RELX PLC (RELX) 2005 Q2 法說會逐字稿

Good morning, everyone. Welcome to our new, rather posh venue. Same format as we normally do. We have got, I hope, Amsterdam on the line. Gerard, are you there? Is there a picture of Gerard anywhere around? Here he comes. That looks like Gerard. Maybe we could cut to Gerard so at least I could say good morning to him, or maybe not. Good morning, Gerard.

Good morning, Christian. It seems like you beat us to it.

Yes, this is the trouble. As soon as you deliver a set of decent numbers at last, then you turn up late. Anyway, (multiple speakers) what we will do is I will say a few introductory remarks, then Mark will take you through the financial and operational performance. I then want to say something about our strategic priorities and how we are progressing against those, and then we'll throw it open to Q&As. And we've got the division heads with us today to help on that one.

A few overall comments. The first half has seen us operating in what I think is continuing to be a decent market environment. Education is dull this year, but other than that most of our businesses, the environment, the market situation, I think is a quite reasonable one and as far as we can see looking forward, looks reasonably well set. I do want to emphasize, as always, that the actual half-year numbers we report are distorted by phasing and other factors and therefore should be treated with a degree of thoughtfulness. Nevertheless, the underlying sort of momentum and strength in the business I think is quite robust, and I am quite encouraged by the progress we have made in the first half strategically and operationally and financially.

The underlying revenue momentum I think is pretty good, encouraging. We are making I think good progress on operational leverage and towards our goal of achieving sustainable margin growth. Again, the first half numbers, as Mark will talk, don't really tell the whole picture. But the underlying progress I think is good. Obviously, the overall numbers, 16% growth in EPS, interim dividend up 11% is good. I think overall the progress in the first half does provide strong underpinnings that we will hit our full-year numbers and importantly, with quality internals. So with that, I will pass over to Mark and come back and talk to some of the strategic priorities a bit later.

Thank you, Crispin, and good morning. As you all know, we report our results in sterling and in Euros, and so I'll mostly be talking about changes at constant currencies. You can see revenues were up 8% and adjusted operating profits up 14% with a 40 basis point increase in reported margin. Net interest expense was higher, reflecting rising interest rates and the financing of last year's acquisitions, getting adjusted pretax profits up 14% at constant currencies or up 13% at reported rates. The impact of moment in exchange rates from both revenues and pretax profits is set out in the appendices.

Before turning to each of the divisions, let me first summarize. Organic revenue growth in the first half was 6%. This includes some relatively small benefit from business phasing. Our target for the full year is 5%, and we are on track to achieve it. Organic operating growth, operating profit growth, was 12% including strong contribution from the next cycling in of biennial exhibitions not held last year, particularly joint venture shows that contribute to operating profits but not to revenues. Acquisitions less disposals added 2% to both revenues and operating profit growth, and just over 1% was also added to earnings from a lower tax rate than in the prior first half.

Whilst the first half has clearly been strong, our full year target for adjusted earnings per share growth remains unchanged at 10%. The second half will see a number of the major biennial exhibitions cycling out, reversing the first half benefit from cycling. Also, the contribution from the prior year acquisitions will be more muted than in the first half, given their timing. And the tax rate year-on-year will be broadly unchanged. The first half rate is expected to be reflected in the rate for the year, and this is very similar to last year's full-year tax rate.

The cash flow conversion rate of 48% is unchanged from the prior first half and reflects the strong seasonality of our cash flows. Subscription and exhibition deposits mostly turn up towards the end of the year, and within education we see strong cash outflows in the first half of the year with inflows coming the second half of the year as the sales take place. We continue to focus very closely on working capital, and capital expenditures were flat against the prior first half. Our full-year cash conversion target remains 90%, and the rate for the last 12 months to 30 June was 92%, which is encouraging.

Capital invested in acquisitions continues to show promising returns, typically exceeding our cost of capital within two years with the returns continuing to grow thereafter. During the first half we returned 218 million pounds or EUR318 million to shareholders through share buybacks, being just over one-third of the three-year program we announced in February. Subject to prevailing business and market conditions, further repurchases may be made in the second half.

The next two charts summarize the total and underlying growth rates across the business for revenue and adjusted operating profit. You can see from our organic revenue growth of 6% it is derived from 5% in Elsevier, 8% in LexisNexis, 3% in Harcourt Education and 7% in Reed Business. You can also see that the impact of acquisitions is predominantly in Elsevier, with the inclusion of the MediMedia business and MC Strategies, acquired last year. For adjusted operating profit, our 12% organic growth is derived from 6% in Elsevier, 9% in LexisNexis and 25% in Reed Business. As you can see from the chart, the profitability of the education business is negligible in the first half.

Turning to Elsevier, Elsevier had a good first half with strong subscription [revenues] and growing online sales delivering 5% organic revenue growth. The business is well-positioned for the more significant second half with its book publishing programs. Underlying margins were slightly ahead with further improvement expected in the second half reflecting the seasonal weighting of revenues. Reported margin is, however, 2.1 percentage points lower than in the prior first half, and this relates to three separate components. First, the inclusion of the lower margin acquisitions made last year reduces the Elsevier margin by 70 basis points as a matter of arithmetic. Secondly, as in 2005, the sharp decline in the dollar in the 2002 to 2004 period is working its way through our rolling three-year currency hedging program for the journal subscriptions business. It makes the hedge rates less favorable than a year ago. This reduces adjusted operating profits by 5% and reported margins by 110 basis points. There will be some impact in 2007 given recent further dollar weakness, but this should be less than half the 2006 impact. The third component relates to other currency translation effects in IFRS, which reduces reported margin by a further 40 basis points. These three components and the underlying margin improvement are itemized further in an appendix. The integration of the MediMedia business has progressed well and is meeting expectations.

Turning to LexisNexis, LexisNexis had a very successful first half with organic revenue growth of 8% driven by strong subscription renewals and new product sales in U.S. legal markets and internationally, as well as good growth in patents handled for the U.S. Patent Office and in risk management. Underlying margins were only slightly ahead despite the strong revenue growth since investment spending last year fell more in the second half. Improved margin growth can be expected in the second half. In risk management, Seisint continues to perform well with revenues in the first half up over 25%, and we expect post tax return on capital of close to 10% this year, the second full year of our ownership.

Turning to Harcourt Education, as mentioned earlier, the majority sales and nearly all the profits in the education business come through in the second half of the year as schools open for the academic year. The first-half growth level is largely determined by which states are holding adoptions and whether or not they call for product in June or later in the summer. This year, although the adoption market will be lower, we have seen earlier call off of product compared to last year, when the Texas adoptions were delayed.

Both the elementary and secondary businesses have done well in the state textbook adoptions, which will come through in second half sales, and we expect the basal business to do well in a dull market. In the supplemental business, the new publishing is beginning to come through, and whilst first-half sales were flat, the business is positioned to deliver growth in the more important second half. The assessment business underperformed with revenues declining 3%, reflecting the net loss last year of state testing contracts. Operational difficulties, particularly surrounding a major state testing contract in Illinois, are being systematically addressed. Organizational changes have been made. Processes are being improved, and earlier this week we announced the appointment of a new CEO for assessment.

Although still relatively early in the selling season, the revenue outlook for Harcourt Education is encouraging. The margins will, however, be lower this year, reflecting increased sales and marketing spend ahead of the 2007 adoptions and partly because of the underperformance in assessment.

Turning to Reed Business, Reed Business had a good first half with underlying revenue growth of 7% and operating profits up 25%. The exhibition business in particular was very successful with strong growth in both annual shows and in biennial shows. The net cycling of these biennial shows contributed to profit growth rather than revenue growth. Since the cycling was pretty even for our whole year-end shows but significant for joint venture shows, so the net cycling added little to revenue growth but added 10% to Reed Business's profit growth. This does, however, largely reverse in the second half since we have a number of important biennial shows cycling out, which, being wholly-owned, will also reduce the revenue growth for the year.

The RBI publishing business saw organic revenue growth of 3%, with strong growth in online services, particularly in the UK whilst print overall was slightly down as the business migrates online. The U.S. in particular was behind last year given the smaller proportion of the online business. The margin improvement in the first half reflects the strength of the revenue growth and tight cost control and the cycling in of the contribution of major biennial shows. The margin for the year as a whole is expected to show good progress over the prior year but not as strong as in the first half, reflecting the seasonality of the exhibitions business and the cycling out of second half biennial shows.

218 million pounds or $318 million of shares were repurchased in the first-half under the annual buyback program. This represents just over one-third of the three-year program announced in February, which as mentioned earlier, may be accelerated in the second half. Additionally, the Employee Benefit Trust acquired 70 million shares -- pounds worth of shares or EUR102 million in relation to share-based compensation schemes. The average number of shares in issue for the first half is set out in the statement issued today.

Lastly, the adjusted earnings per share were up 16% at constant currencies or 15% at reported rates. The equalized interim dividends are up 11%, reflecting the strength of the first-half performance and the more progressive dividend policy adopted last year. Thank you. Over to Crispin.

Thank you, Mark. What I want to talk about fairly briefly now is the strategic priorities which I outlined at the start of the year and how we are progressing against those. Essentially there are three. The first is to continue to drive online growth. This is critical to Reed-Elsevier. We are constantly looking to raise our game here and particularly in three areas, product innovation, customer workflow solutions and widening distribution. In the first half I think, and I will come on to talk, we made good progress against all three, and that is reflected in the fact that our total online revenues were up 15% year-on-year in the first half.

Secondly, to improve our operational leverage performance and to drive margin up not just this year, but to put margin growth on a sustainable long-term basis. We are making good progress there. Lastly, to maximize capital efficiency and use of the close to 750 million pounds of free cash flow that we are now generating each year. Online innovation is very critical to our overall strategy and to our digital online objectives. I do think Reed-Elsevier is developing quite a strong capability in this area, good expertise and increasingly the ability to harness and exploit technology here.

All of these innovations are very much rooted in customer understanding, customer needs. Interestingly, I think if you look at all of these, almost all of these, they have been developed in the last two to three years. Most of them, they are not all developed internally, online through our investment program, a few come through acquisitions. But what this is doing is this is providing not just improved competitive performance, it is embedding us more with our customers, deepening customer relationships, giving us new revenue streams. The pipeline here I think remains strong, and we are, as I said, continuing to strive to upgrade our capability further here.

The second online strand is all around workflow solutions, which I know is a bit of a sort of consultant word, and I will try and explain it more because I think this is going to become a key dynamic in Reed-Elsevier going forward. In simple terms, if I take this example from healthcare to illustrate it, when we acquired Harcourt five years ago, essentially that was a print business, print books, journals, and that was it. In the first year or so we were very much focused in essentially putting that print content online through electronic editions, e-journals and so on. Then two to three years ago we started moving to a much more customized approach where we customized that content by customer segment, whether that was doctors, nurses, students, pathologists and the like and also started adding quite a sophisticated degree of functionality so that they could manipulate the data in a much more productive way.

Today not just in healthcare, but right across Reed-Elsevier we are increasingly focused now on what we call workflow solutions, integrated into their daily activity. Let me just give you a simple example here to illustrate what I mean by this because I think it is important. A patient comes into a hospital and sees the doctor. The doctor is able to, through iCONSULT platform, immediately access her patient records and get all of her details. Having examined her, he can then access through the FIRST Consult integrated platform the full clinical diagnostic database and content and information to help in terms of the diagnosis he gives. He is then able through the recent Gold Standard acquisition we made, to access the most comprehensive drug database that there is in the U.S. with full details of every drug and suitability and then prescribe that drug through Gold Standard. Then reverting to the I platform he can then electronically send that prescription to the pharmacist and also record that treatment on the patient record.

Gold Standard also provides a lot of additional features. For example, it has an intercept alerting system so that if the patient, for example, was pregnant and he prescribed a drug that was not meant to be prescribed for pregnant women, it would automatically intercept that and put up an alert telling him why it was not suitable and what he could use instead. So it gives you a bit of a feel when we talk about integrated workflow solutions what we are now driving towards in Reed-Elsevier across a wide range of businesses. Obviously the benefits to us and to the customer are significant.

From our standpoint you're much more embedded in the customer workflow activity and relationship. It generates new revenue streams. It gives you additional pricing leverage. It gives you higher subscription renewal rates and the like. Another example is in the legal arena. As all of you know, four to five years ago LexisNexis was essentially a legal research company, and we provided legal research products for lawyers. Over the last three to four years we have increasingly expanded our range of products, all of course online, to cover much more of the lawyer's total workflow activity and move from providing what I call simple information online to much more solution problem solving orientation. So you can see today that in addition to an expanded research solutions capability we have moved into areas such as client development, practice management, litigation services and so on.

Something like litigation services now we provide a whole suite of products that basically cover the litigation process from beginning to end. Again, some of this will be developed internally through organic investments. Some we have done through acquisition, but essentially the principal is the same as for healthcare, to expand our product offering, to cover more of the sort of workflow activity of our professional customer and orientate these products much more toward solutions as opposed to just simple information.

If you ask why has LexisNexis's revenue growth in the last three to four years gone from flat to 3% to 5% to 7% in the first half, this is one of the key reasons why. As for health, it provides much more deeper relationship longer-term relationship with our customers. It's new revenue streams, better pricing leverage, higher renewal rates and, importantly, competitive differentiation.

In the third area of online opportunity where we're focused is widening distribution, and again, digital technology is an important component of this. There's a whole range of activities going on here, and I have just laid out a few as examples. As you know, in Elsevier on the science side we had a major reorganization last year to completely align our organization by customer groups. So whether that is large academic, small academic, governmental or corporate, we now have vertical organizations with P&L responsibility and sales responsibility for each of these customer groups, and that is really starting to have an impact in terms of driving distribution.

In corporate, for example, we only have a 14%, 15% share of the market compared to 20% to 25% market share elsewhere. Clearly our goal now is to get that share up, and it will be distribution more than anything else that drives that. On healthcare the online focus on the consult suite of products is really now starting to gain traction in the U.S. and getting widening distribution, not just across hospitals, but across medical practices, trusts and so on.

Internationally we are having real success now with our strategy of if you like geocloning, taking on those preeminent authors and imprints and translating them and rolling them across the world through our global distribution sales network.

In LexisNexis, huge opportunity, as you know, globally to move the world's lawyers from print to online. And now that we have the global legal platform in place, we are starting to see good momentum and increasing momentum in terms of driving distribution and really migrating lawyers from print to online. Similarly Seisint, now integrated with the LexisNexis risk business, and we are really with that combination driving distribution very strongly in the U.S., and again, a key driver behind growth.

In Reed Business we are taking our most successful online products and rolling them out internationally, and again having real success distribution-wide. Totaljobs, KellySearch recently introduced into the U.S. Our global B2B search engine, Zibb. Variety is now in seven or nine countries around the world. Geographically I just picked Asia, but that is now a market of over $1 billion for us growing at around 10% a year. And the key driver behind that again is widening our customer base across that continent.

Turning to the second strategic priority and the imperative that we are all very committed to getting our margin back onto a sustainable growth track. Obviously revenue is the single most important component of that, but as we have talked I think we are encouraged not just in the last six months but over the last two to three years on the trends we are seeing in underlying revenue growth. I think we have every reason to believe we should be able to continue that.

Investment levels as we've said before stabilized, embedded and I don't see that changing meaningfully looking forward. Essentially the big investments on some of the platforms are starting to fall away, and that is giving us the opportunity to invest in innovative new products in online health, risk, legal workflow, B2B online. But the fact that now our investment levels are pretty embedded obviously is helpful to operational leverage. We continue to put a lot of focus on containing costs, improving organization efficiency. We will again this year spend about 20 million pounds in this area, particularly in terms of improving organization efficiency. That again will help drive operational leverage going forward. I do want to emphasize we are very committed and on track to drive sustainable margin growth going forward.

Lastly capital efficiency and use of free cash. We are generating close to 750 million pounds of free cash flow after-tax and interest, and it is important that we use that in the most efficient way. As you know, we are increasing dividend again. We're spending about half of our free cash flow on our progressive dividend policy, which is in line with cost of earnings growth. Mark has outlined the progress on the share repurchase program. Essentially it means that at least 75% of our free cash flow is being returned to shareholders through dividend and share repurchase.

Importantly we are retaining the financial flexibility and use of some of the free cash for acquisition opportunities. The prime focus in Reed Elsevier remains against organic growth and investment, but there are clearly attractive opportunities for bolt-on, fill-in acquisitions and our track record in the last three or four years I think has been good both in terms of statistically strengthening our portfolio market position. They clearly are accelerating our rate of growth in terms of revenue and profit and we are now looking to cover our cost of capital and succeeding in doing that in around two years. If we can meet those objectives, I think that is clearly good use of some of the free cash flow.

Lastly, we remain very focused on improving our return on invested capital. As you know, we have increased it each of the last four years on a like-for-like basis. Last year it went to 9.4% and I expect that to rise again quite well this year.

So just to finish up, I think overall good progress against our strategic priorities. I think good progress operationally over the six-month period. I think generally across the business, there is a good source of underlying momentum and strength through our one or two businesses, assessment being one where clearly we have work to do. But I think if you look across the whole of Reed Elsevier, we can be encouraged with the way things are going. Obviously the focus now is absolutely on delivery and quality delivery, and I believe that we will do that for 2006.

That is all I plan to say. I suggest that the division heads come on up. We will then open it to Q&A and we will start here in London and then we will cut across to Amsterdam periodically for questions there.

It's Colin Tennant, Lehman Brothers. A couple of things. First of all on the B2B division, the print revenues obviously trending down a little bit. I wonder if you could just give us any sort of thoughts on how you expect that to progress; do you think that that's a long-term structural thing that's going to just keep to going so you have to replace it? Or is there anything in the short-term that might level that out?

The second thing is a more broader question on the margins. You mentioned that you're looking for margin expansion. This year you have given us quite clear guidance in this statement about margins by division, but I was wondering about sort of going into next year and possibly even further out which divisions particularly you see the margin upside and maybe give us an idea of how much?

Girard, would you like to take the first question on print B2B?

All right, why don't I try and answer that while we're -- I won't give as good as answer as Gerard would have done, but I will do my best. Yes, obviously B2B print is showing some decline, about as we thought. We've said it should be in 1% to 3% range. We think that that is if you like structural as some of the market does migrate from print to online. But I think it is important that you look at the totality of print and online, because they are part of the same franchise. It is just like five years ago with science moving from print to online and legal moving from print to online; a lot of the same dynamic in B2B.

And if print declines at 2% a year and our online B2B business grows at 25%, 30% a year, that is an equation that works. The issue is can we sustain that going forward? Both the 2% decline and the 25%, 30% growth? And I think we can be encouraged that again this year we're seeing if anything a slight improvement in that trend. The focus for us is very much on the online and that is where our investment is going. That is clearly were the future of B2B is. I think this year we're going to be close to $400 million of B2B online business and importantly, we are seeing now rapid margin expansion online as we get the scalability there. I think this year you will see our online margins on that business at least match our overall print margins, but with the trend very much upwards, in other words going forward our online margins are going to be ahead of our print margins.

So I think overall it is a positive picture, but it does require us to hold the print decline in that kind of 1% to 3% range and continue to grow the online at 25% to 30%. That is a challenge, but so far we should be encouraged.

And the broader margin question?

I'm sorry. As I said, the focus is very much on sustainable margin progress. As I said before, if we can continue to keep the revenue growing at good levels, hold the level of investment broadly stable, and keep a good grip on costs, we should see margin continue to expand going forward on a sustainable basis. By division, I think that our goal is to see each of the divisions show margin expansion sort of '07, '08, '09. That is what we are targeting to achieve.

Polo Tang, UBS. Just a couple of different questions. The first one is just on the balance sheet, because looking at your balance sheet at the moment you're still quite significantly underleveraged. I know that you've got the $1 million buyback in the next couple of years but would you consider topping up that buyback? And is there any target level of gearing that you're aiming for? Also if you maybe just talk about your credit rating, is there a target level that you'd like to get your credit to?

Second question is just on M&A because there's been a number of press reports just about private equity interest in terms of B2B, so do you have any comments on that? Also there's been press reports about SDU in Holland being up for sale. Would that be of interest to you as well?

Mark, do you want to take the first one?

Yes. When we announced the share buyback program we explained that what we were looking for was a sustainable balanced approach and to the deployment of our free cash flow. As Crispin indicated earlier, this year already we spent probably about with prospective dividends 70%, 75% of free cash flow and more on acquisitions. We believe that the ratios we have give us the flexibility to continue to do that, while its also retaining some flexibility to make bolt-on acquisitions, which can vary in size. Crispin indicated the sort of levels that we're looking at, but you can't legislate for when they arrive. They can come like the London buses, more closely together, or more spaced out.

So we think this balanced approach is good for a business of our size and in dynamic markets. In terms of our rating, we did have a one notch downgrade for Moody's when we announced the share buyback program. We have a split rating at the moment. I'm not uncomfortable with that. I think clearly how our acquisitions develop on the buyback program will depend where our rating sits within that. But I am perfectly comfortable with the balance we have at the moment.

(Inaudible question - microphone inaccessible)

As I said, we may do some further buyback in the second half of the year. It is a three-year program, $1 billion over the three years. I think when we get to the end of that, we will have another discussion.

On your acquisition or private equity, M&A, as to your question, as you would expect I'm not going to comment on acquisition targets or press speculation about these things. I would simply say and you should know well enough not to believe everything you read in the press.

Meg Geldens, Man Securities. Can you just confirm that your underlying revenue growth rates are very simply just excluding currency acquisitions and disposals? In other words, you have not corrected them for things like cutting out products or the phasing?

That is correct, no.

Because you did mention that there was some product rationalization in the business division. Is that significant or --? Also what about this disposal in the business division? Can you just perhaps -- (multiple speakers)?

Disposals are out, discontinuing product is not. So where we talk about product rationalization etc. was in the U.S., the RBI U.S. business. That is part of the decline in the first half. So the only things we take out are currencies, acquisitions, and disposals. We take them out in the preceding year and the current year, so for an acquisition, take MediMedia for instance we have it in for a few months last year and 12 months this year. We back it out of last year. We back it out of this year. So it is a true organic figure.

Could you just follow-up on that with the size? And 25% growth, organic growth. I seem to remember last year you said there was some -- you moved some lumpy revenue onto subscriptions and that is why the revenue last year was not -- could have actually been higher. Am I correct in thinking you did this? You had a couple of big lumpy contracts, you moved them onto subscriptions? Did that benefit the growth this year or is this really a true pickup in size and growth from 20 to 25?

Sure. Last year the lumpiness was the consequences of some government contracts and as you know, they either happen or they don't. For the most part we are moving those to subscription based revenues, but in all honesty, that would not have had a major impact on our performance this year.

Can we just cut across and see if we can bring Amsterdam in again. Girard, are you there? Can you hear us? Can we hear you?

Can you hear me?

Yes, we are on. Okay. Do you have any questions over there, Gerard? Did you hear the excellent answer I gave on B2B?

(Inaudible question - microphone inaccessible) 2005 that of 5% EBIT impact on the science division. In February, you said it would have 4% for the full year. Am I right to assume that it's 3% for the second half of this year so less than in the first half?

I think we said in February it was 20 million pounds. I think that rounds to 5 or rounds to 4 of that figure.

And it's about evenly split half-year by half-year.

Yes. Maybe 20 million pounds or there abouts.

If I may, an additional question on SCOPUS. Can you elaborate on the progress being made? When do you expect revenues and how material can they be?

SCOPUS, as you may recall, has been in a rollout phase now since last year and that rollout program is going extremely well. We have over 1000 pilot customers, as you know, and over 300 firm contracts. We have been adding several features to SCOPUS throughout the year including author tools and citation tools; most recently we added some things in last month that have been very well-received by the market. We see significant monthly usage growth in the customers that have it ramped up and as the rollout program concludes throughout this year, I think that we will start to have some more information to talk to you about when we next get together in February about the outlook for SCOPUS.

So then would you expect your first revenue in 2007?

We have some small revenue in already but it is only going to start to have a meaningful impact that we can talk about in '07.

Gerard, do you have another question over there?

(inaudible). I've got a couple of questions. To start with the B2B activities, the online activities, could you please give an indication of the composition of the online activities between advertising, subscriptions, (indiscernible)? That is my first one.

The second one is on Harcourt Education. With the release of your full-year results, you indicated that you are expecting kind of revenue growth in the range of 2% to 4%. Well today in the press release I couldn't find anything on that. So does this expectation still stand or do you have other expectations for '06?

The last one is again on SCOPUS. The numbers you just provided you expect to be 1000 customers, but these are the same numbers as we heard with the recent full-year results in March or in February, so does it mean that nothing changed since then or are these members not updated? Please elaborate on that. Thank you.

Why don't each of the division heads take them in turn? Gerard, do you want to take the first one?

Basically in B2B online, there are two ways that we get money in. It is from advertising, where we operate three basic models, which is display advertising on our community sites. It would be surge related advertising, and it would be online recruitment advertising. Roughly that makes for about 60% of total online revenues. The other 40% is subscription based data services where we basically sell data to our clients on an annual subscription basis.

One point worth adding to that is by the nature of this, this we think is a rather more robust business model or business models than the previous print advertising driven model; and therefore, I would not say it is not vulnerable to cyclicality but it is clearly we think less vulnerable to cyclical swings.

Our guidance for revenue growth for Harcourt for the year was 2% to 4% as you know. You saw in Mark's presentation that underlying in the first half was 3% and I think it's fair to say that the guidance remains as we gave it at 2 to 4% growth for the year.

In the (inaudible) are, I guess to reiterate what Pat just said, our guidance remains unchanged on revenue. It sounds like a broken record here but at any rate on the online, which I think your question related to how much is pricing and how much is subscription based and so forth. Essentially most of our revenue I think as you know in (indiscernible) is subscription based. The pricing increases are relatively modest. We get our additional revenue from added functionality, added features, added content, and our solutions strategy, which is working extremely well in the marketplace, is really allowing us to get growth to the market and to our customers and derive as you can see from the results very attractive revenue increases. So we're very pleased with the impact that solutions is having on our overall revenue growth.

[Eric]?

The reason the numbers are not changing that we're talking about on SCOPUS is by design, because we are in the middle of the rollout trial program that you could sign up for up until a period earlier so that since we met last time, you have been in between the starting point for the rollout trial period. And you are still within the rollout trial period, which means that by definition more people could not have gotten into the trial program and conversion will happen before '07. So it is by program design.

Paul Gooden, ABN Amro. Can you comment on the bill going through the U.S. Senate at the moment that will force government funded researchers to make their research available on a compulsory basis after six months rather than the existing rules that impact some of the researchers in the U.S.?

Sure. Let me just give you a little bit of background here. This bill was officially introduced I think in May of this year and there are many bills that are introduced in the Congress in the U.S. In the last Congress, 108th Congress, over a two-year period, there were almost 8500 bills introduced in the Senate and in the house combined. Of those ultimately 498 were actually signed into law, which is about 6% and the bills that are ultimately passed go through a very extensive serious process of review, edit, and consultation. Elsevier is currently involved in the process of this together with our industry associations in America and we believe that as I say we're very confident that we can work towards a solution that will meet the objectives of the different parties involved and that will ultimately preserve the quality, integrity, efficiency of the (indiscernible) publishing process that we're involved in running.

As we consistently have elsewhere and each time whether it is the parliamentary inquiry or other not-for-profit organizations or NIH, we do find that when we sit down and talk sensibly that we seem able to reach a sensible, amicable solution. Actually what we find is that when we do talk with these people, we find that the last thing they want to do actually is to undermine the established publishing and peer review process. So I think we do feel reasonably confident that in this and other such issues that we can come up with a sensible end result that benefits everyone.

Chris Collett, Goldman Sachs. Just a couple of questions. One was just on your comment about profitability in B2B in online. I was just wondering we've heard some of your competitors in business to business saying that they actually find that they don't make any money in online. Now I'm sure you don't want to comment on their businesses, but just wondering could you tell us about -- (multiple speakers)

(inaudible)

I would agree with that, but I just wonder if you could comment about how you allocate costs? Are you fully allocating costs so the cost of content to your online businesses when you make that calculation of profitability?

And then second was just a question on the assessment business. Again referring to one of your competitors, who have been talking about the margin pressures consistently in talking about margin pressures within testing. I'm just wondering given at the start the year you said that you thought you would be able to improve profitability and assessment, now you're saying that it is actually going to be down. Is there something here that you are missing?

I can very quickly answer your first question, Gerard, if you don't mind, yes, the costs are fully allocated online. We have after doing that we've see margin in the last three years basically go from 5% to 10% to 15% of our online business. We expect that to continue to grow. I think the reason why our online business is doing well, not just from a revenue but from a margin profitability standpoint is first, this is largely organic development that we are leveraging off existing franchises. And it's a point I earlier about you've got to look at print and online as one franchise. And when you've got a strong leadership franchise with an existing customer base and a good content deposit, clearly it is an enormous advantage.

Secondly I think Gerard and his people have been extremely good in terms of innovation not just on the product side but in terms of business models and pricing. And as you know, Gerard is pretty tough on the cost side as well. So I think you put those three together it gives you the explanation not just for why it growing so strongly but why it is as profitable and it will become more profitable going forward.

Just at a macro level, to be online is driving the revenue growth and driving the margin improvement. So if you just step back and look at the [accounting] a bit, clearly the margins are improving as a result.

Pat, do you want to talk assessment?

I saw the competitors, the comments and I'm not going to comment on those. What I will say with respect to margins here is that the effect in 2006 decrease in margins primarily the result of the production difficulties that were much-publicized with respect to the state of Illinois in particular. I don't think that this is a long-term structural issue. These are operational issues. They are well on the way to being solved. I don't expect to see these again in 2007. I will say that the state contract business is more profitable on the side of the business which is the development of the tests and the development of the test items where the intellectual property lays, and is less profitable in the back room, back-end processing. But this is not a structural issue. This is more of an operational issue which we're addressing.

But in fairness, I don't want to make light of it. We did not expect the issues that we had in assessment in the first six months with Illinois and it is a disappointment, and as Pat says, we are committed to fixing it. We are working very hard to fix it. We will fix it, but yes, across the whole of Reed-Elsevier, this is the one if you like, disappointment that we had in the first half.

[Jonathan Banks]. I have got two questions. The first one quite quick, just if you would give us the attrition rate in science in the first half and what you're expecting for the full year perhaps?

Secondly just on your legal business, clearly the growth has been accelerating. You're rolling out more and more new products. Should we expect growth to continue to accelerate in the coming years? Will that be enhanced by perhaps price rises that you can both put through?

Yes, the attrition rates is easy, it is continuing to look very good at 3% for the year.

Andy?

The legal side, our revenue growth has been strong and I expect it to continue to be strong. It really has three legs. One is our solutions strategy, which is at this time primarily in the United States but is moving into other parts of a world as well and that is performing very nicely and contributing very nicely.

The second leg is international, where the online growth has been in very solid double digits, the 30% range and performing very well based on the impact of the global legal platform more than anything else. And the third is in the risk area, where you see the results for Seisint. So all in all not making any predictions but I expect the growth is going to continue to be quite strong.

Your second question had to do with the price increases that we have been loathe to put through or I'm not sure I --?

You previously commented that price increases have been a very small component. Do you think you will put through larger price increases in the future once you've got these products perhaps better embedded in your clients' businesses?

We're going to put through as much of a price increases as we can. But I think that the solution strategy which really is based on added functionality and added breadth of features and so forth is really what's going to drive for the most part our revenue growth.

Gerard, should we nip across to Amsterdam? Are there any other questions over there you've got?

We've got one here, Crispin.

Mariska Zonneveld, Fortis. I had a question concerning the margins in legal and margins were flat year-on-year. And you already mentioned the phasing of investments. So can we anticipate improvement in the second half or are there some other issues that distort the margin there?

Our margin improvement has been very good over the past six years. As a matter of fact if you look at our margins you'll see that each year we have improved margins by I believe at least 75 basis points every year. We fully anticipate that margin improvement this year will be similarly very, very good. We did have some phasing of investment costs in the first half and again I will just repeat myself. We expect that this year we will continue to see good improvement in our margins.

Perhaps if I could just add to that. If you recall last year, the first half of 2005, we saw a very strong margin improvement at LexisNexis because the investment was phased toward the back of the year and that margin then, some of the margin growth came off in the second half and we are effectively seeing the reverse of that.

It's sort of -- to reemphasizes the point I made earlier that across science, healthcare, across legal and across B2B, you should anticipate and we are aiming to deliver decent margin underlying margin growth in each of those three businesses this year. And going forward on a sustainable basis across the whole of Reed-Elsevier.

Gerard, anything else over there?

Doesn't look like it, Crispin. So back to you.

Giasone Salati, Credit Suisse. Two questions please. First could give us a bit more indication about Q1/Q2 evolution for legal and science? Not a number but just is it pretty much stable, improving, slowing down a little bit? Secondly, on education could you tell us a bit more about international and what you see in the second half for UK if it is going to continue? Thank you.

I could just quickly answer it on legal and science. As we said, both businesses we stand by the original targets and guidance we gave by at the beginning of the year and the first half gives us if you like good confidence that we are on track to deliver that in terms of top line. As I said, we expect to see good underlying margin growth across both divisions.

Just really in terms of organic revenue growth in science and legal, is there any difference between Q1 and Q2 or it is pretty much the same pattern?

Q1 and Q2, to be honest we really don't look very -- we look, but we don't encourage others to look too heavily quarter 1, 2, 3, and 4, because the numbers frankly are so up-and-down and misleading. It really would not be meaningful or helpful.

In any one year and you can see this from half to half, actually, there are always phasing issues, so there's a publication in March one year, it's April the next. There's a show in June 1 year. It's in July the next. All this happens so I think the sort of Q1, Q2 comparison is very difficult. You see others in the industry who do publish Q1, Q2 results. Forever explaining why it is actually not directly comparable. A lot of our businesses are effectively on an annual cycle.

With respect to international, the largest single market there is the UK. It has been pretty flat. Our results in the first half are representative of the market. I will say that there are some markets outside the UK that are quite attractive and are doing very well. I mentioned specifically South Africa, where there is a good deal of curriculum change and we have been very successful in penetrating that market. We expect good performance there. And we'll expect that business to grow for the year, but it is flat in the UK.

Okay, a question here?

Mark Braley, Deutsche. The question is just on U.S. B2B. I think the statement says the total underlying number there is a negative 2%, so that is print and online together. It that a number you're happy with in light of where the U.S. economy is? You talked about being relatively further behind in U.S. online. Should we think about investment there? Should we think that acquisitions there? Sort of to catch up?

Gerard, do you want to take that? Are you happy with minus 2% in the U.S.? What are you doing about it?

I am not, to put it very simple. The explanation basically what is going on is as follows. One, there are one-off effects that distort the numbers a little bit and three in particular we have been shutting down some titles, which basically work their way through in the numbers. Secondly, we also had a number of one-off events such as a two large trade shows that happened biannually that did influence last year's numbers and the variety centennial celebration last year, which added quite a bit of revenue on that front. So there is a bit of that.

But the more important issue is that although online is growing nicely also in the U.S. as it does everywhere else in the world, the absolute balance between the two if you look at the absolute numbers between print and online is for example not as favorable in the U.S. as it is for example right now in the UK. In the UK we will very quickly approach the 50% mark where more than half of our revenue will be from online. We are not there, not even close in the U.S.

Then it is all mathematically different and that basically, as Crispin earlier said, it is really a summation of two parts. You have strong online growth. You have print that is kind of declining modestly. You add them together, this is what you get. Am I happy with it? No. The good news is however as print continues to progress and we are holding it steady and as online grows strongly every day and every month goes by, the balance gets more favorable.

I think there are some portfolio opportunities in the U.S. to accelerate that kind of dynamic that Gerard was talking about, but then I would emphasize if you look at the UK as a sort of glimpse into the future as to what our B2B business potential could be, it does look quite positive, as Gerard says. But we're close now to over 50% of our UK business being online. We are seeing very good margin progress as you can see from the numbers and obviously it is our goal to move more of our overall B2B business to that kind of makeup and dynamic.

To add to that, Crispin, maybe for a minute, I think is a key point on this whole transformation which also plays itself out in our recruitment markets. You look across what is being reported right now in recruitment and it is all pretty dark and it is not very pleasant in terms of what happens in print recruitment. Now we also see that. Our print recruitment in the first half was down 15%. Our online recruitment is basically up very, very strongly and very quickly now will become the largest franchise that we have in the UK. You put the two together, our online recruitment in the first half was up double digits and that is fundamentally the trends that Crispin was talking about.

Total recruitment was up double-digit. Okay, final question or two? One here at the front.

Charles Peacock, Seymour Pierce. Another question on B2B and one on LexisNexis if I can. On the B2B, I wonder if you can just expand on what is happening in Continental Europe. There's been quite a sharp pickup in growth in the first half compared with the experience of declines over the recent years. Just to whether it is subscriptions that are particularly driving, whether advertising, and whether we should expect the momentum to build further in the second half?

Then on LexisNexis, just a question on the step up in growth in the first half. Is this the first year that Seisint comes into the underlying growth and does that largely explain why we've gone from sort of 6% to 8%?

Gerard, will you take the first?

Yes, the reasonable that the results in the first half in Continental Europe were quite a bit better than they were in prior years is due to fundamentally three reasons. One, there was a one-time effect with a show in Italy that really helped revenue quite a bit down in Italy, so kind of the reverse what I talked about earlier on the U.S.

Secondly, there is no denial that the economic circumstances have been a bit more favorable in particular in the Netherlands, where we have a sizable business. Last but not least, the biggest driver of the growth has been our online growth in all those countries. Combined for Continental Europe, the online growth was over 50% in the first six months, so that added most of the growth and the pickup that we have seen there.

Than you. Andy?

Yes, this is the first year that Seisint impacted our revenue and as we anticipated, we expected that it was going to add about 1% to our revenue growth, which it has.

In other words the step up is about half due to improvement in organic and half due to the Seisint impact. Any final questions. No? Gerard, thank you. Thank you everyone in Amsterdam. Thank you everyone here.