Reed Elsevier NV — H1 2010 Earnings Presentation
59 slides from Reed Elsevier NV's earnings presentation, July 2010
Slide 1: Reed Elsevier Interim Results 2010
Reed Elsevier Interim Results 2010 Mark Armour, CFO Erik Engstrom, CEO
Slide 2: Forward-looking statements
This presentation contains forward-looking statements within the meaning of Section 27A of the US Securities Act 1933, as amended, and Section 21E of the US Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events cou
Slide 3: Mark Armour, CFO
Mark Armour, CFO C. Reed Elsevier
Slide 4: 2010 H1 performance
2010 H1 performance Revenue -2%; Adjusted operating profit -3%; Adjusted margin -0.3% pts • Improved overall trading performance; underlying revenues +1% • Late cycle effects on core subscription revenues • Advertising and promotional markets appear to be stabilising • Increased investment particula
Slide 5: Adjusted profit and loss
Adjusted profit and loss 2010 2009 % % change 6 months to 30 June £m £m change constant Revenue 2,992 3,060 -2% -1% Adjusted operating profit 758 782 -3% -3% Net interest expense (134) (138) Adjusted profit before tax 624 644 -3% -4% Tax (140) (139) Minority interests (2) (2) Adjusted profit attribu
Slide 6: Adjusted profit and loss
Adjusted profit and loss 2010 2009 % % change % change 6 months to 30 June £m £m change constant underlying Revenue 2,992 3,060 -2% -1% +1% Adjusted operating profit 758 782 -3% -3% -3% Adjusted operating margin 25.3% 25.6% -0.3%pts -0.4% pts -1.0%pts Underlying margin: – weak revenue growth – inc
Slide 7: Revenue: £2,992m
Revenue: £2,992m % change % change 6 months to 30 June 2010 constant underlying £m Elsevier +2% +2% LexisNexis 0% 0% 955 1,280 Reed Exhibitions +9% +8% 374 383 RBI -19% -4% Reed Elsevier -1% +1% 7
Slide 8: Adjusted operating profit: £758m
Adjusted operating profit: £758m % change % change 6 months to 30 June 2010 constant underlying £m Elsevier +4% +4% LexisNexis -14% -14% 319 280 Reed Exhibitions +4% +4% 123 RBI +1% +4% 40 Reed Elsevier -3% -3% 8
Slide 9: Change in underlying revenue, cost, profit
Change in underlying revenue, cost, profit Adjusted Adjusted operating operating 6 months to 30 June 2010 Revenue cost profit Elsevier +2% +1% +4% LexisNexis 0% +5% -14% Reed Exhibitions +8% +10% +4% RBI -4% -6% +4% Reed Elsevier +1% +2% -3% Change £m +£29m +£50m -£21m % underlying change excluding
Slide 10: Adjusted operating cash flow
Adjusted operating cash flow 2010 2009 6 months to 30 June £m £m Adjusted operating profit 758 782 Capital expenditure (131) (93) Depreciation 111 105 (20) 12 Working capital and other items 5 (77) Adjusted operating cash flow 743 717 Cash flow conversion rate 98% 92% • Increased capital spend parti
Slide 11: Adjusted profit and loss
Adjusted profit and loss 2010 2009 % % change 6 months to 30 June £m £m change constant Adjusted operating profit 758 782 -3% -3% Net interest expense (134) (138) Adjusted profit before tax 624 644 -3% -4% Tax (140) (139) Adjusted tax rate % 22.5% 21.5% Minority interests (2) (2) Adjusted profit att
Slide 12: Adjusted earnings per share
Adjusted earnings per share 6 months to 30 June 2010 2009 % 2010 2009 % Adjusted profit attributable: Reed Elsevier £482m £503m -4% €554m €563m -2% PLC (52.9%) £255m £266m -4% NV (50.0%) €277m €282m -2% Average number of shares: PLC (m) 1,198.6 1,085.8 +10% NV (m) 734.4 666.0 +10% Adjusted earnings
Slide 13: Statutory profit before tax
Statutory profit before tax 2010 2009 % 6 months to 30 June £m £m change Adjusted profit before tax 624 644 -3% Adjustments Amortisation of acquired intangible assets (172) (195) Impairment of acquired intangible assets and goodwill - (140) Exceptional restructuring costs (13) (103) Acquisition inte
Slide 14: Free cash flow
Free cash flow 2010 2009 % 6 months to 30 June £m £m change Adjusted operating cash flow 743 717 +4% Interest paid (133) (135) Tax paid (4) (126) Free cash flow before dividends 606 456 +33% Ordinary dividends (356) (326) Restructuring / acquisition integration spend* (37) (74) Free cash flow post d
Slide 15: Movement in net debt
Movement in net debt £m $m Net debt at 31 December 2009 (3,931) (6,349) Free cash flow post dividends and exceptionals* 213 326 Acquisitions / disposals - Disposals* 79 121 - Acquisitions* (5) (8) 74 113 Net proceeds from share options exercised / other 2 3 Currency translation (206) 143 Net debt at
Slide 16: Balance sheet
Balance sheet 30 June 2010 31 Dec 2009 £m £m Goodwill & intangible assets 8,258 7,971 Tangible fixed assets 291 292 Investments & net assets held for sale 177 176 Net pensions obligations (453) (235) Working capital (892) (857) Capital employed 7,381 7,347 Shareholders’ equity 1,596 1,732 Net debt 3
Slide 17: Dividends
Dividends Reed Elsevier Reed Elsevier PLC NV Interim dividend 5.4p 0% €0.109 +2% LTM dividend cover 2.1x 1.9x • Difference in dividend growth rates reflects changes in the euro:sterling exchange rate since prior year dividend announcement dates – Interim: 2010 €1.18:£1 v 2009 €1.16:£1 17
Slide 18: Erik Engstrom, CEO
Erik Engstrom, CEO C. Reed Elsevier 18
Slide 19: Reed Elsevier: H1 2010
Reed Elsevier: H1 2010 • As expected, H2 2009 business trends continued into early 2010 – Core subscription revenues saw carry over from 2009 of late cycle effects – More cyclical businesses now seeing moderating declines or return to growth • Underlying revenues +1% against 7% decline in H1 2009 –
Slide 20: Elsevier
Elsevier H1 2010 revenue £955m 2010 2009 % change % change 6 months to 30 June £m £m constant underlying Revenue 955 944 +2% +2% Science & Health Technology Sciences Science & +2% +2% 503 452 Technology Health Sciences +2% +2% Adjusted operating 319 305 +4% +4% profit • Lower revenue growth as expec
Slide 21: Elsevier: Science & Technology H1 2010
Elsevier: Science & Technology H1 2010 H1 2010 revenue £503m Research • Strong volume growth Growth +2% (Journals) • Academic budgets constrained • 2010 renewals as expected Databases and tools Reference/ education Reference/ • Growth in electronic reference education • Moderating print declines (Bo
Slide 22: Elsevier: Health Sciences H1 2010
Elsevier: Health Sciences H1 2010 H1 2010 revenue £452m Medical research • Strong volume growth Growth +2% • Budgets constrained • Renewals as expected International Global Clinical reference/ • Good growth online (other) medical decision support • Slightly longer sales cycles in research (CDS) some
Slide 23: Elsevier
Elsevier Progress • Continuing to evolve electronic tools for academic researchers • Growing research performance and planning tools for institutions (SciVal Spotlight, Funding; Collexis) • Capturing high growth opportunities in health professions (Simulation Learning System, Nurse2) • Pharma promot
Slide 24: LexisNexis
LexisNexis H1 2010 revenue £1,280m 2010 2009 % change % change 6 months to 30 June £m £m constant underlying Revenue 1,280 1,297 0% 0% Risk Solutions 464 US Legal US Legal -2% -1% 551 International Legal -4% -4% International Risk Solutions +4% +4% Legal 265 Adjusted operating profit 280 330 -14% -1
Slide 25: LexisNexis: Legal H1 2010
LexisNexis: Legal H1 2010 Growth H1 2010 revenue £816m US law firms +2%* • Renewals reflect low activity levels Growth -2% in 2009 • New sales higher; customer retention stable • Martindale Hubbell directory International decline moderating US law firm (non US) markets & directory US corporate, -6%
Slide 26: LexisNexis: Legal
LexisNexis: Legal Progress • Expanded US sales coverage and marketing programmes • Continued to evolve international online tools • Good progress in developing next generation legal infrastructure • Early steps well received Outlook • Late cycle impact on multi-year subscription revenues continuing
Slide 27: LexisNexis: Risk Solutions H1 2010
LexisNexis: Risk Solutions H1 2010 H1 2010 revenue £464m Insurance • Strong growth (+8%) driven by high Growth +4% transactional activity • Increased sales of analytics products Government • Market strength continuing; partly offset Other business/ by federal spend timing financial Insurance Screeni
Slide 28: LexisNexis: Risk Solutions
LexisNexis: Risk Solutions Progress • ChoicePoint integration progressing well; synergies on track • Leveraging HPCC advanced technology • Recent product introductions growing well (Data Prefill, MVR Predictor, eCrash) Outlook • Continued strong growth in insurance • Strength and pace of recovery in
Slide 29: Reed Exhibitions H1 2010
Reed Exhibitions H1 2010 H1 2010 revenue £383m 2010 2009 % change % change 6 months to 30 June £m £m constant underlying Ancillary services Delegates/ Revenue 383 356 +9% +8% sponsors Exhibitor space Adjusted operating profit 123 119 +4% +4% • Revenue declines in annual shows significantly moderated
Slide 30: Reed Exhibitions
Reed Exhibitions Progress • Emerging economic recovery: – Revenue declines moderating – Attendee levels up at most annual events – Forward bookings trending up for 2011 events • Customer value proposition strong (good exhibitor and visitor satisfaction) • Strong growth in China, Russia, Brazil, Midd
Slide 31: Reed Business Information H1 2010
Reed Business Information H1 2010 H1 2010 revenue £374m Major data 2010 2009 % change % change Other business businesses +5% 6 months to 30 June £m £m constant underlying magazines/ services Major -11% marketing solutions Revenue 374 463 -19% -4% +3% Other leading brands Adjusted operating profit 40
Slide 32: Reed Business Information
Reed Business Information Progress • Continued to grow data services • Restructured print portfolio – Completed exit from US magazine titles – Additional titles sold in Germany, Asia, Netherlands and UK • Reduced cost base further Outlook • Slow recovery in advertising: online growth continuing, pri
Slide 33: Reed Elsevier: In conclusion
Reed Elsevier: In conclusion First Half 2010 • Considerable progress on business unit priorities • Overall return to modest growth; variations by business / markets Outlook • Some improvement in general economic environment • Actions taken; beginning to have impact • Recovery gradual; conditions con
Slide 34: Appendices
Appendices C. Reed Elsevier 34
Slide 35: Appendices index
Appendices index Financial information in Euros Further information 37 Adjusted profit and loss 49 Revenue (reconciliation) 38 Revenue and adjusted operating profit 50 Adjusted operating profit (reconciliation) 39 Adjusted operating cash flow 51 Adjusted profit before tax (reconciliation) 40 Statuto
Slide 36: Financial information in Euros
Financial information in Euros 36
Slide 37: Adjusted profit and loss
Adjusted profit and loss 2010 2009 % % change 6 months to 30 June €m €m change constant Revenue 3,441 3,427 0% -1% Adjusted operating profit 872 876 0% -3% Net interest expense (154) (154) Adjusted profit before tax 718 722 -1% -4% Tax (161) (157) Minority interests (3) (2) Adjusted profit attributa
Slide 38: Revenue and adjusted operating profit
Revenue and adjusted operating profit Revenue Adjusted operating profit €3,441m €872m 1,098 1,472 367 322 430 441 46 142 38
Slide 39: Adjusted operating cash flow
Adjusted operating cash flow 2010 2009 6 months to 30 June €m €m Adjusted operating profit 872 876 Capital expenditure (151) (104) Depreciation 128 117 (23) 13 Working capital and other items 5 (86) Adjusted operating cash flow 854 803 Cash flow conversion rate 98% 92% 39
Slide 40: Statutory profit before tax
Statutory profit before tax 2010 2009 % 6 months to 30 June €m €m change Adjusted profit before tax 718 722 -1% Adjustments Amortisation of acquired intangible assets (198) (218) Impairment of acquired intangible assets and goodwill - (157) Exceptional restructuring costs (15) (115) Acquisition rela
Slide 41: Free cash flow
Free cash flow 2010 2009 % 6 months to 30 June €m €m change Adjusted operating cash flow 854 803 +6% Interest paid (153) (151) Tax paid (4) (142) Free cash flow before dividends 697 510 +37% Ordinary dividends (409) (365) Restructuring expense / acquisition integration* (43) (82) Free cash flow post
Slide 42: Movement in net debt
Movement in net debt €m Net debt at 31 December 2009 (4,402) Free cash flow post dividends and exceptionals* 245 Acquisitions / disposals - Disposals* 91 - Acquisitions* (6) 85 Net proceeds from share options exercised / other 1 Currency translation (623) Net debt at 30 June 2010 (4,694) *Including
Slide 43: Balance sheet
Balance sheet 30 June 2010 31 Dec 2009 €m €m Goodwill & intangible assets 10,074 8,928 Tangible fixed assets 355 327 Investments & net assets held for sale 217 197 Net pensions obligations (553) (263) Working capital (1,088) (960) Capital employed 9,005 8,229 Shareholders’ equity 1,947 1,940 Net deb
Slide 44: Elsevier
Elsevier H1 2010 revenue €1,098m 2010 2009 % change % change 6 months to 30 June €m €m constant underlying Health Science & Sciences Revenue 1,098 1,057 +2% +2% Technology 520 578 Adjusted operating profit 367 342 +4% +4% 44
Slide 45: LexisNexis
LexisNexis H1 2010 revenue €1,472m 2010 2009 % change % change 6 months to 30 June €m €m constant underlying Risk Solutions 533 US Legal 634 Revenue 1,472 1,453 0% 0% International Legal Adjusted operating profit 322 370 -14% -14% 305 45
Slide 46: Reed Exhibitions
Reed Exhibitions H1 2010 revenue €441m 2010 2009 % change % change Ancillary 6 months to 30 June €m €m constant underlying services Delegates/ sponsors Revenue 441 399 +9% +8% Exhibitor space Adjusted operating profit 142 133 +4% +4% 46
Slide 47: Reed Business Information
Reed Business Information H1 2010 revenue €430m Major data 2010 2009 % change % change Other business businesses 6 months to 30 June €m €m constant underlying magazines/ +5% services Major -11% marketing Revenue 430 518 -19% -4% solutions +3% Other leading Adjusted operating profit 46 44 +1% +4% bra
Slide 48: Further information
Further information C. Reed Elsevier 48
Slide 49: Revenue
Revenue Reconciliation 6 months to 30 June £m % change €m % change 2009 Revenue 3,060 3,427 Base businesses 29 +1% 33 +1% Acquisitions 1 - 1 - Disposals (70) -2% (78) -2% Currency effects (28) -1% 58 +1% 2010 Revenue 2,992 -2% 3,441 0% 49
Slide 50: Adjusted operating profit
Adjusted operating profit Reconciliation 6 months to 30 June £m % change €m % change 2009 Adjusted operating profit 782 876 Base business (21) -3% (24) -3% Acquisitions / disposals (1) - (1) - Currency effects (2) - 21 +3% 2010 Adjusted operating profit 758 -3% 872 0% 50
Slide 51: Adjusted profit before tax
Adjusted profit before tax Reconciliation 6 months to 30 June £m % change €m % change 2009 Adjusted profit before tax 644 722 Base business (22) -3% (25) -3% Acquisitions / disposals (1) - (1) - Currency effects 3 - 22 +2% 2010 Adjusted profit before tax 624 -3% 718 -1% 51
Slide 52: Dividend equalisation
Dividend equalisation Interim 2010 2009 % change Reed Elsevier PLC (p) 5.40 5.40 0% UK tax credit rate 10% 10% Reed Elsevier PLC (p) (gross) 6.0 6.0 Equalisation ratio 1.538 1.538 Exchange rate (€:£) 1.18 1.16 Reed Elsevier NV (€) 0.109 0.107 +2% 52
Slide 53: Statutory profit attributable
Statutory profit attributable 2010 2009 2010 2009 6 months to 30 June £m £m €m €m Adjusted profit attributable 482 503 554 563 Adjustments (post tax) Amortisation of acquired intangible assets (193) (220) (222) (246) Impairment of acquired intangible assets / goodwill - (101) - (113) Restructuring p
Slide 54: Elsevier growth and currency analysis
Elsevier growth and currency analysis Year on year Acquisitions/ Constant change in Other Underlying disposals currency hedge rates currency Total 6 months to 30 June 2010 Revenue +2% 0% +2% +1% -2% +1% Adjusted operating profit +4% 0% +4% +2% -1% +5% Adjusted operating margin +0.7% 0.0% +0.7% +0.4%
Slide 55: Currency profile
Currency profile Half year Full year Average rates for year: 2010 2009 2010* 2009 £ 2010 Adjusted profit before tax US dollar 1.53 1.49 1.54 1.57 Euro 1.15 1.12 1.17 1.12 € Sterling US dollar 1.33 1.33 1.32 1.40 18% Sterling 0.87 0.89 0.85 0.89 US dollar 36% 30 June 31 Dec 30 June Period end rates:
Slide 56: Cost of borrowings
Cost of borrowings Debt predominantly denominated in US dollars at 30 June 2010 • 78% of gross debt (31 Dec 2009: 74%) • 89% of net debt (31 Dec 2009: 83%) Majority of debt fixed at 30 June 2010 • 76% of gross debt (31 Dec 2009: 75%) • 91% of net debt (31 Dec 2009: 90%) Blended interest rate on gros
Slide 57: Credit metrics
Credit metrics LTM 30 June 2010 LTM 31 Dec 2009 Net debt / EBITDA 2.7x 2.9x Funds from operations / net debt 37.3% 28.9% Retained cash flow / net debt 19.3% 17.7% Net interest cover 5.0x 5.0x Long term credit rating BBB+ / Baa1 / A- BBB+ / Baa1 / A- Long term target range of 2-3x net debt / ebitda R
Slide 58: Debt maturities
Debt maturities Term debt $m 1,600 1,400 1,200 1,000 800 $1,513 600 $1,161 400 $891 $706 $562 $600 200 $486 $8 $187 $1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 >2019 Term debt translated at 30 June 2010 exchange rates 58
Slide 59: Information for US institutions
Information for US institutions • Reed Elsevier PLC ADR (ticker: RUK) and Reed Elsevier NV ADR (ticker: ENL) traded on NYSE • Each Reed Elsevier PLC ADR represents 4 Reed Elsevier PLC ordinary shares • Each Reed Elsevier NV ADR represents 2 Reed Elsevier NV ordinary shares • PLC and NV ADRs members