Sell smart at Informa

The root of Informa's problems is its business intelligence division, which provides companies with news, research and information databases and contributes about a third of the company's sales and operating profits. Organic sales there dipped 5.6 per cent in the first four months of this year, following 3.9 and 4.4 per cent declines in 2013 and 2012, respectively. Moreover, divisional operating profits – excluding restructuring and other one-off costs – fell 12.8 per cent to £109m last year.

Those declines reflect belt-tightening across its major markets, including financial services and pharmaceuticals. Informa also notes that it needs to "better understand" its market positioning and the capabilities of its products and platforms. Investors should be concerned at the segment's rapid contraction. In a tough data market, Informa will probably have to invest in its products just to stabilise the division, let alone grow it. Given these challenges, broker N+1 Singer forecasts a 5.3 per cent divisional sales decline this year, and a 4 per cent fall in 2015. Similarly, broker Investec believes "further, more aggressive surgery may be required".

Clearly a turnaround won't be easy. If Informa cuts its less desirable or lower-margin products, revenues will fall and it will have less scope to cut costs. Informa can hardly afford a growth slowdown. The group as a whole only managed to inch organic sales up by 0.6 per cent in the first four months. Meanwhile, last year operating profits, adjusted for restructuring and one-off costs, rose only 1.5 per cent. The troubles may well continue, with N+1 Singer expecting pre-tax profit declines both this year and next (see table).

There are issues at the group's two other stronger divisions as well. Although its academic publishing business has made a strong start to the year with organic sales up 3.2 per cent, that's a slowdown from the end of last year when it benefited from a high volume of orders from online retailers. And its global events segment, which grew organic sales by 3.5 per cent this year, is faced with lacklustre conference markets in Continental Europe and Russia. Moreover, last year's IPEX print and publishing exhibition was "significantly smaller" than in 2010, reflecting structural changes in the print industry.

Management is another concern. Informa is yet to appoint a new finance chief, following Alan Walker's departure in December. And new chief executive Stephen Carter is still learning the business. Investec says he's "unlikely to be a radical catalyst".

Informa is also highly exposed to currency movements. It receives roughly 45 per cent of its revenues and incurs 35 per cent of its costs in US dollars or currencies pegged to the dollar. That means a one cent movement in the dollar-to-pound exchange rate alters revenue by about £3.2m and adjusted operating profit by £1.4m.

Informa has made some gains of course. For instance, it disposed of its struggling corporate training business for $150m last year. Its shift towards holding larger events with higher margins – which contributed 60 per cent of divisional revenues last year, from 40 per cent in 2012 – looks promising. And its stake in Baiwen, which organises the largest annual beauty trade fair in mainland China, improves its exposure to high-growth Asian markets. These efforts drove a 14 per cent rise in operating profits at its events division last year to £95.5m.