tax asset recognised but the actual impact will be dependent on the deferred tax position at the time. In addition to the amount charged to the Income Statement, the following amounts relating to tax have been directly recognised in other comprehensive 2012 £000 (602) 1,329 727 2011 £000 – (1,395) (1,395) income: Current tax Deferred tax 80 Euromoney AR2012.indd 80 13/12/2012 15:54:58 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 10 Dividends Amounts recognisable as distributable to equity holders in period Final dividend for the year ended September 30 2011 of 12.50p (2010: 11.75p) Interim dividend for year ended September 30 2012 of 7.00p (2011: 6.25p) Employees’ Share Ownership Trust dividend Proposed final dividend for the year ended September 30 Employees’ Share Ownership Trust dividend 2012 £000 15,162 8,643 23,805 (11) 23,794 18,342 (9) 18,333 2011 £000 13,928 7,531 21,459 (11) 21,448 15,156 (7) 15,149 The proposed final dividend of 14.75p (2011: 12.50p) is subject to approval at the Annual General Meeting on January 31 2013 and has not been included as a liability in these financial statements in accordance with IAS 10 ‘Events after the balance sheet date’. 11 Earnings per share Basic earnings attributable to equity holders of the parent Acquired intangible amortisation Exceptional items Imputed interest on acquisition option commitments Net movement in acquisition option commitment values Movements in acquisition deferred consideration Additional accelerated long-term incentive expense Tax on the above adjustments Tax on US goodwill amortisation Tax adjustments in respect of prior years Adjusted earnings 2012 £000 69,672 14,782 1,617 977 (2,940) (35) – (5,602) 6,474 (1,703) 83,242 2011 £000 45,591 12,221 3,295 181 358 1,829 6,603 (4,846) 4,664 (1,455) 68,441 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 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 Euromoney AR2012.indd 81 21833.04 13/12/12 Proof 7 81 13/12/2012 15:54:58 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 11 Earnings per share continued 2012 Adjusted basic earnings per share 2012 Adjusted diluted earnings per share 2011 Adjusted basic earnings per share 2011 Adjusted diluted earnings per share Number 000’s Number 000’s Number 000’s Number 000’s 122,859 (59) 122,800 119,957 (59) 119,898 122,859 (59) 122,800 3,490 126,290 119,957 (59) 119,898 2,214 122,112 Pence per share Pence per share Pence per share Pence per share 56.74 12.04 1.32 0.80 (2.39) (0.03) – (4.57) 5.27 (1.39) 67.79 56.74 (1.57) 55.17 11.70 1.28 0.77 (2.33) (0.03) – (4.43) 5.13 (1.35) 65.91 38.02 10.19 2.75 0.15 0.30 1.53 5.51 (4.04) 3.89 (1.21) 57.09 38.02 (0.68) 37.34 10.01 2.70 0.15 0.29 1.50 5.41 (3.98) 3.82 (1.19) 56.05 Weighted average number of shares Shares held by the Employees’ Share Ownership Trust Weighted average number of shares Effect of dilutive share options Diluted weighted average number of shares Basic earnings per share Effect of dilutive share options Diluted earnings per share 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 movement in acquisition deferred consideration Effect of additional accelerated long-term incentive expense Effect of tax on the above adjustments Effect of tax on US goodwill amortisation Effect of tax adjustments in respect of prior years Adjusted basic and diluted earnings per share The adjusted diluted earnings per share figure has been disclosed since the directors consider it necessary in order to give an indication of the underlying trading performance. All of the above earning figures per share relate to continuing operations. 82 Euromoney AR2012.indd 82 13/12/2012 15:54:59 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 12 Goodwill and other intangibles Acquired intangible assets Trademarks & brands 2012 £000 Customer relation- ships 2012 £000 Databases 2012 £000 Total acquired intangible assets 2012 £000 Licences & software 2012 £000 Intangible assets in development 2012 £000 142,324 – 719 (3,784) 139,259 41,433 7,339 (1,292) 47,480 78,683 – 553 (2,133) 77,103 32,429 5,761 (618) 37,572 9,440 – – (269) 9,171 3,736 1,682 (156) 5,262 230,447 – 1,272 (6,186) 225,533 77,598 14,782 (2,066) 90,314 2,761 194 – (90) 2,865 2,200 339 (73) 2,466 – 625 – – 625 – – – – Goodwill 2012 £000 Total 2012 £000 366,395 599,603 819 6,520 (15,652) 362,267 591,290 – 5,248 (9,376) 29,763 109,561 15,121 (2,700) 29,202 121,982 – (561) 2012 Cost/carrying amount At October 1 2011 Additions Acquisitions (note 15) Exchange differences At September 30 2012 Amortisation and impairment At October 1 2011 Amortisation charge Exchange differences At September 30 2012 Net book value/carrying amount at September 30 2012 91,779 39,531 3,909 135,219 399 625 333,065 469,308 Acquired intangible assets Trademarks & brands 2011 £000 Customer relation- ships 2011 £000 Databases 2011 £000 133,399 120 7,285 – 1,520 142,324 33,645 7,217 120 – 451 41,433 50,933 – 25,984 – 1,766 78,683 28,043 4,099 – – 287 32,429 4,787 – 4,383 – 270 9,440 2,776 905 – – 55 3,736 Total acquired intangible assets 2011 £000 189,119 120 37,652 – 3,556 230,447 64,464 12,221 120 – 793 77,598 Licences & software 2011 £000 2,445 437 – (80) (41) 2,761 2,011 302 – (80) (33) 2,200 Goodwill 2011 £000 327,016 – 34,781 – 4,598 366,395 29,398 – – – 365 29,763 Total 2011 £000 518,580 557 72,433 (80) 8,113 599,603 95,873 12,523 120 (80) 1,125 109,561 2011 Cost/carrying amount At October 1 2010 Additions Acquisitions Disposals Exchange differences At September 30 2011 Amortisation and impairment At October 1 2010 Amortisation charge Impairment losses Disposals Exchange differences At September 30 2011 Net book value/carrying amount at September 30 2011 100,891 46,254 5,704 152,849 561 336,632 490,042 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 83 21833.04 13/12/12 Proof 7 83 13/12/2012 15:54:59 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 12 Goodwill and other intangibles continued Intangible assets, other than goodwill, have a finite life and are amortised over their expected useful lives at the rates set out in the accounting policies in note 1 of this report. The carrying amounts of acquired intangible assets and 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 Benchmark Financials Arete NDR Global Grain Geneva Other Total Acquired intangible assets Goodwill 2012 £000 2011 £000 2012 £000 2011 £000 2,456 – – – – – 3,199 44 62,780 24,590 – 2,292 2,379 234 2,801 33,346 1,098 – 135,219 2,537 – – – – – 3,646 55 71,770 27,365 – 2,729 2,549 286 2,996 38,916 – – 152,849 13,025 8,406 2,550 236 4,723 14,718 29,243 185 143,187 52,710 196 8,180 10,448 456 4,794 35,951 4,048 9 333,065 13,501 8,714 2,644 236 4,896 14,718 30,313 192 148,426 52,710 196 8,180 10,448 473 4,794 36,182 – 9 336,632 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: ● ● ● ● forecasts by business based on pre-tax cash ﬂows derived from approved budgets for 2013. Management believe these budgets to be reasonably achievable; subsequent cash ﬂows for between one and three additional years increased in line with growth expectations of the applicable business; the pre-tax discount rate of 8.5%, reﬂecting the companies weighted average cost of capital (WACC); and long-term nominal growth rate of 3%. Certain businesses, after the annual impairment review required under IAS 36, had a limited value in use in excess of the carrying value of £1.9 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. Decrease in the long-term growth rate by 3% points. The result of the change in assumptions of a 3% decrease in growth rates and a 1% increase in WACC would result in an impairment of £0.3 million. Management believes that the general market conditions indicate that a decrease in growth rates to 0% or a WACC of 9.5% would be severe. Management will continue to conduct regular reviews to monitor this matter. 84 Euromoney AR2012.indd 84 13/12/2012 15:55:00 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 13 Property, plant and equipment 2012 Cost At October 1 2011 Additions Disposals Acquisitions Exchange differences At September 30 2012 Depreciation At October 1 2011 Charge for the year Disposals Exchange differences At September 30 2012 Net book value at September 30 2012 2011 Cost At October 1 2010 Additions Disposals Acquisitions Exchange differences At September 30 2011 Depreciation At October 1 2010 Charge for the year Disposals Exchange differences At September 30 2011 Net book value at September 30 2011 Net book value at September 30 2010 Freehold land and buildings 2012 £000 Long-term leasehold premises 2012 £000 Short-term leasehold premises 2012 £000 Office equipment 2012 £000 6,447 – – – – 6,447 283 83 – – 366 6,081 3,251 25 – (176) (28) 3,072 561 131 – (13) 679 2,393 15,539 307 (49) – (221) 15,576 8,309 1,064 (49) (150) 9,174 6,402 19,603 1,333 (844) (246) (560) 19,286 15,297 2,130 (789) (458) 16,180 3,106 Freehold land and buildings 2011 £000 Long-term leasehold premises 2011 £000 Short-term leasehold premises 2011 £000 Office equipment 2011 £000 6,447 – – – – 6,447 200 83 – – 283 6,164 6,247 2,729 7 – 488 27 3,251 484 73 – 4 561 2,690 2,245 15,370 198 (76) (33) 80 15,539 7,359 964 (76) 62 8,309 7,230 8,011 17,309 1,907 (698) 982 103 19,603 14,327 1,531 (592) 31 15,297 4,306 2,982 Total 2012 £000 44,840 1,665 (893) (422) (809) 44,381 24,450 3,408 (838) (621) 26,399 17,982 Total 2011 £000 41,855 2,112 (774) 1,437 210 44,840 22,370 2,651 (668) 97 24,450 20,390 19,485 The directors do not consider the market value of freehold land and buildings to be significantly different from its book 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 85 21833.04 13/12/12 Proof 7 85 13/12/2012 15:55:00 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 14 Investments At October 1 Additions Share of profits after tax retained Dividends At September 30 Associated undertakings Investments in associated undertakings 2012 £000 Investments in associated undertakings 2011 £000 – 567 459 (291) 735 248 – 408 (656) – The associated undertakings at September 30 2012 were Capital NET Limited, whose principal activity is the provision of electronic database services, and GGA Pte. Limited whose sole asset is Global Grain Asia, a new event for grain industry professionals in the Asia-Pacific region. The group has a 48.4% (2011: 48.4%) interest in Capital NET Limited and a 50% interest in GGA Pte. 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 The total assets, liabilities, revenues and profit after tax generated by GGA Pte. Limited at September 30 are set out below: Total assets Total liabilities Total revenues Profit after tax Assets available for sale Dec 31 2011 £000 603 (224) 2,035 733 Dec 31 2010 £000 560 (213) 1,853 568 Sep 30 2012 £000 172 (55) 327 119 The group has a 50% interest in Capital DATA Limited (Capital DATA). 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 carrying value of £nil (2011: £nil). Under a separate licence agreement the group is entitled to 28.2% of Capital DATA’s revenues being £5,065,000 in the year (2011: £4,543,000). At December 31 2011, based on its latest available audited accounts, Capital DATA had £515,000 of issued share capital and reserves (December 31 2010: £739,000), and its profit for the year then ended was £1,026,000 (December 31 2010: £1,064,000). 86 Euromoney AR2012.indd 86 13/12/2012 15:55:00 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 14 Investments continued Details of the company and its principal subsidiary undertakings included in these consolidated financial statements at September 30 2012 are as follows: Company Euromoney Institutional Investor PLC Direct investments Euromoney Institutional Investor (Jersey) Limited Fantfoot Limited Euromoney Canada Limited Euromoney Canada Finance Limited Euromoney Jersey Limited Indirect investments Adhesion Group SA BCA Research, Inc. BPR Benchmark Limitada Carlcroft Limited CEIC Holdings Limited Coaltrans Conferences Limited Davis, Mendel & Regenstein Inc. EII Holdings, Inc. EII US, Inc. Euromoney Canada Limited Euromoney Charles Limited Euromoney Consortium Limited Euromoney Consortium 2 Limited Euromoney Holdings US, Inc Euromoney Institutional Investor (Ventures) Limited Euromoney Partnership LLP Euromoney (Singapore) Pte Limited Euromoney Trading Limited Euromoney Training, Inc. Euromoney, Inc. EIMN, LLC Glenprint Limited Global Commodities Group Sarl GSCS Benchmarks Limited Gulf Publishing Company, Inc. HedgeFund Intelligence Limited Institutional Investor LLC Internet Securities, Inc. Latin American Financial Publications, Inc. Metal Bulletin Holdings LLC Metal Bulletin Limited MIS Training (UK) Limited Ned Davis Research Inc. Structured Retail Products Limited TelCap Limited The Petroleum Economist Limited Tipall Limited Total Derivatives Limited Associates Capital NET Limited GGA Pte. Limited All holdings are of ordinary shares. Proportion Principal activity held and operation Country of incorporation n/a Investment holding company United Kingdom 100% † Publishing 100% 57.2% 100% 100% Investment holding company Investment holding company Investment holding company Investment holding company Information services Information services Information services 100% Conventions 100% 99.9% 99.7% Publishing 99.9% 99.7% Conferences Information services 84.5% 100% * Investment holding company Investment holding company 100% Investment holding company 42.8% Investment holding company 100% Investment holding company 99.7% Investment holding company 99.7% Investment holding company 100% Investment holding company 100% 100% Investment holding company 100% Training 99.7% Publishing, training and events 100% Training 100% Training 100% Conferences 99.7% Publishing 100% Conferences 99.7% Publishing 100% Publishing 99.7% Publishing 100% Publishing 99.9% 100% Publishing 100% 99.7% Publishing 100% Training 84.5% 98.5% 99.7% Publishing 99.7% Publishing 100% Property holding 99.7% Publishing Information services Information services Investment holding company Information services 48.4% Databases 50% Conferences Jersey United Kingdom United Kingdom United Kingdom Jersey France Canada Columbia United Kingdom Hong Kong United Kingdom US US US United Kingdom United Kingdom United Kingdom United Kingdom US United Kingdom United Kingdom Singapore United Kingdom US US US United Kingdom Switzerland United Kingdom US United Kingdom US US US US United Kingdom United Kingdom US United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Singapore 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 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 AR2012.indd 87 21833.04 13/12/12 Proof 7 87 13/12/2012 15:55:00 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 15 Acquisitions Purchase of new business – Global Grain Geneva On February 29 2012, the group acquired 100% of the equity share capital of Global Commodities Group Sarl, which owns Global Grain Geneva, the world’s leading event for international grain traders. The initial consideration paid was €6,159,000 (£5,134,000). A further net consideration of €93,000 (£77,000) is expected to be paid dependent upon the audited results of the business for the year to February 2013. The acquisition of Global Grain is consistent with the group’s strategy of building fast growing global event businesses. The acquisition accounting is set out below and is provisional, pending final determination of the fair value of the assets and liabilities acquired: Net assets: Intangible assets Cash and cash equivalents Trade creditors and other payables Non-current liabilities Net assets acquired (100%) Goodwill Total consideration Consideration satisfied by: Cash Deferred consideration Net cash outflow arising on acquisition: Cash consideration Less: cash and cash equivalent balances acquired Book value £000 Fair value adjustments £000 Provisional fair value £000 – 35 (31) – 4 1,272 – – (305) 967 1,272 35 (31) (305) 971 971 4,240 5,211 5,134 77 5,211 5,134 (35) 5,099 Intangible assets represent brands €867,000 (£719,000) and customer relationships €666,000 (£553,000), for which amortisation of £126,000 has been charged in the period. The brands and customer relationships will be amortised over their useful economic lives of 20 years and three years respectively. Goodwill arises from the anticipated profitability and future operating synergies from combining the acquired operations with the group. The goodwill recognised is not expected to be deductible for income tax purposes. Global Grain Geneva contributed £nil to the group’s revenue and incurred an operating loss of £96,000 and a loss after tax of £96,000 for the period between the date of acquisition and September 30 2012. Acquisition related costs of £94,000 were incurred and recognised as an exceptional item in the Income Statement. If the above acquisition had been completed on the first day of the financial year, Global Grain Geneva would have contributed £1,062,000 to the group’s revenues and £627,000 to the group’s profit before tax for the year (excluding the exceptional costs above). The deferred consideration is dependent on the results of the business for the period to December 31 2012 and is calculated using discounted cash flows. Following a sensitivity analysis of the fair value of the deferred consideration applying reasonably possible assumptions and a 10% change in expected revenues, the potential undiscounted amount of all future payments that the group could be required to make under this deferred consideration arrangement is between £nil and £276,000. 88 Euromoney AR2012.indd 88 13/12/2012 15:55:00 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 15 Acquisitions continued Purchase of associate – Global Grain Asia Also on February 29 2012, the group acquired 50% of the issued share capital of GGA Pte. Limited, whose sole asset is Global Grain Asia, a new event for grain industry professionals in the Asia-Pacific region, for €671,000 (£567,000). The group has the option to purchase the remaining 50% equity holding of GGA Pte. Limited in March 2014 and if exercised expects to pay €1,021,000 (£813,000). Under IAS 32 ‘Financial Instruments’ this acquisition option commitment is not recorded as a liability in the balance sheet. Fair value and goodwill update – Ned Davis Research (NDR) In August 2011, the group acquired 85% of the equity share capital of NDR, the US-based provider of independent financial research to institutional investors, for an initial cash consideration of US$112.0 million (£68.5 million). During the year changes have been made to the cash payable following the final working capital calculation, the cash receivable from non-controlling interests, the finalisation of the sellers’ tax liability, the accounting policy alignment of property, plant and equipment and the recognition of previously unrecognised tax liabilities. Following these true-up adjustments, the related goodwill, fair value of net assets acquired and consideration have been finalised as follows: Fair value of net assets acquired Goodwill Total consideration Consideration satisfied by: Cash Cash receivable from non-controlling interest Deferred consideration Provisional fair value £000 Change £000 Final fair value £000 33,869 34,337 68,206 68,500 (1,390) 1,096 68,206 (809) 1,008 199 1,151 (438) (514) 199 33,060 35,345 68,405 69,651 (1,828) 582 68,405 The remaining equity interest is subject to a put and call option under an earn-out agreement, in two equal instalments, based on the profits of NDR for the years to December 31 2012 and 2013. The expected payment under this mechanism has decreased from £10,149,000 at September 30 2011 to £7,812,000 at September 30 2012 resulting in a credit to the Income Statement of £2,011,000 and a foreign exchange gain of £326,000 recognised in reserves. Increase in equity holdings Internet Securities, Inc (ISI) There is an annual put option agreement over the sale of ISI shares between the company and the non-controlling shareholders of ISI. The annual put option value is based on the valuation of ISI as determined under a methodology provided by an independent financial adviser. Under the terms of the put option 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 2012, under this put option mechanism, the group purchased 1.12% of the equity share capital of ISI for a cash consideration of US$1,326,000 (£840,000), increasing the group’s equity shareholding in ISI to 99.92%. Structured Retail Products Limited (SRP) In December 2011, the group purchased 1.14% of the equity share capital of SRP from some of its employees for a cash consideration of £84,000 increasing the group’s equity shareholding in SRP to 98.48%. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 89 21833.04 13/12/12 Proof 7 89 13/12/2012 15:55:01 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements 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 Amounts owed by DMGT group undertakings Other debtors Prepayments Accrued income 2012 £000 54,146 (6,471) 47,675 2,344 5,560 6,904 3,469 65,952 2011 £000 58,835 (7,697) 51,138 2,221 10,489 6,061 1,508 71,417 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 2012, trade receivables of £24,263,000 (2011: £29,150,000) were not yet due. As of September 30 2012, trade receivables of £15,469,000 (2011: £20,111,000) 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 77 days (2011: 67 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 2012 £000 7,156 3,348 1,985 2,980 15,469 2011 £000 11,956 3,894 2,168 2,093 20,111 As at September 30 2012, trade receivables of £14,414,000 (2011: £9,574,000) were impaired and partially provided for. The amount of the provision was £6,471,000 (2011: £7,697,000). 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 90 2012 £000 7,713 2,857 1,123 2,721 14,414 2011 £000 116 3,125 1,373 4,960 9,574 Euromoney AR2012.indd 90 13/12/2012 15:55:01 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 16 Trade and other receivables continued 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 2012 £000 (7,697) (3,271) 3,266 1,153 78 (6,471) 2011 £000 (8,036) (3,070) 2,668 765 (24) (7,697) 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 risk 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. 17 Trade and other payables Trade creditors Amounts owed to DMGT group undertakings Other creditors The directors consider the carrying amounts of trade and other payables approximate their fair values. 18 Deferred income Deferred subscription income Other deferred income s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 2012 £000 4,170 3 23,527 27,700 2011 £000 5,558 51 24,361 29,970 2012 £000 2011 £000 81,020 24,086 105,106 80,507 25,000 105,507 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 Euromoney AR2012.indd 91 21833.04 13/12/12 Proof 7 91 13/12/2012 15:55:01 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 19 Financial instruments and risk management Derivative financial instruments The derivative financial assets/(liabilities) at September 30 comprised: Current Interest rate swaps – fair value through profit and loss Interest rate swaps – cash flow hedge Forward foreign exchange contracts – fair value through profit and loss Forward foreign exchange contracts – cash flow hedge Non-current Interest rate swaps – fair value through profit and loss Interest rate swaps – cash flow hedge Forward foreign exchange contracts – cash flow hedge 2012 2011 Assets £000 Liabilities £000 Assets £000 Liabilities £000 – – – 2,715 2,715 – – 296 296 3,011 (156) (283) – (217) (656) (206) – (35) (241) (897) – – – 1,126 1,126 – – 218 218 1,344 – (1,251) (332) (4,692) (6,275) (307) (1,008) (655) (1,970) (8,245) Financial risk management objectives The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk arising in the normal course of business. Derivative financial instruments are used to manage exposures to fluctuations in foreign currency exchange rates and interest rates but are not employed for speculative purposes. Full details of the objectives, policies and strategies pursued by the group in relation to financial risk management are set out on page 65 of the accounting policies and page 71 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 96. 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 (page 94). 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 2011. The capital structure of the group consists of debt, which includes the borrowings disclosed in note 20, cash and cash equivalents and equity attributable to equity holders of the parent, comprising share capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. 92 Euromoney AR2012.indd 92 13/12/2012 15:55:01 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 19 Financial instruments and risk management continued Net debt to EBITDA* ratio The group’s tax and treasury committee reviews the group’s 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 a rolling 12 month EBITDA* does not exceed four times. The group expects to be able to remain within these limits during the life of the facility. 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 (at weighted average exchange rate) Loan notes Total debt Cash and cash equivalents Net debt EBITDA* Net debt to EBITDA* ratio 2012 £000 2011 £000 (43,127) (1,228) (44,355) 13,544 (30,811) 116,080 0.27 (123,022) (1,617) (124,639) 12,497 (112,142) 111,192 1.01 * EBITDA (Earnings before interest, tax, depreciation, amortisation) = adjusted operating profit before depreciation and amortisation of licences and software, adjusted for the timing impact of acquisitions and disposals. Categories of financial instruments The group’s financial assets and liabilities at September 30 are as follows: Financial assets 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 (note 25) Loans and payables (including overdrafts) 2012 £000 3,011 72,592 75,603 2011 £000 1,344 79,402 80,746 (362) (535) (7,868) (140,361) (149,126) (639) (7,606) (11,001) (229,740) (248,986) The fair value of the financial assets and liabilities above are classified as level 2 in the fair value hierarchy other than acquisition option commitments which are classified as level 3 (page 100). i) 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 2012. The group has no other material market price risks. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 93 21833.04 13/12/12 Proof 7 93 13/12/2012 15:55:01 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 19 Financial instruments and risk management continued 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. ii) 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, the translation of results of foreign subsidiaries and 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. The carrying amounts of the group’s US dollar-denominated monetary assets and monetary liabilities at the reporting date are as follows: Assets Liabilities 2012 £000 2011 £000 2012 £000 2011 £000 US dollar 58,770 84,074 (5,956) (7,967) 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 and Euro forward contracts are put in place to sell forward surplus US dollars and Euros so as to hedge 80% of the group’s UK based US dollar and Euro revenues for the coming 12 months and 50% of the group’s UK based US dollar and Euro revenues for the subsequent six months. The timing and value of these forward contracts is based on management’s estimate of its future US dollar and Euro revenues over an 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. If management materially underestimate the group’s future US dollar and Euro denominated revenues, this would lead to too few forward contracts being in place and the group being more exposed to swings in US dollar and Euro to sterling exchange rates. An overestimate of the group’s US dollar and Euro denominated revenues would lead to associated costs in unwinding the excess forward contracts. 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 94 2012 £000 (646) 6,606 2011 £000 (954) 6,666 Euromoney AR2012.indd 94 13/12/2012 15:55:01 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 19 Financial instruments and risk management continued The decrease in the loss from the sensitivity analysis is due to an increase in the working capital asset position. The fall in profit in equity from £6,666,000 to £6,606,000 from the sensitivity analysis is due to the decrease of the value of the derivative financial liabilities. The group is also exposed to the translation of the results of its US dollar-denominated businesses, although the group does not hedge the translation of these results. 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 change in equity is due to a 10% change in sterling against US dollars in relation to the translation of external loans and loans to foreign operations within the group where the denomination of the loan is not in the functional currency of the lender/borrower would result in a change of £4,105,000 (2011: £6,562,000). However, the change in equity is completely offset by the change in value of the foreign operation’s net assets from their translation into sterling. 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. A series of US dollar and Euro forward contracts are put in place to sell forward surplus US dollars and Euros so as to hedge 80% of the group’s UK based US dollar and Euro revenues for the coming 12 months and 50% of the group’s UK based US dollar and Euro revenues for the subsequent six months. In addition, 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. Average exchange rate Foreign currency Contract value Fair value 2012 2011 2012 US$000 2011 US$000 2012 £000 2011 £000 2012 £000 2011 £000 Cash Flow Hedges Sell USD buy GBP Less than a year More than a year but less than two years Sell USD buy CAD† Less than a year More than a year but less than two years Sell EUR buy GBP Less than a year More than a year but less than two years 1.589 1.705 71,875 66,800 45,236 39,174 694 (3,769) 1.581 1.596 17,225 20,000 10,892 12,532 206 (331) 1.001 1.026 20,976 16,880 13,219 10,669 1.011 0.991 6,307 7,400 4,015 4,516 176 64 (201) (245) EUR 000’s EUR 000’s £000 £000 £000 £000 1.183 1.158 34,630 34,600 29,286 29,871 1,628 1.248 1.140 9,950 11,100 7,971 9,737 (9) 55 156 † Rate used for conversion from CAD to GBP is 1.5889 (2011: 1.6233). 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 95 21833.04 13/12/12 Proof 7 95 13/12/2012 15:55:02 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 19 Financial instruments and risk management continued As at September 30 2012, the aggregate amount of unrealised gains under forward foreign exchange contracts deferred in the fair value reserve relating to future revenue transactions is £2,759,000 (2011: losses £4,003,000). It is anticipated that the transactions will take place over the next 18 months at which stage the amount deferred in equity will be released to the Income Statement. As at September 30 2012, the aggregate amount of unrealised losses under ineffective cash flow hedges still in place at the year end is £nil (2011: £332,000), which have been recognised in the Income Statement. iii) Interest rate risk The group’s borrowings are in both sterling and US dollars with the related interest tied to 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 98. 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 the 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: ● Proﬁt for the year ended September 30 2012 would decrease or increase by £338,000 (2011: £121,000). This is mainly attributable to the group’s exposure to interest rates on its variable rate borrowings; and ● Other equity reserves would decrease or increase by £561,000 (2011: £934,000) 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. 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 yield curves at the reporting date and the credit risk inherent in the contract, and is disclosed below. 96 Euromoney AR2012.indd 96 13/12/2012 15:55:02 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 19 Financial instruments and risk management continued The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at the reporting date. The average interest rate is based on the outstanding balances at the end of the financial year: 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 Average contracted fixed interest rate Notional principal amount Fair value 2012 % 3.25 2.52 – 2011 % 3.98 3.25 2.52 2012 £000 18,578 6,193 – 2011 £000 35,306 19,258 6,419 2012 £000 (389) (206) – Average contracted fixed interest rate Notional principal amount 2012 % 2.57 – 2011 % 4.46 2.57 2012 £000 5,000 – 2011 £000 15,000 5,000 Fair value 2012 £000 (50) – 2011 £000 (827) (889) (307) 2011 £000 (424) (119) 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 2012, the aggregate amount of unrealised interest under swap contracts deferred in the fair value reserve relating to future interest payable is £283,000 (2011: £2,259,000). It is anticipated that the transactions will take place over the next 18 months, at which stage the amount deferred in equity will be released to the Income Statement. As at September 30 2012, the aggregate amount of unrealised interest under ineffective swaps still in place at the year end is £362,000 (2011: £307,000) 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. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 97 21833.04 13/12/12 Proof 7 97 13/12/2012 15:55:02 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 19 Financial instruments and risk management continued 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 Statement of Financial Position. 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. Liquidity risk The group has significant intercompany borrowings and is an approved borrower under a DMGT $300 million dedicated multi-currency facility. The facility is divided into US dollar and sterling funds and matures in December 2013. The total maximum borrowing capacity is as follows: US Dollar Sterling $250 million £33 million The 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 cash flow forecasts to ensure that sufficient headroom is available and that the covenants are not close or potentially close to breach. At September 30 2012, the group’s net debt to adjusted EBITDA was 0.27 times. The group’s strategy is to use excess operating cash to pay down its debt. The group generally has an annual cash conversion rate (the percentage by which cash generated by operations covers operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items) of over 100%, due to much of its subscription, conference and training revenue being paid in advance. For the year to September 30 2012 the group’s cash conversion rate was 103% compared to 108% last year. Under the DMGT facility, at September 30 2012, the group had £144.7 million of undrawn but committed facilities available. In the absence of any significant acquisitions, the group has no pressing requirement to arrange new finance before the facility expires in December 2013. In addition, the group has agreed terms with DMGT that provide it with access to additional funding should the group require it during the period from December 2013 through April 2016. There is a risk that the undrawn portion of the facility, or that the additional funding, may be unavailable or withdrawn if DMGT experience funding difficulties themselves. However, if DMGT were unable to fulfil its funding commitment to the group, the directors are confident that the group would be in a position to secure adequate external facilities, although probably at a higher cost of funding. 98 Euromoney AR2012.indd 98 13/12/2012 15:55:02 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 19 Financial instruments and risk management continued 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 2012. The contractual maturity is based on the earliest date on which the group may be required to settle. 2012 Weighted average effective interest rate % Less than 1 year £000 1–3 years £000 Variable rate borrowings Acquisition option commitments Non-interest bearing liabilities (trade and other payables, and accruals) 2.49 – – 1,228 4,273 89,638 43,154 3,595 6,341 Total £000 44,382 7,868 95,979 2011 Weighted average effective interest rate % Less than 1 year £000 1–3 years £000 Total £000 Variable rate borrowings Acquisition option commitments Non-interest bearing liabilities (trade and other payables, and accruals) 2.34 – – 61,682 852 86,219 71,543 10,149 10,296 133,225 11,001 96,515 At September 30 2012, £38,631,000 (2011: £110,059,000) of borrowings were designated in US dollars with the remainder in sterling. The average rate of interest paid on the debt was 4.82% (2011: 5.70%). The following table details 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 equity non-controlling interests. 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. 2012 Variable interest rate instruments (cash at bank) Non-interest bearing assets (trade and other receivables excluding prepayments) 2011 Variable interest rate instruments (cash at bank and short-term deposits) Non-interest bearing assets (trade and other receivables excluding prepayments) Weighted average effective interest rate % 0.86 – 1.24 – Less than 1 year £000 13,544 59,048 72,592 14,046 65,356 79,402 Total £000 13,544 59,048 72,592 14,046 65,356 79,402 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 99 21833.04 13/12/12 Proof 7 99 13/12/2012 15:55:02 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 19 Financial instruments and risk management continued 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 and (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. 2012 Net settled Interest rate swaps Gross settled Foreign exchange forward contracts inflows Foreign exchange forward contracts outflows 2011 Net settled Interest rate swaps Gross settled Foreign exchange forward contracts inflows Foreign exchange forward contracts outflows Less than 1 month £000 1–3 months £000 3 months to 1 year £000 1–5 years £000 Total £000 – (196) (375) (66) (637) 7,358 (7,063) 295 Less than 1 month £000 13,163 (12,769) 198 1–3 months £000 67,221 (65,258) 1,588 22,877 (22,500) 311 110,619 (107,590) 2,392 3 months to 1 year £000 1–5 years £000 Total £000 – (470) (758) (388) (1,616) 5,629 (6,114) (485) 13,558 (14,494) (1,406) 60,219 (62,583) (3,122) 27,092 (27,473) (769) 106,498 (110,664) (5,782) Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: Level 1 ● 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. Level 2 ● 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; ● Foreign currency forward contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching 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. Level 3 ● If one or more signiﬁcant inputs are not based on observable market date, the instrument is included in level 3. As at September 30 2012 and the prior year, all the resulting fair value estimates have been included in level 2 other than the group’s acquisition option commitments which are classified as level 3. Other financial instruments not recorded at fair value 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. 100 Euromoney AR2012.indd 100 13/12/2012 15:55:03 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 20 Bank overdrafts and loans Bank overdrafts – current liability Loan notes – current liability Committed loan facility – current liability Committed loan facility – non-current liability Total committed loan facility Loan notes 2012 £000 – 1,228 – 43,154 43,154 2011 £000 1,549 1,617 58,516 71,543 130,059 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 2012 £386,000 (2011: £420,000) of these loan notes were redeemed. Committed loan facility The group’s debt is provided through a dedicated $300 million multi-currency borrowing facility from Daily Mail and General Trust plc (DMGT). The facility is divided into US dollar and sterling funds and matures in December 2013. The total maximum borrowing capacity is $250 million (£155 million) and £33 million. Interest is payable on this facility at a variable rate of between 1.4% 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. At September 30 2012, the group’s net debt to adjusted EBITDA was 0.27 times. Under the DMGT facility, at September 30 2012, the group had £144.7 million of undrawn but committed facilities available. In the absence of any significant acquisitions, the group has no pressing requirement to arrange new finance before the facility expires in December 2013. In addition, the group has agreed terms with DMGT that provide it with access to additional funding should the group require it during the period from December 2013 through April 2016. There is a risk that the undrawn portion of the facility, or that the additional funding, may be unavailable or withdrawn if DMGT experience funding difficulties themselves. However, if DMGT were unable to fulfil its funding commitment to the group, the directors are confident that the group would be in a position to secure adequate external facilities, although probably at a higher cost of funding. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 101 21833.04 13/12/12 Proof 7 101 13/12/2012 15:55:03 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 21 Provisions At October 1 2011 Provision in the year Used in the year Exchange differences At September 30 2012 Maturity profile of provisions Within one year (included in current liabilities) Between one and two years (included in non-current liabilities) Between two and five years (included in non-current liabilities) Onerous lease provision £000 Other provisions £000 2,686 413 (223) (92) 2,784 3,520 803 (149) (3) 4,171 2012 £000 2,037 2,469 2,449 6,955 Group total £000 6,206 1,216 (372) (95) 6,955 2011 £000 810 1,230 4,166 6,206 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. 102 Euromoney AR2012.indd 102 13/12/2012 15:55:03 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 22 Deferred taxation The net deferred tax liability at September 30 2012 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 Other short-term temporary differences: Share-based payments Pension deficit Accelerated capital allowances Deferred income, accruals and other provisions Total other short-term temporary differences 2011 £000 Income statement £000 Acquisitions and disposals £000 Equity £000 Exchange differences £000 (33,142) 2,564 2,969 5,320 13,280 (9,009) 13,216 (22,225) (9,009) 2011 £000 5,738 475 477 6,590 13,280 1,198 (2,526) (1,540) – 3,106 238 3,008 – – (5,761) 1,424 (1,329) (305) – – – 235 (70) 893 (38) (62) – (254) 539 Income statement £000 Acquisitions and disposals £000 Equity £000 Exchange differences £000 1,042 (630) 173 2,521 3,106 643 781 – – 1,424 – – – 235 235 – – (21) (233) (254) 2012 £000 (28,348) – 1,367 (441) 17,791 (9,631) 7,344 (16,975) (9,631) 2012 £000 7,423 626 629 9,113 17,791 At the balance sheet date, the group has unused US tax losses available for offset against future profits. At September 30 2012 a deferred tax asset of £1,367,000 (2011: £2,201,000) has been recognised in relation to these losses. 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 2013 and 2029. At the balance sheet date, the group no longer has unused UK tax losses available for offset against future profits. At September 30 2012 a deferred tax asset of £nil (2011: £768,000) has been recognised in relation to these losses. At the balance sheet date, a net deferred tax asset of £5,511,000 (2011: £6,320,000) has been recognised in respect of US tax deductible goodwill amortisation, capitalised intangible assets and other short-term timing differences. Included within capitalised goodwill and intangibles is a deferred tax asset of £2,808,000 (2011: £nil) relating to tax deductible goodwill arising on acquisition option commitment for the minority share of Ned Davis Research, Inc. that was previously recognised within deferred tax on financial instruments. The directors are of the opinion, that based on recent and forecast trading, it is probable that the level of profits in future years is sufficient to enable the above assets to be recovered. No deferred tax liability is recognised on temporary differences of £94,478,000 (2011: £63,035,000) 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 2012 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. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 103 21833.04 13/12/12 Proof 7 103 13/12/2012 15:55:03 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 23 Called up share capital Allotted, called up and fully paid 124,349,531 ordinary shares of 0.25p each (2011: 121,247,380 ordinary shares of 0.25p each) 2012 £000 2011 £000 311 303 During the year, 3,102,151 ordinary shares of 0.25p each (2011: 2,755,469 ordinary shares) with an aggregate nominal value of £7,755 (2011: £6,889) were issued as follows: 2,381,410 ordinary shares (2011: 2,226,089) under the company’s 2009 scrip dividend alternative for a cash consideration of £nil (2011: £nil); and 720,741 ordinary shares (2011: 529,380 ordinary shares) following the exercise of share options granted under the company’s share option schemes for a cash consideration of £1,058,834 (2011: £718,392). 24 Share-based payments The group’s long-term incentive expense at September 30 comprised: 2012 £000 2011 £000 (97) 1,809 (4,042) (2,330) (4,042) (8) 79 (3,971) (6,301) (6,301) – (6,301) 2012 £000 7,768 6,341 14,109 (96) – (7,970) (8,066) (7,970) 34 (92) (8,028) (16,094) (9,491) (6,603) (16,094) 2011 £000 – 10,296 10,296 Equity-settled options SAYE CAP 2004 CAP 2010 Cash-settled options CAP 2010 Internet Securities, Inc. Structured Retail Products Limited Long-term incentive expense Additional accelerated long-term incentive expense The total carrying value of cash-settled options at September 30 2012 included in the Statement of Financial Position is: Current Non-current 104 Euromoney AR2012.indd 104 13/12/2012 15:55:03 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 24 Share-based payments continued Equity-settled options The options set out below are outstanding at September 30 and are options to subscribe for new ordinary shares of 0.25p each in the company. The total charge recognised in the year from equity-settled options was £2,330,000, 37% of the group’s long-term incentive expense (2011: charge £8,066,000, 50%). Number of ordinary shares under option: 2012 Granted/ (trued up) during year 2011 Lapsed/ Exercised forfeited during during year year 2012 8,000 86,000 91,487 3,018 341,025 46,466 40,588 – 421 58,375 293,032 – – – – – – – 158,769 (8,000) (86,000) (39,487) (3,018) (338,767) – – – – (18,063)‡ (18,182)‡ – (40,312) (205,157) 969,305 1,750,496 – – – – – – – – (2,258) (1,899) (15,091) (10,281) – – – – – – – 52,000 – – 44,567 25,497 148,488 421 – 69,693 969,305 1,750,496 541,671 239,520 4,469,404 – – 122,524 – – (720,741) – – (29,529) 541,671 239,520 3,841,658 Option price (£) 3.35 2.59 4.19 3.18 1.87 3.44 5.65 4.97 0.0025 0.0025 0.0025 0.0025 0.0025 6.03 5.01 Weighted average market price at date of exercise (£) 7.07 7.31 7.30 6.90 6.93 – – – – 7.37 7.31 – – – – s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Period during which option may be exercised: Executive options Before January 22 2012 Before December 3 2012 Before January 27 2014 SAYE Between February 1 2011 and July 31 2011 Between February 1 2012 and July 31 2012 Between February 1 2013 and July 31 2013 Between February 1 2014 and July 31 2014 Between February 1 2015 and July 31 2015 CAP 2004 Before September 30 2014 (tranche 1)1 Before September 30 2014 (tranche 2)1 Before September 30 2014 (tranche 3)1 CAP 2010 Before September 30 2020 (tranche 1)2 Before September 30 2020 (tranche 2)2 CSOP 2010 Before February 14 2020 (UK) Before February 14 2020 (Canada) The options outstanding at September 30 2012 had a weighted average exercise price of £1.49 and a weighted average remaining contractual life of 7.35 years. 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 Euromoney AR2012.indd 105 21833.04 13/12/12 Proof 7 105 13/12/2012 15:55:04 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 24 Share-based payments continued Number of ordinary shares under option: 2011 Granted/ (trued up) during year Exercised during year Lapse/ forfeited during year – – – – (16,000) – (106,000) (62,000) (131,424) – – – – – – 50,743 (28,968) (2,647) – – – 58,064‡ 276,933‡ (1,166) (122,385) (190,214) (3,017) (19,322) (5,222) (10,155) – (1) (5,009) 2010 147,424 8,000 192,000 153,487 35,003 362,994 51,688 – 1,587 122,697 211,322 2011 – 8,000 86,000 91,487 3,018 341,025 46,466 40,588 421 58,375 293,032 969,305 1,750,496 – – – – – – 969,305 1,750,496 541,671 239,520 4,787,194 – – 385,740 – – (529,380) – – (174,150) 541,671 239,520 4,469,404 Weighted average market price at date of exercise (£) 6.87 – 6.88 6.78 7.03 7.30 – – 6.91 7.29 7.26 – – – – Option price (£) 5.38 3.35 2.59 4.19 3.18 1.87 3.44 5.65 0.0025 0.0025 0.0025 0.0025 0.0025 6.03 5.01 Period during which option may be exercised: Executive options Before March 1 2012 Before January 22 2012 Before December 3 2012 Before January 27 2014 SAYE Between February 1 2011 and July 31 2011 Between February 1 2012 and July 31 2012 Between February 1 2013 and July 31 2013 Between February 1 2014 and July 31 2014 CAP 2004 Before September 30 2014 (tranche 1)1 Before September 30 2014 (tranche 2)1 Before September 30 2014 (tranche 3)1 CAP 2010 Before September 30 2020 (tranche 1)2 Before September 30 2020 (tranche 2)2 CSOP 2010 Before February 14 2020 (UK) Before February 14 2020 (Canada) The options outstanding at September 30 2011 had a weighted average exercise price of £1.38 and a weighted average remaining contractual life of 7.34 years. 1 2 ‡ CAP 2004 options shown in the above tables relate only to those options that have vested (see page 44 in the Directors’ Remuneration Report for further information on CAP 2004 options). The allocation of the number of options granted under each tranche of the CAP 2010 and CSOP UK and CSOP Canada represents the directors’ best estimate. The CAP 2010 award is reduced by the number of options vesting under the respective CSOP schemes (see below and the Directors Remuneration Report for further details). Options granted/(trued up) relate to those that are likely to vest on February 14 2013 (2011: February 10 2012) under the second and third tranche of the CAP 2004 following the achievement of the additional performance test. 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 2012 (2011: December 31 2011) as required by the Remuneration Committee. As such the actual number of options vested could vary from that disclosed. Cash-settled options The group has liabilities in respect of three share option schemes that are classified by IFRS 2 ‘Share-based payments’ as cash settled. These consist of the cash element of the CAP 2010 scheme, options held by employees over new equity shares in Internet Securities Inc., a subsidiary of the group, and options held by employees over equity shares in Structured Retail Products Limited, a subsidiary of the group. Of these schemes, options with an intrinsic value of £3,000 had vested but are not yet exercised (2011: £7,000). 106 Euromoney AR2012.indd 106 13/12/2012 15:55:04 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 24 Share-based payments continued Share Option Schemes Capital Appreciation Plan 2010 (CAP 2010) The CAP 2010 executive share option scheme was approved by shareholders on January 21 2010. Each CAP 2010 award comprises 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. The awards will vest in two equal tranches. The first tranche of awards become exercisable on satisfaction of the primary performance condition, but no earlier than February 2013, and lapse to the extent unexercised by September 30 2020. The second tranche of awards becomes exercisable in the February following a subsequent financial year in which adjusted pre-tax profits* again equal or exceed £105 million (increased from £100 million following the acquisition of NDR), but no earlier than February 2014. The second tranche only vests on satisfaction of the primary performance condition and an additional performance condition. The number of options received under the share award of the CAP 2010 is reduced by the number of options vesting with participants from the 2010 Company Share Option Plan. The primary performance condition was achieved in financial year 2011, two years earlier than expected, when adjusted pre-tax profits* were £101.3 million. However, the internal rules of the plan prevent the awards vesting more than one year early, so although the primary condition has been achieved, the award pool will be allocated between the holders of outstanding awards by reference to their contribution to the growth in profits of the group from the 2009 base year to the profits achieved in financial year 2012 and these awards are to become exercisable in February 2013 (see Directors’ Remuneration Report for further information). Company Share Option Plan 2010 (CSOP 2010) In parallel with the CAP 2010, the shareholders approved the CSOP 2010 UK and Canada at the AGM on January 21 2010. The CSOP 2010 UK was approved by HM Revenue and Customs on June 21 2010 and options granted on June 28 2010. The CSOP 2010 UK option enables each participant to purchase up to 4,972 shares in the company at a price of £6.03 per share, the market value at the date of grant. The options will vest and become exercisable at the same time as the corresponding share award under the CAP 2010 providing the CSOP option is in the money at that time and does not vest before June 28 2013. Once vested the CSOP option remains exercisable for one month. If the CSOP option is not in the money at the time of vesting of the corresponding CAP 2010 share award it continues to subsist and becomes exercisable at the same time as the second tranche of the CAP 2010 share award. The CSOP 2010 Canada, granted on March 30 2010, enables each participant to purchase up to 19,960 shares in the company at a price of £5.01 per share, the market value at the date of grant. No option may vest after the date falling three months after the preliminary announcement of the results for the financial year ended September 30 2019, and the option shall lapse to the extent unvested at the time. The CSOP has the same performance criteria as that of the CAP 2010 as set out above. The number of CSOP 2010 awards that vest proportionally reduce the number of shares that vest under the CAP 2010 as the CSOP is effectively a delivery mechanism for part of the CAP 2010 award. The CSOP 2010 option exercise price of £6.03 (UK) and £5.01 (Canada) will be satisfied by a funding award mechanism and results in the same net gain on the CSOP options (calculated as the market price of the company’s shares at the date of exercise less the exercise price, multiplied by the number of options exercised) delivered in the equivalent number of shares to participants as if the award had been delivered using 0.25p CAP options. 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 in 2009 and 1,527,152 options (including a true-up adjustment of 5,654) for the third (final) tranche of options in 2009 vested in February 2010. The additional performance condition was applied to profits for financial year 2010 and 2011 for those individual participants where the additional performance conditions for the second and final tranches had not previously been met and 303,321 and 244,152 options vested in February 2011 and February 2012 respectively. 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. The directors estimate 54,599 of options will vest in February 2013 following satisfaction of this additional performance test. * Adjusted pre-tax profits is profit before tax excluding acquired intangible amortisation, CAP 2010 element of long-term incentive expense, exceptional items, profits from significant acquisitions, net movements in acquisition option commitments values, imputed interest on acquisition option commitments, foreign exchange loss interest charge on tax equalisation contracts and foreign exchange on restructured hedging arrangements as set out in the Income Statement, note 5, 6 and 8. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 107 21833.04 13/12/12 Proof 7 107 13/12/2012 15:55:04 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 24 Share-based payments continued Share Option Schemes continued The company has six 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 42 to 45. The fair value per option granted and the assumptions used in the calculation are shown below. 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 (£) Executive Options January 28 2002 SAYE 11 December 11 2009 12 December 21 2010 13 December 20 2011 419 419 52,000 10.0 5.5 419 4.10% 3.93% 30% 0.72 430 344 44,567 3.5 3.0 344 1.83% 7.49% 50% 1.21 706 565 25,497 3.5 3.0 565 1.63% 5.28% 38% 1.82 621 497 148,488 3.5 3.0 497 0.53% 4.30% 35% 1.54 The executive and Save as You Earn (SAYE) 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 15 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 charge recognised in the year in respect of these options was £97,000 (2011: charge £96,000). 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 CAP 2004 Tranche 2 June 20 2005 Internet Securities Inc. (cash-settled Tranche 3 June 20 2005 options) February 28 2006 401 0.25 421 10 3.28 0.25 5.0% 8.44% 3.28 401 0.25 – 10 4.53 0.25 5.0% 8.44% 3.02 401 0.25 69,693 10 5.53 0.25 5.0% 8.44% 2.82 n/a n/a 2,126 10 4.50 $13.10 – – $14.34 The 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. 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 of 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 long-term incentive recognised in the year for the CAP 2004 options was a credit of £1,809,000 (2011: £nil), and for Internet Securities, Inc. options was a charge of £8,000 (2011: credit £34,000). 108 Euromoney AR2012.indd 108 13/12/2012 15:55:04 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 24 Share-based payments continued The Internet Securities, Inc. (ISI) options are over shares of ISI, a subsidiary entity. The ISI options outstanding at September 30 2012 had a weighted average exercise price of $13.10 (2011: $12.43) and a weighted average remaining contractual life of 3.41 (2011: 4.23) years. 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 (£) CAP 2010 CSOP 2010 Tranche 1 March 30 2010 Tranche 2 March 30 2010 UK June 28 2010 Canada March 30 2010 501 0.25 969,305 10 4 0.25 2.28% 7.00% 4.37 501 0.25 1,750,496 10 5 0.25 2.75% 7.00% 4.20 603.34 603.34 541,671 9.38 3 603.34* 2.28% 7.00% 4.37 501 501 239,520 10 3 501.00* 2.28% 7.00% 4.37 The CAP 2010 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 number of CSOP 2010 awards that vest proportionally reduce the number of shares that vest under the CAP 2010, the CSOP is effectively a delivery mechanism for part of the CAP 2010 award. The CSOP 2010 options have an exercise price of £6.031, which will be satisfied by a funding award mechanism which results in the same net gain2 on these options delivered in the equivalent number of shares to participants as if the same award had been delivered using 0.25 pence CAP options. The amount of the funding award will depend on the company’s share price at the date of exercise. Because of the above and the other direct links between the CSOP 2010 and the CAP 2010, including the identical performance criteria, IFRS 2 ‘Share based payments’ combines the two plans and treats them as one plan (vesting in two tranches). The long-term incentive expense recognised in the year for the CSOP 2010 and CAP 2010 options (including the charge in relation to the cash element) was £8,084,000 (2011: £15,940,000). 1 2 * Exercise price of Canadian CSOP is £5.01. Net gain on the CSOP options is the market price of the company’s shares at the date of exercise less the exercise price (£6.031) multiplied by the number of options exercised. Exercise price excludes the effect of the funding award. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 109 21833.04 13/12/12 Proof 7 109 13/12/2012 15:55:04 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 25 Acquisition option commitments The group is party to put options over the remaining non-controlling interest in subsidiaries. IAS 39 ‘Financial Instruments’ requires the group to recognise the discounted present value of the remaining put option commitment. This discount is unwound as a notional interest charge to the Income Statement. The group regularly performs a review of the underlying businesses with put option commitments to assess the impact on the fair value of the respective put option commitment. Any resultant change in these fair values is reported as a finance income or expense in the Income Statement. Acquisition option commitments at October 1 Additions from acquisitions during the year Net movements during the year following review of underlying business (note 8) Imputed interest (note 8) Exercise of option commitments Exchange differences Acquisition option commitments at September 30 A net income of £1,963,000 (2011: expense of £539,000) was recorded in finance income and finance expense (note 8). Maturity profile of acquisition option commitments: Within one year In more than one year 2012 £000 11,001 – (2,940) 977 (831) (339) 7,868 2012 £000 4,273 3,595 7,868 2011 £000 1,061 9,451 358 181 (50) – 11,001 2011 £000 852 10,149 11,001 There is a deferred tax asset of £nil (2011: £3,800,000) related to the put option commitment as at September 30 2012. As explained in note 2, key judgemental areas in preparing the financial statements, the value of the put option commitments is subject to a number of assumptions. The directors estimate that a possible range of outcomes for the fair value of the NDR put option commitments, based on possible changes in the assumptions, is as follows: Estimated minimum Estimated capped maximum 2012 £000 2011 £000 – 37,552 – 39,183 The put option agreement over the sale of Internet Securities, Inc. (ISI) shares between the company and the non-controlling shareholders of ISI is based on the valuation of ISI as determined under a methodology provided by an independent financial adviser. Under the terms of the put option 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. Following a sensitivity analysis of the fair value of the acquisition option commitments applying reasonable possible assumptions, a 10% change in expected profit, the liabilities at September 30 2012 range from £6,229,000 to £9,519,000 with the corresponding change to the value at September 30 2012 charged or credited to the Income Statement in future periods. 110 Euromoney AR2012.indd 110 13/12/2012 15:55:04 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 26 Operating lease commitments At September 30 the group had committed to make the following payments in respect of operating leases on land and buildings: Within one year Between two and five years After five years 2012 £000 6,728 16,451 2,812 25,991 2011 £000 7,317 19,899 4,887 32,103 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 two and five years After five years 27 Retirement benefit schemes Defined contribution schemes 2012 £000 1,320 3,492 445 5,257 2011 £000 903 1,819 868 3,590 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. In compliance with recent legislation the group is making arrangements for relevant employees to be automatically enrolled into defined contribution pension plans. The staging date for the group for automatic enrolment is expected to be November 2013. 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 2012 £000 1,094 24 1,077 112 2,307 2011 £000 965 28 1,035 148 2,176 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 111 21833.04 13/12/12 Proof 7 111 13/12/2012 15:55:05 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 27 Retirement benefit schemes continued 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. When the process of transferring out the remaining assets of the Euromoney Pension Plan has been completed 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’s 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. The company also provides access to a stakeholder pension plan for relevant employees who are not eligible for other pension schemes operated by the group. These arrangements will be superseded when automatic enrolment begins in 2013. Harmsworth Pension Scheme The Harmsworth Pension Scheme is a defined benefit scheme operated by DMGT. The scheme is closed to new entrants. Existing members still in employment can continue to accrue benefits in the scheme on a cash basis, with members using this cash account to purchase an annuity at retirement. A full actuarial valuation of the scheme is carried out triennially by the Scheme Actuary. The latest valuation was completed as at March 31 2010. As a result of this valuation, DMGT agreed to make annual contributions of 10% or 15% of members’ basic pay (depending on membership section). In addition, DMGT has agreed a Recovery Plan involving a series of annual funding payments amounting to £231.4 million over a period to end on October 5 2023. In accordance with this agreement, a payment of £24.8 million was made on October 5 2011 and a payment of £21.0 million was made on September 28 2012. A further payment of £3.0 million was made post year end on October 5 2012. Both the ongoing contributions and Recovery Plan will be reviewed at the next triennial funding valuation of the main schemes due to be completed with an effective date March 31 2013. DMGT has enabled the trustee of the scheme to acquire a beneficial interest in a Limited Partnership investment vehicle (LP). The LP has been designed to facilitate payment of part of the deficit funding payments described above to the scheme over the next 15 years. In addition, the LP is required to make a final payment to the principal scheme of £150 million or such lesser amount as may equate to the funding deficit within the scheme on an ongoing actuarial valuation basis at the end of the 15 year period. For funding purposes, the interest held by the trustee in the LP will be treated as an asset of the scheme and reduce the actuarial deficit within the scheme. However, under IAS 19 the LP is not included as an asset of the scheme and therefore is not included in the disclosures below. In exchange for its interest in the LP, the trustee has allowed the letters of credit previously provided by DMGT to be cancelled. 112 Euromoney AR2012.indd 112 13/12/2012 15:55:05 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 27 Retirement benefit schemes continued 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. The group’s pension charge for the Harmsworth Pension Scheme for the year ended September 30 2012 was £112,000 (2011: £148,000). 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 the formal valuation of the scheme as at March 31 2010, and adjusted to September 30 2012 taking account of membership data at that date. 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 £1,481.2 million (2011: £1,333.6 million) and that the actuarial value of these assets represented 84.6% (2011: 83.0%) of the benefits that had accrued to members (also calculated in accordance with IAS 19). Defined benefit scheme Metal Bulletin Pension Scheme The company operates the Metal Bulletin plc Pension Scheme (MBPS), a defined benefit scheme which is closed to new entrants. A full actuarial valuation of the defined benefit scheme is carried out triennially by the Scheme Actuary. The latest valuation of the MBPS was completed as at June 1 2010. As a result of the valuation, the company agreed to make annual contributions of 22.3% per annum of pensionable salaries, plus £42,400 per month to the scheme. The contributions will be reviewed at the next triennial funding valuation of the scheme due to be completed with an effective date June 1 2013. The figures in this note are based on calculations carried out in connection with the actuarial valuation of the scheme as at June 1 2010 adjusted to September 30 2012 by the actuary. The key financial assumptions adopted were as follows: Long-term assumed rate of: Pensionable salary increases 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 2012 2011 2.5% p.a. 5.0% p.a. 2.5% p.a. 5.0% p.a. 2.8% p.a. 3.1% p.a. 2.5% p.a. 4.1% p.a. 2.8% p.a. 2.8% p.a. 2.5% p.a. 5.0% p.a. 3.1% p.a. 3.2% p.a. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 113 21833.04 13/12/12 Proof 7 113 13/12/2012 15:55:05 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 27 Retirement benefit schemes continued 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 demographic assumptions adopted were as follows: Pre-retirement mortality rates The following mortality rates represent the probability of a person dying within one year. Age 30 40 50 60 Assumed life expectancy in years, on retirement at 62 Retiring at the end of the reporting period: Males Females Retiring 20 years after the end of the reporting period: Males Females Males Females 0.03% 0.05% 0.14% 0.44% 0.02% 0.04% 0.10% 0.28% 2012 2011 25.8 28.0 28.0 29.2 25.7 27.9 27.9 29.2 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: 2012 Equities Bonds With profits policy Cash Total Value at September 30 2012 (£000) % of assets held Long-term rate of return expected at September 30 2012 6,539 24.2% 8.00% 15,725 58.2% 3.50% 2,567 9.5% 5.00% 2,188 8.1% 1.50% 27,019 100.0% 2011 Equities Bonds With profits policy Cash Total Value at September 30 2011 (£000) % of assets held Long-term rate of return expected at September 30 2011 7,416 30.4% 8.00% 12,390 50.9% 5.00% 2,572 10.6% 5.75% 1,983 8.1% 3.50% 24,361 100.0% 114 Euromoney AR2012.indd 114 13/12/2012 15:55:05 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 27 Retirement benefit schemes continued A reconciliation of the net pension deficit reported in the Statement of Financial Position is shown in the following table: Present value of defined benefit obligation Assets at fair value Deficit reported in the Statement of Financial Position The deficit for the year excludes a related deferred tax asset of £626,000 (2011: asset £475,000). Changes in the present value of the defined benefit obligation are as follows: Present value of obligation at October 1 Service cost Interest cost Benefits paid Members’ contributions Actuarial movement Present value of obligation at September 30 Changes in the fair value of plan assets are as follows: Fair value of plan assets at October 1 Expected return on plan assets Contributions: Employer Members Annuity surplus refund Actual return less expected return on pension scheme assets Benefits paid Fair value of plan assets at September 30 2012 £000 2011 £000 (31,776) 27,019 (4,757) (26,260) 24,361 (1,899) 2012 £000 2011 £000 (26,260) (58) (1,314) 579 (12) (4,711) (31,776) 2012 £000 24,361 1,329 583 12 25 1,288 (579) 27,019 (25,811) (75) (1,290) 589 (13) 340 (26,260) 2011 £000 24,274 1,451 584 13 23 (1,395) (589) 24,361 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N 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 Euromoney AR2012.indd 115 21833.04 13/12/12 Proof 7 115 13/12/2012 15:55:05 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 27 Retirement benefit schemes continued The actual return on plan assets was a gain of £2,617,000 (2011: gain £56,000) 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 8) Expected return on plan assets (note 8) Total charge/(income) recognised in Income Statement 2012 £000 58 1,314 (1,329) 43 2011 £000 75 1,290 (1,451) (86) 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. 2012 £000 2011 £000 Mortality Change in pension obligation at September 30 from a one year change in life expectancy Change in pension cost from a one 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 +/– +/– +/– +/– +/– +/– +/– +/– 943 40 38 4 630 3 182 7 Amounts recognised in the Consolidated Statement of Comprehensive Income (SOCI) are shown in the following table: 2012 £000 1,288 25 (178) (4,533) (3,398) (415) (3,813) Actual return less expected return on pension scheme assets Return of surplus annuity payments Experience adjustments on liabilities Losses arising from changes in assumptions Total losses recognised in SOCI Cumulative actuarial gain recognised in SOCI at beginning of year Cumulative actuarial gain recognised in SOCI at end of year 116 689 35 30 3 495 1 147 7 2011 £000 (1,395) 23 827 (487) (1,032) 617 (415) Euromoney AR2012.indd 116 13/12/2012 15:55:05 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 27 Retirement benefit schemes continued History of experience gains and losses: 2012 £000 2011 £000 2010 £000 2009 £000 2008 £000 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 (31,776) 27,019 (4,757) (178) 0.6% 1,288 4.8% (26,260) 24,361 (1,899) 827 (3.1%) (1,395) (5.7%) (25,811) 24,274 (1,537) (14) 0.1% 1,363 5.6% (21,916) 21,552 (364) (18) 0.1% 760 3.5% (16,985) 19,512 2,527 (36) 0.2% (1,717) (4.0%) The group expects to contribute approximately £509,000 (2011: expected contribution in 2012 of £509,000) to the MBPS during the 2013 financial year. 28 Contingent liabilities 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 82.3 million (£16,669,000). 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 had borrowings under a US$300 million multi-currency facility with DMGRH Finance Limited, a Daily Mail and General Trust plc (DMGT) group company as follows: Amounts owing under US$ facility at September 30 Amounts owing under GBP facility at September 30 Commitment fee on unused portion of the available facility for year 2012 US$000 2012 £000 2011 US$000 2011 £000 62,381 – – 38,631 4,523 43,154 618 171,450 – – 110,059 20,000 130,059 721 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 117 21833.04 13/12/12 Proof 7 117 13/12/2012 15:55:06 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 29 Related party transactions continued (ii) During the year the group expensed services provided by DMGT, the group’s parent, and other fellow group companies, as follows: Services expensed 2012 £000 2011 £000 444 406 (iii) At September 30, the group had ﬁxed rate interest rate swaps outstanding with Daily Mail and General Holdings Limited (DMGH), a fellow group company, as follows: 2012 US$000 2012 £000 2011 US$000 2011 £000 Interest rates between 2.5% and 5.4% and termination dates between March 28 2013 and March 31 2014 on US$ fixed rate interest rate swaps Interest rate of 2.6% and termination date of March 28 2013 (2011: between September 30 2012 and March 28 2013) 40,000 24,771 95,000 60,983 GBP fixed rate interest rate swaps – 5,000 – 20,000 During the year the group paid interest to DMGH and related companies in respect of interest rate swaps as follows: US$ interest paid GBP interest paid 2012 US$000 2,353 – 2012 £000 1,488 504 2011 US$000 4,475 – 2011 £000 2,784 974 (iv) In January 2011, the group granted an Indian Rupee 112 million loan facility to RMSI Private Limited, a DMGT group company, at a 10.5% ﬁxed interest rate. The loan was repaid to the group on November 21 2011. Amounts owed under the facility at September 30 Interest income during the year – 1,476 – 18 120,265 8,264 2012 INR 000 2012 £000 2011 INR 000 2011 £000 1,576 111 In February 2011, Euromoney Holdings US Inc, a group company, was granted a US$70 million short-term loan facility from DMGH. The loan was repaid on February 17 2011. There were no amounts outstanding at September 30 2012. 2012 US$000 2012 £000 2011 US$000 2011 £000 – – – – – – 70,000 (70,041) (41) 43,750 (43,776) (26) Amounts received Amounts paid Interest expense 118 Euromoney AR2012.indd 118 13/12/2012 15:55:06 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 29 Related party transactions continued (v) In February 2011, the company provided a US$70 million short-term loan facility to DMGH. The loan was repaid on February 17 2011. There were no amounts outstanding at September 30 2012. Amounts paid Amounts received Interest expense 2012 US$000 2012 £000 2011 US$000 2011 £000 – – – – – – (70,000) 70,041 (41) 43,750 (43,776) (26) (vi) During the year DMGT group companies surrendered tax losses to Euromoney Consortium Limited under an agreement between the two groups. These tax losses are relievable against UK taxable proﬁts of the group under HMRC’s consortium relief rules. Amounts payable Tax losses with tax value Amounts owed to DMGT Group at September 30 2012 £000 2,584 3,445 – 2011 £000 831 1,109 831 (vii) During the year DMGT group companies surrendered tax losses to Euromoney Consortium 2 Limited under an agreement between the two groups. These tax losses are relievable against UK taxable proﬁts of the group under HMRC’s consortium relief rules. Amounts payable Tax losses with tax value Amounts owed to DMGT Group at September 30 2012 £000 631 841 – 2011 £000 232 309 232 (viii) There is an annual put option agreement over the sale of Internet Securities, Inc. (ISI) shares between the company and the minority shareholders of ISI. The annual put option value is based on the valuation of ISI as determined under a methodology provided by an independent ﬁnancial adviser. Under the terms of the put option 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 2012, under this put option mechanism, the group purchased 1.12% of the equity share capital of ISI for a cash consideration of US$1,326,000 (£840,000). The group’s equity shareholding in ISI increased to 99.92%. (ix) NF Osborn serves on the management board of A&N International Media Limited and both DMG Events and dmgi, fellow group companies, for which he received fees for the year to September 30 2012 of £25,000 and US$45,000 respectively (2011: £25,000 and US$40,000 respectively). (x) PM Fallon served as a director on the executive board of DMGT, the group’s parent. During the year he earned non-executive director fees of £24,500 (2011: £19,500) and received short-term employee beneﬁts of £8,749 (2011: £6,907). PM Fallon died on October 14 2012. (xi) During the year the group received a dividend of £291,000 (2011: £656,000) from Capital Net Limited, an associate of the group. 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 s t n e m e t a t S l a i c n a n i F d e t a d i l o s n o C e h t o t s e t o N Euromoney AR2012.indd 119 21833.04 13/12/12 Proof 7 119 13/12/2012 15:55:06 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Consolidated Financial Statements continued 29 Related party transactions continued (xii) 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 Directors’ Remuneration Report and other key divisional directors who are not on the board. Key management compensation Salaries and short-term employee benefits Non-executive directors’ fees Post-employment benefits Other long-term benefits (all share-based) Of which: Executive directors Non-executive directors Divisional directors 2012 £000 18,726 181 137 1,272 20,316 16,458 181 3,677 20,316 2011 £000 17,517 197 159 2,644 20,517 15,966 197 4,354 20,517 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 14.75p per share (2011: 12.50p) totalling £18,342,000 (2011: £15,156,000) for the year ended September 30 2012. The dividend will be submitted for formal approval at the Annual General Meeting to be held on January 31 2013. 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 2013. During 2012, a final dividend of 12.50p (2011: 11.75p) per share totalling £15,162,000 (2011: £13,928,000) was paid in respect of the dividend declared for the year ended September 30 2011. 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 its 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 120 Euromoney AR2012.indd 120 13/12/2012 15:55:06 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Independent Auditor’s Company Report to the members of Euromoney Institutional Investor PLC We have audited the parent company financial statements of Euromoney Opinion on financial statements Institutional Investor PLC for the year ended September 30 2012 which comprise the Company Balance Sheet and the related notes 1 to 17. 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 Chapter 3 of Part 16 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 auditor’s 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 auditor 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 and express an opinion on 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 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. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. In our opinion the parent company financial statements: ● give a true and fair view of the state of the company’s affairs as at September 30 2012 and of its proﬁt for the year then ended; ● have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and ● 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: ● the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and ● 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: ● 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 ● 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 ● certain disclosures of directors’ remuneration speciﬁed by law are not made; or ● 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 2012. Robert Matthews (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom November 14 2012 e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C t r o p e R y n a p m o C s ’ r o t i d u A t n e d n e p e d n I Euromoney AR2012.indd 121 21833.04 13/12/12 Proof 7 121 13/12/2012 15:55:06 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Company Balance Sheet as at September 30 2012 Fixed assets Tangible assets Investments Current assets Debtors Corporation tax Cash at bank and in hand Current liabilities Bank overdrafts Amounts owed to subsidiary undertakings Other taxation and social security Deferred income Derivative financial instruments Committed loan facility (see note 20 in the group accounts) Loan notes Net current assets Total assets less current liabilities Non-current liabilities Committed loan facility (see note 20 in the group accounts) Derivative financial instruments Provisions Net assets Capital and reserves Called up share capital Share premium account Other reserve Capital redemption reserve Capital reserve Own shares Reserve for share-based payments Fair value reserve Profit and loss account Equity shareholders’ funds Notes 2012 £000 2011 £000 4 5 6 12 12 7 9 13 13 13 13 13 13 13 13 14 3,635 983,513 987,148 45,792 2,808 10 48,610 (13,699) (114,459) (270) – (439) – (1,228) (130,095) (81,485) 905,663 (43,154) (206) (1,521) (44,881) 860,782 311 99,485 64,981 8 1,842 (74) 36,055 1,223 656,951 860,782 4,161 938,461 942,622 98,392 2,857 42 101,291 (353) (53,405) (253) (325) (1,251) (58,516) (1,617) (115,720) (14,429) 928,193 (71,543) (1,315) (1,521) (74,379) 853,814 303 82,124 64,981 8 1,842 (74) 33,725 (261) 671,166 853,814 Euromoney Institutional Investor PLC (registered number 954730) 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 profit for the year is £9,579,000 (2011: £417,008,000). The accounts were approved by the board of directors on November 14 2012. Richard Ensor Colin Jones Directors 122 Euromoney AR2012.indd 122 13/12/2012 15:55:07 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts 1 Accounting policies Basis of preparation The accounts have been prepared under the historical cost convention except for derivative 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 accounting policies set out below have, unless otherwise stated, been applied consistently throughout the 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’. Turnover Turnover represents income from advertising, subscriptions, sponsorship and delegate fees, net of value added tax. ● Advertising revenues are recognised in the income statement on the date of publication. ● Subscription revenues are recognised in the income statement on a straight-line basis over the period of the subscription. ● Sponsorship and delegate revenues are recognised in the income statement over the period the event is run. Turnover invoiced but relating to future periods is deferred and treated as deferred income in the balance sheet. The company is also exempt under the terms of FRS 8 ‘Related Party Disclosures’ from disclosing related party transactions with members of a Leased assets group that are wholly owned by a member of that group. Further, the company, as a parent company of a group drawing up consolidated financial statements that meet the requirements of IFRS 7 ‘Financial Instruments: Disclosure’, 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 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 US$300 million dedicated multi- currency borrowing facility with Daily Mail and General Trust plc group (DMGT). The facility is divided into sterling and US dollar funds with a total maximum borrowing capacity of US$250 million (£155 million) and £33 million respectively and matures in December 2013. 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 2012, the group’s net debt to adjusted EBITDA covenant was 0.27 times and the committed undrawn facility available to the group was £144.7 million. In addition, the group has agreed terms with DMGT that provide it with access to US$300 million of funding should the group require it during the period from December 2013 through April 2016. The group’s forecasts and projections, looking out to September 2015 and 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. 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: Short-term leasehold premises over term of lease 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. e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C s t n u o c c A y n a p m o C e h t o t s e t o N Euromoney AR2012.indd 123 21833.04 13/12/12 Proof 7 123 13/12/2012 15:55:07 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts continued 1 Accounting policies continued 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 124 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. Subsidiaries Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect amendments from contingent consideration. Cost also includes direct attributable cost of investment. 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. Share-based payments The company makes share-based payments to certain employees which are equity-settled. 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, 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. Euromoney AR2012.indd 124 13/12/2012 15:55:07 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 2 Staff costs Salaries, wages and incentives Social security costs Share-based compensation costs (note 10) 2012 £000 43 6 (1,712) (1,663) 2011 £000 10 1 96 107 Details of directors’ remuneration are set out in the Directors’ Remuneration Report on pages 41 to 52 and in note 7 of the group accounts. The directors do not receive emoluments specifically for their services to this company. 3 Remuneration of auditor Fees payable for the audit of the company’s annual accounts 4 Tangible assets Cost At October 1 2011 and September 30 2012 Depreciation At October 1 2011 Charge for the year At September 30 2012 Net book value at September 30 2012 Net book value at September 30 2011 2012 £000 2011 £000 447 509 Short-term leasehold premises £000 8,322 4,161 526 4,687 3,635 4,161 e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C s t n u o c c A y n a p m o C e h t o t s e t o N Euromoney AR2012.indd 125 21833.04 13/12/12 Proof 7 125 13/12/2012 15:55:07 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts continued 5 Investments At October 1 Additions Disposals Exchange differences At September 30 2012 Investments in associated undertakings £000 2011 Investments in associated undertakings £000 Total £000 Subsidiaries £000 29 – – – 29 938,461 46,940 – (1,888) 983,513 468,248 830,809 (361,539) 914 938,432 29 – – – 29 Subsidiaries £000 938,432 46,940 – (1,888) 983,484 Total £000 468,277 830,809 (361,539) 914 938,461 In April 2012, the company assigned its loan receivable with BCA Research, Inc. to Euromoney Institutional Investor (Jersey) Limited (EIIJ) in return for increased investment in EIIJ. During 2011, the company restructured its investments to take advantage of HMRC’s consortium relief rules to enable its subsidiaries, where appropriate, to claim tax losses from the DMGT group. As part of the restructuring, the company acquired a 57% stake in Euromoney Canada Limited (ECL) (formerly Euromoney Telcap 1 Limited) and 100% stake in Euromoney Canada Finance Limited (ECFL) (formerly Euromoney Telcap 2 Limited) from its subsidiary Euromoney Institutional Investor (Ventures) Limited (EIIV). Following the acquisition, the company sold 100% of its shareholding in EIIV to ECFL. Also in 2011, as part of a project to reduce the number of legal entities within the group Euromoney Yen Finance Limited (EYF), a 100% owned subsidiary, was struck off the register at Companies House during the year. Accordingly the company’s investment in EYF, previously impaired to £nil net book value, was written off. Details of the principal subsidiary and associated undertakings of the company at September 30 2012 can be found in note 14 to the group accounts. 6 Debtors Due within one year: Trade debtors Amounts owed by DMGT group undertakings Amounts owed by subsidiary undertakings Other debtors Deferred tax (note 8) Prepayments and accrued income 2012 £000 2011 £000 532 2,344 42,268 165 148 335 45,792 – 645 95,535 – 2,212 – 98,392 126 Euromoney AR2012.indd 126 13/12/2012 15:55:08 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 7 Provisions At October 1 and September 30 Maturity profile of provisions: Between two and five years 8 Deferred tax The deferred tax asset at September 30 comprised: Tax losses Other short-term timing differences Provision for deferred tax Movement in deferred tax: Deferred tax asset at October 1 Deferred tax charge in the profit and loss account Deferred tax charge to equity Deferred tax asset at September 30 2012 Dilapidations on leasehold properties £000 2011 Dilapidations on leasehold properties £000 1,521 1,521 2012 £000 1,521 1,521 2011 £000 1,521 1,521 2012 £000 – 148 148 2012 £000 2,212 (1,571) (493) 148 2011 £000 1,571 641 2,212 2011 £000 9,466 (6,315) (939) 2,212 A deferred tax asset of £148,000 (2011: £2,212,000) has been recognised in respect of 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. e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C s t n u o c c A y n a p m o C e h t o t s e t o N Euromoney AR2012.indd 127 21833.04 13/12/12 Proof 7 127 13/12/2012 15:55:08 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts continued 9 Share capital Allotted, called up and fully paid 124,349,531 ordinary shares of 0.25p each (2011: 121,247,380 ordinary shares of 0.25p each) 2012 £000 2011 £000 311 303 During the year, 3,102,151 ordinary shares of 0.25p each (2011: 2,755,469 ordinary shares) with an aggregate nominal value of £7,755 (2011: £6,889) were issued as follows: 2,381,410 ordinary shares (2011: 2,226,089) under the company’s 2009 scrip dividend alternative for a cash consideration of £nil (2011: £nil); and 720,741 ordinary shares (2011: 529,380 ordinary shares) following the exercise of share options granted under the company’s share option schemes for a cash consideration of £1,058,834 (2011: £718,392). 10 Share-based payments An explanation of the company’s share-based payment arrangements are set out in the Directors’ Remuneration Report on pages 42 to 45. The number of shares under option, the fair value per option granted and the assumptions used to determine their values is given in note 24 to the group accounts. Their dilutive effect on the number of weighted average shares of the company is given in note 11 to the group accounts. Share option schemes The executive and Save as You Earn (SAYE) 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 15 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 charge recognised in the year in respect of these options was £97,000 (2011: £96,000). Details of the executive and SAYE options are set out in note 24 to the group accounts. Capital Appreciation Plan 2004 (CAP 2004) The 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 credit in the year for the CAP 2004 options was £1,809,000 (2011: £nil). Details of the CAP 2004 options are set out in note 24 to the group accounts. Capital Appreciation Plan 2010 (CAP 2010) and Company Share Option Plan 2010 (CSOP 2010) The CAP 2010 and CSOP 2010 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 recognised in the year for the CAP 2010 and CSOP 2010 options was £nil (2011: £nil). Details of the CAP 2010 and CSOP 2010 options are set out in note 24 to the group accounts (excludes ISI and cash-settled options). There is no cost or liability for the cash element of the CAP 2010 option scheme. These are borne by the company’s subsidiary undertakings. A reconciliation of the options outstanding at September 30 2012 is detailed in note 24 to the group accounts. 128 Euromoney AR2012.indd 128 13/12/2012 15:55:08 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 11 Commitments and contingent liability At September 30 the company has committed to make the following payments in respect of operating leases on land and buildings: Operating leases which expire: Within one year Between two and five years Over five years Cross-guarantee 2012 £000 – 690 242 932 2011 £000 – 707 242 949 The company, together with the ultimate parent company and certain other companies in the Euromoney Institutional Investor PLC group, have given an unlimited cross-guarantee in favour of its bankers. 12 Financial instruments Derivative financial instruments The derivative financial assets/(liabilities) at September 30 comprised: Interest rate swaps Current portion Non-current portion 2012 2011 Assets £000 Liabilities £000 Assets £000 Liabilities £000 – – – (645) (439) (206) – – – (2,566) (1,251) (1,315) The company holds all the interest rate swaps for the group and full details regarding these can be found in note 19 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 £1,888,000 (2011: increase in liability of £914,000) which has been deferred in reserves where it is offset by the translation of the related investment and will only be recognised in the company’s profit and loss account if the related investment is sold. There are no differences in these hedges charged to the profit and loss account in the current and prior year. 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. e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C s t n u o c c A y n a p m o C e h t o t s e t o N Euromoney AR2012.indd 129 21833.04 13/12/12 Proof 7 129 13/12/2012 15:55:08 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts continued 13 Reserves Share premium account £000 Share capital £000 Other reserve £000 Capital redemp- tion reserve £000 Capital reserve £000 Own shares £000 Reserve for share- based pay- ments £000 Fair value reserve £000 Profit and loss account £000 Total £000 At September 30 2010 Retained profit for the year Change in fair value of cash flow hedges Tax on items taken directly to equity Capital contribution Credit for share-based payments Scrip/cash dividends paid Exercise of share options At September 30 2011 Retained profit for the year Change in fair value of cash flow hedges Tax on items taken directly to equity Credit for share-based payments Scrip/cash dividends paid Exercise of share options At September 30 2012 296 – – – – – 6 1 303 – – – – 6 2 311 66,082 – – – – – 15,325 717 82,124 – – – – 16,304 1,057 99,485 64,981 – – – – – – – 64,981 – – – – – – 64,981 8 – – – – – – – 8 – – – – – – 8 1,842 – – – – – – – 1,842 – – – – – – 1,842 – – – – – – – (74) 15,229 – – – – 18,496 – – (74) 33,725 – – – 2,330 – – (74) 36,055 – – – – – – 3,595 (939) (2,917) 375,644 521,091 – 417,008 417,008 3,595 – (939) – – (100,038) (100,038) 18,496 – – (6,117) (21,448) – 718 – – (261) 671,166 853,814 9,579 9,579 1,977 – (493) – 2,330 – (7,484) (23,794) 1,059 – 1,223 656,951 860,782 – 1,977 (493) – – – The investment in own shares is held by the Euromoney Employees’ Share Ownership Trust (ESOT). At September 30 2012 the ESOT held 58,976 shares (2011: 58,976 shares) carried at a historic cost of £1.25 per share with a market value of £454,000 (2011: £363,000). 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. Of the reserves above £36,055,000 (2011: £33,725,000) of the liability for share-based payments and £575,168,000 (2011: £589,383,000) of the profit and loss account is distributable to equity shareholders of the company. The remaining balance of £81,783,000 (2011: £81,783,000) is not distributable. 130 Euromoney AR2012.indd 130 13/12/2012 15:55:09 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com 14 Reconciliation of movements in equity shareholders’ funds Profit for the financial year inclusive of dividends Dividends paid Issue of shares Change in fair value of cash flow hedges Tax on items taken directly to equity Credit to equity for share-based payments Capital contribution Net increase in equity shareholders’ funds Opening equity shareholders’ funds Closing equity shareholders’ funds 15 Related party transactions Related party transactions and balances are detailed below: 2012 £000 2011 £000 9,579 (23,794) (14,215) 17,369 1,977 (493) 2,330 – 6,968 853,814 860,782 417,008 (21,448) 395,560 16,049 3,595 (939) 18,496 (100,038) 332,723 521,091 853,814 (i) The company had borrowings under a US$300 million multi-currency facility with DMGRH Finance Limited, a fellow group company (note 20 of group accounts): Amounts owing under US$ facility at September 30 Amounts owing under GBP facility at September 30 Commitment fee on unused portion of the available facility for year 2012 US$000 2012 £000 2011 US$000 2011 £000 62,381 – – 38,631 4,523 43,154 618 171,450 – – 110,059 20,000 130,059 721 (ii) At September 30, the company had ﬁxed rate interest rate swaps outstanding with Daily Mail and General Holdings Limited (DMGH), a fellow group company, as follows: Interest rates between 2.5% and 5.4% and termination dates between March 28 2013 and March 31 2014 on US$ fixed rate interest rate swaps Interest rate of 2.6% and termination date of March 28 2013 (2011: between September 30 2012 and March 28 2013) 2012 US$000 2012 £000 2011 US$000 2011 £000 40,000 24,771 95,000 60,983 GBP fixed rate interest rate swaps – 5,000 – 20,000 e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C s t n u o c c A y n a p m o C e h t o t s e t o N Euromoney AR2012.indd 131 21833.04 13/12/12 Proof 7 131 13/12/2012 15:55:09 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Notes to the Company Accounts continued 15 Related party transactions continued During the year the group paid interest to DMGH and related companies in respect of interest rate swaps as follows: US$ interest paid GBP interest paid 2012 US$000 2,353 – 2012 £000 1,488 504 2011 US$000 4,475 – 2011 £000 2,784 974 (iii) In February 2011, the company provided US$70 million short-term loan facility to DMGH, a fellow group company. The loan was repaid on February 17 2011. There were no amounts outstanding as at September 30 2012: Amounts paid Amounts received Interest income 2012 US$000 2012 £000 2011 US$000 2011 £000 – – – – – – (70,000) 70,041 41 (43,750) 43,776 26 (iv) During the year the company received a dividend of £291,000 (2011: £656,000) from Capital Net Limited, an associate of the company. 16 Post balance sheet event The directors propose a final dividend of 14.75p per share (2011: 12.50p) totalling £18,342,000 (2011: £15,156,000) for the year ended September 30 2012 subject to approval at the Annual General Meeting to be held on January 31 2013. 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 2013. During 2012, a final dividend of 12.50p (2011: 11.75p) per share totalling £15,162,000 (2011: £13,928,000) was paid in respect of the dividend declared for the year ended September 30 2011. 17 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 its 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 132 Euromoney AR2012.indd 132 13/12/2012 15:55:09 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Five Year Record Consolidated Income Statement Extracts Total revenue 332,064 317,594 330,006 363,142 394,144 2008 £000 2009 £000 2010 £000 2011 £000 2012 £000 Operating profit before acquired intangible amortisation, long-term incentive expense and exceptional items Acquired intangible amortisation Long-term incentive expense Additional accelerated long-term incentive expense Exceptional items Operating profit before associates Share of results in associates Operating profit Net finance costs Profit/(loss) before tax Tax credit/(expense) on profit/(loss) Profit/(loss) after tax from continuing operations Profit from discontinued operations Profit/(loss) for the year Attributable to: Equity holders of the parent Equity non-controlling interests Profit/(loss) for the year Basic earnings/(loss) per share Diluted earnings/(loss) per share Adjusted diluted earnings per share Diluted weighted average number of ordinary shares Dividend per share 81,308 (12,749) (5,361) – (2,477) 60,721 308 61,029 (23,603) 37,426 7,279 44,705 245 44,950 43,719 1,231 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) 100,057 (13,671) (4,364) – (228) 81,794 281 82,075 (10,651) 71,424 (12,839) 58,585 – 58,585 58,105 480 58,585 108,967 (12,221) (9,491) (6,603) (3,295) 77,357 408 77,765 (9,568) 68,197 (22,527) 45,670 – 45,670 45,591 79 45,670 118,175 (14,782) (6,301) – (1,617) 95,475 459 95,934 (3,566) 92,368 (22,528) 69,840 – 69,840 69,672 168 69,840 41.69p 40.37p 44.36p (6.83)p (6.67)p 40.39p 107,687,024 112,372,620 14.00p 19.25p 50.04p 49.47p 53.50p 117,451,228 18.00p 38.02p 37.34p 56.05p 122,112,168 18.75p 56.74p 55.17p 65.91p 126,290,412 21.75p Consolidated Statement of Financial Position extracts Intangible assets Non-current assets Accruals Deferred income liability Other net current assets/(liabilities) Non-current liabilities Net assets 407,578 41,318 (50,016) (89,488) (171,290) (50,038) 88,064 425,648 39,002 (46,972) (82,599) (16,642) (213,446) 104,991 422,707 40,921 (45,473) (93,740) 21,962 (176,894) 169,483 490,042 33,824 (56,249) (105,507) (12,304) (124,231) 225,575 469,308 26,357 (54,170) (105,106) 32,151 (80,616) 287,924 e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C Euromoney AR2012.indd 133 21833.04 13/12/12 Proof 7 133 13/12/2012 15:55:09 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Financial Calendar and Shareholder Information 2012 final results announcement Thursday November 15 2012 Final dividend ex-dividend date Wednesday November 21 2012 Final dividend record date Interim management statement 2013 AGM (approval of final dividend) Payment of final dividend 2013 interim results announcement Interim dividend ex-dividend date Interim dividend record date Payment of 2013 interim dividend Friday November 23 2012 Thursday January 31 2013 Thursday January 31 2013 Thursday February 14 2013 Thursday May 16 2013* Wednesday May 22 2013* Friday May 24 2013* Thursday June 20 2013* 2013 final results announcement Thursday November 14 2013* Loan note interest paid to holders of loan notes on Monday December 31 2012 Friday June 28 2013 — Viewing dividend payment history; and — Making dividend payment choices. 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 * Provisional dates and are subject to change. Shareholder enquiries Administrative enquiries about a holding of Euromoney Institutional Investor PLC shares should be directed in the first instance to the company’s registrar whose address is: Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Telephone: 0871 384 2030 (calls cost 8p per minute from a BT landline. Other telephone provider costs may vary). Overseas Telephone: (00) 44 121 415 7047 A number of facilities are available to shareholders through the secure online site www.shareview.uk including: — Viewing holdings and obtaining an indicative value; — Notifying a change of address; — Requesting receipt of shareholder communications by email rather than by post; 134 Euromoney AR2012.indd 134 13/12/2012 15:55:10 21833.04 13/12/12 Proof 7 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Shareholder Notes e e c c n n a a m m r r o o f f r r e e P P r r u u O O e e c c n n a a n n r r e e v v o o G G r r u u O O s s t t n n u u o o c c c c A A p p u u o o r r G G s s t t n n u u o o c c c c A A y y n n a a p p m m o o C C Euromoney AR2012.indd 135 21833.04 13/12/12 Proof 7 135 13/12/2012 15:55:10 Euromoney Institutional Investor PLC Annual Report and Accounts 2012 www.euromoneyplc.com Shareholder Notes 136 Euromoney AR2012.indd 136 13/12/2012 15:55:10 21833.04 13/12/12 Proof 7 euromoneyplc.com Queen’s Award for Enterprise 2008 in the International Category Novatech Matt A white coated paper and board made using 100% ECF pulp Euromoney AR2012.indd 6 13/12/2012 15:55:13 21833.04 13/12/12 Proof 7 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 1 2 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 Euromoney AR2012.indd 1 13/12/2012 15:55:13 Slugline 21833.04 13/12/12 Proof 7

Continue reading text version or see original annual report in PDF format above