––– Annual report 2009 Annual report 2009 1 a n n u a l r e p o r t 2 Five-year summary 3 Group overview 4 From the chairman 5 From the chief executive 6 Americas 7 Asia 8 Continental Europe, Middle East and Africa (CEMEA) 9 Economist.com 10 Roll Call Group 11 United Kingdom r e p o r t a n d a c c o u n t s 16 Directors 17 Trustees, Board and management committees 18 Directors’ report 22 Directors’ report on remuneration 25 Financial review 27 Auditors’ report 28 Consolidated profit and loss account 29 Consolidated balance sheet 30 Consolidated cashflow statement 31 Other statements 32 Principal accounting policies 35 Notes to the financial statements 59 Notice of annual general meeting The Economist Newspaper Limited registered number 236383 FRONT2009.indd 1 16/6/09 17:23:14 Net cashflow Earnings per share Comparison of indicative From operating activities Before exceptional £m share value and FTSE All Share items and disposals 60 pence The Economist FTSE All 160 Group, £ Share, ’000 50 140 25 5 ? 40 120 20 4 100 2 15 3 30 80 20 60 10 2 40 10 5 1 20 0 0 0 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 f i v e - y e a r s u m m a r y 2009 2008 2007 2006 2005 Profit and loss £m £m m £ £m £m Turnover 313 266 248 218 197 Operating profit 56 44 36 28 24 Non-operating exceptional items - 1 11 1 1 Profit on ordinary activities before finance income 56 45 47 29 25 Net finance income - 2 2 2 2 Profit before taxation 56 47 49 31 27 Profit after taxation 38 32 34 22 27 Balance sheet and cashflow Fixed assets 69 38 41 38 24 Net cash balance 13 20 31 55 73 Net current (liabilities)/assets (50) (48) (36) (5) 27 Long-term creditors and provisions (34) 2* (13) (29) (27) Net (liabilities)/assets (15) (8) (8) 4 24 Net cash inflow from operating activities 57 46 33 29 24 Margin and earnings per share 2009 2008 2007 2006 2005 Operating profit to turnover 17.8% 16.6% 14.6% 13.1% 12.4% Basic earnings per share 151.2p 128.7p 134.9p 88.4p 109.1p Earnings per share before non-operating exceptional items 151.2p 126.7p 105.2p 87.1p 84.9p Dividends and shares Final and interim dividends per share† 95.3p 79.7p 64.8p 59.0p 57.5p Special dividend per share - 91.3p 139.0p 79.4p - Total dividends per share† 95.3p 171.0p 203.8p 138.4p 57.5p Times covered (before non-operating exceptional items) 1.6 0.7 0.5 0.6 1.5 Indicative share value £19.75 £21.50 £20.50 £16.00 £14.00 * Balance includes surplus on defined benefit pension scheme. † For definition, see note 9 on page 40. FRONT2009.indd 2 16/6/09 17:23:15 r e v e n u e o p e r a t i n g o p e r a t i n g p r o f i t m a r g i n 3 517% 526% 51.2% to £313m to £56m to 17.8% g r o u p o v e r v i e w Group operating profit Group turnover Operating profit margin £m £m % 60 350 18 50 300 15 250 40 12 200 30 9 150 20 6 100 10 50 3 0 0 0 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Group revenue breakdown Turnover by regional business 2009 2009 Advertising Americas 136 117 CEMEA 82 Subscriptions/ circulation 124 £m £m United Kingdom Other 57 4 Sponsorship Other Roll Call Asia 26 27 businesses 20 33 The Economist global circulation Economist.com ABC audited average, July-December Total page views m m 1.4 350 1.3 300 1.2 250 1.1 1.0 200 0.9 150 0.8 100 0.7 50 0.6 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2005 2006 2007 2008 2009 FRONT2009.indd 3 16/6/09 17:23:15 the economist group has achieved another record operating profit. the year ahead will be challenging, but we are well placed to continue to outperform the market 4 OPERATING profit rose 26%, compared with the previous year, to £55.7m, on turnover up 17% at £312.8m. Profit before tax of £55.7m was up 18%. Net earnings were £37.9m, an 18% increase on last year’s £32.2m. Operating cashflow was £56.7m, an increase of £11.0m. The results were bolstered by the relative strength of the US dollar compared with the previous year. However, the results also include costs relating to restructuring the business with a more regional focus and the severance costs from a reduction in staffing f r o m t h e c h a i r m a n levels in the current economic climate. The Board is recommending a final dividend of 67.2p, 3% higher than last year, resulting in a dividend for the full year of 97.3p, an 8% rise over the previous year (excluding special dividend). The Group’s strong performance was led by The Economist itself, where circulation continued to rise (to 1,390,780) and our position in our advertising markets strengthened further. In July 2008 we bought Capitol Advantage, a business based in Washington, DC, which provides information and web services to help organisations mobilise grassroots activists. It has performed beyond expectations in the first months of our ownership. Most markets in which we operate are in economic turmoil, and these results show the strengths of our brands and our business. However, we will inevitably see significant pressure on advertising and sponsorship revenues in the coming year. That said, I believe that the Group will outperform its competition. The market in which Roll Call Group operates depends more on the amount of legislation before Congress, which is likely to be high given a new president and largely new Congress, than on the overall economy. The Economist is benefiting from a flight to quality among advertisers, its great relevance to readers and our business model, which emphasises “The Group’s strong performance was led by The Economist profitable circulation growth. I am itself, where circulation continued to rise” therefore confident that the Group will weather the current storm, even though we cannot expect to match the record results we have seen this year, while so many of the world’s major companies, on which much of our revenue depends, struggle. At the AGM, I shall step down from the Board after six years as chairman. I have greatly enjoyed my involvement with this remarkable company. There is no doubt in my mind that we can attract and retain many more talented people than would normally be possible for a company of this size. I refer here not only to the two exceptional chief executives with whom I have worked—Helen Alexander and, now, Andrew Rashbass—but to their management teams. The depth and quality of our editorial and management talent should reassure shareholders about future prospects, even in these turbulent times. Rupert Pennant-Rea will succeed me as chairman and needs no introduction to shareholders. He is not only a former editor, but is now a highly experienced businessman. I wish him and the Group every success in the future. robert wilson FRONT2009.indd 4 16/6/09 17:23:16 the group’s results show the quality and relevance of our brands and the exceptional commitment and skills of the people who work here. the year ahead will be tough, but we are well placed to improve our competitive position 5 IT HAS been a year of progress in many areas. At The Economist, worldwide circulation rose 6.4% in the year to 1,390,780. John Micklethwait observes: “Editorially, the year was dominated by the economic crisis. Much of our coverage was dictated by the dramatic weekly news, but we used our covers to spotlight the underlying trends such as the collapse of manufacturing, the debt crisis in eastern Europe and the emerging debate about the future f r o m t h e c h i e f of capitalism. The global nature of the crisis played to our strengths, e x e c u t i v e and our finance and economics team won a string of awards. Our endorsement of Barack Obama garnered huge interest. In Britain we campaigned against the extension of Heathrow. We began a new Asia column called Banyan, who, like his peers—Charlemagne, Lexington, Bagehot and Buttonwood—now has a blog online. This reflects the beginning of a quiet revolution within the editorial department: the integration of print and online teams.” We are making Economist.com the place for intelligent discussion on the web. For example, we have run debates on the effectiveness of carbon offsets and on whether brand America will regain its shine. This is resonating with readers and advertisers, with page views up 53% year-on-year and advertising revenue up 29%. Organisations increasingly look to the research capabilities of the Economist Intelligence Unit to help them operate more effectively as they investigate where to invest and how to grow. An example is the recently- launched forecasting service on China’s provinces.