Reed Elsevier, the global professional information company, reports underlying revenue, operating profit, and earnings growth on track.
Financial highlights
Underlying revenue growth +2% (+3% excluding biennial exhibition cycling)to £3,025m/€3,570m
Underlying adjusted operating profit growth +6% to £870m/€1,027m
Adjusted EPS +9% to 26.5p for Reed Elsevier PLC; +4% to €0.48 for Reed Elsevier NV
Interim dividend +11% to 6.65p for Reed Elsevier PLC; +2% to €0.132 for Reed Elsevier NV
Reported EPS -6% to 22.0p for Reed Elsevier PLC; -9% to €0.42 for Reed Elsevier NV
Net debt £3.3bn; 2.1x EBITDA pensions and lease adjusted (1.7x unadjusted)
Operational and strategic highlights
Positive underlying growth trends maintained
Continued evolution of business profile through organic development and portfolio reshaping
Electronic and face-to-face 83% of H1 revenue; growing at +5 to +7% underlying
Improved profitability reflects process innovation and portfolio development
£300m of share buybacks completed in H1 2013; further £300m to be deployed in remainder of 2013
Commenting on the results, Anthony Habgood, Chairman, said:
“Reed Elsevier grew underlying revenue, operating profit and earnings in the first half of 2013, and further strengthened the balance sheet. We are confident that Reed Elsevier remains on track to deliver on its strategic and financial priorities, and we are recommending an +11% increase in the interim dividend for Reed
Elsevier PLC and a +2% increase for Reed Elsevier NV, in line with growth in adjusted earnings per share at constant exchange rates.”
Chief Executive Officer, Erik Engstrom, commented:
“In the first half of 2013 we continued to focus on improving our business profile, primarily through organic development.We invested in building out global technology platforms and launching new products and services. We alsomade a small number of targeted acquisitions which support our organic growth priorities, and disposed of several businesses that no longer fit our strategy.”
“The operating momentum in our business remains positive as we enter the second half, and although the outlook for the macro environment and its impact on our customer markets remains mixed, we continue to expect full year 2013 to be another year of underlying revenue, profit and earnings growth.“
“With a strong balance sheet and strong cash flow characteristics, and average acquisition spend comfortably covered by free cash flow, we will take a pragmatic approach to ensuring that the value compounding within the business translates into shareholder value. As a part of this, we intend to increase the scale of this year’s share buybacksto a total of £600m, approximately £200m beyond our expected full year gross disposal proceeds.
Reed Elsevier continued to make good progress against its strategic and financial priorities in H1 2013.
Revenue of £3,025m/€3,570m; underlying growth +2% (+3% excluding biennial exhibition cycling): The like for like underlying growth rate of +3% reflects continuing print revenue declines and +5 to +7% growth in electronic and face-to-face revenues, which now account for 83% of the total.
Adjusted operating profit £870m/€1,027m; underlying growth +6%:Underlying operating profitsimproved across Reed Elsevier reflecting a combination of process innovation and portfolio development. Reported operating profit, after amortisation of acquired intangible assets, grew +4% to £684m/+1% to €807m.
Interest and tax: Adjusted net finance costs were £15m/€22m lower at £92m/€109m reflecting the benefits of term debt refinancing initiatives overthe last 12 months. The adjusted effective tax rate was essentiallyunchanged at 23.5%.
Adjusted EPS up +9% to 26.5p for Reed Elsevier PLC, up +4% to €0.48 for Reed Elsevier NV; constant currency
growth +7%: Reported EPS growth was -6% to 22.0p for Reed Elsevier PLC, -9% to €0.42 for Reed Elsevier NV, principally reflecting the impact of higher one-off net gains on disposals in the prior year.
Equalised interim dividend up +11% to 6.65p for Reed Elsevier PLC; up +2% to €0.132 for Reed Elsevier NV:
The difference in dividend growth rates reflects strengthening of the euro relative to sterling since last year’s interim dividend announcement date. The average interim dividend growth rate isin line with adjusted EPS growth at constant currency rates.
Net debt/EBITDA 2.1x adjusted 12 month trailing EBITDA on a pensions and lease adjusted basis(unadjusted 1.7x):Net debt was £3.3bn/€3.9bn on 30 June 2013. Capital expenditure remained at 5% of revenue in the first half and is expected to be similar forthe full year. The adjusted operating cash flow conversion rate for the first half waslower at 85% reflecting timing of receivables and payables at the period endwhich is expected to reverse in the second half. For the full year we continue to expect a cash conversion rate of over 90%, in line with prior years.
Organic development: In H1 2013 we continued to build and roll out global technology platforms, launch newproducts and services into existing and adjacent segments, and expand our presence in high growth markets.
Acquisitions & disposals: In H1 2013 we completed a small number of targeted acquisitions of content and data assets across all market segments for a total consideration of £109m. We also disposed of businesses that no longer fit our strategy for a total consideration of £280m. Completed disposals include the pre-employment screening business of Risk Solutions, RBI Australia, RBI France, and a number of other businesses across Reed Elsevier.
Share buybacks: In H1 2013 we deployed £300m on share buybacks, broadly in line with gross disposal proceeds. Based on our strong financial position we expect to deploy a further £300m on buybacksin H2 2013, taking the full year total to £600m, approximately £200m beyond our expected full year gross disposal proceeds.
FULL YEAR2013 OUTLOOK
The outlook for the macro environment, and its impact on our customer markets, remainsmixed, and 2013 is a cycling out year for our exhibitions business. However, the operating momentum in our business remains positive as we enter the second half, and we continue to expect full year 2013 to be another year of underlying revenue, profit, and earnings growth.
REED ELSEVIER FINANCIAL SUMMARY
£ €Six months ended 30 June Six months ended 30 June 2013 £m 2012† £m Change 2013 €m 2012† €m Change Underlying growth rates
Revenue 3,025 3,053 -1% 3,570 3,725 -4% +2%/+3%*
Adjusted operating profit 870 832 +5% 1,027 1,015 +1% +6%
Adjusted operating margin 28.8% 27.3% 28.8% 27.3%
Adjusted net finance costs (92) (107) (109) (131)
Adjusted profit before tax 778 725 +7% 918 884 +4%
Tax (183) (171) (217) (208)
Minority interests (3) (2) (3) (3)
Adjusted net profit 592 552 +7% 698 673 +4%
Reported net profit 509 552 601 673
Net borrowings 3,339 3,318 3,906 4,114
*excluding biennial exhibition cycling
PARENT COMPANIES
Reed Elsevier PLC Reed Elsevier NV
Six months ended 30 June Six months ended 30 June 2013 pence 2012† pence Change 2013 € 2012† € Change Change at constant currencies
Adjusted earnings per share 26.5p 24.3p +9% €0.48 €0.46 +4% +7%
Reported earnings per share 22.0p 23.4p -6% €0.42 €0.46 -9%
Ordinary dividend per share 6.65p 6.00p +11% €0.132 €0.130 +2%
Adjusted and underlying figures are additional performance measures used by management. Reconciliations between the reported and adjusted figures
are set out in note 4 to the combined financial information on page 26. The reported operating profit figures are set out in note 2 on page 22. Unless
otherwise indicated, all percentage movements in the following commentary refer to performance at constant exchange rates. Underlying growth rates
are calculated at constant currencies, and exclude the results of all acquisitions and disposals made in both the year and prior year and assets held for
sale. Constant currency growth rates are based on 2012 full year average and hedge exchange rates.
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