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Edited Transcript of INF.L earnings conference call or presentation 24-Jul-19 8:30am GMT

Half Year 2019 Informa PLC Earnings Presentation

London Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Informa PLC earnings conference call or presentation Wednesday, July 24, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Charles G. McCurdy

Informa plc - President & CEO of Informa Markets

* Gareth Richard Wright

Informa plc - Group Finance Director & Director

* Stephen Andrew Carter

Informa plc - Group Chief Executive & Executive Director

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Conference Call Participants

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* Adam Ian Berlin

UBS Investment Bank, Research Division - Director and Equity Research Analyst

* Adrien de Saint Hilaire

BofA Merrill Lynch, Research Division - VP & Head of Media Research

* Giasone Ulisse Salati

Macquarie Research - Senior Media Analyst

* Katherine Tait

Goldman Sachs Group Inc., Research Division - Associate

* Matthew John Walker

Crédit Suisse AG, Research Division - Research Analyst

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

* Thomas A Singlehurst

Citigroup Inc, Research Division - Director and Head of European Media Research

* William Henry Packer

Exane BNP Paribas, Research Division - Executive Director of Media Equity Research

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Presentation

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [1]

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Great. Right. Good morning, everybody, and thank you very much for joining us. We're always very conscious this time of the year. You've got lots of choice. In fact, we've, I think, identified there is literally a clash. So for those of you who decided to come and listen to us, we'll try and make it worth your while. And we'll try and get to questions at a reasonable canter.

This is the standard disclaimer and on to the results. For those of you who had a chance to read the release, you'll see that, from our point of view, we very much feel this is a business that's performing to plan. We laid our plan out at the beginning of the year. And then again, there are some familiar faces here we had a chance to spend some time with at the Capital Markets Day, where we really, I think, try to get underneath the bonnet of how the business was performing and where we felt there was strength.

As you know, we've been talking for some time at Informa for nearly 6 years now that we see ourselves as part of the knowledge economy. We think knowledge economy is a great market to be in, that the world of specialization and skill specialization is where economies around the world are going, and that if you can provide products and services that satisfy the needs of those increasing specialist communities, then you are in a good spot. And that is where we are pursuing our growth. And you see that a little bit in the way in which we have managed our portfolio in the portfolio management program over the last 12 months.

This process of market specialization has been going on for some time. We started out back in the day around the Growth Acceleration Plan, where we were trying to put some capability and strength and scale into our core business, build a position in global exhibitions, repair our intelligence and data businesses and begin the process of getting our research publishing business to a place whereby it could compete in a world that's more about open access and Open Research than close subscription deals.

More recently, post the UBM combination, we then had a, if you like, a specific task in hand, which was to make an acquisition which strategically, I think, made coherent sense to us, clearly, and I believe, to the market and our customers actually operate as much evidence many case studies of acquisitions that have failed. They look good on PowerPoint. They look good on the numbers, but in reality, they don't operate. And we spent a lot of time over the last 12 months in the wrapper of what we call the Accelerated Integration Plan working the day-to-day operational practicalities of making that combination work. I'm delighted to see Charlie McCurdy here, who's hiding in the back corner, but I promised him that all the tricky questions are going his way. And he has very much been leading the charge on much of that combination over the last 12 months.

The plan came in a series of areas of activity. I'm just going to draw out a couple of them. At the same time as creating that combination, it forced us to take our thinking around which markets did we want to stay in and grow in, and I'll come back and talk to that after Gareth has taken you through the detail of the numbers. And that led to some decisions that we made about parts of the portfolio that we would seek to dispose of. In the beginning of the year, we moved out of the media portfolio in Life Sciences that have been much trailed by UBM. We have announced today that we are moving out of our wealth management and software business. And then we did a very nice effectively swap deal with IHS Markit to move us out of the agricultural intelligence business and further deepen our market position in technology. And that is a good metaphor for where we're seeking to take the portfolio.

We'll get, I'm sure, into Fashion again. That was, if you like, the gift that kept on giving post the UBM acquisition, and that's required some very, very specific investments, some changes to the portfolio, to the brand makeup, to the way in which we go to market. And the big test of that really for us comes in August of this year, where we see our One-Magic show come to life in real time, then followed by the COTERIE show and the early signs of that is tracking and trading well.

In terms of execution, I think we feel we've made very good progress on this. We set ourselves a 12-month time table. We deliberately did that to put a bit of pace into it, not because we were trying to do anything other than I respect the reputation of the brands that we had bought, but we were very clear that we wanted to create one company. We want to create one culture, one set of values, one program, one set of incentives, one management structure, one operating structure. And the quicker you get on with that, the better. And so clarity and purpose and coherence has very much been the mantra within the business, and I'll talk about that a little later.

We're making good progress on the cost synergies, we're on plan. You see about GBP 20 million to GBP 25 million of those synergies flow into the first half numbers, and we have got very clear visibility of what we need to deliver in the back 6 months. So we feel very good about where we are on the synergy delivery.

On the leadership side, we've got a very strong bench. I think across our businesses, and perhaps, more importantly, in our market specialisms, and that is ultimately where we compete for differentiation.

If you look at the group as an investment proposition, which many of you do, I mean, this is, as they say in the trade, good PowerPoint, but I think it does bring to life some of the fundamental building blocks of strength of the Informa Group, and we have been building this quarter-on-quarter, year-on-year for some time now. We very much wanted to be a growth business, that was not our history. It is very much the mantra within the company, has been for some time now. If you are not going forward, then at best you're standing still, and at worst, you're going backwards. We want to be in growth mode and that leaves us to make investments to give us choice. But the key shift has been pivoting us around specialism, driving our specialist expertise in markets which we think have got the fundamental growth features that are attractive.

It's a portfolio business, so there are some ups, there are some downs. We've talked about the Fashion business. We're feeling a bit of heat in the Middle East and there's some ongoing challenges in the research publishing business, which are much documented.

But one of the features of a robust business is the ability to be able to take some of those bumps in the road and still be able to progress with confidence, and some of that comes from our international reach. And that international reach, particularly our shifting weighting towards the U.S. economy, has really given the Informa Group a lot of strength, and particularly a lot of strength given what's going on domestically here in the United Kingdom, which concerns us personally, but professionally is not really a concern for the Informa Group.

Digital is a big part of our business. We've been a digital-first business for some time. We are focusing on improving our digital products and services in all of our businesses, and I'm sure we'll get into that. But notwithstanding that, we remain of the view that alongside specialist expertise delivered in a digital format, there is a great value in face-to-face interaction. And all the evidence, all the pacing, all the numbers shows you that in business communities, the value of face-to-face interaction remains powerful as long as you're investing in a product that you deliver at the point of that face-to-face interaction. And that is at the heart of what Charlie is leading in Informa Markets and in part what we are seeing in our communities' strategy in Informa Connect.

The cash matters. This is a highly cash-generative business. Gareth will talk to that. The half-year cash numbers are good. We have consistently driven our cash flow discipline over many years, and that we believe remains a very attractive part of the investment proposition for the Informa Group.

These are the summary numbers. I won't dwell on them because Gareth will give you the details behind them. But as I said at the beginning, they're on plan and they're to plan. And we feel good about where we are. And you can see how that tumbles down both on the top line, which is in the zone for us and the bottom line, which is seeing a high level of conversion, and that's very much what we wanted to begin to see the group doing.

So on that note, I'll hand over to Gareth. Gareth?

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [2]

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Cheers, Stephen. Thank you. Good morning, everyone, and thank you for coming to our 2019 half year results, a set of results that we think are -- demonstrate the group is performing to plan in the year and also an occasion which we're reconfirming the guidance for 2019 full year.

I will start with the headline results for the group. Underlying revenue growth in the first half was 3.4%, which is consistent with the 3.5% -- 3.4% growth delivered for full year of 2018, if you include a full year of UBM trading. We're comfortable with the half year growth in terms of the full year guidance of 3.5%-plus because, as many of you know, UBM trading was traditionally weighted towards the second half of the year. Reported revenue increased by 47% and reported OP by 48%, with the underlying growth supported by favorable U.S. dollar foreign exchange and, of course, the benefit of the combination with UBM. First half earnings increased 17% if you take a pro forma view of the 2018 comparative, including a full 6 months UBM trading, and we delivered strong free cash flow, just over GBP 300 million, and I will analyze out the year-on-year increase of GBP 175 million on a later slide. And finally, the dividend, where the confidence from falling to plan, from the growth in pro forma earnings and the growth in the strong free cash flow number, all underpinned our decision to increase the dividend by 7% at the half year.

So taking a closer view of the divisional performance and the numbers on the 2018 column here, our pro forma for a full 6 months of UBM ownership and strip out the Life Sciences business that we disposed over the start of the year. Within this, Informa Markets delivered underlying revenue growth of 4.4%. The strongest verticals continue to be in the health and nutrition space and in the health care and pharma area. Within this result, Fashion revenue performed as expected, but the Fashion GAP program is underway and proceeding to plan. Dubai has been a weaker area for us in terms of the macro generally, and we're facing some specific headwinds from the Expo 2020 event, competing for our share of property exhibitors' wallet.

Informa Connect produced underlying revenue growth of 2.1% in the first half of the year, ahead of its seasonally stronger second half. OP declined year-on-year, but this is simply a function of the phasing in the indirect cost base against the small H1 revenue result, and we fully expect growth in OP on a full year basis.

Informa Tech delivered underlying revenue growth of 1.1%, and this is -- was a steady performance against the backdrop of 3 businesses coming together as one division with all the associated management organizational changes involved in that. Like Connect, Tech revenues are weighted towards the second half of the year when the big shows take place like AfricaCom and Black Hat USA.

Informa Intelligence subscriptions produced a mix of robust renewals and good new business wins, which together add up to driving revenue growth of 3.2%. Within the verticals in Intelligence, Pharma was the strongest performing area.

Taylor & Francis delivered underlying revenue growth of 1.8%, which is all the more encouraging considering the tough comp of 3.5% that it had from 2018. This was driven by good performance in Journals with robust subscription renewals and good growth in open access and supported by a more mixed performance in Books, but this is the area where the comp was toughest in terms of the prior year. It's worth commenting on the expansion in the margin, where the mix benefit from higher-margin Journals growth, plus the strengthening of the U.S. dollar, plus the benefit from synergies in the group increased margins by 4 percentage points overall.

Again, focusing on the mix of reported growth, we just outlined underlying revenue growth was 3.4% and underlying OP growth was 8.2%. In addition, the combination with UBM added another 40 percentage points of growth revenue and almost 32 percentage points to OP. Currency added just over 5 percentage points of growth revenue and 11 percentage points to OP, principally driven by the stronger U.S. dollar, but also the weighting towards dollar profits in the group.

And finally, there's a 1.5 percentage point year-on-year phasing impact in terms of biennials in H1 because the odd year biennials are smaller in H1 than even year biennials in the comp. But this just will be positive for the full year after we operate the stronger odd year biennials in the second half of the year. So all this adds up to reported revenue growth of 47% and reported OP growth of 48% in the first 6 months of 2019.

So focusing on the income statement. You can see the group has generated GBP 436 million of adjusted OP in the first 6 months of 2019, a significant increase over the GBP 294 million of OP generated in the prior year. Net interest for the 6 months increases year-on-year, primarily because of the higher borrowings in 2019 to finance the UBM combination, but also because of the interest charge from the IFRS 16 leasing standard we've adopted this year. For full year interest, depending on whether you decide on any change in interest rates or any further movements in foreign exchange, you should be thinking about interest charge of around about GBP 100 million before IFRS 16 and then GBP 110 million to GBP 115 million, including the IFRS 16 interest charge.

The effective tax rate increases to 19% in the first half of 2019. The 2 main factors in this increase are a full 6 months from UBM, which generates profits and higher tax rate jurisdictions in the legacy Informa business and also an increase in profits from higher tax jurisdictions such as the United States. The effective tax rate in 2019 for the full year is consistent with the guidance that we gave you at the time of the UBM combination. And you should expect that to continue into the medium term.

The charge for the minority interest was GBP 14 million in the full year -- excuse me, in the first half, and we will guide to that being around about GBP 20 million for the full year of 2019.

So in conclusion, if you reset the earnings comparative to calculate on a pro forma basis, it will be done in the pro forma column on the slides here, the earnings growth in the first half was 17% year-on-year. The reported result was a decrease in the earnings year-on-year, but this merely reflects the fact that we completed the UBM acquisition only 15 days before the year-end, but benefited from a disproportionately large amount of OP generated from events that ran in those 15 days in the comparative. And finally, we confirm that we are comfortable with the consensus view on earnings for the full year.

Looking at margins. Our reported margins increased 20 basis points to 31% with the underlying growth in OP, the net synergies will be crystallized and the benefit of the currency more than offsetting a full 6 months of trading from the UBM business, which traded at a slightly lower margin. If we take the pro forma results for 2018, which has seen a full period of ownership, the margins increased 260 basis points year-on-year.

Turning to synergies. The headlines in synergies is that we're on track to achieve the targets that we set ourselves and the targets that we've outlined to you previously, and that means we're on track in terms of delivering the synergy benefits that we talked about, but we're also on track in terms of the costs that we think those synergy benefits will take to realize.

The results include -- or our expectations include GBP 50 million of OP synergies for the full year 2019, principally from 2 main areas of duplication that is the Informa Markets business and also the central functions and corporate functions in the business, which benefit all the divisions through lower cost allocations.

UBM integration cost was GBP 17 million in the first half of 2019. And together with the GBP 40 million we incurred in 2018, that means we've invested just over half of the GBP 100 million budget to date that we said we were going to spend in terms of realizing the synergies. By the end of 2019, we expect around about 90% of that total budget will have been spent.

As I said earlier, free cash flow in the first half increases significantly from GBP 131 million to GBP 306 million. Most significantly, this reflects the extra 5.5 months of trading from the UBM business now incorporated in our results but also includes a stronger year-on-year working capital performance in the business, and this is driven really by the H2 weighting in the UBM business, which leads to significantly -- significant inflows of working capital in the first half of the year. And we benefit from those in the first half 2019. In 2018, those working capital inflows occurred before completion and therefore were not in our results. And then also you can see on the slide there we're paying a bit more interest and a bit more tax in 2019. That's what you'd expect following the combination of the UBM results into Informa.

Moving on to financing. In 2019, we're really taking out a strong internal focus on deleveraging in the business to get back to our target range of 2 to 2.5x leverage in the business. If you remember, leverage was 3.1x at this time last year following the UBM combination. We reduced leverage to 2.9x at year-end, and we're announcing further progress today, reducing leverage to 2.7x at the half year 2019.

It's worth noting the 2.7x leverage number that we talk about is before the circa GBP 300 million worth of debt that we're bringing on to the balance sheet in 2019 because of the IFRS 16 accounting standard change. These liabilities are excluded by our lenders from our debt definition in our financial covenants, which means the 2.7x leverage figure we report is the right number to be thinking about if you're comparing to the 3.5x covenant figure that we have in our financing agreements. We look to maintain a flexible financing structure. And in the first half of the year, we've renegotiated the group's revolving credit facility, extending the term out to 2022 and 2024.

And finally, the group's credit rating is unchanged with a BBB outlook negative from S&P and a Baa3 stable outlook from Moody's.

So this is our capital allocation slide, which you've seen before, and it outlines how that deleveraging focus fits into our wider thinking around capital allocations. Now the slide is not guidance to the GBP 900 million and GBP 600 million figures, which is something I think we talked about at the year-end, but it is worth focusing on the scale of the free cash flow that we generated in the business and how much that gives us optionality or flexibility in the -- to operate.

For 2019, as I say, there's a real focus on the capital structure element of this as we look to reduce our leverage back to the target range to 2 to 2.5x I talked about earlier. We're deploying less capital into inorganic growth through M&A in 2019, partly to deleverage and partly because, clearly, we have a lot to get on with already in the business.

To power organic growth, we're maintaining consistent investment in capital expenditure, around 3% to 4% of revenue per annum. But in 2019, this expenditure is weighted towards the second half of the year rather than the first. And maintaining shareholder returns is a key part of our story, with a progressive dividend policy and a growing dividend over time broadly in line with earnings and 7% in the first half of 2019.

So I said in my opening we think our half year results demonstrate that Informa is performing to plan in 2019, and we're reconfirming our guidance for the full year expectations. We continue to deliver consistent and predictable underlying growth with steady improvements year-on-year over time. We maintain attractive profit margins but also whilst looking to invest in the business to maintain our underlying growth. We have, of course, GBP 50 million worth of in-year synergies in 2019 from the UBM combination. And our strong free cash flow continues, anticipated to grow over GBP 600 million -- to over GBP 600 million in 2019, providing optionality and flexibility. We delivered on our plans to reduce borrowings in 2019, back with our target range, and we're consistently improving shareholder returns, evidenced by the further 7% increase in dividend per share announced today.

So with that, I'm going to hand you back to Stephen to go through the rest of the slides.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [3]

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Thanks, Gareth. Right. Now I want to try and give you a bit of color, and then we'll get into the questions. We talked a bit about this earlier, what lies behind the numbers, because the numbers, I think, speak well, but the numbers are really the sum total of the effort and activity of thousands of people in the company around the world.

And one of the things that we've put a lot of time into in the last 12 months is bringing the companies together and restating a sense of who we are, what we are and why we are, partly because that gives us a sense of purpose and partly because it allows us to speak to in our products and customers with a single voice. And the thing we have pivoted around is that our business focus is on championing specialist markets. That's what we do. And we are fortunate in our business to have thousands of people who, in their individual area, are experts in what they do and in the markets that they service, and in many instances, are part of or citizens of.

We also try, because this is a company that in part has been brought together through acquired combination as well as organic growth, try to restate some basic principles that make sense to everyone in the company and that allows us to live by them. And I've put them on the slide not to give you a sermon but to give you a sense of how we think about ourselves.

And the first one is central to how we run the businesses as well as to how we think about ourselves, and that is that our ambition is to have ambition for the markets we serve to think big about what we can do for our customers, but to do that in a way which operates at a point of detail. We're not a macro business. We're not signing contracts for $50 million or $100 million or long-term vendor financing multiyear thin-margin managed service contracts. Thank goodness. In our business, small transactions, small engagements, small service delivery at the point of customer interaction is the great strength of this business. From an investor point of view, that means we have very few single points-of-scale weakness, and that provides the portfolio with real strength. And that is the heart of the investment proposition but it's also the heart of a cultural truth of the company.

Within that, we work well when we work in partnership. Around our business, we work in partnership with many people, whether they be academic communities or society journals or academic institutions or trade associations or local venues or local locations or state governments or country governments or national governments or industry communities. And part of the genius of Informa is part of the reason why we are one of those now increasingly larger companies that many people have never heard of because our strength is in our power brands. We met here yesterday. We had a Board meeting here yesterday, group plc Board meeting, and then the Chairman did a town hall with 100-or-so people who were even more daunting than you because they work for him. And we had a discussion about what it is that is at the heartbeat of the company. And at the heartbeat of the company is a recognition that what makes us successful is the brands and the markets, not our own profile or our own fame. And it's in that success through partnership that drives the commercial growth inside the business.

To make that real for people who are running businesses in Informa, what you need to do is you need to make sure people feel they got a sense of freedom to perform, and that speaks to what people like I and others do in head office for a living, which is our job is not to control but to enable.

We've made choices about markets that we want to work, and this is a sense of those markets and gives you a feel for where we see both the revenue opportunities and the margin attraction in each of these businesses. Some of them are today bigger markets for us than others, but all of them are categories that for us, we believe, offer us future growth for a variety of other reasons. And inside Informa Markets, inside Charlie's business, we have teams and leaders and communities focused around building our market position in those areas. And you've seen this initiative, for example, in aviation, add a capability to that community, in that case largely a data capability, in order to enable us to provide more services and have a greater sense of understanding of what the trends are in each of those categories.

And as the group grows and scales, it will be investing and expanding our footprints in those verticals will be how you see the group develop.

Outside of markets, we've taken tech as a category where we really want to reach for stand-alone scale. We had a series of businesses, great businesses in branded events, confexes and conferences, and we had a nice but small research analytics business in Ovum and Datamonitor and Tractica. And we wanted to give that more coherence, more capability and a better go-to-market proposition for customers. And that led us into a conversation this year with IHS, who declared an interest in our agribusiness business, which we had decided was a very nice market. We had a nice business. It was in growth. But we were subscale and we were not going to deploy capital to take it to scale. And that led to a swap of our agribusiness business for their tech business and that's allowed us to put -- well, it completes factually on the 1st of August. So we'll have 400 colleagues joining us on the 1st of August. And that will give us a very strong market position in data analytics, in TMT and specifically in the growth areas in TMT, in cybersecurity, in gaming, in media and applications and software, in industrial processing. And also, it will give us a footprint in Asia Pacific, which we didn't have, at scale. So it broadens that business quite specifically. So that's the kind of leading case study of what we're trying to do in market specialism.

More broadly, if you look across the business, we believe that each of our businesses have some real strengths that, as I said earlier, provide us with ongoing security and a portfolio balance, which serves us well inside each of the businesses but more broadly at the group level.

Areas that we are focusing on in 2019, in particular, in Informa Markets over and above the day-to-day, which is pretty demanding, the thing that inside that business there is an industrial focus on is what you would call business process improvement. This is a business that has been put together over the last 5 or 6 years and in a whole range of areas, whether it's sales, order processing or customer management or applications or reporting or accounting or pricing, there's a whole raft of projects underway in that business to give it as much simplicity in the way in which it services its customers and as much data capability on a going-forward basis as possible.

Interestingly, inside Informa Connect, used to be Knowledge and Networking, the old Informa Conference business, actually, that's been through that cycle. It's a much smaller business, but it's been through a similar cycle that Informa Markets has gone through and now it's very clear about where it is focusing, which end markets it's servicing, in the main Life Sciences, Retail Financial and then Maritime and is now building out service delivery to those communities broader than just the traditional confex and event products.

Informa Tech, I talked about. In Informa Intelligence, the good news for that business is that having made the decisions about where we want to pay to play, it's allowed us to exit those markets that we were not going to be long-term players in, and that is allowing us to really double down in Pharma, where we've seen very good growth in the last 12 months, in Retail Financial where we've seen very good performance and in our data analytics businesses inside that portfolio. So a much more focused business and we see opportunities in those core verticals.

In Taylor & Francis, the twin areas of opportunity are in the drive to open access and our open access business continues to perform and grow well, as indeed our subscription journals business does in the near term. But in the midterm, the growth in that business is going to come for open access and that acquisition that we made 2 years ago now in Dove Medical Press is serving us extremely well as a footprint in that market to allow us to trade competitively. On top of that, we're beginning to layer additional digital services for authors and institutions, and that is going to be where we see that business grow and develop over the coming years.

We launched the AIP this time last year -- at the half year results last year. We said it would take 12 months and we will get it done. We're almost there. And in my desire for neatness, I'm slightly irritated that we're not. But nevertheless, we are almost there. We have agreed on divestment on Life Sciences, the media portfolio, the swap on agribusiness and the portfolio change for the wealth management business.

We did look at the IGM business, the credit and the FX business, and we decided for a whole variety of reasons we would hold that business. And we have one final piece of review work to complete, but I am absolutely certain that will be done by the end of Q3. And we're in the zone of what we guided you would be the revenue impact for the portfolio.

As Gareth said, our focus in 2019 inside the business has been very clear. Combination, it's all very well, being able to get to a point of doing an acquisition, persuading someone to sell you their company, raising the finance, doing the deal, selling it to the markets, but then you've got to make it real. You've got to bring it to life, and you've got to turn it into a single business. And we have been very focused on that combination and remain so through the remainder of '19 and indeed into '20. A lot of that is systems, a lot of that is pricing, a lot of that is products, but the biggest part of it is people. And people in a people business is a lot about culture and values, and that is a continued daily task and enjoyment.

From a commercial and financial point of view, we've been very clear to our investors and to ourselves that this year is about deleveraging. We took the gearing up to just over 3x, where it's just around 2.7 at the half year. We will take that down through the back end of the year, and that was very much our plan to get it back into the range.

And then at the same time as doing all that, to deliver what we promised ourselves and indeed our investors, that we would meet our guidance for the year, across the portfolio and in aggregate, not just on the revenue growth numbers, but to see a tick-up in improvement in profit conversion, improve the cash flow, and hopefully, therefore, be able to continue running a progressive dividend policy.

So that's our approach, that's our plan. And I will very happily take questions.

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Questions and Answers

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [1]

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I think we have microphones, even though it's a small room. But there are questions all hovering around the front. But why don't we go to the middle left, first of all?

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Adam Ian Berlin, UBS Investment Bank, Research Division - Director and Equity Research Analyst [2]

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Adam Berlin from UBS. Three questions from me. First of all, if you think about the profit growth and revenue growth in H1, are you ahead of budget or in line with budget?

Second question is can you give us the Fashion revenue decline in H1?

And the third question is, if you think about the pro forma margin expansion, the 260 bps that you mentioned, Gareth, can you break that down for us between the UBM synergy, FX and any underlying improvement in margin?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [3]

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Okay. Shall I take the first -- well, I'll have a bash at the first. I'll answer the second, and you take the third. Does that make sense?

Profit revenue. Well, we're kind of on plan. I mean the trouble with half year reporting is it's slightly a moment in time. I mean we run the business to a year. We don't run it to July 1. And so there are sort of slight artificial cutoff moments and so some of it is phasing and timing, particularly in an Events business because there are some circumstances where either you don't run an event or you do or the portfolio changes. And then in some contracts, they don't just fall in your half year, but they will fall in your full year. But in the round, we are where we thought we would broadly be. And we're a little bit up in some areas, a little bit down in others, but there's nothing worth flagging either on the revenue line or on the profit line.

The synergy flow, and Gareth will probably touch on this in relation to the margin point, the synergy drop-through is a bit more back-end weighted than front-end weighted, but still is a good GBP 20 million to GBP 25 million in the first half and that was pretty much what we thought it would be.

On Fashion, Fashion is tracking to the budget. I mean the changes we made will have more impact in the second half than the first half because they were more -- they were bigger structural changes, both on venue and on product and is also giving us longer-term market. And the team changes and the data cleansing process that, that business has been through just builds over time. But broadly, the Fashion business is -- I mean I'm not sure you would say tracking to a decline is an achievement, but it's tracking to the decline we predicted and we're comfortable with that for now. And the plan is that changes in the right way. Gareth?

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [4]

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Yes. In terms of the margin increase, I'd refer back to the slide that I presented on the margin waterfall. I think what we'd say there is if you look at the movements in the first half, the U.S. dollars obviously strengthened. And for every $0.01 increase in the dollar, that gives us about GBP 5 million to GBP 6 million worth of OP. So that is a movement in the margin. As Stephen just touched on, in terms of GBP 50 million worth of in-year synergies, that we have reconfirmed for 2019, that you divide about 50-50 between the first half and the second half. So that gives us benefit in terms of the margin. And if you strip all that out with the underlying margin in the business overall, that's broadly consistent year-on-year. As we said before, we're looking to maintain and grow our underlying revenue growth. And you expand in the margin within that, it's not a specific focus of us, bringing on consistent and improving levels of underlying growth at a sustainable margin.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [5]

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Okay. Questions at the front. There were 5 hands up, so I'll let you to choose, Tony.

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Katherine Tait, Goldman Sachs Group Inc., Research Division - Associate [6]

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Katherine Tait from Goldman Sachs. Just on Taylor & Francis, it's good to see a good result on the back of a tough comp. Can you give us an update on how each of those individual components within Taylor & Francis are trending? And you obviously referenced being well positioned within open access. I know you've talked about it in-depth at your Capital Markets Day, but perhaps there's an update on how you are seeing that market progress going forward and any growth rates you can give us there.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [7]

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Katherine, you get top prize for asking 1 question rather than 3. I think that's the first time ever, so we'll give you a long answer. I think we, like you, feel that we're somewhere between a good or a better place. There's no doubt there's lots of change going on in that market, there is. The journals business has performed well in traditional subscription renewals, both in volume and value. And as Gareth said, that has sort of weighted out what has been a slightly tougher first half for Books, but the comp, as you say, for Books versus last year was also particularly tough. So we sort of anticipated that. And to Adam's question, we kind of budgeted accordingly. So there's not a big surprise there, but it's kind of played out the way we thought. I think the thing that has changed is that the market is now, and we are now into a cycle of the subscriptions renewals are now, in a good way, intense commercial and content discussions on an individual basis and that's become sort of standard operating practice. We generally, as you know, tend to avoid commenting on contract-by-contract outcomes but, by and large, I think we're now into the kind of cycle of that. Equally, our open access proposition has grown, both in number of journals and in the diversity of the journal mix by subject matter. Some of the noise around the S plan has come down a little bit and I think there have been -- there's been some sensible thinking about what is the objective here, which actually, speaking as a research publisher, is an objective we share, which is how do you ensure you get high-quality original research out into the individual research communities in a way that allows people to enhance their knowledge and understanding. Because no one's going to disagree with that. The mechanism is how do you make that happen. And doing that in a it's all for free, let's post it on the Internet isn't really a solution. So I think there's been a slight change in the sort of atmosphere. But the trend lines, I think, are very clear in that business. Open access is going to grow. Open Research is going to grow. Service delivery to individual communities is going to have to become more and more of our business model and our task, as anyone who wants to compete in this market, is to do that well. And we feel we understand that.

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Matthew John Walker, Crédit Suisse AG, Research Division - Research Analyst [8]

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It's Matthew from Crédit Suisse. A couple of questions, please. The first is on the Books market. You mentioned, obviously, a tough comparison. If you ignore the comparison, though, would you say that the Books market was much weaker than you would expect or weaker than last year on an underlying level, excluding the sort of strong order -- the order differences?

The other thing is, on the cash flows, it looks like you had sort of GBP 5 million of restructuring in the first half. I think the integration charges are not in the free cash flow calculation. But what would you say for the full year for restructuring charges in the free cash flow calculation?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [9]

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Thanks, Matthew. Gareth, do you want to take the second question and then I'll take the first?

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [10]

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Yes. I think, broadly, on the second point, I talked about what I said in the script, which is that the P&L number is kind of just over 50% of the full year -- of the expectations in the integration cost overall. So say about -- I think it's about GBP 55 million that we spend to date, by year-end, we'd be around GBP 90 million, and that's what we've said for the P&L charge. And I think for modeling purposes, I'd say the cash flow to be the same. I think it would be massively different in terms of how we spend the cash. And then the balance will be spent in 2020.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [11]

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Happy with that? You sure? On the Books point, I'm not sure I would -- I'm not just wordsmithing you, but I'm not sure we would say much weaker. I mean as you know very well, our -- the Books business is the most retail of our businesses. And it depends on which bit of the Books business you're looking at. We have an institutional Books business. We have an individual Books business. We have a professional publishing Books business. If you sort of take the numbers down a notch, have we seen a -- is the explanation why the Books business has been a bit tougher in the first half than Journals is it consistent everywhere? No, it's not. But I think there are some geographies, probably most notably the U.S., where the individual book sales have been tougher year-on-year. But on a full year basis, I mean, this business is always weighted at the back half. And I think we feel comfortable with our guidance for the full year, Matt.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [12]

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I've got a mic so I'm just going to run with it. It's Nick Dempsey from Barclays. So 2 questions. You lost 3 execs to Emerald Expositions the other day, all of them former UBM people. Looks like Sally Shankland is putting the gang back together at Emerald. Is there a risk that you lose some other talent from former UBM Exhibitions people post that?

And second question. So Gareth, you showed us about GBP 600 million of debt coming to maturity in 2020. Looks to me like you're paying something like 5% on that. Obviously, people are getting much better than that in the market at the moment. So one, is the interest number going to be roughly the same in '20 as '19? And then will we get a nice step-down in '21? Or how should we think about that?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [13]

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Note to self. Don't leave the mic with Nick. Gareth, do you want to take that?

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [14]

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Yes. You're right. So the debt, as you've seen our maturity graph, there is about $700 million worth of debt maturing in Q4 of 2020. We tend to try and get ahead of these things. So that's why I think about that actively now. And if we do refinance it -- when we do refinance it, yes, there will be a benefit in terms of the numbers. But I think I will take that as a 2021 benefit for now. I will update you when we've actually done something in terms of crystallizing those maturities going forward.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [15]

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On your Björn Again question, look, we didn't lose them. They chose. And well done to Sally. She's hired some great people. On the basis that they were great people while they were working for us, then they're clearly still great people now that they're not or soon not to be. So I mean I had ad exchange with both of them last night. And on an individual basis, I wish them well.

Does it cause us a significant talent gap or headache? I mean you can ask Charlie for more depth in the -- afterwards, but no, which is not to be either disrespectful to them as individuals or their quality, but actually, particularly in one case, but I would say in both, one of the things that both of them had done has built -- had built strong teams. So our bench in the licensing business and in the advanced manufacturing business is very strong. And if anything, and I think both Lori and [Jasmine] forgive me for saying this, we were carrying more management than maybe we needed, and -- which is not to be disrespectful to either of them. So all joking aside, I wish them both a lot of luck with their choice and Sally. And look, we like to see the Emerald business firing on all cylinders. We're a big player in this market. If other people are doing well, that's good for us, so we wish them well.

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Adrien de Saint Hilaire, BofA Merrill Lynch, Research Division - VP & Head of Media Research [16]

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It's Adrien from Bank of America. So a few questions, please. So I think in the release you mentioned that Asia is about 30% of the Informa Markets business. What is it in the second half? And can you talk about the forward booking trends in China for the second half and perhaps into the first half of 2020 if you have any visibility?

And then 2 other questions. Can you lay out your priorities in terms of capital allocation after you are at the bottom of your target leverage by the end of the year?

And then third question, earlier this year, we saw Tarsus being acquired for a pretty hefty multiple. Some of your peers in data and information in the U.S. trade at a pretty big premium to Informa. So how do you think you can close that gap? What do you need to do in order to get rerated by the market?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [17]

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Well, let me have a go at some and then, Gareth, you come in. I mean, clearly, we've got a job of work to do on Investor Relations, and we'll remain focused on that. On capital allocation, I think for now we are very focused on doing what we need to do this year. Gareth laid out, I think, very clearly our approach, and then we'll take a view in the early part of 2020. And I'm sure when we get to our results in 2020, we'll lay out a view about what happens over the next few years.

Interesting question on Asia. And again, I might look to Charlie to nod or contribute here. I think you're roughly right in your number. I think that is about the right percentage of the markets business. The forward pacing for the back half of this year is strong, and so we feel good about where that business is in the back half of '19. And in fact, we're taking the group Board to where we have our annual strategy meeting in China this year for a whole variety of reasons. We see good future growth there. As you know, there's more capacity coming on stream in that market. Whatever one -- whatever view one takes of 5.5%, 6%, 6.5% growth, it's growth. And in the markets that we're servicing, we go back to my market specialism chart, they're all markets which are themselves showing growth in -- both in China and all the other major ASEAN markets. Going into '20, I think we feel that there is, in our 2 main geographies in that business, both the United States and in China and in ASEAN -- sorry, all 3 of those geographies, we see good growth opportunity and potentials for the markets business, so we feel well situated there.

Joking aside on your 15x or -- I'm not going to comment on the Tarsus takeout, although congratulations to the owners. But I think, fundamentally, these businesses are well valued. And I think they're well valued for a whole variety of reasons that you know better than me. And I think a lot of that has to do with the rise of the knowledge economy, the drive to specialism, the increase in market categorization, the demand for information and the need to differentiate your products and services. And I think if you can continue to deliver quality products to targeted business communities, then I think you're in a good market.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [18]

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It's Will Packer from Exane BNP Paribas. A few for me. Firstly, the kind of -- the markets business, at least the UBM side, is more H2-weighted. You've got a big China exposure, small Middle Eastern, et cetera. Is it right to think that the business -- the markets business should accelerate the top line growth from the second half of the year?

Secondly, can we just have confirmation for Taylor & Francis the extent to which the strong margin improvement was underlying or purely ForEx?

And then lastly, perhaps a question for Charlie. Could we have an update on specific Fashion forward bookings? In August, you have the most important show of the year. How is that looking? And how is the whole GAP plan going? My recollection is that UBM tried a couple of times to turn it around with less success. What's different this time?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [19]

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Okay. Do you want to take the H2 question, Gareth? And then I'll come back on the others.

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [20]

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Yes. So you're right. The UBM traded slightly better in H2 than in H1. And also, we're in odd year so we have the biennial dynamic kicking in, in H2. A part of that is that will kind of adds up to why we reported 43.4% growth for the first half, we're happy with 3.5%-plus as full year guidance because we do expect H2 in the mix to be slightly better overall. So I think no change really to your expectations for how the business is going to trade into new markets overall.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [21]

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And just to clarify on the markets business specifically, where growth was 4.4%. You've guided 4.5%-plus. Is it right to think that it could be mainly...

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [22]

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Yes. The same percentage as the group, yes, exactly, 4.4% for the first half. 4.5%-plus we're comfortable with because, again, second half will be slightly better. Informa traditionally, we're slightly weaker in the second half, but UBM, as you know, with things like CosmoProf, et cetera, in second half, CPHI was better in the second half. So actually, the 2 balance each other out well. And therefore, we're not expecting a -- we're actually expecting a slight improvement in second half, whereas legacy Informa, you have a slight weakening in the second half for markets.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [23]

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You got a question on Fashion, but there was another question which I have now forgotten.

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William Henry Packer, Exane BNP Paribas, Research Division - Executive Director of Media Equity Research [24]

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Taylor & Francis...

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Gareth Richard Wright, Informa plc - Group Finance Director & Director [25]

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Taylor & Francis underlying. There is definitely a foreign exchange benefit in that business because it's got a weighting towards dollar OP. So FX has had an effect, our synergies have had an effect. But actually, underlying because of the improvement in the Journals business, the growth in the Journals business, which is a higher-margin business, that's had a dynamic. And actually, underlying is a little bit -- the business has improved its margin. It's very much a business we don't run for margin. We run it for consistent growth and try and hold the margins. But in the first half of the year, they had a good performance.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [26]

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On your Fashion question, again, forgive me. I mean we're not going to add any more color than we've added. I think we are where we thought we would be. I mean we're running into One-Magic and then COTERIE. As you know, it paces in a different way from the rest of -- or not from the rest, from most of these traditional exhibitions. I mean I'm not sure. I mean you're more knowledgeable -- genuinely more knowledgeable in this, I think, on the history than I am. I'm not sure I would characterize what we're doing is comparable to the previous, what do we do. Not to be disrespectful, but I just think that was quite different. I mean we're -- we've done a kind of wholesale scrub-down of this business and I think we feel comfortable with where that's going to take us. But you'll forgive us if we wait until we've traded out the year and then we'll give you a view. If you come to CPHI in November, we'll give you a better answer. We'll know about it. Giasone?

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Giasone Ulisse Salati, Macquarie Research - Senior Media Analyst [27]

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Giasone Salati from Macquarie. A couple of questions. The businesses you presented nearly looks like a starting point rather than an arrival point. As in you have built a process, you have built a scalability, and you could run 3x more verticals or events probably with more synergies and economies of scale. What is your endgame in terms of market positioning? Do you think B2B -- global B2B events will end up with 3 players controlling 60%, 70% of the market? And on that point, there is digital in the presentation, but it doesn't seem to be a dominant area of focus for you right now. Do you think digital will play or not in that time to consolidation while assuming your answer to the first question is yes.

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [28]

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I mean we've never -- I mean I'm nervous about consolidation conversations because they lead to outcomes that people in the markets don't necessarily welcome. I mean that's part of what's behind our philosophy of think big and act small because a great event -- I mean you know this. A great event, a great brand does well and trades well when the industry that you're managing it for feels like they own it. That's the genius of this business. And what Charlie and his team live with every day is they want all the benefits of scale but none of dis-benefits, and there are some dis-benefits. You need to be alive to that.

But I like your description. I mean I've never felt that the addition of UBM to our portfolio was anything other than a natural next step for the growth of the company, but we needed to draw breath and digest it properly. We needed to learn how to operate as a bigger company. We needed to invest in our business processes and we're doing all that. Because if you wanted to lay out further growth on top of that, you want to have a high level of operational robustness. And a lot of that speaks to digital and data capability. And that's a large part of what I meant by inside Informa Markets, for example. A large part of what Charlie and his team are spending time on, where we're investing CapEx is on business processes, business process reengineering, standard things, like how do you code entry a customer, how do you approach pricing, how do you do product definition, how do you do product extension, how do you do nonevent services. And you want to get that to a point whereby it has got some industrial capability and some standardized process before you take it to an even higher level of scale or reach.

But to your market point, do I believe -- I mean I always use the example of, partly because I'm comfortable with it, is the market that I worked in for 15 or 20 years, the TMT market. I mean there are markets now in TMT that didn't exist 5 years ago, let alone 10 or 15 years ago. So the way in which markets metastasize and create new subcommunities and new verticals, I see no -- nothing other than the continuation of that process. And in that niche specialism are market opportunities. And if you can productize, then you can grow. That might be acquisition, it might be organic. But do I see this as a stop point? Very much so.

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Thomas A Singlehurst, Citigroup Inc, Research Division - Director and Head of European Media Research [29]

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Tom here from Citigroup. I think I asked this at the Capital Markets Day, but I haven't gotten the answer, so I'm going to ask again. It's on Slide 24 and the chart with margin and growth. I suspect, because you've excluded Fashion, you're just not going to tell us. But is it -- I guess Fashion is below the x-axis, but is it off to the right or off the left? And the significance of that being from here on in is that -- is fixing Fashion going to involve margin degradation or margin enhancement?

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [30]

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I think you did ask that question at the Capital Markets Day. I think I asked Charlie to answer it.

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Charles G. McCurdy, Informa plc - President & CEO of Informa Markets [31]

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I think (inaudible)

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Stephen Andrew Carter, Informa plc - Group Chief Executive & Executive Director [32]

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It looks better on PowerPoint without Fashion. That's your answer. But I think the -- I think it would be wrong. I think we also had this exchange, but I could be having -- I could be making this up. But I think it would be wrong to think of the Fashion business, notwithstanding its challenges, as a low-margin business, it's not.

Any other questions? I know it's a busy day and there's a lot of people to go see. Thank you very much for coming. We're very appreciative of your time and for your support. And we'll hang around for those of you who want to stay and ask questions. Thank you very much.