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Related Issuers
Rating Action:

Moody's affirms UBM's long-term rating at Baa3; negative outlook

04 Mar 2014

London, 04 March 2014 -- Moody's Investors Service has today affirmed the Baa3 long-term issuer and senior unsecured ratings of UBM plc. The outlook remains negative.

Moody's affirmation reflects UBM's acquisition restraint in fiscal year (FY) 2013 ending 31 December, which allowed the company to achieve credit metrics in line with the agency's guidance for the Baa3 rating. For FY2013, UBM achieved an estimated retained cash flow (RCF)/net debt ratio of around 14.3% and a gross debt/EBITDA ratio of around 3.3x (both as adjusted by Moody's; the gross debt/ EBITDA ratio treats restructuring charges as exceptional - this ratio will be 3.6x otherwise) against Moody's guidance of RCF/net debt of well above 12% and gross debt/EBITDA of visibly below 3.75x (both as adjusted by Moody's).

However, the negative outlook reflects Moody's opinion that UBM could nevertheless find it challenging to achieve credit metrics (in particular the RCF/net debt ratio) in line with its rating category in 2014 and to maintain over time credit metrics appropriately positioned for the Baa3 category.

"Continued acquisition discipline, as well as prudent management of other discretionary cash outflows in 2014 and beyond, remains essential for UBM to sustain credit metrics well within our guidance for the Baa3 rating," says Gunjan Dixit, a Moody's Assistant Vice President-Analyst and lead analyst for the issuer.

RATINGS RATIONALE

Today's affirmation reflects a material improvement in UBM's credit metrics for FY2013. UBM reported an underlying revenue growth of 3.7%, towards the lower end of its guidance of 3%-5% organic revenue growth for the year. The company nonetheless achieved an adjusted operating profit margin of 23.5%, exceeding its guidance of 22%-23% for the year. While adjusted operating profits from the PR Newswire and Marketing Services divisions improved in 2013, the Events division, which accounts for 72.7% of adjusted operating profits (excluding net corporate costs), reported a 100 basis points decline in its adjusted operating profit margin to 32.2%. The Events division experienced weaker profitability during Q12013 and overall profitability of the division was also impacted by ongoing investments in the business as well as some wage inflation in certain core markets.

The company reported an EBITDA of GBP199.5 million for FY2013 (compared to GBP 187.5 million in 2012 excluding Delta). Moody's-adjusted RCF for FY2013 was around GBP95 million compared to around GBP105 million (including Delta, which generated reported operating cash flows of around GBP15 million). However, the company's reported gross debt decreased materially as of FY2013 to GBP443 million (compared to GBP553 million in the previous year), supported primarily by the proceeds from the Delta disposal (around GBP100 million) as well as limited bolt-on acquisition outflows of GBP 19.8 million, well below the GBP88.3 million acquisition outflows recorded for FY2012. As a result, the RCF/net debt ratio for FY2013 (as adjusted by Moody's), improved to around 14.3%. However, headroom under this ratio remains somewhat limited against Moody's guidance for the Baa3 rating.

UBM expects its 2014 revenues to grow at a similar underlying rate as in 2013 for its Events and PR Newswire businesses. Revenues from its Marketing Services division are expected to further contract to GBP100 million helped by UBM's restructuring efforts. UBM expects its overall 2014 reported operating profit margin to be lower than in FY2013 (of 23.5%) but better than in FY2012 (of 22.8%). The operating profit margin for the Events segment is expected to decline to 30% in 2014 as it is a 'down year' in UBM's biennial cycle. The company expects stable operating profit margin for the PR Newswire division while operating profit margin at the Marketing services division is expected at 10%. In addition, Moody's notes that UBM's reported results remain sensitive to foreign exchange rate movements as the company generates over 90% of its revenues in currencies other than sterling.

Moody's expects UBM's reported EBITDA in 2014 to be somewhat weaker compared to 2013, primarily because 2014 is expected to be a 'down year' in UBM's biennial events cycle. The agency further expects UBM's operating cash flow generation to be negatively impacted by certain restructuring related cash outflows during the year. Therefore UBM will have only limited (if any) headroom for making debt-financed acquisitions (assuming 2014 cash paid for dividends is similar to 2013) in order to sustain metrics well within the guidance for a Baa3 rating in 2014.

Moody's notes that Mr. Tim Cobbold has recently been appointed CEO to be the successor to David Levin. While a degree of uncertainty remains about the strategic orientations he will give to UBM, the rating agency currently expects the financial policy and the broad business strategy of the company to remain largely intact.

UBM's Baa3 issuer rating remains underpinned by (1) the strength of the company's fast growing Events division, which is a top 5 global player and has leading positions in its chosen vertical markets; (2) its stable position in the corporate communications markets, with PR Newswire well placed to continue benefitting from expanding North American markets; (3) the cash-generative nature of UBM's business; and (4) the company's progress over the last few years in improving the quality of its revenue mix. However, the rating is tempered by UBM's (1) exposure to cyclical advertising and events markets; (2) limited size and scope of overall operations; (3) relatively sensitive RCF/net debt ratio for the rating category - a function of ongoing acquisition activity as part of the strategy to build-out the Events division; (4) structural challenges in the advertising-funded print publishing market, although over the years UBM has reduced its exposure significantly; and (5) minimal profitability of the Marketing Services division, albeit this division's contribution is small.

RATIONALE FOR NEGATIVE OUTLOOK

The negative rating outlook reflects the low headroom exhibited by the company's RCF/net debt ratio (as adjusted by Moody's) in 2013 and some pressure on the profitability/ cash flow generation for UBM in 2014.

The stabilisation of the outlook would require (1) the operating performance to be closely in line with UBM's current expectations for 2014; (2) continued acquisition restraint and/or management of discretionary cash flows in order to achieve and sustain credit metrics well within the guidance for the Baa3 rating category of debt/EBITDA visibly below 3.75x and RCF/net debt well above 12% (both as calculated by Moody's).

WHAT COULD CHANGE THE RATING - UP

Moody's does not see any catalysts for an upgrade in the near term. Evidence of strong top-line revenue growth over a number of years and maintenance/strengthening of market positions, as well as UBM achieving and maintaining over time an RCF/net debt ratio around 20% and a Moody's-adjusted debt/EBITDA ratio well below 3x, on a sustained basis, could result in upward pressure over time.

WHAT COULD CHANGE THE RATING - DOWN

Given UBM's relatively weak positioning in the Baa3 rating category, and an uncertain macroeconomic outlook for 2014, any weakness in operating performance that could hamper the company's ability to deliver continued revenue and profit growth, and sustainable credit metrics in 2014, would lead to downgrade pressure on the ratings.

Downward pressure could also be exerted if the company's scale and scope of operations is further reduced visibly and/ or the company fails to maintain a strong liquidity position or timely address its upcoming 2016 debt maturities.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was the Global Publishing Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

UBM plc is a globally operating, albeit relatively small, events, B2B communications and marketing services provider. UBM generated revenue of around GBP793.9 million during FY2013. UBM operates in three business segments: Events; PR Newswire; and Marketing Services.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Gunjan Dixit
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms UBM's long-term rating at Baa3; negative outlook
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