Reed Elsevier 2010 Interim Results

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Algemeen advies 29/07/2010 08:31
. Improved overall trading performance; underlying revenue growth of 1%
- late cycle effects on core subscription revenues
- advertising and promotional markets appear to be stabilising
. Increased investment particularly in legal business
. First half eps includes full dilution from July 2009 equity placing
. Strong cash generation; solid financial position
. Good progress on business priorities

Commenting on the results, Anthony Habgood, Chairman of Reed Elsevier, said:

“Reed Elsevier has delivered improved trading performance in the first half of the year, with revenues ahead 1%, excluding portfolio changes, against a 7% decline in the first half of last year. This reflects, in particular, a significant moderation in the rate of decline in advertising and promotion markets, which appear to be stabilising. The subscription nature of much of our revenues, whilst providing considerable resilience in the recent downturn, means that growth will lag improvements in economic conditions. I am, however, confident that the good progress that management is making on individual business priorities will deliver further improvements in performance. Reed Elsevier’s financial position remains strong with good cash generation and capital discipline.”

Reed Elsevier’s Chief Executive Officer, Erik Engstrom, commented:

“We have made considerable progress in the first half against our business priorities. Subscription renewals in our science and medical business have been completed in line with our expectations in a difficult academic budget environment. Within LexisNexis, we have sharpened our focus on the legal and risk solutions businesses in their respective markets; good progress has been made in the development of the next generation of our legal products and supporting infrastructure; strong products are driving growth in risk solutions and the integration of ChoicePoint is on plan. In exhibitions, we have stepped up launches in high growth markets and the outlook is improving. In Reed Business Information, we have continued to grow data services, restructure the print businesses and reduce the cost base.

While we have seen an improvement in the general economic environment and the actions we are taking are beginning to bear fruit, recovery will be gradual as conditions remain constrained in many of our markets. Against this backdrop, I am pleased with the way our business is developing.”

Elsevier (42% of adjusted operating profits)

Revenue growth +2%, adjusted operating profit +4%, at constant currency
Science and medical journal subscription renewals as expected; academic budget environment difficult
Strong growth in nursing and health professional education; moderating declines in pharma promotion
LexisNexis (37% of adjusted operating profits)

Revenue flat, adjusted operating profit -14%, at constant currency
Law firm markets in US and internationally see late cycle effects of legal activity slowdown; US corporate, government and academic markets remain weak
Good growth in Risk Solutions; strong insurance products; improved performance in screening
Increased spending on product development, infrastructure, sales and marketing in the legal business
Reed Exhibitions (16% of adjusted operating profits)

Revenue growth +9%, adjusted operating profit +4%, at constant currency
Lower revenues in annual shows on reduced space sales; benefit of net cycling in of biennial shows
Attendance growing at majority of annual events
Expanded launch programme in high growth segments
Reed Business Information (5% of adjusted operating profits)

Revenue -19% (-4% underlying), adjusted operating profit +1% (+4% underlying), at constant currency
Sale and closure of non-core assets, most notably US controlled circulation titles
Continued good growth in data services; advertising declines moderated
Significant actions to reduce cost base
Strong cash generation and improved financial position

Conversion of adjusted operating profit into cash at 98%
Free cash flow of £606m before restructuring spend and dividends
Net debt at 30 June 2010 £3.8bn ($5.8bn; €4.7bn)
Net debt/adjusted LTM ebitda: 2.0x (2.7x pensions and lease adjusted)

Parent company earnings per share and dividends

Adjusted earnings per share -13% to 21.3p for Reed Elsevier PLC and -11% to €0.38 for Reed Elsevier NV; -14% at constant currencies.

Equity placing in July 2009 has 8% dilutive effect on adjusted earnings per share in first half (second half largely unaffected; est. 4% dilution for full year).

Reported earnings per share +86% to 13.2p for Reed Elsevier PLC and +79% to €0.25 for Reed Elsevier NV; principally reflects Reed Business Information intangible asset and goodwill impairment in 2009 and lower exceptional restructuring charges.

Reed Elsevier PLC interim dividend unchanged at 5.4p; equalised Reed Elsevier NV interim dividend +2% to €0.109. (Difference in growth rates in the equalised dividends reflects changes in the euro:sterling exchange rate since prior year dividend announcement date.)
Outlook

As expected, declines in customer activity levels and budgets over the last two years are constraining the development of subscription revenues in our core professional markets. Advertising and promotion markets are stabilising although we remain cautious. As previously stated, we expect to report a modest reduction year on year in adjusted operating margin due to a weak revenue environment and increased investment in legal markets. We will continue to benefit from the actions we are taking in our businesses. Any sustained recovery remains dependent on improving economic conditions and is expected to be gradual.


Elsevier: Good momentum is continuing in Health Sciences from the growth in the health professions and the increasing adoption of online resources, although pharma promotion revenues remain weak. In Science and Technology, we are continuing to evolve electronic tools for scientific researchers. Overall revenue growth is expected to continue albeit lower than in the prior year as academic budget constraints remain.

LexisNexis: Trends seen in US legal and international markets are expected to continue with late cycle effects on subscription revenues. In Risk Solutions, good growth is continuing in the insurance segment whereas improvements in the more cyclical markets remain tentative. As previously stated, the overall adjusted operating margin for LexisNexis is expected to be lower in 2010, reflecting a weak revenue environment and increases in spend on product development, infrastructure, and sales and marketing in the Legal business, partly mitigated by cost actions and the growing profitability of the Risk Solutions business. With increased focus on their distinct markets, preparations are progressing to separate the Risk Solutions and global legal businesses.

Reed Exhibitions: Whilst comparatives are getting easier and attendance levels are increasing at the majority of shows held, space bookings for 2010 events overall remain behind prior year levels and annual show revenues are expected to be lower. 2010 does however benefit from the net cycling in of biennial shows which is expected to deliver overall growth. There are some encouraging signs emerging in the forward space bookings for events in 2011, although these vary by sector, geography and timing of the shows; 2011 will, however, see the net cycling out of biennial shows.

Reed Business Information: Data services continue to grow. There are some signs of stabilisation in advertising and promotion markets although a sustained recovery remains dependent on improving overall economic conditions. Reshaping of the portfolio will continue.






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