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Reed Elsevier plc (NYSE:RUK)

Q2 2011 Earnings Call

July 28, 2011 4:00 am ET

Executives

Mark Armour - Chief Financial Officer, Member of Executive Council, Member of Executive Board and Executive Director

Anthony Habgood - Chairman, Member of Remuneration Committee and Chairman of Reed Elsevier NV

Unknown Executive -

Erik Engstrom - Chief Executive Officer, Member of Executive Board and Executive Director

Analysts

Claudio Aspesi - Sanford C. Bernstein & Co., Inc.

Patrick Wellington - Morgan Stanley

Polo Tang - UBS Investment Bank

Vighnesh Padiachy - Goldman Sachs Group Inc.

Paul Gooden - RBS Research

Colin Tennant - Nomura Securities Co. Ltd.

William Packer - Exane BNP Paribas

Richard Menzies-Gow - BofA Merrill Lynch

Thomas Singlehurst - Citigroup Inc

Mark Braley - Deutsche Bank AG

Paul Sullivan - Barclays Capital

Giasone Salati - Execution Noble LLC

Anthony Habgood

Well, good morning, ladies and gentlemen, and welcome to Reed Elsevier's Interim Results Presentation. For all of you who've come, thank you so much for coming, and for those of you who are joining on our webcast, thank you for listening in.

I'm pleased to be able to report that in the first half of 2011, we had underlying revenue growth in each of our businesses if, of course, we exclude the net cycling out effect of the biennial exhibitions. Combined with good growth in operating margin, reflecting both a change in business mix and margin improvement in 3 of our businesses, this has resulted in a return to growth in adjusted earnings per share of 5% for both PLC and NV.

Reported earnings per share are again strongly ahead, being up 20% in both PLC and NV. And it's also interesting to note that we are now in a position where no restructuring costs were taken as exceptional during the period. Given the resumption of growth in EPS, the board is pleased to be able to recommend an increase in dividends, 5% for PLC and 1% for NV. But that difference, as you know, reflects only movements in the sterling euro exchange rates between the dividend announcement dates.

I believe that improved market conditions and the sharp focus, which Erik and his team have brought on value creation and the operational execution should sustain a continued improvement in performance. Mark will now take you through the results, and Erik will then go through the businesses and outlook in more detail.

Mark Armour

Thank you, Chairman. Good morning. Well, the first half results reflect the financial progress of Reed Elsevier. We saw underlying revenue growth in each of our businesses, as the Chairman mentioned, excluding the net cycling out of biennial exhibitions, reflecting the improved market environment, new product introduction, expanded sales and marketing and the other actions taken to improve the business.

Underlying revenue growth was 1% or 3%, excluding the biennials, and the underlying operating profit growth was 2%. Taking to account net disposals and currency translation effects over weaker U.S. dollar, revenues were 3% lower, both in sterling and in euros. The adjusted operating margin was up 130 basis points at 26.6% and adjusted earnings per share were up 5%, both for Reed Elsevier PLC and Reed Elsevier NV, and also up 5% at constant currencies.

As the Chairman mentioned, our reported earnings per share, which include amortization of acquired intangibles, acquisition-related costs, gains and disposal losses and all deferred tax effects were up 20% for each of Reed Elsevier PLC and Reed Elsevier NV. Cash flow was good with 93% conversion of operating profit into cash in the last 12 months to 30 June, and our financial position is strong with net debt-to-EBITDA of 2.4x at 30 June on a pension and lease-adjusted basis.

I'm presenting the figures today in sterling. The same charts with the euro figures can be found in the appendices to the presentation. With the average euro sterling exchange rate unchanged between the first half and the comparative period, the growth rates for profit and loss items are, in fact, the same in both sterling and in euros. The first chart sets out the adjusted profit and loss figures with a 3% decline in revenues at the reported sterling exchange rates, a 2% increase in adjusted operating profit, adjusted pretax profit up 6%, adjusted net profit up 5%. I'll talk more about these items as we go through the presentation, and I'll mostly be focusing on growth at constant currencies.

Looking at the components in turn, starting in the right-hand column, underlying revenue growth was 1% with profit growth of 2% and an underlying margin improvement of 20 basis points in the first half. Including disposals and acquisitions at constant currencies, revenues were down 1% with profits up 3%. The margin up 19 basis points, mostly reflecting the disposal of low margin or unprofitable assets, particularly the RBI U.S.-controlled circulation titles sold last year. At reported exchange rates, revenues declined 3%, which included a 2 percentage point currency translation effect of a weaker U.S. dollar. The currency translation effect is only 1% on adjusted operating profit and that includes hedging benefits from our multiyear subscription currency hedging program and other currency translation effects, which added 40 basis points to the reported margin. It's perhaps worth reiterating that in our definition of underlying, we exclude all acquisitions and disposals made both in the year and in the prior year to give us a clearer like-for-like comparison. A number of other companies include small acquisitions in the definition of underlying, which can distort growth comparisons.

The next 2 charts summarize the constant currency growth rates across our businesses for revenue and adjusted operating profit, both in total and underlying. Erik will go into more detail later on the performance of each business and outlook. Elsevier saw underlying line growth of 2%; LexisNexis Risk Solutions was up 4%; Legal & Professional up 1%; Reed Exhibitions down 4%; and RBI up 2%, giving the overall 1% underlying revenue growth for Reed Elsevier. Excluding the biennial show cycling affects, Reed Exhibitions saw underlying growth of 10%. And as noted earlier, without these effects, Reed Elsevier first half underlying revenue growth would have been 3%.

The difference between the total and underlying growth figures is most marked at RBI and reflects the portfolio restructuring in that business. For adjusted operating profit, underlying profit growth was 4% at Elsevier; 6% at Risk Solutions; down 2% in Legal & Professional; down 8% in Exhibitions driven by cycling; and up 12% at RBI to give the overall Reed Elsevier underlying profit growth of 2%. Again the main difference between the total and underlying figures is in RBI reflecting the portfolio changes.

My next chart sets out how the underlying operating profit performance is derived from changes in revenue and in the cost base. In Elsevier, underlying cost grew 1% against revenues up 2% to deliver the 4% profit growth. Cost increases from business growth and spending on new product and market initiatives were largely offset by tight cost control. At Risk Solutions, underlying cost growth was 2%, also reflecting the business growth and continued investment in new product initiatives offset by further cost savings, particularly in technology integration. This converted the 4% underlying revenue growth to 6% profit growth. In Legal & Professional, underlying profits were 2% lower on 1% revenue growth with underlying cost growth of 1% with increased spending on new product initiatives and in sales and marketing mitigated by continuing cost actions. In Reed Exhibitions, lower revenues and profits were driven by the next cycling out of biennial exhibitions. The cost reduction of 2% would have been greater, but for the accelerated launch program and higher show spend as markets recover.

At RBI, underlying costs were flat reflecting the cost actions taken to streamline the business while the business returned to revenue growth at 2%. This gave underlying profit growth of 12%. Overall, underlying cost growth for Reed Elsevier in the first half was 1%. Taking into account the disposal of marginal and unprofitable businesses, total cost for Reed Elsevier declined 2% first half-on-first half at constant currencies to deliver the 3% overall profit increase on slightly lower revenues.

Adjusted operating cash flow in the first half represented 89% of operating profits. And for the last 12 months to 30 June, 93%. These are lower percentages than in the prior year, reflecting higher capital spending, and with respect to the first half, earlier timing of subscription renewals, which benefited the prior year cash flows. The low depreciation cost reflects some accelerated depreciation and disposals in 2010 and currency translation effects. CapEx will be higher in the second half on new product development and infrastructure build. The second half will also see the seasonal reduction in working capital.

Below the operating profit level, net interest expense was lower due to term debt redemptions last year. We actually had certain swaps and the impact of a weaker dollar on the predominantly dollar-denominated debt. The effective tax rate is 0.6 percentage points higher than last year's average rate, reflecting the geographic mix of the increase in pretax profits.

My next chart shows how the Reed Elsevier net profit was divided between Reed Elsevier PLC and Reed Elsevier NV with the average number of shares initially largely unchanged, the 5% increase in adjusted net profit in both sterling and euros flow through to the 5% growth in adjusted earnings per share for both companies.

This next chart sets out the adjustments we made to the reported IFRS pretax figures in arriving at the adjusted figures, which are used as key performance measures. The principal item of note is that there are no exceptional restructuring costs in 2011. The 2000 costs -- the 2010 costs being related to the RBI restructuring. The acquisition-integration costs principally relate to the technology integration within Risk Solutions in the third year over the 3-year ChoicePoint integration program.

Free cash flow before dividends was down 23%. This principally relates to changes in tax payments with a resumption of more normal tax payments this year. In 2010, we benefited from significant tax repayments from prior years relating to crystallized tax losses on RBI-retained assets. Cash paid in respect to restructuring, acquisition, integration is, in fact, coming down as the programs are completed, and that 2010 comparative figure benefited from more tax repayments from prior year items. The first half free cash flow post dividends is seasonally low for 2 reasons. Firstly, operating cash flows are weighted to the second half, reflecting the timing of some subscription receipts and advanced deposits; and secondly, the May dividend is the much larger of the 2 dividends paid in the year.

Turning to the movement in net debt. I have included here both sterling and dollars as most of our debt is denominated in U.S. dollars. The sterling net debt has hardly changed in the first half with a seasonally low free cash flow and currency translation effects largely matched by acquisition spend. As noted earlier, net debt-to-EBITDA was 2.4x on a pensions and lease-adjusted basis.

No major changes in the balance sheet in sterling. The currency translation impact on balance sheet values are the decline of the U.S. dollar over the period was largely offset by the strengthening of the euro over the 6 months.

Lastly, dividends. The equalized interim dividends are up 5% and 5.65p for Reed Elsevier PLC and up 1% at EUR 0.11 for Reed Elsevier NV. The difference in the growth rate reflects the 4% strengthening of the euro against sterling since July 2010 when last year's interim dividends were declared. These are the converse of the respective dividend growth rates in 2010. We saw a flat Reed Elsevier PLC dividend for the year and an increase of 3% for Reed Elsevier NV, reflecting year-on-year euro weakness. The equalization calculations for the dividends are set out in the appendix.

Thank you. Now let me pass it over to Erik.

Erik Engstrom

Good morning. And again, thank you for coming and for taking the time to be here today. As you already heard from Mark, the first half saw underlying revenue growth in all businesses, excluding biennial show cycling. But perhaps more importantly, we saw improving performance from our large subscription and data businesses across Reed Elsevier, we will look at that in a second. In addition, our more cyclical businesses recovered more firmly than before. And you also saw that our adjusted operating margin was up and that we returned to growth in earnings per share.

Elsevier, as expected, has a relatively modest revenue growth of 2% and profit growth of 4% as cost efficiency and process innovation continue to offset new product spend. Science & Technology grew 4%. Research journals saw good growth as global research activity continue to grow in line with long-term historical trends. Global research spend used to run maybe 6% to 8% growth in the early 2000s, mid-2000s, slowed a bit in 2009 and now there are real indications that projections now are really that 10% and 11%. It has now continued to grow and probably back to growing sort of the 4% or something in that range.

We've seen new article submissions coming in the high single digits on a 12-month run rate. The last few months, it's even been higher than. Number of articles accepted, articles published growing at the long-term run rate to sort of 4% a year. Number of citations, which is a big indicator also of research activity continues to grow at about 6% a year. So activity levels are very much in line with what you'd expect.

The budget environments are very varied by customer, by customer type, by geography, but also by individual customer and their individual situations. However, it may be interesting to note that the number of customers taking our broad collections continue to grow strongly in line with the historical trends. Reference education, meaning our historical book and education business, saw strong growth in electronic revenues offset by print declines. Databases and tools saw good growth and an active new product pipeline.

Health Sciences was flat overall. Medical research saw good growth, they're very much in line with S&T growth. And they had the same trends as we saw in S&T research. Clinical reference and decision support saw good growth in online revenues and online solutions somewhat moderated by format migration and therefore, some declines in our print reference businesses. Nursing and health professional education, primarily U.S. business, also saw print declines with lower U.S. enrollments, and those happen in career schools, primarily due to the anticipated gainful employment legislation changes and also in state-funded schools through the bid mixed budget environment in community colleges and other local educational institutions that educate nursing and health professionals. As a result of these reduced enrollment numbers, you also saw some of the flow back of inventory that had been shipped out under the old runner that came in, in the first half of the year. We expect this to gradually return to normal, but we do not expect it to bounce back. Interestingly enough, in nursing and health professionals, we also saw continued good growth in online solutions. Pharma promotion was stable in the U.S. in the first half, but the European weakness continued.

I think overall for Health Sciences, although the whole business was flat for the first half, I think it's very interesting to note that electronic revenues grew in the high single digits across all these businesses, and that, that growth was offset by the declines in European pharma and in print books.

Risk Solutions grew 4% with good growth in data and analytics across all our different business segments as you'll see in a second. And this positions the overall business well for future growth, exactly as we explained to you at our seminar in May. Profits grew 6% as spend on new product pipeline was offset by further cost savings. And I should probably also mention that we did open source elements of our HPCC technology to get external-use cases and external engagement in further accelerating the platform development, the nonproprietary algorithms for the platform.

Within Risk Solutions, insurance data analytics grew 7%, driven by strong new product pipeline across the insurance company's workflow. The insurance software business, however, declined 25%. But just to put this into perspective, it's roughly GBP 7 million in the first half of the year. You may recall that we highlighted this in the April IMS. We said that this business had a slow start to the year in the first quarter, and that continued at similar rates in the second quarter. And at this point, we don't see that changing materially for the rest of this year.

Government grew 2% as federal budgets in the U.S. were constrained a bit by some of the current discussions about federal budget ceilings and other issues. But we also saw significant interest from states in our solutions that helped them prevent -- discover and prevent fraud, waste and abuse of their welfare programs.

Business services grew 5% with significant recovery across almost all our markets compared to last year. Financial services at 7%, corporate markets at 4%. It's only, I think, the sort of the real estate related data polls in the U.S., they're still not recovering to the level that you might hope. Screening grew 6% as good growth was continuing, but in a slightly more subdued U.S. hiring environment compared to the sharp rebound in hiring that we saw last year and the sharp rebound in screening revenues that we saw last year. So overall, as you can see, with the exception of the software business, that this year we have a more balanced growth rate, a set of growth rates across the Risk business compared to last year.

Legal & Professional returned to underlying revenue growth of 1% with margins broadly flat in the first half to the first half 2010 as expected. And as we've said before, for the full year, we expect the margin to be broadly flat compared to the prior year's full year margin. And we think that we can accomplish this as we continue to focus on operational efficiency to offset the increased spend on product development.

U.S. law firms grew 1%. And while legal markets had essentially stabilized, we think that the current pace of recovery in these markets appears to be relatively muted. But in that environment, for us, we see new sales continuing to be higher, continuing to grow strongly. And we've seen a return to solid usage growth for our products and solutions. U.S. corporate government and academic markets were flat with growth held back by continuing, but moderating declines in corporate news and business, our separate service there, still declining 7%. But we see in these markets that the budget environments are stabilizing and we're seeing a gradual improvement compared to what we saw last year. International grew 2% as strong growth in online was largely offset by continuing format migration from print.

Exhibitions saw a return to good underlying revenue growth of 10%, excluding cycling, thanks to strong growth in annual shows and accelerated new launches. Underlying costs were down 2% with ongoing investment in those new launches and technology, partly offsetting the cycling out cost benefits that you would see. For the full year, we expect continued good growth in annual shows and continued good growth from new launches, and the net cycling out of biennial shows will have a smaller effect in the second half or for the full year than it did in the first half.

As you can see here, all major regions saw return to good growth. Europe grew 7%. North America grew 14% with strong growth across all sectors. The rest of the world, on average, grew 10% with more than 20% underlying growth in China, Brazil, Russia and some other emerging markets. But perhaps, most notably in this category is the fact that Japan continued to show good growth despite the effects of the earthquake. In fact, what I would describe as the near heroic effort by our local management team, no shows were canceled.

Reed business information, the turnaround here is progressing very well. Underlying revenue growth returned to 2% growth and trends, those trends that you see in the business are largely expected to continue. We saw a significant increase in the margin both from some of the portfolio changes that we made, as well as from the fact that we're continuing to increase efficiency in our remaining businesses.

Our major data services on average grew 10%, and that includes strong growth in ICIS, Bankers Almanac, XpertHR, offset by real weakness in RCD, our Construction Data business is essentially flattish for the year. Margin of marketing solutions grew 7%. Leading brands returned to growth of 2%, and other business magazines still declined even though print advertising declines are moderating. They're more than offsetting beyond the growth we see in online. And in this portfolio bucket, we continue to reshape the asset base, and we did a few divestitures during the first half.

So in summary, in the first half, our growth trajectory improved across the company as the large subscription and data revenue strengthened and the more cyclical businesses recovered more firmly than before. Going forward, we see the positive momentum continuing to build across our business and with our management teams focused on creating value in each one of our businesses, we continue to expect a gradual improvement in the overall performance of Reed Elsevier.

Thank you. And now let's move on to some questions. Let's start.

Question-and-Answer Session

Paul Sullivan - Barclays Capital

It's Paul Sullivan from Barclays Capital. Three questions. Firstly, just on the -- in terms of your hedging, could you talk about the sustainability of that going through into the second half? And I think you should see a positive benefit also in 2012 looking at the rolling hedge there. Secondly, just on contract renewal within Elsevier, you keep hearing of the odd story of contract renegotiation. But maybe could you quantify the proportion of customers that you've seen actively trying to seek to renegotiate either their packages or their contracts over the last 6 months, if any at all? And then thirdly, second half is usually seasonally stronger. You did 5% earnings growth in the first half. Shouldn't we expect gradual improvement on that in the second half?

Erik Engstrom

Well, I'm going to let Mark cover your first and third question here in a second, but maybe I'll first talk about the contract renewals. The contract renewals happen, as you know, mostly in the second half of the year before the year ended and rolling into the beginning of the year in some countries and some regions. And I think it's very important to note that every customer is different. Every customer situation is very different from the other one because they spend different amounts on research. They see different shape of the research priorities, their funding, and so therefore, they want to allocate their research spending well. That's 99% of their spend and the 1% that goes into things like what we provide, then aligns with the rest. So therefore, every year, we talk to every customer for a long period of time for those that are up for renewal. And we go through and discuss what their priorities are and what their needs are and what their issues are. And every customer is different, and we're not going to comment on any one specific customer in a situation like this. But net-net, what you see in terms of the outcome of those negotiations, the outcome of those contracts is that all the growth rates that you see here, the blended average and that is across industry segments, across funding sources, across geographies, includes corporate customers, include corporate funding of academic libraries, academic research environments and so on, and it all adds up to the blended rate you see here of roughly 4% growth this year. And so, therefore, to answer your specific question, have we seen any specific number, any different this year from a typical year? The answer is no. We went out early when the downturn happened, and we started to engage with our customers much more actively, one at a time, when we saw the economic downturn. We did that in anticipation of the downturn and we've reworked with some of them, how their funding, research environment changed and aligned what they wanted from us with those needs. And we've worked that way through that over the last couple of years. And if you say this year, we're essentially at this year going through the process that is the standard renewal process, which is where we have some annual contracts, some annual agreements with customers, some were annual situations. And then we have the rest of the subscription base is, on average, running on a 3-year term. And therefore, in a typical year if you just do those numbers roughly, you therefore see 25% of your long-term contracts coming up for discussion every year, and that's what's happened this year. And there are always individual exceptions and individual situations that are unique. And every year, there are several of those. But that's been the case since we started to have sort of real contract discussions with our customers. I mean, this year, for example, Libya is not an easy one. So I think I'll let Mark.

Mark Armour

Yes, on the currency hedging, what you're seeing is the weakness of sterling in terms of sort of should increase the profitability of the U.K. originating journal subscriptions, and the weakness of the sterling that happened gets into our hedge rates slowly over time. And so that benefit to our results comes in over time. The same way that you saw in the sort of the mid '00s where the collapse of the dollar worked its way through into our results over a period of time, which had a drag effect on the growth, particularly of Elsevier. So what you saw in the first half was this hedging lag effect had a 4% profit growth improvement effect for the Elsevier business. And, in fact, that was included in the appendix to the presentation on Page -- or Slide 52 showing the margin effect of that. So the hedging effect had a 4% impact in getting from constant to reported growth for the Elsevier division and a 0.9 percentage point pickup in terms of margin. Now the Elsevier business has lower profits in the first half than in the second half because of the seasonality of the business. So the effect for the year as a whole won't be quite as strong as that, but it will persist into the second half. Going into 2012, you will see some additional effect, although it won't be as significant as it has been in 2011. And that's again, if you like the sort of the air going into the balloon as the sort of lowest turn and gets into the hedge rates in the same way the air came out of the balloon as the dollar declined in the sort of early '00s and through the mid '00s. Do you want to continue?

Paul Sullivan - Barclays Capital

But just in the earnings commentary.

Erik Engstrom

The end is coming through?

Paul Sullivan - Barclays Capital

You should have successes in the second half, stronger. [indiscernible] in the first half, should we expect around...

Mark Armour

Well, I think as we said in the statement, we expect to continue to see gradual improvement in performance. And I think that's about as much numeric guidance as we have given in the statement today.

Polo Tang - UBS Investment Bank

Polo Tang from UBS. Just have 3 questions. The first one is just on new product launches. Can you give us some indication as to how [indiscernible] specifically SciVerse, but also things like Lexis Advance for Solos and also Lexis Advance for Associates. The second question is really just in terms of Legal & Professional margins. How confident are you that over time those can be improved given our trough levels at the moment? And the third question is really just in terms of Risk Solutions. It's typically been one of your fastest-growing businesses and there was obviously being some issues in terms of enterprise software. But longer term, can we expect the growth to reaccelerate? Can you give us your thoughts on that?

Erik Engstrom

Okay. Let me take each one of those here. New product launches. I mean, as you mentioned a few examples. I'll address those. I mean, SciVerse is changing the environment. It's sort of a platform redesign to change the environment from product, sort of whether you look at it as ScienceDirect as a product for research, for deep research that contains sort of all the full text articles. At the Scopus environment, I was searching across the world of all the scientific materials, the broadest database and everything published in the world. And SciVerse in a way to integrate these into one environment where you can search and build around it and you can build applications and so on. We have had. And that's sort of -- so I see SciVerse as essentially the beginning of a new generation of interacting in terms of how you do scientific research, how you then build applications to build into research, how you search and so on. So SciVerse has gone well as the foundation move that, that is, if you see what I'm saying. Another example is on the science side as we introduced in the last 6 months, SciVal Strata, which is a product on top of the SciVal platform, which is a part of our integrated Scopus data, of course, but built on top of the product called SciVal Strata. That's there for institutions to be able to evaluate performance and history of specific researchers or group of researchers in specific categories to target recruiting and funding decisions and so on around that. So that's a product feature that's put on top of these environments. So I think that's the way you have to see them and they are being rolled out continuously. And I think on a slightly higher pace than we had a few years ago. But I think that you've got to look at them at a sequence and we're really pleased with how they're going. You looked at Lexis Advance for Solos, I think you said was one. That was, of course, launched late last year and was while not intended to be significant in financials. And I think we told you then as well, it was a very important one for us in terms of technology and technology integration because that was the first rollout of our integrated new solutions that from the absolute front-end customer user interface on the screen all the way through inside our operations, back office systems to building customer service all the way through in our integration. And that's operating well. It's going well and customers like it. But it's targeted to a very small, small sort of need sect in the first rollout. Lexis Advance for Associates has been announced to the market and previewed with customers, but is not out in a commercial sense at this point. So people like it, but it's not for commercial availability. You asked about the second one, you said margins. That was specifically the Legal margins, right, that's what you asked? I mean, as I think, again we said before, the Legal margins for this year, for the first half flat to last year, roughly for this full year, we expect them broadly flat to last year's full year. Over time, as we see, it continues to return to revenue growth. We do expect that these margins will gradually recover and it will then gradually continue to see with revenue growth, cost growth below revenues and therefore, sort of gradual margin expansion over a period of time.

Polo Tang - UBS Investment Bank

Do you think it can get back to the historic normal levels of above 20%?

Erik Engstrom

I think at this point, and I think I said this before as well, that we don't like in any of our businesses to set long-term margin targets or margin expectations. By definition, I think if you do that, that becomes your ceiling. And I think in all our businesses, we have some high-margin business, some lower-margin businesses. I think we need to operate with a mindset that our businesses are here to drive value for the customer, that's the #1 priority. Continue to understand how it is we do that and how they make money, how it is they spend money, how we can help them do that. And we need to operate that machinery in a way that would constantly challenge ourselves, our internal cost structure processes and geography to try to see if every year we can try to keep sort of on an annualized regular growth rate basis the cost growth below the revenue growth. And if you have that mindset, I think over time you'll ultimately continue to have better margin production across Reed Elsevier, even though at any given point in time we can actually say trust, remember we [ph] don't set our target. But we think that philosophy is a better operating philosophy because we haven't margin set 13 in some places and over 30 in others. Last question, you said Risk growth. I just want to make sure I understand exactly what you're saying. I think you're saying a long-term growth potential for Risk is what you're really looking at. I'd say it is exactly as we said, as we thought, as we explained in our seminar. If you look across the pie of revenue streams in Risk, we have data and analytics in all the different business segments. Risk, so insurance is, of course, the largest. But then we have other large data and analytics business segments. They're all growing very well right now and they're all returning to a balanced growth across those businesses. Risk's growth this year is not so much dependent on the rebound of screening, which is sort of a temporary rebound. So we think that the fundamental growth potential for Risk data and analytics is exactly what we said before. The fact that we operate a enterprise software business for policy administration to commercial insurance carriers that's installed on a software, so along perpetual license and maintenance basis under a separate brand name there that this year had a few months delay in sort of getting through sort of new software installed and solved does not, in any way, change our growth outlook for the data and analytics business of Risk.

Polo Tang - UBS Investment Bank

Just a follow-up in terms of the new product launches. Can you maybe just talk about what kind of impact we should expect that to have in terms of revenues for Reed Elsevier. Say, for example, in Legal, what do you see in Legal products, SciVerse in terms of Elsevier?

Erik Engstrom

Yes, I see our pipeline of new product launches as the business that we are in. I don't think here that you see this as something that is different from the business trajectory that we are operating. We have launched new products over the past. I mean, if you go back, you're talking about SciVerse. If you go back 15 years, science journals were essentially printed and shipped through agents. And we've continued to upgrade and redefine the electronic environment all the time and launched products on top and so on. And I think that, that is what sustains a certain growth rate in this business, that you continue to see as your business not to sell a product, but as selling and improved outcome that has economic value to professional customer. And if you continue to identify the professional outcomes that you can sell to and you adjust your solution set to that, then you're going to continue to grow revenues. In Risk, for example, to pick that -- to think about illustrations, we just had a seminar, you saw the layout of, for example, in the insurance workflow. The whole issue of how does an insurance company operate. And from a history, having data in one step in that workflow, you can then take that data and you can build in solution sets that can be used in other steps of the process that you can figure out what it is you build, what you used the data for and how much of an quantifiable impact that has on the customers if they will acquire those products, use those products and use your data more. And that's how you can continue to drive growth rate like that over time, year in and year out because you continue to launch products and do that. So we do not see this pipeline of new product any one you mentioned or any of the others as being sort of the one step change that all of a sudden it's priced differently or drives the new revenue stream at this point. I mean, it may be in some of our businesses at some point we saw that. But we also see, to pick another very simple example, in Exhibitions. We think Exhibitions as an organic growth play. It's an organic growth play where you leverage your skill sets, your capabilities, your brands, your global network, your professional and your technology and your data across the business. And you continue to improve your exhibitions and you continue to launch exhibitions on an ongoing basis. That's how we accelerated the rate, and that drives organic growth. So it's a part of the organic growth equation, but it is not something I would say that new product is going to give this much, and here's how it's going to change Reed Elsevier.

Let's go back here in the front and then we go back.

William Packer - Exane BNP Paribas

William Packer from Exane BNP Paribas. Three questions, please. Firstly, with Thomson Reuters announcing disposal of its healthcare business and Wolters Kluwer announcing disposal of its pharma business, what are your thoughts regarding your asset mix in Health Sciences? Secondly, can you please provide an update as to how efforts to tap into new budgets in universities through productivity tools have progressed? Specifically, have you seen an increase in uptake in SciVal contracts in H1 '11? And finally, could you please provide an update on the progress of your plans to extend your Risk Solutions business into new geographies? And can you please provide more details on the issues of the software license business within Risk Solutions?

Erik Engstrom

Okay. Let's do each one of these. Thomson Health and Wolters Kluwer Health. Yes, I mean, they all have their reason. Thomson Health, I think, had one description of why it is they are selling their health business. And I think Wolters Kluwer has positioned a partial sale of theirs slightly differently. For our perspective, our health business is an umbrella business for health-oriented, of course, information and solutions. Within that umbrella, we have some very strong content assets and we have some very strong tools of segments and some electronic solutions. We think in the long run that there is an attraction to having a high-quality content, and we think the health markets, in general, will continue to see growth. However, from our perspective, we do see a format transition. This is still a business that is just over 60% print, which means that we are seeing a format transition. And a format transition in any business can have a little bit of a bumpy road. And it is not always that every half year or every year that the revenue growth is exactly sort of aligned with a steady format transition. So we have that still left in some of the health book businesses. And then you have the pharma promotional business that we're in also, which has gone through a very difficult time because of the pharma industry changes, of course. Now if you look at those, some of those you could argue are transformations over a period of time. Some are partly cyclical as well, but some of them are structural. And the way we see it at this point, is that we will continue to work on our health business and continue to reshape the portfolio inside there, and we didn't sell in the past 12 months except [indiscernible] business, which was sort of a pharma project-based business that we owned and we sold. And we could see us continuing to shape that portfolio by looking at sort of small acquisitions and reshaping it into small, small divestitures. But we don't look at, we're not considering at this point anything that looks like what Thomson is doing, to say put the whole thing out. That's not something we're currently considering. You asked a question on SciVal. SciVal is again an umbrella name of sort of an institutional performance and planning tool platform. And on top of that, we then put new product launches such as the SciVal Strata. And we continue to roll those out. SciVal Spotlight has been out, which really is a tool for countries and institutions to benchmark their performance. SciVal Strata, as I said, is for researchers and groups of researchers to allocate funding and to target recruiting and collaborations and so on. And we also have things like SciVal Funding, which was about the funding sources and so on. So we see this, again, a little bit what my answer to Polo here is that this is a foundation starting with Scopus to build and then all the things on top, you then continue to roll out new applications and tool on top of that overall build to create the growth rate that you're seeing, in this case inside of Elsevier as a deal over time. But these tools, I think, are more important in the value they bring and the importance they have to the institutions and how they link our primary content to our sort of database content to decision making and funding allocation. That's why they're so important. As you know, typically the funding, the research funding and the spending in a research institution in order of magnitude, 1% of it goes on to sort of information-related tool. And the whole issue about the economics, about how they spend and allocate the 99%, who they collaborate with can have significant impact on how the efficiency of that spend and the effectiveness of that spend. So that's what those tools are. So they are continuing to grow. They have been launched. We continue to launch new. But again, back to Polo's question, I wouldn't expect that this is sort of something where you'd say, hey, where's the incremental exact revenue on Elsevier, the $3 billion in the near term. You said Risk in new geographies. We are looking at several different locations. We are experimenting and talking to people in different locations. The only one that we have announced is that we will have a solution out in the U.K. in 2012 and that was being ramped up and we believe is on track. The last question, software in Risk. That's what you said, right? The Software Solutions business. Again, this is to be very precise, this is one business in Risk where we build software in order to sell software. In all our other businesses, we've built software in order to use software to sell data and analytics. See the difference? So this is the segment we actually sell software. We sell it as packaged software, enterprise software. That's then installed in enterprise installation system, sold as a perpetual license sale plus maintenance based on traditional software model and therefore, is very dependent on the pipeline of new sales being closed and installed. So it's a different model from our data and analytics subscription and sort of usage model. And we did see delays in the first half of this year for several reasons. One is that insurance carriers are deferring sort of capital spend on issues like this because they have sort of pending and larger catastrophic losses during this time period than you'd expect and so they were a little hesitant. Then in addition, we are seeing some trends here from sort of integrated end-to-end policy administration software to slightly more broken up pieces. And in that transition, we should probably shouldn't be surprised to see that it takes a little longer then to sort of adjust and put this in. So does that answer your question?

Claudio Aspesi - Sanford C. Bernstein & Co., Inc.

Claudio Aspesi, Sanford Bernstein. A couple of questions. Bloomberg and Bloomberg launch have made noises about trying to accelerate their entry into the legal research market. And in particular, they are informally talking with our customers about trying to push a flat pricing solution. How do you envision LexisNexis protecting its market share in an environment where someone is trying completely different pricing scheme? And second question, since you did mention one contract, Libya, I will ask about another troubled contract, which is the Research Libraries UK. Just last week, the executive director of Research Libraries UK, in an interview, said fundamentally something along the lines of the fact that Elsevier made a proposal, it was nowhere near what they need to offer in order to reach a contract and rate the rate of the fundamental contracts that were signed in the past are not sustainable in the current environment. What's your sales force missing if your customers are so desperate?

Erik Engstrom

Okay. Let me answer both of those. Bloomberg, you said on the legal side, Bloomberg is a very, very big company. They're very good at what they do. We have a lot of respect for them as a company. But I think they've been going at this legal market in different ways for a long period of time. And I think for them to build out a broad-based legal comprehensive information tool to all markets that would rival sort of the large providers, I think it's a large task. They have redesigned their front-end interface and done different things. But when it specifically comes to the pricing issue, there have been a fair amount of comments out there that have said that they were going out with a lower pricing or other things like that. I think what we see from sort of serious industry studies or people who've actually reported or people who have been commenting publicly on the specific situations, they would actually say that they have actually not gone in with something that's a low price solution. If anything, if you do a like-for-like comparison, they're going in at something that is not lower than what you'd see from the other larger providers.

Claudio Aspesi - Sanford C. Bernstein & Co., Inc.

Very flat.

Erik Engstrom

Well, there are lots of different ways to define the specific pricing and how it is you -- what you include and how -- who you compare it to and so on. So I don't want to get into any one specific pricing model of the competitors that is not out in the public. But I think the way people are commenting on, it's not quite clear, I think, in public that this is something that's either lower or higher, ultimately end up being flat. The question is how you set your flat pricing, what does it depend on. So I'm not sure that, that is exactly what they are doing or will be doing. On your question about a specific customer, as I said before I don't want to comment on any one specific customer or any one specific situation. All the customers that we work with have very important situations that are unique to them. There are absolutely unique situations in every single customer and they have unique history. They have unique research priorities, unique funding sources, unique timing of contracts and currency and all these other issues that come into it. So I'm not going to go in and comment on any one of them in particular at a time when something is actually going through the process of regular interaction.

Colin Tennant - Nomura Securities Co. Ltd.

Colin Tennant, Nomura. Two things. First, in the legal market and particularly, the U.S. legal market, could you just update us on how you're doing competitively in the sort of legal research market versus the business of law components of that market that you serve? And what the trends are in each of those segments? And the second thing is on more broadly on acquisitions. You've done a little bit of acquisition spend in the first half. The balance sheet looks now like there's headroom appearing there. Could you maybe tell us about your priorities there and remind us of what your acquisition hurdle rates might be?

Erik Engstrom

Yes, U.S. legal, I mean, I think you asked specifically about what you refer to us sort of research side versus business of law? Yes. I mean, there are many different ways to cut sort of what you do in legal and whether it is research or litigation or it's a sort of public records business or whether it is marketing solutions or business and so on. And different companies use slightly different labels. We don't organize exactly the way you label it and other people organize slightly differently. So, I mean, if you look at, in our growth rates, I mean, we don't see fundamentally different trends in our different portions of the legal markets like this. Of course, there's some differences in every half year, but I think that the one situation, just to give you an example, that we used to talk about the whole sort of Web listing, Martindale-Hubbell Web services and someone which was an old print directory, [indiscernible]. We have now sort of gotten back to a situation where that has sort of been rebased and it's sort of stabilized and so on. So therefore, I think at this point, it's not like there any material differences in the overall trends that we see in those markets. The way we look at our participation in them. Of course, if we then take a very, very small sliver and say oh, but what happening in the billing segment, just small law firms, you're going to see lots of variation in the small portion. But if you talk about the big large buckets to us, we don't see materially different trends in the range. We have our strengths and other companies have their strengths. Of course, if you ask another company, they will emphasize their strengths and of course, if you talk to us, we'll emphasize our strengths. And I think historically, there have been different strengths at different times for different players. And I think those differences continue, no matter how hard we try to market our strengths or others try to market theirs. The second question was acquisitions. Yes, I mean, we've said over time, and we said it recently again that the main priority at Reed Elsevier is to drive value creation through organic growth strategies in each business to make sure that we create value for our customers and that we create value in each business by growing them organically. We leverage our current assets and we invest in those and continue to grow them, and have an active new product pipeline. That's the priority for the business. When we have decided which we have in each business what the target segments are and which organic growth strategies we want to pursue, if we then see acquisitions that can help us on that path on that strategy that can add to that growth, then we will look at them very, very seriously. And we continue to look at acquisitions all the time seriously in our different subsegments. We've done that over the last 2 years. We continue to do so. What has the outcome has been, as you've pointed out, that every year we buy a few companies. And the last couple of years, they've been -- the companies have cost a few million or a few tens of millions. Now I can definitely see that in our environment that as we pursue those strategies that way that once in a while that you might come up with a company that cost a few hundred million. All right. That's this growth strategy that we're looking at. So can those come up because they've come up last year, could it come up this year, could it come up next year? They could, but it doesn't change our strategy. And we do not look at acquisition strategy differently based on our balance sheet ratios. If we look at the balance sheet ratio by itself, you'd say at today's half year, 2.4x net debt-to-EBITDA on a pension and lease-adjusted basis, we're very much in a comfortable zone for us where we don't think that this is a problem in any way. So we can pursue our strategies for the value creation that we want to do in our businesses, and that's what we just talked about.

Vighnesh Padiachy - Goldman Sachs Group Inc.

It's Vighnesh Padiachy from Goldman Sachs. A couple of questions. Firstly on exhibitions, I mean, you're talking about 40 new launches. How should we be thinking about the margins this year and next year, and the impact of those launches on the overall operating margins? And the second question is, sorry, back to the Legal again, 1% growth in North America. How should we be thinking about that in the second half and in next year? I mean, is the market strong enough to sort of take price increases for some of these new products or should we not be thinking about it that way?

Erik Engstrom

Okay. First question, margins and exhibitions with launches. The run rate of launches last year, I can't remember the exact final number. But let's say last year was in the mid-30s of number of new launches in 2010. This year, let's say it's going to be, for the full year, in the 40s. That is not going to have a material impact on the margin for the overall business for this year versus last year. The bigger question around exhibitions, of course, what is the continuing growth rate organically in the business? So if you see a 10%, then you have the cycling effects, of course, for the full year. So for this year versus last year, I would say the launch differential will not have a big effect by itself. Legal, the growth of 1% so far this year, at this point, that's in line with what I think we see the kind of, what I would describe as sort of a muted recovery in the Legal industry. But it is not a recovery in the Legal industry, I think, has sort of come all the way through in terms of employment hiring and all these different things. There's some conflicting data points for the first half of the year. But they all have one thing in common, and that is that they're not moving very much even though they're slightly different. They're not moving very much. So even though we see increased activity, increase -- somewhat increased demand for law firms and some of those activity levels picking up, the strong hiring and push hasn't really taken off yet. So therefore, if you look into second half, we don't see the world being much different from what it is right now. But if you then start looking to when and what would you see into next year and so on, quite frankly, it's driven a lot by business activity and Legal market activity, maybe even more than driven by what we are doing in it.

Mark Braley - Deutsche Bank AG

It's Mark Braley at Deutsche Bank. Just 2 questions. Mark, you indicated that CapEx in the second half will be a bit higher than the first half. Are we sort of nudging towards 350 on a full year basis rather than 300? And if so, does it stay at that level or does it grow further from that level in the out years? And then on dividend cover. Because of the way currencies move the cover on the euro, dividend over time has sort of slipped a bit, do you want to put a sort of floor on dividend covers so we can think about when you might actually have to freeze the dividend if currency moves the wrong way?

Mark Armour

Yes, I mean back in February, I said that our sort of long-term expectation was that CapEx would be round about 5% of revenues with the current portfolio, but that would sort of move around a bit depending on sort of the timing of capital spend. I mean, clearly, with the investment going into new product and infrastructure in the Legal & Professional business at the moment, where we sort of had a bulge coming through, so it's more likely to be 6% this year than 5%. It's 5% in the first half, so that will step up in the second. In terms of dividend color, the dividend color for PLC was 2.2x on the sort of last 12 months to 30 June and 1.9x for NV. Last year, for the calendar year, it was 2.1x for PLC and 1.9x for NV. And that is because of the way that the equalization of the dividends works. There's this imputed tax credit that NV shareholders enjoy. Our stated goal is to maintain at least to 2x dividend cover over the longer term. And so we don't see sort of 1.9x as anything particularly out of sync that needs to be redressed in that with any sort of -- in any short-term environment. Our expectation is that earnings growth continues to gather momentum, and dividends grow as well. But over the longer term, that will come back quite naturally.

Giasone Salati - Execution Noble LLC

It's Giasone Salati from Espirito Santo. Three questions. First, again on the Risk and on your insurance clients, are these the same clients in the Software business are in the Data business spending plus 7 for data and minus 25 or whatever it is for the relative number for software? And secondly, in terms of a bigger-picture strategy, in the past I thought you were leaning towards a preference for a Subscription business. And given that the M&A market is a bit stronger now, we could expect some more movement towards exiting more cyclical business. Is this your idea now or you're very happy with keeping the stronger presence in cyclical? Lastly, on the new products in science, we understand that for the first time, those search engine, under whatever name they go, do include all of the content available for free on the net. Is that correct? And is that a change of strategy, which maybe signals that the open-sources, open archive content is actually becoming more relevant for your clients?

Erik Engstrom

Okay. Let me do the first one here. You said on insurance software clients. They are sometimes the same parent company, right? Because we are essentially selling data and analytics to essentially all insurance companies. So it's often the same parent company, I should say. It's sometimes the same sort of insurance business. But most of this business is, as I said, geared towards commercial carriers. It's end-to-end policy administration software in commercial carriers, often a different department, different function, different set up. And they are not as linked as you might imply by your question. Even though, if you serve a large customer in one way over here, with one division, under one brand name and you serve them in a different way over here with software for this and again a different brand and in a different way, in different business model. We always think of our customers, and we always think about how we create value for them. But they are not like, for example, the linking about sort of SciVal or Spotlight or Strata or something. They're using the same platform and you're using building different tools for the users to do it that way. These are sort of separate business model under separate brands operating, selling different sets of solutions, but to the same parent company as an insurance carrier, often. Second question was our cyclical businesses. I think I've said this before, that some of our cyclical businesses are good, long-term growth businesses that are targeting professionals and their institutions where we cost a small piece of their total cost structure. We're leveraging our tools to have significant important effect on their overall economics. And we believe that the whole model, which is professionalizing and leveraging more technology and data and so on, is therefore, very suitable to a professional solutions business like ours. If they have some cyclicality in them, we do not see that as a problem per se, as long as they're not structurally challenged or in other ways, a bad business, bad returns. On the other hand, there's some businesses that you then say they do not fit the criteria of professional end users, targeting professional institutions, helping their economics and going in that direction. So therefore, we will continue to look at our portfolio and look at assets that we can add to accelerate our growth or assets that we can exit on an ongoing basis. That is going to happen at Reed Elsevier on the level below the divisional structure that you see today. I mean, for example, best example is RBI is an umbrella name for sets of businesses under Reed Business Information. We are not considering selling an umbrella of Reed Business Information. We are considering and we're actively, actively working on the portfolio underneath Reed Business and even the last 6 months, we bought a few businesses and we sold a few businesses. And I expect that rate to continue. The rate might go up, the rate might go down but the approach will stay that way in the near future or in the foreseeable future, I should say, that we can think about. That is our strategy to operate that one. Last question, I'm not fully sure I understood what you meant. I'm really sorry. Could you just try to say exactly what it is you're...

Giasone Salati - Execution Noble LLC

Sure. I was under the impression that the ScienceDirect and Scopus very rarely in the past included any source which was not part of Reed Elsevier, was not a paying source. In other words, didn't include any open-access source from the Internet, which are all listed under Google Scholar, whilst I understand the SciVal for the first time opens up to open-access sources as well.

Erik Engstrom

Well, I'm not sure that while technically correct, when you say ScienceDirect has always had what we publish. Scopus has always had everything published by everybody else, that is period and quality and sort of real, solid published research index across the world, the largest source for that. Then we have had a very long-running service called Scirus that is operated for a very, very long time, that has indexed the non-full text article period documents such as presentations. If you write a thesis, it would be in there. It would be draft papers. There will be lots of others type of scientific documents and materials that exist in institutional repositories and on the Web in different places that you can link and sort and work with, which actually represent a very large part of the amount of scientific data and materials available. We've now integrated all of these into our different platforms. So there is no fundamental shift in philosophy in any way from Elsevier on this other than we continue to provide a range of tools that help you with looking at and finding and working with scientific research material tools, other types, and to integrate them and link and find them, et cetera. And so we've now slightly changed our integration level of the different tools and so on, and relabeled some of them in integrated platforms, but there's no philosophical difference and no indication that there's anything different to the business model.

Thomas Singlehurst - Citigroup Inc

Tom Singlehurst from Citigroup. I just have one question actually on STM and the academic journals and the 4% growth. I was just wondering whether you could talk about actually on STM and the academic journals and the 4% growth. I was just wondering whether you could talk about the geographic profile of both because the inference was that 4% should be what we should expect, but I was wondering whether there was any significant divergence between essentially developed markets and emerging markets and therefore, embedded in that inference is a slower growth outlook for developed markets in academic.

Erik Engstrom

Well, the growth is you can aggregate it in many different ways. You can aggregate them by geography of the institution, you can aggregate it by where the research is funded from, by source of research funding, is it government-funded or is it privately funded, which as you know, is not clear. I mean, it's sort of a very large, actually majority of world R&D spend is not government funded. And you have very different ratios in different places, also, the academic institutions. As you probably know, in the U.S., 70% of academic institutions were publicly funded, 30% private. In Japan, it's more 55-45. Japan's our second largest market. You look at many other countries, they're more like 90-10. So it's funding source, it is geography of the research conducted, it's geography of the research funding. These are all -- and it's the source, the type. We also have corporate customers, corporate research funders a large part as I said. So there are lots of different sizes you can take. And, of course, you can take -- you can come up with an example. You can pick a country today that is in a difficult economic situation and slow economic growth and therefore, where they're not sort of increasing some of these spend levels, and they're currently going through a little bit of a dip, you can also find institutions in some of those same locations that had a dip 2 years ago, even 3 years ago now, that have taken down their spend in their views and now are growing rapidly again. Even though they can't sit right next to each other geographically, they can have very different funding profiles and very different strategies and try to do different things to the research. So it's not so clear that you'd say, "Ah, if I take it by geography, it's a big difference." Having said that, I think we all would expect that no matter what the funding source or how you do it, that the research growth rate differentials that you've seen over last few years, if you look at number of articles published, number of researchers or citations share or quality share, all those different things that we have seen for the last several years, an increase in share and activity in China, an increase in share and activity in India and so on, and there are a few other large countries, of course, where you see that. And we don't expect that relative, sort of, the relative direction of that to change in the near term. I mean, it has changed back and forth over time, but there are lots of different data sources out there that describe where is the research activity levels going by sort of location of researcher. And those are clearly going more in line with where you see global economic growth, the relative shares right. So there's nothing unique about this over the longer term or over the medium term. But any one year and any one institution or any one set of institution, you might not be exactly what you think because they might have gotten hit later and preserved spending or gotten hit earlier.

Patrick Wellington - Morgan Stanley

Patrick Wellington at Morgan Stanley. A couple of questions. Firstly, on Legal, while we hear what you said about the market environment not being great, I think it has become a bit more apparent over recent quarters that your peer group, whether it's Thomson Reuters or even Wolters Kluwer, going a bit faster in the -- some of the survey data suggest that the Legal markets may be picking up a bit faster than Reed. So what do you think about that? And secondly, just going back to the question about earnings growth, for management to get paid, you need to do 9% compound earnings growth over this year and next year, you've done 5% of the half year, you didn't seem that enthusiastic about a bigger pickup in the second half. Have you given up on the 9% compound target for the next 2 years?

Erik Engstrom

Okay. The first one here, the Legal market. If you look at the Legal survey data, some of them say that Legal hiring this year has been flat, some of them say it's up a little bit, some even say it's down a little bit. So if you look at actual hiring and you look at sort of employment in large law firms, it's pretty muted. If you look at activity levels in terms of business activity, if you look at some of Legal sort of demand and those kind of things, they are picking up faster. And that's why I say that our new sales are up significantly, continuing to grow strongly and our usage is up firmly. So therefore, I say we are seeing that activity level pick up. Now even if you've seen a pickup in those things, it's not clear always that, that directly links to the revenue recognized in that time period because of contract periods, the contract subscriptions, we had a decline over a couple of years and you renew contracts over a couple of years and so on. So you see contract renewals coming through and bundling in print or transaction processing. So it's not the online spend that's relevant, it's the total spend you get from a firm that's relevant, right, from all these different sources. And some of those have rolled through as the economy slowed down and law firms slowed down. So even if you see it pick up right now, you then have, like we have in many of our subscription markets, the long-term contracts sort of delay effect and so on. So that's why I'm saying if you see -- will you see a quick rebound in any of our legal markets at any given point in time, I think the probability of sort of quick fluctuations up or down, in particular now on the upside as we're discussing, is not so great. They're ideally pushing quick big rebounds. That's why we say we're likely to see it fragile. When you say the comparison to others, we've competed against these companies you mentioned for 15 years, essentially, in several different markets. I mean, the European Legal markets against Wolters Kluwer but also Thomson that you mentioned and also in the U.S. market, of course, for well over a decade. And if you look at relative growth rates over that time period, overall, over a long time period, they have been relatively similar. If you look at it in any one year, in any 6-month period, 12-month period, even an 18-month period in the past, you can see some differentials coming in here and there as the different companies emphasize their strengths, rollout a new product set, rollout a new content set, go on a new marketing effort and do something like that. You can see some differences for a period, and things go up and down in terms of whether you look at revenue growth rates or preference into different tools and so on. Having said that, again, we have different strengths. The others have different strengths. When you have a situation that happened early last year that one of the large competitors go out with a very, very large investment effort and build over many years and a very large marketing effort in sales effort to promote and build and so on, right. Those could be the situations when you would see a differential in growth rate, right. Where they might be able to capture or get price increases or capture extra spend or sell off, then get higher bigger bundles and so on. You might be able to see those for a period of time. Last year, if you look at the actual comparable growth rates for the full year, we didn't see much of that at the end of the year, I think, is the right way. I mean, there may have been a little bit of it, but you didn't see much. I think it's very possible that if you look at this year in the first half, that because of all those efforts, if you have your big products out in certain markets and you have, say, it's a new line's worth more, I'm pricing it higher and so on, if there is some rebound that they will be able to capture higher prices and bigger total bundle spends on some of those during that time period, and that those things will continue the way they had historically. Those have been the historical trends, and I wouldn't think that, that would be unusual if you would see in this 6-month period or one of this 6-month period that there would be some growth rate differentials. I think our growth rate differential we have now compared to a year ago, as you see, it's a few percentage points ahead of where we were in the first half last year. And I think pretty much as we expected to see as the markets recovered gradually. But I don't -- I can't tell you exactly what the others are doing, what's in or out, and so on. But it wouldn't be surprising if at some time period with different sort of product phasing and so on, you would see some differential. Earnings, you said in order to get paid, you have to have 9% EPS. Now I think we have only disclosed on EPS, the ranges that are in are our long-term compensation plan. And as you all probably know, that they take on earnings specifically, which is 1/3 of it, they take the average earnings per share growth rate in 2011 and 2012. And the range there is you start earning a 5% average and you max out at 9%. So that's the range, the 5% to 9%. So I appreciate your concern for me not getting my maximum on this component, but those are all the things we have said, so I'm not going to go any further into that.

Paul Gooden - RBS Research

Paul Gooden from RBS. A couple of questions sort of related to next year. Can you just remind us, what is the cycling in effect next year? Is it just a reversal of the, I think, 8% or 10% you're suffering this year or are there other quadrennials that come in? Second, it seems there's a spate of product launches at the moment. Do you think that pace will be maintained next year or do you think it'll come off a little bit? And then on journal pricing, appreciate it's a little bit early, but do you think it's appropriate to put through inflationary price increases next year or would that be aggressive in the austerity environment?

Erik Engstrom

Show cycling. We have a page in the back that shows the history of show cycling by year, and if Mark helps me, tell me exactly which page it is.

Mark Armour

Page 53. Slide 53.

Erik Engstrom

It has the historic of show cycling. For the full year, I think the cycling effect has sort of varied from 7 to 11. Is that what it shows? If I'm remembering correctly. So if you say, on average, the show cycling is more like what you said sort of 8, 9, 10 points, of course, it varies because there are some triennials in there by 1 point or 2 points, but there's much more variation in the success of the shows and the economic growth drivers in the industry than when you get that last 1 point right on the triennial. So if you think that the pattern is on average, what that sheet says, and you take the average of those, I think you're going to estimate cycling pretty close and pretty accurately.

Mark Armour

Maybe worth just adding, the 14% effect you can see on the first half will be more muted for the year as a whole and there is next cycling out also in the second half. But what you saw in the first half was the particularly large [indiscernible] show that took place in the first half of 2010 didn't happen. In the second half, we have the [indiscernible] show, which last took place in 2009 coming in. So actually it's -- the cycling effects are uneven in the halves.

Erik Engstrom

But that's a regular pattern. Every year, the cycling effects are bigger in the first half than the second half as it happens. So every other year it's in, every other year it's out. But the full year numbers that I think you're asking are so, so you can look at it from that trend. Second question was the activity level on product launches. The way I interpret what you're saying is you look across Reed Elsevier. I don't look at it as a temporary burst of new products. I look at it as perhaps a slightly higher level than we would have seen if you look back a little bit. But it's not a material change in philosophy or approach, and it's not a burst. It is something that we expect to stay very active on sort of product innovation and launches consistent with the theme around, we are here to drive organic growth in the business over a long period of time. And to do that, you need to therefore, create value for your professional customers and keep innovating and delivering new products, tools and sets around that. And also keep operating and integrating platforms to make sure that they stay ahead of what your customers actually get value from. So but there will be some fluctuations in and out as you have sort of new platform redesigns in on business versus another. So, of course, they'll even look like there's some lumpiness to it, but it's not a temporary burst. Last question was on pricing. Well, as you, I think, know, the business in Science has really changed over the last 10, 15 years from being sort of a business where you subscribe to a journal and have a price to a business where essentially less than 10% is that kind of subscription. And what it's really about is institutional research spend. It's about research priorities and research tools. And it's a question of who you include and who needs what research and what tools for what period of time and in which way. And they're multi-year contracts, it often takes several months to discuss and layout and analyze and so on. And therefore, I think the only relevant measure in the end is, what's the overall spend to growth if you look at it that way to get the research information tools that you want over the next several years. And that's what I'm saying if you look at this point, we haven't spent, as you said, it's a little early, we haven't looked at next year yet. But my starting point is always to say until we've looked at it, we assume that the general sort of spending increase environment are likely to be more similar to this year going forward than anything else. You say well, unless you see that it changes, you assume it's similar. So therefore, until we actually started looking at it, I don't have any specific assumptions that it will be materially different. But that's not our guidance at this point. That's not our view at this point. It's just we haven't started looking at it to that extent yet.

Richard Menzies-Gow - BofA Merrill Lynch

It's Richard Menzies-Gow from Merrill Lynch. Just 2 quick follow-ons, please. I just wonder on exhibitions whether you can give us a flavor of those annual shows held already this year, just in terms of the forward-looking trends for next year. I know whether -- I know there's always timing differences, but whether you can just give us a flavor of sort of mid-single, high-single digit, what's the range that might be looking year-on-year? And then just to clarify on the 4% Science organic growth. I know Informer have mentioned that there was some phasing benefits in their half year numbers. So just to sort of clarify whether that 4% benefit, it's all you think from any sort of particular sort of phasing or timing of renewals?

Erik Engstrom

Forward bookings, I know that some companies are very precise in forward bookings and mention numbers very explicitly. We don't disclose specific numbers of forward booking because we manage and we track, literally, day-by-day, week-by-week forward booking curve, and there are lots of different types of bookings. There are reservations. There are firm book and there's spend. There are volume. There are changes. So there are lots of different issues here, and we have very sophisticated sort of curve models that do all of these. And in the end, the thing that really drives the revenues is how do they behave in the last few months and weeks coming up towards the show, because that's when the curve is -- how is the curve trending? Are you in a place where people are falling off and canceling out or in a trend where they're accelerating and so on? So they are not as meaningful as I think we would all like them to be so it'd be easier to predict. But if you say the run rates that we have right now, if you to try to say in average of what are we seeing right now? I would put it in the category of sort of, broadly speaking, high-single digits, mid- to high-single digits. If you see what I'm saying. It's that kind of a like-for-like, show-by-show type of thing. But that's a broad average here now. You're talking, you're averaging shows that this year we see China, Brazil, and so on, Russia, several other places growing 20-plus percent, and others growing in the single digits, right? So you're averaging now, and I'm not sure that I would take it as a big indicator in any way. I think we can tell you a lot more as we get later into the year about what we're seeing going forward. I wouldn't take it now as any real prediction of next year.

Paul Gooden - RBS Research

Sorry, and just on the academic?

Erik Engstrom

Sorry. I missed that one, I'm sorry. The 4%, is there any phasing in Science & Technology for the first half of the year, right? Well, as far as we can see, there is no phasing anomaly in the first half right now. I mean, we do have some businesses there, as you know, that are referenced in individual purchases that can be purchased anytime during the year, and some of our reference educational things have publishing timing. We also have some things that are sort of one-off purchases of databases and backfalls and things like that, that tend to come in different parts of the year. But if you look at what happened in the first half and is this an accurate reflection of what happened in the first half, I'd say, yes, we haven't -- I haven't identified anything in the first half that wasn't representative.

Unknown Executive

[indiscernible] KBC Securities. One question on the Exhibition business. The margin declined by almost 40 basis points. Could you talk a bit through the reasons for this decline and the share of the reason in the full year-on-year decline?

Erik Engstrom

Yes, I think the primary issue here is cycling, because you're comparing, right? I mean, I just want to make sure you're looking at last year first half margins to this year first half margins. Yes, the margins in the first half, because of cycling, are significantly higher than the full year margins. But because you have cycling in and cycling out, the cost declines don't come as fully as the cycling out revenue declines, because you still operate business and so on in the cycling out years. So it's almost exclusively an issue of the cost effects of cycling versus the revenue effects of cycling. I don't have any specific reason to say that our margins fundamentally behaving any differently now than they were a year ago if you try to do a like-for-like basis. No.

Okay, well, thank you very much for coming and for taking the time to be here today.

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