Results for the year ended 31 December 2018 Creating Advantage
2018 Overview Record revenues and profits Revenue 225m +14% HPBT 31m +26% Growth in Healthcare Revenue 152m +27% Profits 35m +36% Return to growth and margin improvement in Marketing Marketing LFL revenue growth H1-9% H2 +2% FY -3% Strong financial position Leverage 1.9x Total dividend increased to 2.3p Dividend +15% 5 March 2019 Results for year ended 31 Dec 2018 2
Financial highlights 2018 2017 Revenue ( m) 225.0 197.0 LFL Group Healthcare +14% +1% +6% Headline Operating Profit ( m) 33.2 26.4 Margin 14.8% 13.4% +26% +12% +13% Headline Profit Before Tax ( m) 30.9 24.4 +26% +15% Headline Diluted EPS (pence) 7.11 5.75 +24% Net Debt ( m) 77.0 36.3 1.9x pro-forma EBITDA Headline Tax Rate 18% 21% Reduction in US tax rate 5 March 2019 Results for year ended 31 Dec 2018 3
Divisional Summary HEALTHCARE Marketing Medical Immersive Comms Central costs 1 & associates Total Revenue ( m) 82.0 34.2 35.4 73.4-225.0 LFL Revenue Growth (%) (3.2)% 12.9% 33.9% (5.1)% - 1.4% Headline Operating Profit ( m) 20.0 9.8 5.1 6.0 (7.7) 33.2 LFL Operating Profit Growth (%) 3.7% 19.2% 62.9% (16.1)% - 12.4% Headline Operating Margin (%) 24.4% 28.6% 14.4% 8.2% - 14.8% 1. Includes 1.4m loss on forward hedging instruments 5 March 2019 Results for year ended 31 Dec 2018 4
Revenue bridge: 2017 to 2018 5.0m 4.0m +1% LFL growth 1.3m 2.3m 3.9m -3% +13% +34% -5% LFL decline LFL growth LFL growth LFL decline 29.8m 225.0m 197.0m 3.2m 2017 FX Acquisitions Disposals Marketing Medical Immersive Comms 2018 5 March 2019 Results for year ended 31 Dec 2018 5
HPBT bridge: 2017 to 2018 +15% LFL growth 1.2m 1.2m 1.4m 1.6m 0.5m 0.6m Variable rem. Interest 0.5m 0.4m 30.9m 5.3m Associates Other 0.1m 0.4m 24.4m 2.9m 2017 FX Acquisitions Disposals Marketing Medical Immersive Comms Central 2018 5 March 2019 Results for year ended 31 Dec 2018 6
FX impact Hedged position (75% of expected USD profits) Average rates 2019F 2018 2017 Impact of 1c movement USD 1.31 1.38 1.24 EUR 1.15 1.14 1.15 160k 25k USD EUR 2018 2017 Movement -1% Margin impact in 2018 Impact on revenue (translational) (3.2) (Losses) / gains on forwards (1.4) 1.1 (2.5) Translational impact (0.4) Impact on profit (1.4) 1.1 (2.9) % of revenue 50% USD 35% GBP 7% EUR c. 55-60% annualised for acquisitions 5 March 2019 Results for year ended 31 Dec 2018 7
Net debt bridge: Dec-17 to Dec-18 15.5m Capex Highlighted items ( 2.4m) ( 1.3m) Cash on derivatives ( 0.9m) 36.3m 39.0m 6.0m Share issues re options 0.3m 6.1m 77.0m 47.8m 4.3m 2017 Operating profit & non-cash items Working capital flows Interest & tax Dividends Acquisitions & disposals Capex & other 2018 5 March 2019 Results for year ended 31 Dec 2018 8
Working Capital m Conversion Operating profit before highlighted items 33 100% 39m Non-cash items 6 105% 18% Normal Growth (4) (13%) Normal Changing customer mix Comms (4) (12)% One-off Seasonality Immersive (2) 15.5m (6)% One-off Performance related 2017 bonus payments Marketing & Medical (2) (4)% Reversed in 2019 Acquired working capital Acquisitions (4) (12)% One-off Cash from operations 23 71% 5 March 2019 Results for year ended 31 Dec 2018 9
Cash generation Defensive fundamentals: Healthcare biased: demand driven by fundamentals of expanding healthcare sector, not consumer led US biased: limited fallout from Brexit uncertainty Strong cash generation 98% 2015-18 average cash conversion Dividend well covered: 3x Covenant headroom 1.6x vs 3.0x 2019 consensus leverage covenant limit 5 March 2019 Results for year ended 31 Dec 2018 10
Net debt At 31 December 18 Net Debt: 77.0m Facilities: 105m + 10m accordion Leverage: 1.9x EBITDA 1 At 28 February 19 Net Debt: 81m Facilities: 130m + 50m accordion Leverage: 1.9x EBITDA 1 1. Pro-forma for acquisitions, net debt including deferred consideration 5 March 2019 Results for year ended 31 Dec 2018 11
Results for the year ended 31 December 2018 Divisional analysis
Marketing Lower L4L revenues but margin improvements Revenues impacted by the loss of certain drug mandates due to normal course regulatory approval process As a result, H1 saw a decline in revenues, but H2 saw a return to growth Margin improvement despite lower like-for-like revenues Acquisition of Giant, Navience and AboveNation have added key capabilities and provided access to larger, more complex client briefs 2018 2017 Revenue m 82.0 73.5 LFL growth (3.2)% 13.2% Operating profit m 20.0 15.5 Margin 24.4% 21.1% What we do We market pharmaceutical, OTC and wellness brands to consumers, healthcare professionals and the payer community, by: - Educating, building awareness, and driving retention for brands among patients and healthcare professionals - Providing a digital-centric service, mirroring consumer and professional behaviour - Creating more valuable and productive long-term relationships between our clients and their customers 5 March 2019 Results for year ended 31 Dec 2018 13
$m Marketing 70 60 50 40 30 20 10 Marketing revenue - half yearly Continued sequential growth: 1% in H118 2% in H218 H218 2% up on H217 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 2014 2015 2016 2017 2018 Core Acquisition 5 March 2019 Results for year ended 31 Dec 2018 14
Medical Strong revenue and profit growth 12.9% like-for-like revenue growth in 2018 represents the third successive year of double digit revenue growth Margin improvement despite continued investment in staff and new services driven by an increase in strategic consultancy engagements Strong pipeline and recent new wins gives confidence for 2019 2018 2017 Revenue m 34.2 30.9 LFL growth 12.9% 17.7% Operating profit m 9.8 8.3 Margin 28.6% 26.9% What we do We support the planning, generation and communication of evidence across medical affairs and health economics We provide publication, medical education and market access services for pharmaceutical and biotech clients We focus on insight-driven strategy underpinned by data, analytics and stakeholder engagement powered by creative and digital experiences 5 March 2019 Results for year ended 31 Dec 2018 15
Immersive Very strong revenue growth & margin improvement The Creative Engagement Group acquired on 1 July 2017 LFL revenues (H2 vs H2) for the division up 34%; 26% on a full year basis Margin improvement from 12.4% to 14.4% as a result of focus on higher quality work Investment in US and internal communications capabilities ROIC (2018 profits over cash consideration) = 20.5% 2018 2017 1 Revenue m 35.4 14.9 LFL growth 33.9% n/a Operating profit m 5.1 1.9 Margin 14.4% 12.4% 1. H2 only What we do We engage audiences through the creation and delivery of live experiences, film, immersive, interactive, training and scientific content We work with an international blue-chip client base across a range of sectors, with a particular strength in healthcare 5 March 2019 Results for year ended 31 Dec 2018 16
Communications Continued focus on rightsizing operations 5.1% fall in LFL revenues as planned Profits down 1.0m but include restructuring costs in Grayling of c. 1m to support improved profitability in 2019 and beyond Red impacted by 2017 client churn, but recent wins Good performance from CDR 2018 2017 Revenue m 73.4 77.6 LFL growth (5.1)% (6.5)% Operating profit m 6.0 7.0 Margin 8.2% 9.0% What we do Grayling is a global integrated communications network, covering public relations and public affairs Citigate Dewe Rogerson is an international financial and corporate public relations consultancy Red is a strategic communications consultancy offering PR, digital and content expertise 5 March 2019 Results for year ended 31 Dec 2018 17
Results for the year ended 31 December 2018 Strategy
Delivering our strategy Our strategy Progress Increase Healthcare and US presence Expected share of revenues in 2019 1 : Healthcare 72% US 57% Extend offering by adding key capabilities Acquisition of Giant, Navience and AboveNation Potential for further small-scale M&A Integrate multiple capabilities for clients Maintain balance sheet strength at 1.5x to 2.0x net debt to EBITDA Increased level of joint pitches within each of the Healthcare divisions Operating well within facility & covenant limits Leverage 1.9x at 31 December 2018 1. Based on consensus 5 March 2019 Results for year ended 31 Dec 2018 19
Growing Healthcare and US focus 100% Healthcare % of revenues 100% US % of revenues 80% 33% 28% 80% 50% 43% 60% 60% 40% 20% 67% 72% 40% 20% 50% 57% 0% 2018 2019 0% 2018 2019 Healthcare Non-healthcare US Non-US 2019 based on analyst estimates 5 March 2019 Results for year ended 31 Dec 2018 20
3 year progress Consensus 9 8 7 6 5 4 3 4.0 16.0 5.8 24.4 7.1 30.9 8.2 36.9 40 35 30 25 20 15 32% CAGR in HPBT 27% CAGR in EPS Leverage broadly unchanged 2 10 1 0 1.5x 1.1x 1.9x 1.6x 2016 2017 2018 2019 Leverage EPS HPBT 5 0 5 March 2019 Results for year ended 31 Dec 2018 21
Marketing Better Together By leveraging our digital, creative and analytics strength in all our marketing and communications business, we are building an industry leading capability that can work together for clients. Adding Value to Existing Clients By leveraging our advanced media capability and our multicultural expertise we were awarded a new remit as multicultural media AOR for one of the largest pharma marketers. Globalising Client Remits By leveraging our multidisciplinary expertise and geographic reach we help clients across more markets. 5 March 2019 Results for year ended 31 Dec 2018 22
Medical Expand consultancy offering Expand data and analytics offering Add new capabilities in market access and health economics Expand into new territories 5 March 2019 Results for year ended 31 Dec 2018 23
Immersive Broaden base of Healthcare clients Expand Internal Communications offering Develop further Industrial Learning New verticals 5 March 2019 Results for year ended 31 Dec 2018 24
Communications Improve margins Grayling: Build on UK growth Multi-country clients CDR: Develop life sciences capability Expand Asia footprint Red: Expand into financial services 5 March 2019 Results for year ended 31 Dec 2018 25
2019 Outlook Marketing to return to positive LFL growth (H2 weighted) Medical & Immersive set for further good organic growth Profit improvement in Communications division Potential for further small-scale M&A 5 March 2019 Results for year ended 31 Dec 2018 26
Results for the year ended 31 December 2018 Appendices
Like-for-like adjustments m Revenue Operating Profit Headline PBT 2017 adjustments Reported 197.0 26.4 24.4 Foreign exchange (3.2) (1.5) (1.5) Disposed operations (1.3) 0.3 0.3 LFL 192.5 25.2 23.2 2018 adjustments Reported 225.0 33.2 30.9 Foreign exchange - 1.4 1.4 Acquisitions (29.8) (6.2) (5.4) Disposed operations - (0.1) (0.1) LFL 195.2 28.3 26.8 5 March 2019 Results for year ended 31 Dec 2018 28
Highlighted items m 2018 2017 Revaluation of deferred consideration and put options (1.8) - Acquisition costs 1.0 0.4 Disposal related * (0.9) (0.3) Amortisation of acquired intangible assets 3.5 1.4 Imputed interest on deferred consideration and put options 0.4 - TOTAL 2.2 1.5 * Relates to gain on contingent consideration receivable in respect of the disposal of Whiteboard Advisors in 2017 5 March 2019 Results for year ended 31 Dec 2018 29
Pro-forma EBITDA m Operating profit before highlighted items and associate profit 32.9 Share options 1.4 Depreciation & amortisation 3.6 Non controlling interest (0.4) Pro-forma effect of acquisitions AboveNation 0.3 Giant 2.1 Navience 4.5 Pro-forma EBITDA 44.4 Statutory Net debt 77.0 Guarantees 2.0 Cash-settled deferred consideration 5.3 Bank Net Debt 84.3 1.7x leverage 1.9x leverage 5 March 2019 Results for year ended 31 Dec 2018 30
H1 / H2 working capital analysis H1 sees weaker cash conversion due to: Billing milestones weighted to H2 Bonus payments Average H1/H2 working capital flows 2014-18 Average H1/H2 cash conversion 2014-18 4 2 - (2) H1 H2 41% 136% (4) (6) H1 H2 (8) (10) 5 March 2019 Results for year ended 31 Dec 2018 31
Growing Healthcare and US focus Healthcare % of profits US % of profits 100% 80% 15% 15% 100% 80% 36% 29% 60% 60% 40% 20% 85% 85% 40% 20% 64% 71% 0% 2018 2019 0% 2018 2019 Healthcare Non-healthcare US Non-US 2019 based on analyst estimates 5 March 2019 Results for year ended 31 Dec 2018 32
US healthcare expenditure Relative contribution to US health expenditure, 2018 10% 25% Prescription drugs Hospitals Home Health Dental 33% Nursing care Physicians & clinics 20% Other health 68% Projected growth in prescription drugs, 2018-26 5% 4% 3% Source: HCTadvisor 5 March 2019 Results for year ended 31 Dec 2018 33
FY18 divisional revenue by geography Marketing Medical 10% 29% Group 10% 5% 90% Immersive 71% Communications 35% 50% Rest of the World USA United Kingdom Europe 14% 26% 32% 6% 74% 48% 5 March 2019 Results for year ended 31 Dec 2018 34
FY18 divisional headline operating profit by geography Marketing Medical 12% 26% Group 2% 6% 88% 74% 28% Rest of the World USA Immersive Communications 64% United Kingdom Europe 14% 34% 38% -9% 66% 57% 5 March 2019 Results for year ended 31 Dec 2018 35
Deferred consideration and put/call liabilities m 2019 2020 2021 2022 2023 Above Nation Deferred consideration 5.3 Put option 0.8 * Navience Deferred consideration 11.8 * Put option 9.9 * Giant Put option 5.7 * 5.3 11.8 5.7 9.9 0.8 * Option to equity settle 5 March 2019 Results for year ended 31 Dec 2018 36
Basic and diluted shares million 2018 2019 2020 2021 Issued share capital (ex-shares in EBT) Opening 328.0 349.0 350.1 351.2 Options exercised 3.3 - - - Scrip dividend 1.1 1.1 1.1 1.1 Share issues 16.6 - - - Closing 349.0 350.1 351.2 352.3 Weighting on options exercised (2.2) - - - Weighting on scrip dividend (0.6) (0.6) (0.6) (0.6) Weighting on share issues (12.5) - - - Weighted average shares - basic 333.7 349.5 350.6 351.7 Dilutive impact of options 12.2 12.3 13.9 15.5 Potentially dilutive impact of deferred consideration 4.1 11.8 11.8 11.8 Weighted average shares diluted 350.0 373.6 376.3 379.0 5 March 2019 Results for year ended 31 Dec 2018 37
Charge m IFRS 16 impact c. 0.8m Estimated P&L impact in 2019 7.7m Rental expense 6.8m + 1.7m Dep n Interest 2019 2020 2021 2022 2023 2024 2025 Current IFRS 16 c. 2.4x Estimated statutory leverage under IFRS 16 EBITDA + 7.7m Net debt + 42m Bank / covenant leverage unaffected 2019 Budget Presentation 38
Consolidated balance sheet m Dec-18 Dec-17 Non-current assets Goodwill & Intangibles 287.3 181.2 Other non - current assets 13.0 12.8 Current Assets 300.3 194.0 Trade debtors and other receivables 82.0 62.5 Other current assets 9.5 9.3 Cash and short-term deposits 22.8 10.1 Current Liabilities 114.3 81.9 Trade and other payables (69.4) (67.6) Other current liabilities (2.7) (2.0) Provisions (6.4) (0.6) Non-current Liabilities (78.5) (70.2) Bank loans and overdrafts (99.2) (45.7) Other non current liabilities (8.8) (2.8) Provisions (28.0) (1.3) Trade and other payables (4.1) (3.0) NET ASSETS (140.1) (52.8) 196.0 157.4 5 March 2019 Results for year ended 31 Dec 2018 39
Shareholding at 11 February 2019 % share capital Aberforth Partners 12.3 Canaccord Genuity Wealth Management 9.2 Aviva Investors 8.9 Merian Global Investors 8.6 Kames Capital 6.3 Kabouter Management 6.0 Fidelity International 5.3 Michinoko 5.0 BlackRock 4.1 Miton Asset Management 3.6 Other 30.7 No. voting shares TOTAL 100.0 349,557,070 117k Median daily volume in H218 The shareholding figures and percentages in the table above include shares where the holder manages those shares on behalf of a third party (i.e. managed holdings) as well as shares beneficially owned indirectly or directly by the holder 5 March 2019 Results for year ended 31 Dec 2018 40