London, 19 March 2020 -- Moody's Investors Service, ("Moody's") today
changed the ratings outlook on Informa Plc ('Informa' or the
company) from stable to negative. Concurrently, Moody's has
affirmed the Baa3 issuer and senior unsecured ratings of Informa.
The change in outlook to negative reflects the pressure developing on
the company's revenues and EBITDA in 2020 from show delays and cancellations
caused by the coronavirus outbreak across geographies. Informa
has so far traded GBP250 million of its GBP1.9 billion annual Events
revenues. The company has recently announced the cancellation,
or biennial rephasing to 2021, of 13 shows in 2020 worth GBP25 million
in revenues and the postponement of 115 shows worth GBP400 million in
revenues into the second half of 2020.
"If the coronavirus related disruptions end in the first half of
2020, then Informa's performance may not be as adversely affected.
However, should the disruptions continue in the second half of the
year, the company's credit metrics could get materially worse,"
says Gunjan Dixit, a Moody's Vice President -- Senior
Credit Officer and lead analyst on Informa.
"With Moody's adjusted Gross Debt/ EBITDA of 2.8x at
the end of 2019, Informa has limited headroom within the Baa3 rating
for any material under-performance. We are nevertheless
comforted by the company's liquidity position and recognize that
the events business could recover rapidly in 2021 in the instance coronavirus
related disruptions are not long-lived", adds Ms.
Dixit.
A list of all affected ratings can be found at the end of this press release.
RATINGS RATIONALE
Moody's notes that Informa delivered operating performance in 2019
slightly ahead of its plan. The company's reported net leverage
declined to 2.5x in 2019 (from 3.1x on acquisition of UBM)
in line with the company's medium term leverage range of 2.0-2.5x.
However, the rapid and widening spread of the coronavirus outbreak
in 2020, deteriorating global economic outlook, falling oil
prices, and asset price declines are creating a severe and extensive
credit shock across many sectors, regions and markets. The
combined credit effects of these developments are unprecedented.
The B2B events sector has been one of the sectors most significantly affected
by the shock. More specifically, despite Informa deleveraging
to 2.8x on a Moody's adjusted Gross Debt/ EBITDA basis,
it sits at the upper end of its own target leverage range. Whilst
it has almost one third of its revenue coming from subscription-related
businesses, its exposure to B2B events has left it vulnerable to
shifts in market sentiment in these unprecedented operating conditions,
particularly if the outbreak continues to spread or remains an issue for
a prolonged period.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's rating action reflects the impact
on Informa of the breadth and severity of the shock, and the broad
deterioration in credit quality it has triggered.
65% of Informa's overall revenues is Events-related
which is cyclical by nature and exposed to the possibility of a broader
economic downturn. Informa's Markets division is highly exposed
to disruption from coronavirus (show delays and cancellations).
35% of Informa's overall revenues are subscription-related
and continue to trade well in Q12020, underpinned by strong renewal
rates, at 90%+ on average, and consistent low
to mid-single digit growth in annualized contract values.
At its 2019 results presentation, Informa highlighted two scenarios
to illustrate the impact on the business performance from coronavirus.
Scenario I assumes that no further events were held in the first half
of 2020 but second half of 2020 operated as normal. In this scenario,
Informa would aim to reduce its indirect costs by GBP70 million.
Assuming these cost savings, Moody's estimates that the negative
impact on company's reported EBITA (adjusted operating profit) would
be around GBP60-65 million. This should have a small negative
effect on the company's leverage in 2020.
Scenario II assumes no further events at all in 2020. In this scenario,
the company aims to save a total of GBP675 million in direct and indirect
costs. Assuming these cost savings, Moody's estimates
that this scenario would still represent a GBP420-430 million EBITA
reduction. While Scenario II appears extreme at this stage,
downward ratings pressure on Informa's ratings will be imminent,
if coronavirus related disruptions appear to continue beyond the first
half of 2020.
Informa indicated that its forward bookings for events in 2021 have been
good, for those events that ran successful in January and February
this year. There may be some issues related to traffic of shows
(shows that have been postponed to H2 2020 reappearing quickly in H1 2021).
To offset this there are some biennials shifted out of 2020 into 2021.
Overall Informa at present appears to think the net impact on 2021 would
not be meaningful.
The Board has proposed a final dividend of 15.95p per share representing
a 7.3% increase on the final dividend in the prior year.
But if the situation starts deteriorating more towards scenario II,
it remains to be seen if the company will change its stance towards dividend
payments. Dividends will be tabled for approval at the company's
AGM on 12 June 2020 and are currently due to be paid on 10 July 2020.
Company's decision to continue with the dividend payments despite
worsening operating trends would certainly be credit negative.
In 2020, Informa has secured a surplus, committed credit facility
of GBP750 million which will provide full flexibility through the current
period of market volatility. Together with the undrawn GBP900 million
revolving credit facilities (due 2023/25), this gives Informa around
GBP1.5 billion undrawn committed liquidity. The company
had cash and cash equivalents of GBP195.1 million as of 31 December
2019 with no material debt maturities before 2022, when GBP96.1
US private placement related debt falls due.
The company's US private placement notes are the only debt which
have covenants and, they account for around GBP1.1 billion
of debt. The covenant ratio under the notes indenture is at 3.5x
net debt/EBITDA based on pre- IFRS 16 numbers, average FX
on the debt and a full year of M&A (LTM). This ratio stood
at 2.5x at the end of 2019. While Moody's believes
that the company liquidity should be fine even in a stress scenario,
a covenant waiver might be required at some point.
RATIONALE FOR NEGATIVE OUTLOOK
Negative outlook on the rating captures the risk of deterioration in the
company's operating performance and credit metrics due to the delay/
cancellations of shows due to the coronavirus outbreak.
Stabilization of outlook would require (1) disruptions in the company's
events caused by the coronavirus outbreak to fall away; (2) resumption
of growth in the revenues and profitability of the events business and
(3) maintenance of credit metrics well within the triggers defined for
the Baa3 rating on a sustained basis.
WHAT COULD CHANGE THE RATING UP/DOWN
While a rating upgrade is unlikely in the next 18 months, given
the company's high leverage historical track record of targeted
acquisitions, upward pressure could develop should Informa's
Moody's adjusted gross leverage decline to below 2.5x on
a sustained basis and Moody's adjusted retained cash flow (RCF)/net
debt rise above 20%.
Downward pressure could arise if there were reduced expectations of a
business recovery starting from H2 2020 as well as failure to maintain
a conservative financial policy such that its Moody's adjusted gross
leverage rises above 3.0x on a sustained basis and Moody's
adjusted RCF/net debt declines to materially below 15%.
A weakening in the company's liquidity profile could also exert downward
pressure on the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
LIST OF AFFECTED RATINGS
Outlook Actions:
..Issuer: Informa Plc
....Outlook, Changed To Negative From
Stable
Affirmations:
..Issuer: Informa Plc
.... Issuer Rating, Affirmed Baa3
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa3
COMPANY PROFILE
Headquartered in London, UK, Informa Plc is a London Stock
Exchange listed publishing and events company with operations in 30 countries.
In 2019, the company generated revenues of GBP2.9 billion
and adjusted operating profit of GBP933 million.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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 credit rating action on the
support provider and in relation to each particular credit 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 credit rating action,
and whose ratings may change as a result of this credit 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
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454
