Thursday, July 31, 2008

RBI is up or down too!

The publication of results is supposed to illuminate not obfuscate. Reed Elsevier published its interim results for the first half to June yesterday. Naturally we were immediately interested in how "up for sale" RBI was doing. Remember RBIoperates in the US, the UK and Europe. The results are shown in sterling and Euros. The sterling results say that revenue is up and profits are up. The results in Euros say revenue is down and profits are down.

So RBI is either doing better or worse than last year. This Dutch analysis says that the grwoth is almost entirley down to exchange rate movements and that RBI is down.

The statement says good progress is being made with the sale of RBI. Staple finance and vendor due diligence is in place.
Still no evidence of my promised big anouncement this week. I am going back to my source and will let you know.

Tuesday, July 29, 2008

United We Stand.

United Business Media released a strong set of half year results today, bucking the trend rather. UBM management must be hugely relieved that 85% of their profits come from events not magazines. With the pointed exception of Farmers Guardian, the statement makes note that magazines, in the UK at least are having a rough time as the classified downturn begins to bite.

So good news then. How did the city take it? Share price down 0.5% proving that even a good news media story can't shake off the bears.

Perhaps thay are worried that UBM might owe the tax man £80m from its sale of its regional newspapers ten years ago. Or perhaps they know that next year, even event based businesses might start to feel the pain. Or perhaps they are just wrong.

Monday, July 28, 2008

Informa Profits Up or Down or Both.

Informa, still in the midst of rumours of a private equity bid, has posted its interim results. Revenue is up 18% and profit 21% they brag. With just 3% of its revenues in advertising Informa is faring better than most they argue. Still, I would be pretty unhappy in that circumstane with a low margin of just 12% at the unadjusted profit level. As ever with these things, all is not quite what it seems. The 21% profit growth is after the real number (which is a rather more modest 4% profit growth) has been adjusted for exchange rate differences, reorgonisation costs and the like.

So Informa want the credit for the revenue growth, but not the costs of making it happen. Mmm. As the statement points out,

"The Group's profit before taxation decreased to £60.0m (2007:£87.8m) and basic earnings per share decreased to 10.96p (2007:16.24p) as a result of higher amortisation charges arising from last year's acquisition of Datamonitor."

Ok, so what is headlined as an increase, is actually a decrease. Amortisation is simply the writing off of capital expenditure. In other words its costs incurred in a prior period not yet reported in the profit and loss account. You can't pretend they don't exist.

These are a good set of results - better than most b2b companies and more likely to be robust through the cycle than many, but they are nowhere near as marvelous as the headline implies. My worries would be;
Organic growth is very modest (4% is neutral in real terms)
The debt burden is huge (£1.2b of debt - thats twice turonover)
The downturn coming in the conference business - Informa has inside it the global behemoth conference organiser IIR). As their statement says,

"The Group is subject to high sensitivity in relation to average delegate attendance"

High sensitivity! Oh bugger and I thought if you weren't in advertising you were safe.

Wilmington Could get Sold to HG Capital

The Telegraph reports that Wilmington is poised to receive bid interest from private equity firm HG Capital. Other mid market players, such as Centaur, could generate interest too says the Telegraph.

Like all media stocks, Wilmingtons share price has suffered of late, despite turning in profit growth. Wilmington has also reduced its dependency on magazine advertising by selling off mags. There is still much to do though to turn Wilmington into a powerhouse media company. I have no doubt that CEO Charles Brady looks enviously at the privacy enjoyed by APAX owned, Incisive Media as it wrestles with the new paradigm.

This kind of public to private transaction will likely only happen with the support of management. If Brady and his Board want this to happen and a believable plan can be constructed then it will. If Brady is hostile to HGC it won't.

Interestingly Centaur is more of a bargain than Wilmington. About the same size as each other Wilmington trades on a p/e of 16; Centaur trades on half that. Put another way the market value of Wilmington is considered to be 8 times its 2007 profit. Centaur is today valued at just 4 times last years profits. This reflects the work that Centaur has yet to do, and Wilimington has already started, to move the business from magazine dependency to professional information solutions.

Heres a thought. Buy Wilmington and then buy Centaur, strip out all the duplicate costs (perhaps £10m) and replicate the events/training expertise of Wilmington in the Centaur business. Both businesses have useful positions in the legal sector too.

Assuming you share the benefits of the cost saving between the two valuations the implied value of Centaur, based on todays share price is just 2.6 times post merger profits.

So pay a 30% premium on todays price for Wilmington and twice todays price for Centaur and what do you have? A combined business with a turnover of £170m, profit of £47m acquired for a blended price of 7 times earnings.

I am not sayng these are the right prices to bid, but it does illustrate that something is do-able if all the parties are willing.

Oh and one more unconnected thing - a little bird tells me that a big announcement is about to go down tomorrow - Tuesday - at a major b2b media house. My bet is on a swathe of redundancies at.......

Tuesday, July 22, 2008

Newstrade sales Boom at The Grocer! No - Really - Its True!

William Reeds, The Grocer, has just posted a single issue audit. Normally we would let these things pass as we are engaged on headier matters, but you will remember my post about the decline in paid circ in b2b. The Grocers single issue audit, dated January, shows a circ of 29631, a 4% drop on the last audit period average.

At first sight alarming. However the reason for the fall is that WR has reduced the number of free copies by 3000 or so . Newstrade sales are up a staggering 4300 but subs are down 1700.

If this reflects what will happen on their annual return, why show a fall in total circ on a single issue audit caused entirely by a publishing decision to reduce free copies. Their rivals will make hay.

My guess is that this single issue audit is a wierd single issue up blip in newstrade sales. All the growth has come from discounted single issue sales. The average, I predict, will be much worse and this is an attempt to prop up a weakening ad sales story.

If newstrade sales have not really grown (and it would be surprising if they had) the average issue certificate could be as low as 23000 when it is published in September - and thats a melt down.

If I were an advertiser, I would want some assurances from The Grocer that the growth in newstrade sales implied by the single issue audit, was reflected across the period. Otherwise I would be forced to reduce my spend.

Lets be clear, there is no point in publishers pretending that things aren't bad and hoping it will get better before anyone notices. WR are a pro outfit, so lets just hope they aren't simply delaying bad news and that this single issue rise in newstrade sales reflects the performance over the audit period.

IT Week Has Closed.

As we reported yesterday, confirmation from Press Gazette that IT week has closed/merged with Computing. Right decision taken five years too late.

I was sent this quote from the Reed internal bragging machine;

"The decision did not surprise Computer Weekly's head of display sales Duncan Kirk who has seen the market getting tougher and tougher: "There is no doubt that as the weakest of the three weeklies IT Week has suffered the most and of course we haven't exactly made life easier!""

Nothing like a bit of gloating as your rivals die and lose their jobs. But watch out - as they say in the National Lottery, it could be you next.

Monday, July 21, 2008

IT Week to Close?

Rumours as yet unproven that IT Week is about to close. This was the title launched ten years ago by Ziff Davis, then acquired by VNU, which itself was acquired by Incisive. It never made sense to own Computing and IT Week and notwithstanding the merits or otherwise of the title, one has to conclude, that if true, VNU/Incisive is facing the inevitable truth that what was always a daft idea (buying IT week) looks bonkers in a downturn.

More to come when I hear anything.

RBI Sale Attracts 20 BIds

The Telegraph and others report on the late start to the auction of RBI. The Telegraph suggests that perhaps 20 copies of the Information Memorandum have been sent out. The late start is partly due to the Reed management needing time to put together the debt finance necessary to keep private equity feet warm in an icy credit crunch. Around £160m of the £750m staple finance is Reeds own money, underlying their enthusiasm to get this done.

Reed is also determined to avoid a break up sale. It is understood that part of the delay was to enable a rewrite of the IM so that it was not possible for buyers to dissemble the parts and arrive at a break up valuation.

If true, this may turn out to be tactical mistake. If the sale to a single party is completed, there are few if any buyers who will not want to dispose of a good chunk of assets either because they don't have a strategic fit, or in the case of private equity, to push down the debt burden a little.

The Telegraph says bids are due mid August. Second round bids I would guess will be mid September and if there is a credible winner, there will be around eight weeks of due diligence, which implies the earliest date for completion will be Mid November.

Reed had better hope that revenues hold up against forecast during the next three months. The slightest wobble will lead to price chipping.

Blogger to Become Reed Elsevier CEO

The Independent business diary speculates that UBM CEO, David Levin is being spoken of as the possible successor to Reed Elsevier CEO Crispin Davies, who is to retire shortly. The source for this story is "gossip merchants". It must be true then.

His qualification for the role, according the Independent, is that he failed to merge with Informa, and that he is talented and ambitious. On that basis, I reckon I could be in the running too.

Monday, July 14, 2008

Centaur Says "Carry on as Normal" despite feeble share price

Centaur issued a trading statement last week which although promising results in line with city expectations, also warns of tougher times ahead. Centaurs share price has taken a terrible hammering in recent months, dropping from a 52 week high of 150 to around 60p. This despite year on year growth in earnings, largely driven by cost savings.

The challenge for Centaur is that their business is heavily advertsing dependent and there has been little aggregate revenue growth in the last four years. As a small stock in market cap terms, there is not much liquidity in the shares and little prospect of the city sentiment turning favourable to media companies in the near future.

Their strategy seems to be, sweat the share on the market leading brands, do more online. Both necessary but by no means sufficient actions to get back on to the front foot. Centaur continues to use the language of the cycle, arguing that lowering the cost base and winning share means it will be well placed for growth when the recovery comes. But what if there is no recovery in magazine advertising? What then?

GMG Purchase of Paid Content isn't Nuts.

The acquisition of by Guardian Media Group probably tells us more about the future of the newspaper business than the future of b2b. GMG are part owner of the old Emap b2b group and now acquire an internet content property for a reported $30m.

GMG are making steps that progressively alter the shape of its business. Future growth will not be in Newspapers they must reason. The executive in charge of the deal, Tim Brooks is not a thouroughbred newspaper man. He was the founding editor of Media Week and went on to be a MD at IPC magazines where he launched Nuts.

The other interesgting aspect of this is that Paidcontent began as a blog and morphed into a business. Hope for me yet then.

Sunday, July 6, 2008

Never Mind the Strategy Lets Reorganise the Management Team

Well, it no longer matters whether Gary Hughes, the CEO of CMPi has or hasn't understood what to do next as we were postulating a couple of weeks ago. He has been fired. Well, made redundant. CEO of UBM, David Levin has split the CMPi business into four chunks, just as he did with the CMP business in the USA, with the heads of each reporting to him directly. So thats four direct reports from the US, five from the UK (I'll come back to why its five) plus his head office reports which must at least include his CFO plus the Asia business. When I went to school we were told that you should never have more than six direct reports. I reckon Levin must have north of ten direct reports. That's a tough and some would say disfunctional structure.

But does this make any real sense? Go back a hundred years and Morgan Grampian/Miller Freeman, the precursor to CMPi, used to believe in "market focus". In his recent interview with Press Gazette, Hughes said,

"We like markets rather than media formats. We like to be in markets and then work out how to make money in that market rather than say here are magazines and websites, [now] make money even though you have no face-to-face assets.” A bit of a bugger than he hadn't understood the implications of his boss's change to the structure of the US business.

Serve the market. Customer first, product second is the mantra of the market focus advocate. There is a bit of this left with all the Built Environment assets grouped together under Jonathan Newby. Then there is a conference division, which is mostly events and some publishing; the Live Media Division, which is mostly events, and then there is the rest of the publishing stuff which includes Music Week and Daltons Weekly run by the CMPi CFO. No mention is made of Publican or TTG, which seems odd.

So what if Music Week wants to run a conference, where would that fit? What if an exhibiton idea evolves from a conference? Where is the focus on digital and who will make that happen? Remember my turkey analogy?

There has also been speculation that UBM, flushed away from the proposed merger with Informa, is a candidate to buy ITE and/or Centaur. Now that is interesting in that ITE is an events business with most of its activity in Eastern Europe, so it fits. Centaur has seen its market value collapse despite growing profits. It is now worth less than 5 times its EBITDA. No doubt Centaur execs think this is unfair, but there has been little revenue growth of late, they are very exposed to the advertising cycle and if they have a strategy it is hard to discern.

An irony in the history would be that Graham Sherren, founder of Centaur, was the MD of Morgan Grampian, which became Miller Freeman, which became CMPi. In fact so was his Dad. Also Centaur owns The Engineer which was sold to Centaur by CMPi (then Miller Freeman) some ten years ago.

Friday, July 4, 2008

Informa may be sold and RBI sales booming. Wow!

The Independent and many others report the confirmed approach to Informa by a private equity club. This new apporach follows the aborted talks with UBM. Interesting to compare the heat and interest in Informa and the rather more sedate progress of the planned sale of RBI.

Notwithstanding earlier reports that Reed had put staple finance in place for £750m, The Times was saying yesterday that Reed itself was putting up some of the money, presumably having failed to find bank backing for the full amount.

This shows us that the price expecetation is going to be hard to meet for RBI. Its dependence in advertising, and recruitment which is very fickle in a downturn, means there will be lots of nervous re forecasting going on in Sutton. Howver, The Times quotes a source as saying that RBI numbers are on track,

"Trading at RBI is believed to remain in line with expectations, with no sign of an advertising downturn hitting the titlles". I believe everything I read in the papers obviously, but this does seem surprising. The implication is that forward bookings are ahead of the same period last year, yields are increasing, there has been no twitch in recruitment in any sector, sales managers are reporting confidence in their customers marketing budgets Does that sound like the picture of the economy or your business that you have been getting. RBI must be better managed than I realised.