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Rating Action:

Moody's changes outlook on UBM's Baa3 ratings to Stable From Negative

12 Dec 2014

London, 12 December 2014 -- Moody's Investors Service has today affirmed UBM plc's Baa3 long-term issuer and senior unsecured ratings, and revised the rating outlook to stable from negative.

The rating action follows the successful completion of the rights issue of GBP565 million by UBM (on receiving valid acceptances in respect of 189,975,946 new ordinary shares, representing approximately 96.56% of the total number of new ordinary shares offered to qualifying shareholders pursuant to rights issue) on 12 December 2014. The proceeds from this issue will be used to fund the acquisition of Advanstar Communications Inc. (B3, stable). On 1st October 2014, UBM had announced the proposed acquisition of Advanstar for a total cash consideration of USD972 million (GBP599 million). UBM will be financing the transaction by the proceeds from the rights issue as well as a new USD100 million bridge loan facility.

"We stabilized UBM's rating outlook because the deal allows UBM to reduce its leverage as well as diversify its business through greater penetration of the events business in North America. Additionally, UBM's strategic plan for the next three to five years as well as its recently articulated financial policy also remain supportive of the Baa3 rating." says Gunjan Dixit, a Moody's Vice President-Senior Analyst and lead analyst for the issuer.

RATINGS RATIONALE

Given the acquisition is being funded mostly by equity, it allows UBM to achieve an immediate reduction in its financial leverage. Moody's expects UBM's adjusted gross debt/ EBITDA ratio (as calculated by Moody's) to improve to around 3.0x at the end of 2014, pro-forma the transaction (compared to 3.3x at the end of 2013). Similarly, Moody's adjusted retained cash flow (RCF) /net debt ratio will improve to over 15% on a pro-forma basis (after including integration cash outflows) compared to 14.7% in 2013.

Without this transaction and the equity raise, we had expected UBM's 2014 credit metrics to be somewhat weak in relation to the thresholds we had defined for downward rating potential of gross debt/EBITDA of visibly below 3.75x and RCF/net debt of well above 12% (both as adjusted by Moody's). But by funding the acquisition of a profitable and cash generative business with equity, we would expect the company's financial metrics to move to levels more firmly supportive of the current Baa3 rating. The company has indicated that its board intends to continue with its current policy of paying dividends on a progressive basis, targeting 2x dividend cover through-the-cycle, following the proposed acquisition of Advanstar.

Events remain a strategic priority for UBM. The acquisition of Advanstar will increase UBM's focus on events, adding about GBP135 million of events revenue to its current base which stood at GBP463 million in 2013. By acquiring Advanstar, UBM will become the largest events business in the US by revenue and it will gain market leadership in the fashion vertical. The acquisition will contribute five events to UBM's top 20 portfolio by revenue. With the acquisition of Advanstar, the proportion of events revenue which UBM generates in the US will be better aligned with the US' share of the global events market and the company will balance out its otherwise high exposure in emerging markets (especially in China).

However, the growing concentration in Events via the Advanstar acquisition will increase the cyclicality of UBM, although we recognize that the company's focus on large events with a broad attendance supports the business' resilience. Advanstar reported revenues of of USD295 million in 2013. The company's organic revenues have grown only modestly over the past few years, but its EBITDA margins have improved from the low 20's during the recession to approximately 30% as of Q1 2014 (as calculated by Moody's -- based on USGAAP) through cost cutting and synergies following the ENK integration. UBM is expecting to generate run-rate cost synergies of approximately USD10 million (GBP6 million) per annum, in the third year of the acquisition. We currently do not anticipate any major integration risks. UBM expects integration costs of approximately USD33 million (GBP20 million) over the next two years.

UBM's new Chief Executive, Mr. Tim Cobbold, recently announced the 'Events First' strategic plan that clearly sets out the strategic priorities for UBM over the next three to five years. As part of this plan, UBM aims to establish itself more firmly as the leading B2B events business globally. To achieve this goal it will focus on -- (1) applying its resources to grow its largest and most profitable shows; (2) materially improving its operating efficiency and effectiveness; and (3) investing in customer insight to enhance their event experience. UBM expects this strategy to enable it to grow revenues ahead of global GDP in its Events business and provide a basis for margin expansion over the medium term. While Moody's considers this strategic plan as overall credible, it believes that with the growing concentration of Events in UBM's revenue mix, the company will have to contend with the cyclicality associated with events businesses. Nevertheless, Moody's believes that the quality of UBM's events portfolio should provide it with a reasonable degree of resilience in the instance of a pronounced economic downturn in future.

To implement this strategy, UBM expects to make capital investments of around GBP15 million over 2015-2017 in the development and roll-out of standardised systems and also anticipates associated operating implementation and rationalisation costs of between GBP15-20 million. It expects to achieve annualised cost savings from 2016 of up to GBP10 million per annum. However, Moody's notes that UBM's revenue growth in 2015 will reflect its decision to rationalise the smaller Events and to exit over time from certain activities in the Other Marketing Services (OMS) segment. Similarly, underlying margins in Events and OMS are expected to be stable before the additional implementation costs referred to above, with upside potential over the medium term.

Going forward, UBM intends to target a leverage ratio of between 1.5-2.0 times net debt / EBITDA (as calculated by UBM) which should provide it with sufficient flexibility for biennial cycles, and also provide capacity to invest in the business. UBM also aims to maintain its focus on free cash flow generation. This financial policy is supportive of UBM's current Baa3 rating.

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) structural challenges in the advertising-funded print publishing market; and (4) minimal profitability of the Marketing Services division, albeit this division's contribution is small.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook reflects Moody's expectation that over the medium term, UBM's operating performance will be in line with its business plan and it will continue to adhere to its well articulated financial policy.

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

Downward rating pressure could develop (1) due to any weakness in operating performance that hampers the company's ability to deliver continued revenue and profit growth and (2) if the company's gross debt/EBITDA rises above 3.5x and its RCF/net debt trends below 15% (both as calculated by Moody's) on a sustained basis.

Downward pressure could also be exerted if the company's scale and scope of operations is further reduced visibly. If in future, UBM decides to sell PR Newswire, Moody's would expect the company to achieve much stronger credit metrics than its current guidance for sustaining the Baa3 rating. Negative pressure on the rating is also likely if 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 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
Vice President - Senior 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

Michael J. Mulvaney
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 changes outlook on UBM's Baa3 ratings to Stable From Negative
No Related Data.
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