Reed Elsevier NV — FY2014 Earnings Presentation
35 slides from Reed Elsevier NV's earnings presentation, February 2015
Slide 1: Reed Elsevier Results 2014
Reed Elsevier Results 2014 Erik Engstrom, CEO Nick Luff, CFO This slide is intentionally left blank 2 1
Slide 2: Forward-Looking Statements
FORWARD-LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. These statements are subject to a number of risks and uncertainties
Slide 3: Erik Engstrom, CEO
Erik Engstrom, CEO 5 This slide is intentionally left blank 6 3
Slide 4: Reed Elsevier 2014 progress; Financial performance
Reed Elsevier 2014 progress • Continued positive financial performance – Underlying revenue and profit growth across all major business areas – Further improvement in profitability • Further strategic and operational progress – Continued business transformation, primarily through organic development
Slide 5: Underlying revenue and profit growth across business areas
Underlying revenue growth across business areas FY 2014 +7%* Exhibitions +2% Scientific, Technical & Medical +1% Legal Risk & Business Information +6% *excluding exhibition cycling effects 9 Underlying adjusted operating profit growth across business areas FY 2014 +9% Exhibitions +6% Legal Scientifi
Slide 6: Scientific, Technical & Medical; Risk & Business Information
Scientific, Technical & Medical Underlying revenue growth • Key business trends positive • Research subscription revenue growth around half percentage point higher than prior year • Double digit growth in subscription journal article submissions and usage • Good growth in databases & tools and elect
Slide 7: Legal; Exhibitions
Legal Underlying revenue growth • Overall revenue trends unchanged; continued growth in electronic revenues partially offset by print declines • US and European markets remain subdued; other international markets saw good growth • New product releases and rollouts continued; adoption and usage progr
Slide 8: Strategic direction unchanged; Organic development priority
Reed Elsevier strategic direction: unchanged Where we are going • Deliver improved outcomes to professional customers • Combine content & data with analytics & technology in global platforms • Build leading positions in long term global growth markets • Leverage institutional skills, assets and reso
Slide 9: Portfolio reshaping; Strategic cash priorities
Portfolio reshaping: supporting organic growth strategy 2014 Selective acquisitions: Focus on data sets, analytics and high growth markets • Including Innovata, Tracesmart, Wunelli, AFG Group, FircoSoft, Moreover Technologies, Health Market Science • 27 acquisitions; total consideration £385m Select
Slide 10: Simplification of corporate structure, share listings and entity names
Simplification of corporate structure, share listings, and modernisation of corporate entity names Objectives • Simplify corporate structure • Increase share price transparency • Modernise corporate entity names While remaining at least cost/profit neutral for the company, without changing the econo
Slide 11: Simplification of share listings; Modernisation of entity names
Simplification of share listings As proposed from 1 July 2015 Equalisation ratio ADR multiple PLC shares NV shares PLC ADRs NV ADRs Current 1 PLC share 1.538 PLC shares 4 PLC shares 2 NV shares Future 1 PLC share 1 PLC share 1 PLC share 1 NV share 21 Modernisation of corporate entity names • Newly f
Slide 12: Nick Luff, CFO: 2014 financial highlights
Nick Luff, CFO 23 2014 financial highlights • Underlying revenue growth +3% • Underlying adjusted operating profit growth +5% • Adjusted profit before tax growth at constant currencies +7% • Adjusted EPS growth at constant currencies +10% • Cash flow conversion 96% • Return on invested capital 12.8%
Slide 13: Income statement; Adjusted earnings and dividends per share
Income statement change 2014 2013 constant change Year to 31 December £m £m change currency underlying Revenue 5,773 6,035 -4% +1% +3%* Adjusted operating profit 1,739 1,749 -1% +5% +5% Adjusted operating margin 30.1% 29.0% Adjusted net interest expense (147) (177) Adjusted profit before tax 1,592 1
Slide 14: Revenue; Adjusted operating profit
Revenue Underlying growth in all business areas change change 2013 change constant reported 2014 Year to 31 December £m underlying currency sterling £m Scientific, Technical & Medical 2,126 +2% +1% -4% 2,048 Risk & Business Information 1,480 +6% +2% -3% 1,439 Legal 1,567 +1% -6% -11% 1,396 Exhibitio
Slide 15: Free cash flow; Uses of free cash flow
Free cash flow 2014 2013 Year to 31 December £m £m Adjusted operating profit 1,739 1,749 Capital expenditure (270) (308) Depreciation 237 249 Working capital and other items (44) 13 Adjusted cash flow 1,662 1,703 Cash flow conversion rate 96% 97% Cash interest paid (126) (195) Cash tax paid (363) (3
Slide 16: Uses of cash priorities; Debt profile
Uses of cash - priorities Capex (£m) 333 308 270 Average: • Organic development c5% of sales 2012 2013 2014 Acquisition spend (£m) 313 385 Average: • Acquisitions 230 c£300m 2012 2013 2014 Dividends (£m) 521 549 565 Average dividend growth*: • Dividends +8% 2012 2013 2014 Net debt / EBITDA** 2.2 x 2
Slide 17: Balance sheet; Currency profile
Balance sheet 31 Dec 2014 31 Dec 2013 £m £m Goodwill & acquired intangible assets 7,365 6,980 Internally developed intangible assets 780 720 Property, plant & equipment and investments 464 454 Net (liabilities)/assets held for sale (2) 18 Net pension obligations (632) (379) Working capital (1,124) (
Slide 18: Proposed future corporate structure; Future per share calculations
Proposed future corporate structure From 1 July 2015 RELX RELX PLC NV 52.9% 47.1% RELX Group plc 35 Future per share calculations As proposed from 1 July 2015 Pro forma combined shares in issue PLC NV Total Shares in issue* (m) 1,140 1,014 2,154 Proportion of total 52.9% 47.1% 100% Pro forma adjuste
Slide 19: Increased share price transparency; Implementation timeline
Increased share price transparency (proposed) Using 24 February 2015 share prices Bonus share ADR Pro forma Current issue multiple Pro forma Exchange price in price adjustment adjustment price rate Sterling PLC £11.87 £11.87 NV €22.68 ÷1.538 €14.75 ÷ 1.36 £10.82 PLC ADR $73.38 ÷4 $18.34 ÷ 1.55 £11.8
Slide 20: Summary and 2015 outlook
Erik Engstrom, CEO 39 Summary 2014 • Continued positive financial performance • Further strategic and operational progress • Simplification and modernisation of corporate structure, share listings and corporate entity names 2015 Outlook • “Business trends in the early part of 2015 remain consistent
Slide 21: Appendices Contents
Appendices 41 Contents Further information Simplification of share structure 44 Revenue – year over year change 57 Market capitalisation calculation – future 45 Adjusted operating profit – year over year change 58 Future shareholding example 46 Reconciliation of net profit 59 Dividend calculation 47
Slide 22: Revenue year over year change
Further information 43 Revenue Year over year change Year to 31 December £m change €m change 2013 Revenue 6,035 7,121 Underlying growth 171 +3% 201 +3% Exhibition cycling 30 +1% 36 +1% Acquisitions 77 +1% 91 +1% Disposals (228) -4% (269) -4% Currency effects (312) -5% (21) 0% 2014 Revenue 5,773 -4%
Slide 23: Adjusted operating profit; Reconciliation of net profit
Adjusted operating profit Year over year change Year to 31 December £m change €m change 2013 Adjusted operating profit 1,749 2,064 Underlying growth 78 +5% 92 +5% Acquisitions 11 0% 13 0% Disposals (2) 0% (3) 0% Currency effects (97) -6% (10) -1% 2014 Adjusted operating profit 1,739 -1% 2,156 +4% 45
Slide 24: Capital expenditure and depreciation by business area
Capital expenditure by business area 2014 2013 % of % of Year to 31 December £m revenues £m revenues Scientific, Technical & Medical 56 3% 87 4% Risk & Business Information 49 3% 43 3% Legal 142 10% 163 10% Exhibitions 23 3% 15 2% Total capital expenditure 270 4.7% 308 5.1% 47 Depreciation by busine
Slide 25: STM growth and currency analysis
Scientific, Technical & Medical Growth and currency analysis £ Sterling Period Acquisitions / Constant change in Other £ Sterling Underlying disposals currency hedge rates currency total Year to 31 December 2014 Revenue +2% -1% +1% 0% -5% -4% Adjusted operating profit +3% -2% +1% +1% -5% -3% Adjuste
Slide 26: Exhibitions cycling impact; Term debt maturities
Exhibitions: cycling impact Revenue growth % 2010 2011 2012 2013 2014 Total at constant currencies +9% +1% +25% +2% +11% Impact of acquisitions / divestments +1% +1% +10% 0% +2% Underlying with cycling +8% 0% +15% +2% +9% Impact of cycling shows +11% -10% +8% -5% +2% Underlying -3% +10% +7% +7% +7%
Slide 27: Dividend equalisation; Return on invested capital
Dividend equalisation Interim Final Total % % % 2014 2013 change 2014 2013 change 2014 2013 change Reed Elsevier PLC (p) 7.00 6.65 +5% 19.00 17.95 +6% 26.00 24.60 +6% UK tax credit rate 10% 10% 10% 10% Reed Elsevier PLC (p) (gross) 7.78 7.39 21.11 19.94 Equalisation ratio 1.538 1.538 1.538 1.538 Exc
Slide 28: Summary of other financial matters; Simplification of share structure
Summary of other financial matters At At 31 December 31 December Average Average 2013 2014 2013 2014 £:$ 1.66 1.56 1.56 1.65 FX rates £:€ 1.20 1.29 1.18 1.24 Reed Elsevier PLC: 1,157m 1,128m 1,172m 1,140m Shares outstanding Reed Elsevier NV: 710m 691m 718m 700m 55 Simplification of share structure 5
Slide 29: Market capitalisation calculation; Future shareholding example
Market capitalisation calculation – future Based on closing price at 24 February 2015 PLC NV Total Ordinary 1,123.3 996.8 2,120.1 shares outstanding (m)* €22.68 / 1.538 = Share price £11.87 €14.75† Market Capitalisation** £13.3bn €14.7bn £24.1bn / €32.8bn *Net of shares held in treasury and by Emplo
Slide 30: Dividend calculation; Financial information in Euros
Dividend calculation Change to dividend equalisation following proposed simplification Example using 2014 final dividend Total PLC Tax credit* Equalisation dividend on €/£** FX rate NV dividend dividend gross up ratio 1 current NV share† Current £0.19 x100/90 x1.538 x1.35 = €0.438 €0.438 1. 538 x Fu
Slide 31: Income statement and revenue in euros
Income Statement change 2014 2013 constant change Year to 31 December €m €m change currency underlying Revenue 7,159 7,121 +1% +1% +3%* Adjusted operating profit 2,156 2,064 +4% +5% +5% Adjusted operating margin 30.1% 29.0% Adjusted net interest expense (182) (209) Adjusted profit before tax 1,974 1
Slide 32: Adjusted operating profit; Free cash flow (euros)
Adjusted operating profit Underlying growth in all business areas change change 2013 change constant reported 2014 Year to 31 December €m underlying currency Euros €m Scientific, Technical & Medical 929 +3% +1% +2% 945 Risk & Business Information 598 +6% +5% +5% 627 Legal 295 +6% +10% +9% 322 Exhibi
Slide 33: Uses of free cash flow; Balance sheet (euros)
Uses of free cash flow 2014 2013 Year to 31 December €m €m Free cash flow 1,433 1,336 Disposals: total consideration 92 390 Acquisitions: total consideration (477) (271) Dividends (701) (648) Share buybacks (744) (708) Other* (98) (66) Currency translation (398) 127 Movement in net debt (893) 160 Ne
Slide 34: Reconciliation of net profit; Capital expenditure (euros)
Reconciliation of net profit Adjusted to reported 2014 2013 Year to 31 December €m €m change Adjusted net profit 1,504 1,413 +6% Adjustments (after tax): Amortisation of acquired intangible assets (347) (384) Net financing cost on pension schemes (14) (15) Acquisition related costs (26) (37) Disposa
Slide 35: Depreciation by business area; Return on invested capital
Depreciation by business area 2014 2013 % of % of Year to 31 December €m revenues €m revenues Scientific, Technical & Medical 111 4% 112 4% Risk & Business Information 41 2% 38 2% Legal 123 7% 127 7% Exhibitions 19 2% 17 2% Total depreciation 294 4.1% 294 4.1% 69 Return on invested capital 2014 2013