Nielsen Holdings N.V. (NYSE:NLSN)
Credit Suisse Global Services Conference
March 12, 2012 12:00 p.m. ET
Brian West - Chief Financial Officer
Kelly Flynn - Credit Suisse
Kelly Flynn - Credit Suisse
We’re happy to have Nielsen here presenting. Presenting for the company is the CFO, Brian West, and it looks like we will take a few questions in this room and then there will also be a breakout session following this session. So with that I will turn it over to Brian. Thanks.
Thanks, Kelly. It's great to be here. So I'll start with a little bit about, for those of you who may not be as familiar who we are. So Nielsen wraps itself around two fundamental engagements with the consumer. It’s what they buy and what they watch. And the whole objective is to take that information and help inform markets around the world. No one else has the buy and the watch, and we think that gives a unique advantage as we help our clients navigate a consumer that’s grown all around the world.
We’ve got values, we have expressed them from the very beginning of 2006 when it went private. Around being a open, simple and integrated company. We highlight those because we think they are unique in the place we play around information services and market research. Particularly around how we are open to just about anyone in this space to help get better answers on behalf of the clients and how to integrate. How to integrate both our watch and our buy products so that again we can help navigate very big questions on behalf of our marketers. And we’ve got a brand that’s stood the test of time 90 plus years.
From a highlight standpoint, I mentioned what consumers watch and buy. No one else has those two fundamentals engagements. And we do it all over the world, 100 countries. And our global map we think gives us unique competitive advantage around the world. We also data that is mission critical to our clients. I will talk more about that but it is embedded in the workflows and decision making of how they run businesses every day.
We like syndicated products. We are not interested in doing custom work. We like things that can scale. And we are driving two big market trends we will talk about in a minute around growth for the long term. And as I will show, we have got a track record of a business model that holds up. It’s held up not just in good times but bad times. And we will talk a little about how it’s done that through the course of just the last few years.
In terms of how we make money. Two sides of our business. As I mentioned, what consumers buy on the left. A good illustration of this is our relationship with Nestle. Nestle has been with us for 50 plus years. About two thirds of the relationship with Nestle is around retail market share. We tell them their retail market share for all their brands around the world. And it’s relationship that’s been going on for many years. It’s a long-term contract in nature as many in the buy side are.
Typically a buy client will have a contract anywhere from three to eight years. Average is around five. And on top of that the other part of the relationship, the other third, is around insights. How we help clients like Nestle look around the corner; how do we help them with new product introductions; how to forecast new products; which distribution chain it should go into. As well as defending existing brands on the shelf. Pricing, promotion, packaging, assortment study, all things that help clients in our buy side be more competitive. It’s two-thirds of the business total on our buy side. One that is, again, the most global. There is a big developing markets business inside there. And one that again has stood this of time largely driven by a fundamental data business that is built for the long-term.
Moving on to the watch side on the right. A good example is our relationship with CBS. Have been in with us as relationship for 70 plus years. And again here’s what, 80% of our relationship with the watch clients are around measuring their TV viewing audiences. Again, contracts are anywhere from three to seven years, average is a little over five. Ones that have very high renewal rates and ones where once you get outside of the contractual relationship there is another 20% of our relationship, is where we give them analytics and insights around they can compete. Whether it’s pricing their inventory more effectively or maximizing their content.
We help them drive lots of programming decisions and also lots of sales decisions as they try to provide those audiences to the advertisers. Again, buy and watch, we are fundamental in both. Both are embedded in our clients. Thousands of people in or around either a Nestle or CBS touch our data every single day as they think about making decisions to growth their businesses.
I mentioned our global breadth. Here’s our map. Everywhere you see a blue dot is where we have a Nielsen presence. It’s 100 countries plus. And if you think about how this have evolved, it’s been over many decades where we have built this footprint. It started in the 1930s with the second generation Nielsen family started to move out and move east. The fact of the matter is over the next five or ten years, the exact opposite will happen. Many companies, many brands from the east will move west. And when they do this, the move right into our footprint.
Big footprint, the next biggest competitor has eight countries compared to my 100. So our whole objective is to make sure we continue to expand coverage on behalf of our clients and help them reach consumers in areas where they are growing. A very unique competitive advantage for Nielsen. Moving specifically into your buy business. It’s around $3.4 billion of revenue and there’s two parts of our buy business like I mentioned. The information side which is the retail measurement component and the insights buy. How do we help them look around the corner.
The important part of our information is really our proprietary data. The buy business on measuring retail market share is founded on a Nielsen code. I code every new product that’s been introduced to market place for decades. And it’s those Nielsen proprietary codes that allow a toothbrush at Proctor to be compared with a toothbrush at Unilever or Colgate. It’s that fundamental. And we code millions of new products every year adding to a database that has stood the test of time. It’s very fundamental and I do it all over the world. And it’s that proprietary code and being able to find those market shares on behalf of clients that makes this stand the test of time.
Moving on to the watch side. Revenues are just over $1.9 billion. Again, the information side is the TV ratings business and from insights side is around helping them understand the value of inventory. And the information side, we do television measurement in this country. It’s viewed to currency if you will, as well as 28 other countries around the world. And we also have platforms in both the online and the mobile space. Again, here we have a proprietary code. I have a way of detecting viewing of programming through an audio code or watermark.
Again, it allows me unique advantage to be able to measure what is consumed. Because the important part of my watch business is that it doesn’t matter how you got the video, right. It could have been over the air, over the top, satellite box, set-top box. I measure all consumption. What pipe -- how you got it and what you do with it. And as long as I keep on measuring to a very high degree how you consume video, this business is very strong. And actually fragmentation works to our advantage. Because, again, we measure consumption not what's distributed.
I want to move on. Client base, great client base, long-term best in class of clients from a risk -- and there’s lots of them, 20,000 plus. And from a risk standpoint not a one of them represents more than 4% of revenue. Not one represents more than 4% of revenue. We have a third segment called expositions. Not as fundamental to the watch and the buy of our core business. On the other hand it’s a great business with high margins, great cash flows and it’s growing.
Our financial model is one that is pretty powerful. So we have got pretty consistent revenue growth and from the time period of ’08 to ‘’11 it grew on 5%. So the course of the ’08, ’09 timeframe, we didn’t have a down quarter on our core business. Our developing revenue growth has been very strong, 15% last year. And it’s this consistency that stays the test of time. It’s a very resilient model. A lot of that is because I have got this recurring revenue through these long-term contracts.
When we walk into a year, around 70% of our revenue we have visibility to. And these higher renewal rates and long-term relationships gives confidence this keeps going. And we have got great operating leverage. Over the course of last five years we have taken lot of redundant costs out. We have built out a very scalable platform and it leverages 21st century technology as well as great partnerships with outsourcing partners all around the world.
We do have operating platforms that can expand margins and ones that once we get done building a platform, we have got the opportunity to reinvest on behalf of growth and we do that pretty significantly. From a deleveraging standpoint, we came from a time when our leverage was up over nine times. As we exited 2011, it was around four times, a little more than four times and our financial policy has always been to de-risk and deleverage the balance sheet. The good news is that we have a very strong cash flow conversion in the business. Very strong cash flow conversion.
Here’s the revenue growth of the last few years. As I mentioned 5% top line at constant currency or just under 9% EBITDA growth. Again it’s that a benefit of good solid consistent revenue platforms and being able to leverage the operating platform. And I would say that we always talk about ourselves in constant currency. And when we’re doing business in the hundred countries, rates go every which way. For us, we don’t take on any transactional exposure. We’re pretty well matched, revenue-expenses, in every market and we chose not to hedge translation risk. It’s important because I can't FX rates, they’re going to move all around for us.
Think about constant currency, that’s how we get measured, that’s how we run the business and that’s the economic expression of what's happening inside of our company. As I mentioned here’s our segment performance. Big part of our business is the buy side, $3.4 billion, the watch side is under $2 billion and great margins rates across both.
The balance sheet. We spend a lot of time, as I mentioned, de-risking and de-levering the balance sheet. In 2013 there was a big maturity stack a couple of months ago, its $1.5 billion. We pushed that out into the future at very attractive rates. So in the next four years we really don’t have any meaningful maturities in front of us to be worried about. And we continue to reduce our weighted average interest rate and as you can see, we have been de-levering the business since over nine times to about four times. A lot of that was, last we did an IPO which was all about paying down debt.
So we are very happy with the way we have managed the balance sheet risk and again it’s very strong going forward. We talked about revenue guidance. Revenue guidance for 2012 is, top line constant currency 5% to 7%. A margin expansion of around 30 to 50 bps. Important for us to talk about margin expansion. The business model, the platform that we built, can do around 100 basis points margin expansion if we didn’t reinvest anything
We chose to reinvest anywhere from 50 to 70 basis points back into the business, largely around building out our developing market growth platform. So if you remember that math -- remember that match all around the world. We got to make sure we continue to cover that math. And covering that in places like the continent of Africa, rural China, rural India. Because that’s where all of our clients are going. Because that’s where all the macroeconomic trends are. And we are going to keep reinvesting as we build up those businesses, we think it’s good for the long-term growth of the company.
Adjusted net income on a constant currency basis will grow anywhere between 13% and 17%, and again the de-leveraging of about half a turn. For us our long-term profile and revenue is, think about a mid-single digit company. And that’s in good times and bad. Now the business holds up. The last couple of years our guidance has been in the high-end of 5% to 7% growth. As I mentioned, adjusted EBITDA margins and the one or two times revenue growth if we are investing as we are right now, expect 30 to 50 bps like we did last year, like we did this year.
And again, the earnings power comes from two things. One, it’s the deleveraging and the interest rate reduction as well. A very attractive tax position. I’ve got tax assets that will give us long-term cash tax rate of between 20% and 25%. And as I mentioned, we continue to look at the lever.
You know in terms of the other investment highlights I think are important as we look into 2012, we have been very focused on this whole idea of building out our developing market platform. We call it global reach and read and it’s our commitment to continue to expand coverage in markets all around the world. It’s about the easiest investment we make. Because we are hiring labor that is variable in nature and ones that we can dial-up and dial down depending on the economic environment.
Right now, because of this big macro trend of more people entering the middle class around the world consuming more things as middle class consumers, we are right in this trend and so are clients because that’s where they are going to grow. So we are going to commit to invest in it.
The other part of coverage that’s important is that, coverage we think about not just in terms of the developing markets, we also talk about coverage in terms of the developed market. And in this market, the U.S., it’s by doing things like our Wal-Mart arrangement where Wal-Mart is now entering back into the U.S. retail measurement world and we’re partnering with them so that we can give our clients, manufactures, retailers, a view of the entire Wal-Mart distribution channel which is very big. It’s around 25% of total U.S. retail coverage. Very big. We’re proud of that relationship and one that we’re looking for to as we go into the second quarter and the second half of this year. So very big.
The other part of our business that is important, we talk about in terms of trends as around video consumption. As I mentioned, we want to make sure we measure everything that you consume. No matter how you consume it. And right now we have got a great program associated with online campaign ratings which is basically trying to give more reliable measurements to the online space. We’ve got a great product that we launched in September. It’s off to a great momentum. Lots of clients are working with it and Unilever three or so weeks ago announced that they were the first client to sign up for a contractual commercial arrangement. So we feel great. Good momentum.
Anyway, so that’s a little bit about Nielsen and I would be happy to turn over and open up for any kind of questions that you might have. Yeah, Kelly.
Kelly Flynn - Credit Suisse
Thanks. You just mentioned Wal-Mart and online campaign ratings or OCR but I am pretty excited about those. So I was wondering if you could maybe give a little more detail on whatever you’ll give detail on, but specifically the timing of when those kind of should roll into the model, if you will, as far as contributing. And I know you haven’t tended to want to talk about contribution levels, but if you could give any color on that, that would be great.
Sure. Sure. So both are big. We will talk about the one that’s more near term which is the Wal-Mart. So again, in the U.S. we measure retail measurements and we get all sort of retail data from lots of players to be able to cover the market. Ten years ago there was a decision that Wal-Mart would not decide to share its retail data. In July of last year they changed that decision so now they will be able to share their retail data with the industry and the U.S., in this market. It’s a big deal because they represent such a big part of retail coverage.
So what we have been working on is, for very hard since last September, is we’ve spent lots of resource in investment getting ready for that event. Because in this second quarter our U.S. retail data will now for the first time in ten years, include the data for Wal-Mart. And it’s very significant to many of manufacturer and retail partners. So it’s a big deal. It represent a whole new view of the marketplace that they didn’t otherwise have.
I gave my view of it before but it was an estimate, a proxy. Now we’re actually going to get the actual data and we’re going to provide that in the second quarter. Now what that means is is that manufacturer and retailers will now be able to have an accurate view, more precision. And when I think about this, there’s three real value benefits to Nielsen. The first is we’re going to, in the second half, be able to collect more revenues because I am able to provide this higher quality data. And those contractual discussions with clients in this market are behind us.
So this isn’t -- we hope they’ll buy it. It’s already committed to and we’re going to start the turning on in the second quarter so the revenues will start in the beginning of the third quarter. And that lasts for 12 months as we collect those higher revenues.
The second value piece is around the long-term tailwind that this will give for our insights or analytics business. So when you’ve got so much more data in the hands of so many more clients, they are going to ask lots of questions. How do they optimize or get more effective around a particular distribution channel, a particular price promotion etcetera. And that will give nice long-term tailwind to our U.S. analytics business. One that we are excited to help both Wal-Mart and our manufacturing clients sort their way through.
But the biggest thing is the long-term value it gives to the franchise. All right. Because having Wal-Mart as a big retailer into the model, into the cooperative model, just gives you the third party measurement benefit over the long-term. It stands the test of time. It stood the test of time without Wal-Mart but it gets even more powerful with them in. So we are very excited about that.
So in terms of revenue expression we’re always going to hesitate to necessarily call out a specific revenue, discrete number for a product or a contract or the likes. But I will tell you that it is in our annual guidance for 2012, so our 5% to 7% includes the benefit of Wal-Mart. And from a phasing standpoint, the first half of 2012 is going to be in the lower end of my range and the second half will be the higher end of the range, because it has the benefit of that Wal-Mart data. And margins, similarly in the first half the margin expansions are going to be not much because you have got the investment in Wal-Mart and the second half that will turn around.
So we are very comfortable with the program, where we stand. It’s on target, on every way, shape or form we about it. And we look forward to getting this data out in the hands of our clients so they can begin to go help navigate their businesses. So very big deal for us.
The second one is a little bit longer term out which is OCR, it’s called online campaign ratings. And to appreciate today's digital measurement space there’s estimates that are out there that estimate on a monthly basis how a site. There is not great actual data that people settle on, settle like on a television world. The television world, when a media company provides ratings, if they didn’t make their ratings that they promised the advertiser, there is a make good. Thus, they call it currency. That does not exist in the online space. The online space, there’s lots of players out there with lots of different views of ‘measurement’.
So online campaign ratings was our objective, almost two years ago now, to create a measurement out in the line space to look more like television. Where people didn’t just plan on it, but they actually settled on it. So a planning tool to a settlement tool is completely different and we think we are advantaged. Because we have a product now that instead of estimating gives actuals. Instead of doing on a monthly basis does it overnight, and instead of doing it on a site does it across the internet. There are your new competitive advantages.
And we have got lots of partners that are helping us do this. On one hand the technology infrastructure you could imagine is very big, so you got to be able to handle the internet. So we got companies like TIBCO and IBM that help us make sure we can scale it. And from a data standpoint, we got a relationship with Facebook that allows to help inform those actual results with all the privacy protection that you could imagine. The good news is, is that we spent about a year building it and last September we launched it with clients and allowed clients to work use cases.
And as I mentioned, Unilever, three weeks ago signed up. We’ve also talked about Hulu as a provider. There’s other clients who have signed up, lots of publisher that are getting engaged. But make no mistake this is something that we believe will allow big branded advertisers better measurements so they can move and prioritize more dollars towards the online space or across different sites. Because what we are finding is clients actually realizing that some sites perform better than others. And they are actually able to see that in a very quick way and a very decisive way such that they move the dollars across sites or across platforms, because ultimately an advertiser and marketer is interested in across platform. Not just one or the other but how the two of them work together. Television, online mobile etcetera.
These are not new priorities for us either. Back in ’06, ’07 we recognized the need to measure how you consume video and advertising across multiple platforms. And we made investments back in the ’06, ’07 timeframe to be able to give us the ability to measure both online and mobile. And now you have just seen the products that are starting to spin out of that in the last 12 months was really predicated on those investments from a few years ago.
So we’re excited about it. We think we have got a great advantage. We have got great relationships and one that over the course of time we believe we are trying to create a standard. Now we don’t go out with big projections on the financials because we are creating a standard. And it’s never easy to do. You’ve got lots of stakeholders. You’re trying to get towards agreeing on how the standard is going to work. On this one we are going to be patient, we’re going to work with our clients. We’re going to let them experience it on used cases and we believe that over time we are going to have a great product that serves an unmet need, which is how to get more benefit from those online eyeballs. And those benefits then accrue to both publishers and advertisers. Yeah.
(Inaudible) should we interpret the Unilever announcement in your comments to mean that there aren’t that many other consumer packaged goods type companies signed up yet or is it just that Unilever announced and therefore you’re allowed to talk about it?
Yeah, its’ much more the latter. So Unilever is a very innovative client and they’re getting ahead of this not just in the CPG world but in the marketing-advertising space. We are very proud of these associations with them. They’re very innovative and we expect more to follow and just in CPG, because we’ve got relationships with advertisers across every major vertical, right. So automotive, telco, financial services, you name it. We’ve got lots of clients, lots of clients who have been working with the product. It just so happens that Unilever was first out of the gate. So we are encouraged by it. Yeah.
Will you have historical Wal-Mart data to be able to provide as well? Will it just be starting a year ago, or it starts now or what will we able to run analytics on?
It’s a great question because a lot of the investment has been not just coding everything from a category to a brand for a UPC across every item, across every distribution point for Wal-Mart, but it’s been going back three years. So you got to back because people want those trends and they are important to our clients and that’s been a big part of the investment. So we feel good about where we are at and again that will help inform not just where people are but where they have been and to your point how they can think about analytics around the future.
And so clients on what date will be able to access that?
So all this is going to happen in the second quarter.
And after ten years why does Wal-Mart have the need or what's the benefit to Wal-Mart to change the relationship?
Look there’s no doubt that in every market -- U.S. is no different, and it’s a very competitive retail environment. And I think Wal-Mart is looking to be innovative and contemporary and trying to understand their business. I think that as we hang around that crowd, very smart sophisticated merchandisers, who we think with a new set of data is going to be that much more effective. So we think it’s nothing but good for Wal-Mart and it’s going to help them as they look to compete and grow in this market.
They happen to cooperate with us outside of this market and have for a long time. Places like Canada, Mexico etcetera. So it just happen to be this market that they made that decision and now we are happy that they rehearsed it and they are in and they are important.
Kelly Flynn - Credit Suisse
(Question Inaudible) I get the question lot about whether or not comScore or other competitors bother you, likely to launch something similar. I know you have competitive advantage.
So I think what's unique is that one we have this great relationship with getting the data with a very high-fidelity which is Facebook. We also believe that the technology platform we have built is very powerful and then we believe the comparison with television is very unique. So product design, actuals next day across the internet, our relationship with publishers like Facebook. But I will tell you there is also discussion with all sorts of other publishers who now are entering this space and realizing that they would like to contribute their registration data because they believe there might be something unique that they can offer. Be it income, professional background, lifestyle activity, you name it.
So we think that’s important and the platform can handle it. And again then the comparison with television because ultimately marketers want to know across platforms. Campaigns aren’t built necessarily for one or the other, but they want to look how it performs across both. But we are excited about it. It’s the early stages of believe it or not, the one that we have got lots of enthusiasm for. Anything else? Great. Thanks everybody.
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