RELX PLC (RELX) 2008 Q2 法說會逐字稿

Well, good morning, everyone. Thank you for coming along this morning. I know it's a very busy morning indeed. As usual we are linked in with Amsterdam and we should have Gerard, I hope, on the -- yes. Morning, Gerard.

Good morning, Crispin. Good morning all in London.

Everything okay over there.

Yes, fine thank you. Ready to go.

What we'll do is I'll start by talking a bit about strategy and overall business progress, hand over to Mark to talk about the financial results. And then we'll open it to Q&A. And we've got Andy, Erik, as well as Gerard with us.

First of all, just looking at the key highlights. I think it was a good performance over the first six months. I'm encouraged by the progress we've made. It's not just the numbers. The underlying quality and consistency of performance I think is actually quite reassuring and encouraging. The restructuring program is very much on track. We'll deliver the savings this year, and the savings for the next three to four years are very much on schedule as well. We'll talk about the divestment of the RBI business during the second half, but both that and the ChoicePoint completion, are proceeding satisfactorily, and we expect both to complete in the second half of this year. And lastly, most important, I am confident that we will deliver on our goals of good above market revenue growth, significant margin improvement, and a further acceleration in our overall rate of earnings growth, even above the record of last year.

I know all the -- the focus understandably is on the short term economic environment and the like, but I do think it's important to keep focused on the key strategic priorities and the strategic underpinnings behind Reed Elsevier because these fundamentally are is driving the success of the Company, both in the short and long term. And these four strategic priorities, these are the same, in fact same chart as you've seen now for several years, and they haven't changed. The core, the heart of Reed Elsevier, is still around delivering authoritative proprietary content through leading brands. Increasingly the focus on online workflow solutions, gaining traction and really driving growth. A lot of focus now on cost efficiency, this cost restructuring program and accelerating margin development. And lastly, of course, upgrading our portfolio to deliver a more cohesive, integrated faster-growth portfolio going forward.

On the first, authoritative content, it's worth emphasizing that as far as fundamentals are concerned we are seeing continued strong demand and growth in scientific research output and also demand for health information services and analytics. And this is driven by fundamentals that are readily understandable. But the point is that there is a strong consistent demand for authoritative content and solutions in these areas.

The last six months we've seen real progress and I think encouraging progress in the quality of our journal publications and content development both in science and in health. Citations grew 10%, which was ahead of the industry average and a high level of growth. Our impact factors at 0.99% are the highest impact factors for our journals for 10 years. We're on track to publish around 4% more research papers this year. The level of usage over January, June actually increased above 25% growth, which is ahead of what it was a year ago. Renewals this year, we will at least hit the 97% renewal rate we've seen in the last two to three years, and 60% of our contracts now are more than three years in length. So, you take all those, all that data together I think it points to a pretty strong performance around content and quality of content.

We're seeing similar progress on the book front. Books is now starting to become a little bit of a misnomer since the vast bulk of our books are now published in e-format with all the benefits in terms of search, speed, and so on. Strong front list program this year, geo-cloning going very well, particularly in Europe and Asia. And we are actually seeing accelerating revenue growth on the book side. To give you one simple example, two to three years ago our scientific book business was growing 2% to 3%. This year I think it's going to be close to 10% revenue growth.

And on the brands side we do measure with all of our customer groups, authors, editors, researchers, librarians, exactly how they assess our brands and service levels and every three to six months we get the results. And if you look again over the last two to three years, and the last six months, you are seeing quite clear improvement in terms of brand image, perception and satisfaction levels with the service that we are providing, both on the science and health side.

A similar picture with LexisNexis. Again, good strong fundamental demand for high quality content and data in areas such as litigation, compliance, regulatory. Again, consistency, I think is the word here. The first six months have been very good in terms of the quality of publishing. We've relaunched lawyers.com, significantly improved product there. The new state legislation impact reports have been very well received in the market. We've now put a large amount of the Elsevier content in the vertical for patent lawyers. And a number of other areas, particularly in terms of what I call practice specific, whether it's insolvency, bankruptcy, litigation, and so on, we are increasing the depth and quality of our content.

The same in risk analytics where in the key verticals, health collections, law enforcement, insurance, we're adding products and services there. For example, in law enforcement we've just introduced very successfully a tool that gives automatic notification to law enforcement of the locations and change of locations of sex offenders.

And lastly, on the brand front, we've acquired Redwood Analytics, one of the leading legal analytics brands in the US. And importantly, we've also acquired Wadhwa, which is the leading legal publisher in India. And you put Wadhwa together with our Butterworth LexisNexis brands in India, that gives us a clear leadership position in India with very strong brands. And our belief is over the next five to 10 years India's going to become an important and large market for us, and we're very well placed there.

On Exhibitions, again we're seeing very high ROI from our customers coming from these face to face meetings. And again, the point of having the leadership show in each of these sectors remains crucial. And over the last six months most of our leadership shows have done very well seeing good demand, good customer feedback. We also in the first half kept up our significant investment behind new shows. We launched 11, and particularly focused in high growth areas, so alternative energy, green energy, medical devices, aerospace, and the like. And we're now building up probably the best geographic spread almost of any of the Reed Elsevier businesses. About 20% of our Exhibitions business is now in the emerging and BRIC markets, and growing very strongly there.

Turning to the second strategic priority, driving online solutions. You've heard it from me many times before, but I do want to keep emphasizing the importance of workflow solutions. And the more we can imbed sophisticated solution products in the workflow of our customers, you do get this real, what we call stickiness. And that's driving greater usage and we're seeing usage levels rising right across our business. We're seeing higher renewal levels right across our business. We're seeing contract lengths, not just in science, large law now contract lengths typically three years or more. You get the new revenue streams coming when you add additional products, content and so on to your workflow solution platforms. And of course it gives you greater pricing leverage. So, the benefits of workflow solutions are significant.

Again, over the last six months I think we've seen good progress in driving innovative new products and services. And significant upgrades to ScienceDirect and Scopus in terms of functionality and content. And a number of new, I think, quite innovative products we've introduced. Illumin8, I think is particularly innovative. It's basically targeted against researchers and allow them to look globally at implications of what they're working on and relevant applications of what they're working on. So, for example, someone who's working on developing new fuel cell energy products, he can access globally all applications that might be going on, for example, in energy storage. He can access globally other researchers who are working on the same area. He can access globally patent applications that may be relevant. And all of these obviously help his productivity, accuracy, avoid duplication, and so on.

Health, probably where the most activity is going on in expanding our workflow solution offering both through internal innovation and through acquisitions. And today we are now up to revenues being over 25% of total health and growing at 27% a year. And it was only two, three, four years ago that online was really less than 5% of our total health business.

LexisNexis, which has really been at the forefront, now about a third of our online revenues in LexisNexis are what we would call workflow solution based and that traction is growing not just in the US but also internationally.

And in terms of the impact this is having, as you can see, continued very strong growth from our online business, meaningfully above 10% again this year, and online revenues over 50%. And once we've completed the portfolio changes with ChoicePoint and Reed Business Information these numbers will improve meaningfully further.

Third strategic priority is around our cost restructuring and margin improvement program. I'm pleased with the way this is going it's definitely moved beyond planning and it's now into implementation and delivery in a whole host of areas. In the IT infrastructure and, for example, the move to consolidate our datacenters from something like 140 to 30, 35, that's actually now happening or happened. We've closed a number of them down, we've upgraded others. We've now formed a partnership with IBM for open systems architecture. Procurement, the organization is now largely in place. A lot of the tools are in place, things like e-auctions and so on. We're actually starting to see savings coming through there. Real estate, again, the organization in place. We've already moved to consolidate a number of our offices, for example, in Amsterdam, we've now taken a number of the offices in the Netherlands and now all consolidated in the one Amsterdam building. And we're now turning to phase two, finance and HR, and now detailed plans are in development there to deliver again improved efficiency savings consolidation.

And at the division level similarly good progress, particularly good progress, I think. A lot of this is built around outsourcing and offshoring a number of services. It is partly about cost savings but it's also in many instances about service improvement. And, for example, in Chennai we've now established a significant offshoring outsourcing base and we're now one of the larger and highest regarded employees in Chennai, and I think that's going to give us a real competitive advantage there.

As far as the numbers are concerned this is the same chart we put up in February. But it's just really to reiterate that we are very much on track to deliver these savings. We will deliver the GBP15m, $30m in '08 and are on track to deliver the numbers shown here in the out years. And I'd re-emphasize again that these are net extra savings and after some re-investment behind workflow solutions. And they're targeted of course at giving us this net extra average 50 basis points on margin.

And turning to the last, the fourth, strategic priority on the portfolio. As you will have read, the Reed Business Information divestment, I think it's moving ahead satisfactorily. We've got the staple finance in place, and I think that's important in today's environment. The vendor due diligence is prepared, information memorandum sent out. And we've been encouraged by the level of interest, largely from private equity, but there is a wide range of genuine interest in this business and we continue to expect to complete the divestiture in the second half.

And maybe worth saying just a couple of words on Reed Business. I think that the performance in the first half was very encouraging. It delivered a rate of growth that was very comparable to a year ago, despite a tougher economic environment. And we actually expect the second half to deliver a similar rate of growth to last year. So, in '08 I think we're going to deliver a good performance comparable to '07, despite a worsening economic environment. And I think the points laid out here go a long way to explain that resilience and good performance.

Online continues to grow very strongly, another 20% growth in performance. And what's striking is that you're seeing a consistency of growth between 15% and 30% really across all geographics, all sectors, all business models. Whether it's e-recruitment or page search, or advertising online, or subscription, or by geography, it just looks very robust, very consistent. And certainly no signs of it being impacted by the economic slowdown. And, of course, it's helped by having a very diversified revenue stream, both geographically and by business model and between online and print. Online is now up to over a third of total Reed Business Information revenues.

And again, to emphasise this same point, having leadership brands is hugely important and many of these brands are not just leadership brands, they really are the voices of the industry and are must have, must read, publications.

ChoicePoint, again, I think, progressing well. Obviously, the key issue is the regulatory clearance. I don't think it will be appropriate to say too much at this point in time other than that we're satisfied with the way it is going and we remain confident that this will complete in the second half of the year.

ChoicePoint's own business performance has been pretty much exactly in line with our expectations. I thought particularly encouraging performance on the insurance business, which if anything has seen a slight acceleration in growth this year. The integration planning and the cost savings program very much on track. We remain very confident that we will deliver the $150m of savings that we outlined at the time we announced the acquisition.

Let me just finish by talking a little bit about trading and the outlook and how I see it, and to give you a bit of a feel as to how things are going. On Elsevier I think we're looking at a very good performance and a very robust momentum. Science, all the numbers point to an excellent performance this year. We're not seeing any impact from the economic downturn. Clearly, if there is recession and it continues for two to three years we can expect library budgets to come under some pressure, but certainly at the moment it's fine. And I think that with the quality of our publications, leadership positions, workflow solutions, and so on, we feel very confident that the current momentum can be maintained going forward.

Similarly, in healthcare with one exception, which is pharma, but the rest of our healthcare business whether it's the clinical reference business or the health professional education business and so on, all performing at least in line with target and expectations, some of them above it. The one down spot is pharma. The pharma market this year is down about 9%. This is pharma advertising and related, we're down 4%. So we're outperforming meaningfully but nevertheless it's still a minus 4% so obviously that has some impact. Pharma advertising is about 10% of our health business, 5% of total Elsevier. You can add another 5 points on for related, whether it's consultancy, reprints, and so on. So, it's manageable and that softness in pharma is offset by the strong growth we're seeing just about everywhere else in our health business, and we expect that to continue.

LexisNexis, good momentum. Workflow solutions clearly driving growth and resilience. We are seeing, and particularly in recent months, some impact from the economic downturn on the legal profession and some curtailment there. And we do expect that to continue. But again I think it's important to put that in context and if you look at last year we grew at a record high 7% underlying. What we're seeing now and going forward may knock 1 point, maybe at worst 2 points, off that. But we're still going to see good underlying growth from our legal business going forward. Risk is continuing to perform well. We've had another six months of double digit growth and while the smaller areas like mortgages obviously are suffering, collections is doing extremely well. And I think the risk business is in good shape and good form.

Reed Exhibitions has had a very good first half. It'll have a very good second half. There's pretty good visibility here, and as I said earlier, the leading shows continued strong demand, strong support. There have been one or two in, for example, property and retail, we had a pretty awful property show in Spain. But that's been more than offset by strength and above expectations performance elsewhere. So Exhibitions this year is going to have a very good year indeed. It is worth emphasizing that particularly with the sale of the defense shows that we are going to see greater impact from the biennial shows, cycling and joint ventures coming in and out. '08 will be a very good year, '010 will be an extremely good year, '09 will be a soft year. If you take the overall period you're going to see good growth.

Reed Business, I've really talked about. I think it's performing well, it's showing real resilience and where we stand today that looks like continuing.

So to repeat what I said at the beginning, I think that I'm confident that we'll deliver good above market revenue growth this year. Meaningful margin development and accelerated earnings growth.

And to finish I think it's fair to put ticks in these boxes. There is good momentum on the core business, not just in terms of growth rates, but the underlying strategic implementation and impact. Online solutions clearly working, clearly gaining traction, clearly driving growth. I think that, particularly, once we've completed the sale of RBI and the acquisition of ChoicePoint we'll have a more cohesive, higher quality, less cyclical portfolio. The restructuring program is and will deliver on our cost reduction targets and the accelerated margin progress. And the net result is we'll, and I think it's an important positive, we'll be a more integrated Company going forward and I'm confident that we'll deliver on our goal of faster and more consistent growth.

Thank you. I'll hand over to Mark to take you through the financials.

Thank you, Crispin. Well, good morning. I'm very pleased to report on a successful half year. We saw good revenue growth and profit performance across the business. We saw strong subscription renewals, rapidly growing online sales, and strong growth in the Exhibitions business, including favorable show cycling.

Following the announcement of the planned divestment of RBI this business is now presented within discontinued operations. The comparative figures for discontinued operations also include Harcourt Education.

Adjusted earnings per share were up 42% for Reed Elsevier plc, up 25% for Reed Elsevier NV, and at constant currencies were up 35%. Now this significant increase in adjusted EPS at constant currencies divides equally between a strong operating performance combined with leverage and the effects on the first half EPS of the Harcourt Education sale. And to explain that Harcourt effect, Harcourt had seasonal first half losses last year, which are not repeated, whilst the earnings per share benefited from the 13.4% share consolidation that took place in January. And this in effect added approximately 17% to the constant currency EPS growth. Now, this effect largely reverses in the second half when all of the annual Harcourt profits would normally have arisen. The effect of the sale and the share consolidation on the year as a whole is expected to add around 1% to 2% to EPS growth.

Currency translation, this first half, is a major factor on our results at reported exchange rates, and whilst the US dollar sterling exchange rate was unchanged from the prior first half, the euro has strengthened 15% against both currencies first half on first half.

As in previous years I'll be presenting the figures in sterling. The same charts with euro figures can be seen in the appendix to the booklet. And in discussing the results I'll mostly focus on growth in constant currencies.

For the continuing businesses, and that's Elsevier, LexisNexis and Reed Exhibitions, reported revenues were up 5% and adjusted operating profits up 12% at constant currencies. Excluding acquisitions and disposals, the underlying revenue growth was 6% and adjusted operating profits were up 11%. The adjusted operating margin improved by 1.8 percentage points, part of that improvement relates to portfolio changes, in particular low margin disposals. And the underlying margin improvement was 140 basis points. The net interest expense was a little lower, largely reflecting the free cash flow and minor disposal proceeds, less acquisition financing. The incremental financing costs of our share repurchases was offset by the benefit of holding the Harcourt proceeds for 18 days before the special distribution to shareholders. With leverage and the lower interest expense adjusted pre-tax profits for the continuing businesses were up 15% at constant currencies. In the appendices we also have an analysis of our pre-tax profits by currency.

The next two charts summarize the total and underlying growth rates across the continuing businesses for revenue and adjusted operating profit. You can see how our underlying revenue growth of 6% is derived from 5% in both Elsevier and LexisNexis, and 11% in Reed Exhibitions. The lower total growth rate in Elsevier of 3% reflects the disposal of the MDL software business last year, partly compensated by a number of relatively small acquisitions in health sciences in the e-space. The higher total growth rate for LexisNexis at 6% includes a number of small acquisitions in the solutions arena. And the slightly lower growth rate for Exhibitions of 9% principally reflects the sale of the defense shows.

For adjusted operating profit our underlying growth is derived from 10% of Elsevier and 9% at LexisNexis and 19% in Reed Exhibitions. I'll talk later about these underlying growth rates, and in particular, the effect of cycling on Exhibitions. The total operating profit growth includes, as with the revenues, the effect of acquisitions and disposals I've just mentioned.

Turning to each of the businesses, Elsevier had a successful first half with strong subscription renewals and growing online sales to deliver the 5% underlying revenue growth. As Crispin mentioned, first half growth was held back a little in health sciences by the weakness in Pharma advertising markets. Although health sciences should see faster growth overall in the second half, reflecting the seasonality of the publishing program.

Operating margins were ahead 2.3 percentage points and that includes the effects of changes in the portfolio, most specifically the sale of the lower margin MDL business last year. The underlying margin improvement was 1.5 percentage points driven by the good revenue growth and cost efficiency, most particularly in production. This first half margin gain includes some benefit from timing of cost savings and investment.

I have included in the appendix an analysis of the components of Elsevier's margin growth first half and first half, which includes the effects of the currency hedging program. This program together with other currency translation effects represented a 20 basis points drag on Elsevier margin growth.

At LexisNexis it had a solid start to the year with double digit growth in online information and workflow solutions, both in the US and internationally. And another strong performance in risk information and analytics. The 5% underlying revenue growth was a little behind last year's growth rate. Legal markets, as Crispin mentioned, are not immune to the economic pressures in the US and internationally. There is, however, good momentum in solutions that drive customer productivity and the second half should see faster growth through new solutions product sales.

Operating margins were up 60 basis points, this includes the effect of low margin acquisitions that are still in development phase. On an underlying basis operating margins were up 90 basis points with more to come in the second half with the restructuring actions taken.

Reed Exhibitions had an excellent first half, underlying revenue growth was up 11% and operating profits up 19%. The business saw good growth in annual shows and with new launches and also in the biennial shows. The particularly strong growth reflects the net cycling in of these non annual shows, which added approximately 6% to the revenue growth, after taking also into account that some annual shows shifted from the first half last year to the second half this year. The effect clearly reverses in the second half. And the strong profit growth and margin increase of 2.3 percentage points largely reflects the cycling in of significant biennial show contributions and the gearing effect that has on profit growth.

The net effects of cycling and show timing in the second half is expected to be somewhat similar, and that is contributing around 6% to second half growth. In the total reported growth figure, including acquisitions and disposals, this incremental effect is largely reversed by the defense shows which have been sold, and would, in any event, have largely cycled out this year. And Crispin referred to it earlier, but the sale of the defense shows will exaggerate the effect of cycling going forward in that there will be no DSEI show in 2009 and 2011 and so on, to balance Mostra Convegno, which comes in now in 2008, 2010, etc. So, you will see a more lumpy pattern of growth but good growth through the two year combo.

On margin you will see a 34% margin in the first half, it won't be that for the full year. The weighting of Reed Exhibitions' revenues is to the first half, most particularly in the US, which has a strong bias to spring shows. This results in a higher margin in the first half than we'll see for the year. And you can see this in last year's figures where the margin was 32% in the first half, whilst for the year it was 24%.

Adjusted operating cash flow for the continuing businesses was 94%, with capital expenditures flat. Working capital and other items absorbed GBP41m, an improvement on the prior first half. This reflects the continuing focus on working capital management but is also influenced by the seasonality and timing of subscriptions and advanced exhibition deposits. Our cash flow conversion target remains at 90% plus for the year.

Reed Business Information, discontinued operation. This comes in, in one line in the profit and loss account down the bottom of it, but the segmental analysis shows the performance. And here it performed well in the first half with continuing strong growth in online information services more than compensating for print decline as business migrates online. As Crispin mentioned, online services now account for 34% of RBI revenues in the first half. And whilst the general economic environment has affected certain sectors, such as property, retail and residential construction, RBI has seen no significant overall shift in market trends. With the growth rates in the individual territories almost identical to those that we reported in the prior first half.

Operating margin was up 50 basis points through tight cost control while continuing to invest in expanding online services.

This next chart shows how the continuing businesses and discontinued operations are brought together to arrive at the profit attributable used in calculating the adjusted earnings per share. The total adjusted operating profit growth rate at constant currency increases to 14% and that reflects that Harcourt's educational seasonal first half loss, which was GBP12m last year, is no longer incurred. The effect of leverage and reduction in the interest charge adds a further 3 to 4 percentage points to growth at the adjusted pretax level and this gives 17% growth in adjusted profit attributable at constant currencies.

Now, together with the 13% reduction in share capital, which accompanied the GBP2b special distribution on January 18 this year, the 17% growth in attributable profit turns into 35% growth in adjusted earnings per share at constant currencies. As I noted earlier, for the full year the effect of the sale of Harcourt Education on earnings per share is more modest. We lose the Harcourt operating profits, the annual profits which all turn up in the second half, and interest on proceeds that we receive during the course of '07. And this combined with a 13% share consolidation gives this positive effect of approximately 1% to 2% to adjusted EPS growth for the year as a whole.

As also described earlier, the effect to the appreciation of the euro against sterling means that at reported exchange rates the adjusted EPS was up 42% for Reed Elsevier plc and up 25% for Reed Elsevier NV. And the effects of the Harcourt Education sale on the currencies, etc., is reasonably complex and I've set out in the appendices the calculation of these EPS figures for you to see.

The equalized interim dividends are up 18% to GBP0.153 (sic - see presentation) for Reed Elsevier plc and unchanged at EUR0.114 for Reed Elsevier NV. And the difference in the growth rates reflects the 17% appreciation of the euro against sterling since last July, which was when last year's interim dividend was declared. The exuberance of the plc dividend growth should be seen in part as reflecting a desire to maintain the equalized NV dividend despite the euro's appreciation.

Turning to cash and balance sheet matters. Free cash flow was up 50% in sterling from the continuing operations before dividends. This reflects the strong operating cash flow and a reduction of the taxes paid. The movement in taxes reflects an anomaly in the 2007 figure, which saw the reversal of earlier timing tax benefits, which favored 2006. So 2008 is a more normal rate.

My last chart addresses our balance sheet. In the appendix I've set out the movement in our net debt in the period from half a billion pounds at the beginning of the year to GBP2.6b at June 30. The most significant item, of course, is the GBP2b special distribution to shareholders from the net proceeds of the Harcourt Education sale. The GBP2.1b acquisition of ChoicePoint initially will be financed from the new committed facilities, which were fully underwritten and, indeed, successfully syndicated in April. And we intend to pay down the acquisition facilities through a combination of term debt issuance later in the year and proceeds from the sale of Reed Business Information. These transactions are consistent with our goal over the longer term for net debt to EBITDA to range between two times and three times, depending on financial conditions and developments in the business. More specifically, in the timing and scale of acquisitions spend going forward.

We do, of course, have to keep a close eye on other key ratios important to our credit ratings, most particularly, free funds from operations to net debt and retained cash flow to net debt. Neither of which are that well aligned with the net debt to EBITDA ratio. These ratios, as at June 30, are set out in the appendix and show our net debt to last 12 months EBITDA ratio at 2.3 times on a pension and lease adjusted basis.

To conclude, we had a strong first half, there is good momentum in the business for a very successful year, and the major portfolio moves we are making are making good progress. And on that note I'll bring the presentation to an end and we'll turn to questions.

Okay, let's start off at this end with, I haven't even finished yet, with questions and then we'll take a few at this end, and then we'll move over to Amsterdam and have a few there. Right.

Okay, thank you. It's Paul Gooden from RBS. Three questions if I can do. Firstly, just to understand what you're saying about Exhibitions. The cycling will also benefit the second half of the year as well and by implication are you saying that in 2009 although we can pick an underlying growth number, but then the cycling out effect could mean that there's very low, or perhaps no growth, in Exhibitions next year. I just wanted to understand a little better what's going on there. Thanks.

No, your understanding's right in that this favorable impact this year reverses next year. I mean since the acquisition of the defense shows a few years ago the impact on cycling overall became much more muted for the Reed Exhibitions portfolio. But with the sale now we lose that odd year contribution, particularly from DSEI. There are some annual shows within the defense show portfolio, but that was the big one that came in, in the second half every odd year and so we will miss that. At the same time Mostra Convegno comes in in the first half of every even year. So, we get a big boost in the first half in '08 and that will come out in '09.

Right, thanks. And then just two more quick ones. Firstly, the science price increase that you're putting through next year, just clarify what that is.

And then the final question is just on working capital. The GBP32m planned outflow in the first half of the year for the new Reed Elsevier, could we double that to get a GBP60m outflow for the year, or is there some sort of phasing in the working capital we should be aware about?

Yes, on the science price increase it's consistent with the last few years' policy. The one we just announced recently for next year is just under 6% on average globally, which is consistent with a 5.5% to 6% range we've now had for several years in a row, which continues to put us as a policy in the lowest quartile of industry publishers. And then it compares favorably to the 4% or so increase in articles published and the over 20% annual increase in growth, increase in usage of ScienceDirect downloads.

On the cash flow. No, I think you can assume that. In fact, you will see on the analysis I've put on the chart, if you take out the effect of share base payments and the net pension finance and credit the outflow was GBP41m. As I said, it was -- these things do move round a bit, specifically because we have a significant amount of advance subscription receipts and also exhibition deposits. And where those fall in terms of Q4, Q1, can have an impact on what the overall cash flow conversion rate is.

So, we had a 94% cash flow conversion for the first half. I said that our target is 90% plus and I'm confident we'll hit it. Typically, we see there's a higher level of CapEx in the second half than the first. There was last year and we would expect the same this year. So, a number of variables but I'm very confident of the 90% plus.

Hi, it's Polo Tang from UBS. First question just on legal, you talked about solutions driving growth in terms of the second half. But could you just give us some more color in terms of the drivers and acceleration growth in terms of legal?

Second question's just on leverage, because once you sell RBI your net debt to EBITDA leverage going into 2009 will be less than two times. The target is two to three times. So, given that you've handed that cash back to shareholders post Harcourt, what's your thoughts post RBI? Thanks.

Andy, do you want to take accelerated growth in the second half?

Was your question about color around solutions, or was your question around accelerated growth in the second half?

Was your question about color around solutions or was your question around accelerated growth in the second half?

Just more color on accelerated growth in the legal sector.

Right. Well two things, two things I think are driving the accelerated growth as far as solutions are concerned. One is that when times get tougher, and times are tougher right now in the legal markets as we know and as we see, the ability to reduce costs becomes that much more pronounced. And most of our solutions, if not all of our solutions, in some way drive productivity and therefore are more attractive to the law firms.

And secondly is that in today's world what lawyers are looking for is not only good authoritative content, which is what of course we provide, but when you add to that the ability to do their jobs more quickly and faster, that has been a trend that -- the trend to be attracted to those kinds of solutions has been in place for the last two or three years. And we're just seeing that pick up.

On the leverage, of course, we will be acquiring ChoicePoint as well so I think you'll find our leverage will go up as a result.

A question there?

Hi, it's [Jonathon Heywood] at Cazenove. A question first on legal, I wonder if you'd just enlarge a little on where exactly you're seeing the increased pressure from the economy feeding through? Is it in transaction-sensitive parts or is it in total numbers employed in lawyers. Just a little bit more of a feel like that, and specifically what you mean by curtailment?

And then, more generally, sort of extending from that, you've got a cost-cutting program going through in your core business, you've got a cost plan for ChoicePoint. Is there -- would you be able to meaningfully accelerate those if the top line environment does become tougher, as we go into 2009 and 2010?

Well on the legal, again, to put it in context, last year we had a record growth of 7%. And I'll talk in a minute to what is causing or what the impact of the economic slowdown, which we're all familiar with of course, the impact of that in the legal markets. But what we anticipate is a 1% to 2% impact from where we were last year, of 7% growth. So I'm going to put that into context and maybe I can also explain why it is that the impact is as seemingly benign as the 1% to 2%.

What is causing the slowdown is not that much different, although there are some differences, I would say, in this particular economic slowdown. It is that you've got less M&A activity, you've got less transactional activity. People are less inclined to go and spend money with lawyers, when things get tougher. It's that simple. Traditionally, in the past, we have seen more pickup on the offsetting legal activities, such as bankruptcies and restructurings and litigation. We haven't seen as much of that this go around.

The reason that the impact is as benign as the 1% to 2% is simply because most of our deals are multi-year deals. Virtually all of our contracts are fixed price. And, as I just said before, when times get tougher, productivity solutions, which is very much a big part of what we sell into law firms, are then therefore that much more attractive. So that's what, if you will, leads to a reasonably benign impact.

Just on your cost savings point, I mean for example, this year, although we're likely to come in a tad below our original targets on revenue growth, we do expect to hit the bottom line. So, put another way, yes, Andy's doing a very good job in terms of accelerating the program of cost savings to balance that.

Shall we move over to Amsterdam, Gerard, any questions over there?

Yes, sure, I've got one here.

Yes, Hans Slob, Rabo Securities. Two questions. In the first half there was a 20 basis points small impact of the hedging program on the STN margins, based upon unchanged currencies. What do you expect for the full year, as an impact from the hedging program on the margins of the STN division?

And secondly, at the beginning of the presentation you mentioned 10% growth for the book business for Elsevier in, possibly, in 2008, while we saw only 4% growth for the medical business in the first half where I think most of the book sales take place. So can we expect a very, very strong second half then for the, let's say, textbook business within Elsevier? Thank you.

Yes, on the currency effect it will be similar in the -- for the year as a whole.

Yes, on the book side I think there's just a slight misunderstanding of the semantics. The 10% revenue growth that Crispin was referring to for this year was S&T books, meaning the science and technology books division, which is about 10% of the S&T revenue. The health books were not referred to at all and they have their regular seasonality and the health book group is continuing to grow this year, roughly in line with last year, actually, slightly ahead but not the 10% level that was referred to at S&T.

Another question, Gerard?

Yes

Hi, good morning; it's [Conrad Zelma] at Cheuvreux. Two questions please. First on the integration of ChoicePoint onto the science and technology; could you give us a bit of a feel for the timing? Assuming you get regulatory approval in the second half, how much time do you think it will take to move that business on to your existing science and technology platform?

And, the second question, I think that it is quite obvious that you've been very good at reducing the cyclicality of your business over the last few years and with the intention to sell RBI, I think that's another major step in doing that. But, today, we obviously find out that the Exhibitions business is actually improving -- well, the cyclicality of the Exhibitions business is actually going up by the sale of the defense shows. Is that something that worries you going forward because obviously the growth rates there are very good but they will be more cyclical going forward? Thank you.

Andy?

On the integration, we are going to move as quickly as we possibly can. But we're also going to be extremely careful to ensure that we do not in any way jeopardize the processing and the integrity of the data and, the services that we provide to the ChoicePoint customers. I'm not prepared to give you a timeframe at this stage.

I can tell you that the science and technology is extremely powerful. I can tell you that we're very confident that we can perform the migration and perform it, certainly consistent with and, we think even better than what we had in our original thinking. So, overall, we're going to move very quickly and overall we're very confident that we're going to be able to execute on plan, or even better than plan.

On your point on cyclicality, I mean I think that there's an important difference between cyclicality due to economic environment and variances, and therefore not predictable. Whereas in Exhibitions what we're talking about is cyclicality due to basically the timing of shows, which is very visible, very predictable. So real difference and important difference there.

I mean, obviously, it would be easier if we didn't have that and we will look to try and rebalance it out over the next two to three years. But -- it's a complexity but it's not more than that. I mean you can all see quite clearly, or will be able to see quite clearly where the cyclicality due to timing falls and therefore the impact. But if you look over a two to four year period you can see it balances out, and overall that the growth from Exhibitions is very strong.

Gerard, one more?

Yes

[Michel Phel], [S&A Securities]. I just wondered when Mark had the answer on net debt to EBITDA, I notice you got a negative, worse of your credit rating at Standard & Poor's. And as net debt to EBITDA is going up after ChoicePoint, could you provide us what your minimum net debt to EBITDA is for this rating to keep? And, how much willing are you to keep this rating?

And second question, could you talk us through a little bit, you mentioned strong interest for the RBI activities. How do you define a strong interest and is it fair to assume that you expect this deal to be closed at the end of the third quarter, maybe early fourth quarter? Thank you.

Yes, the net debt to EBITDA ratio is probably less important to S&P than free funds from operations to net debt. And there, S&P have put us on negative outlook because of the acquisition of ChoicePoint, less the disposal of RBI, but also the potential of further acquisitions, bolt-on acquisitions, over the future.

So, we believe that the -- and it is an A rating. So we have, if you like, a split rating at the moment. We've got A- from S&P whereas we've got Baa1 from Moody's. And so in terms of the overall rating environment from our -- of our debt, the sensitivity is probably more around the Moody's rating of Baa1 than the S&P rating of A-. Although, of course, clearly, we'll endeavor to maintain both but the more sensitivity is around the lower rating category.

Alright, let's come back here and have some -- if we could have the lights up, have some questions here. Shall we have one at the back, in the middle?

Thank you very much, it's Sami Kassab at Exane BNP Paribas. Two questions, if I ma.? The first one, in the press release you mentioned the government within LexisNexis as the area where the growth was somewhat slowing down or lower than in the corporate segment or in the law firm segment. Can you comment on what is driving the government to reduce the spending with your product or discuss something you mentioned in the press release of low growth within the government?

In the government area, yes. The -- as you can well imagine, and -- when government revenues go down and corporate revenues go down, those markets tend therefore to tighten up more than law firms. Law firms do have the offset from bankruptcy restructuring, litigation and so forth. And so what you tend to find in a downturn, and what we have found in the past, is that the corporate and government budgets tend to constrict more quickly than the law firm budgets.

A very small proportion of total LexisNexis.

Okay. And the second question regarding the Exhibitions please. Would you share with us the growth rate, excluding the 14 new shows that you launched in the first half?

And if you prefer not, can you comment on the scope for further new shows being launched or versions in different countries?

Gerard, do you want to take that one?

Yes, I don't want to give a number because, quite honestly, that's absolutely not how we would look at things. Launching new shows is a thing that is absolutely critical to Exhibitions. Just to give you an idea, what you have seen in the first half is very typical of what would happen in that business. On average, every year, we launch anywhere between 25 to 35 new shows. Not all of them become big mega-shows. There's a lot of innovation going on. Some will disappear again. Again, that is quite normal and that is what you see in a business like this. But launching new shows, especially now in upcoming markets, like the Middle East, like Russia, China, India is essential in keeping this business healthy and vital, and is also, quite frankly, a lot of fun to do. So, good stuff is what I would say.

Thank you.

Thank you Gerard. Another one here -- okay, either, that's fine

Simon Baker, Credit Suisse. Two questions again please. The first one's on the legal side and we heard a little bit about the sort of dampened cyclicality, I just wondered whether it would be possible to quantify in some way the benefit that comes through from the investment in workflow solutions that is otherwise being embedded in the numbers?

And, secondly, just back to the net debt to EBITDA and the funding headroom, is it possible to give us some sort of sense as to when the next balance sheet review might be? It was the interims last year that you sort of pointed to one at the end of the year. Is there a point at which, if you don't see the bolt-on acquisitions over the next few months, you might then reconsider a share buyback etc?

Andy?

Well, I hesitate to give you an exact number on the benefits from our investments in work flow solutions. And the investments come in two ways and that's what to some extent makes it more difficult to answer your question in specific numbers. One is in acquisitions and we tend to acquire companies that further and strengthen our workflow solutions, and secondly, is in our own organic investment.

Let me just say that, on top of that, when you sit down with a law firm, the benefit of having a workflow solution component in what you deliver to that law firm not only helps you with a specific new contract for that workflow solution, but it helps you with your overall negotiation that you're performing with that law firm. So, you might have a law firm with $2m or $3m in business and if you add some very critical workflow solutions, it might add $200,000 in revenue, but more importantly it adds significantly to the leverage that you can bring to bear on the overall negotiation process and results with that law firm. So it's not an easy number to answer and it's not a -- it's a fairly meaningful impact on our current and future business.

Okay, one more --

Just on the balance sheet, the target range that I set out, really is a long-term perspective on our balance sheet. And I mentioned earlier, we will range up and down within that, depending on the timing of acquisition spend and developments in the business. But, clearly, we wouldn't want to deleverage over time. I mean I think it's worth bearing in mind that this year, in the last six months, we've returned to shareholders GBP2.4b and we've got a GBP2b acquisition to do later on and RBI to sell, so there are lots of moving parts. But, as you come through that, we will be in that range and we expect to continue to do so over the longer term.

Thank you, it's Mark Braley at Deutsche Bank. Just a couple of questions. First of all in the Exhibitions business, is there any change in behavior kind of right now in terms of re-bookings for 2009? And/or is there any change in attendance patterns right now, i.e. are you seeing kind of corporate travel budgets starting to impact on the number of people actually turning up?

And then, the other question, for Mark, is around the tax rate. Factoring in ChoicePoint, assuming that current rates in your major geographies stay as they are, can we put the 23% in for the next three to five years, allowing for the kind of historic changes in deductible amortization and how those roll in and out?

Okay, Gerard, do you want to take the first?

Yes, I think the short answer is that there are no major shifts that we would see of any material significance. In the 450 shows we manage every year worldwide there are always some that go up and down, which is quite normal and natural. Some of that will be impacted by specific developments in certain sectors, like we also have seen in the first half. But, on average, when you kind of exclude the one or two anomalies, no, I think the patterns are pretty much as they were before, which is pointing at continued healthy growth.

Mark?

Yes, on the tax rate I think, with ChoicePoint coming in next year for a full year, the overall effect on our tax rate is not that great simply because although we bring in all the operating profits we also bring all the interest costs as well. And what we've said, it will be marginally accretive in the first year and it's the margin accretion of course that gets taxed. So it won't have much effect.

But I think what I've been saying for quite a number of years, and it's never come to pass, is that with the incremental profits, particularly in the US taxed at a marginal rate of 40%, that as the business grows so the overall tax rate should tick up. I think we've been reasonably successful there in maintaining a pretty level tax charge now, for quite a number of years.

And Mark's under strict instructions to continue doing that.

Yes, the question is specific in its' kind of thinking about Lexis, which must be about [50] years ago now; are they old maps that you're sort of rolling out?

Yes, at any one time the number of old acquisitions rolling out, new acquisitions coming in and other mechanisms. The LexisNexis amortization will click out in 2010 but other things will sort of be ramping up. So I mean, as I say, I have my strict orders.

He's good at following them too.

It's Paul Sullivan from Merrill Lynch. Just on legal, as multi-year deals renegotiate over the next sort of 12 to 18 months, is there a risk that legal growth could deteriorate a little bit further or will that be well balanced by growth in solutions?

And should we view that sort of 5% to 6% growth rate this year, as the benchmark that you're targeting for next year?

And then, secondly, any comment re succession, given the press speculation we've seen recently?

Well, on the legal and the continuing impact, I mean you have to speculate I suppose on how long the current economic downturn is going to continue. But I would say, in answer to your question that the impact that we're seeing at the current time is the impact that you can expect to see going into the future. And I wouldn't anticipate seeing anything more than a 1% impact in future years, if the economic slowdown continues.

In response to your question about multi-year deals, essentially what we deliver to law firms is must have. And not to say that there isn't competition out there and so forth, but nevertheless for the most part, it's must have. And so, the issue becomes more about additional challenge to selling new business and additional challenge in getting as high a renegotiated rate in the contract extensions, rather than actually seeing the long-term contracts disappear.

On the succession point, yes, you know I will be stepping down some time next year. We haven't decided on exact timing. I mean it will be dictated by what makes most sense from a Company standpoint, but I will have been here for 10 years and I think that's, you know, maybe some of you think even too long.

There's the nominations committee which is headed by the Chairman and consists also of our three most senior non-execs, they've started the process of succession planning and they have two simple objectives. First is to make sure that they have an outstanding new CEO in place, and secondly, that it'll be a sort of orderly, smooth, professional succession plan and I think that will be delivered on.

One more here?

Hi, it's Meg Geldens from MF Global. I was wondering if you could come back on the question asked earlier but I don't think you really answered, the level of interest in RBI, if you could give us some idea. Is it mostly in the whole or in the parts?

And is the staple financing, vendor financing available only for bidders for the whole or is there also something available for bidders for parts of RBI?

We have strong interest for the whole and also for individual regions. As Crispin said, our plan A, which we believe will maximize value is to sell it as a whole. On the other hand we are fixed on maximizing shareholder value and so other options will be explored if that should indicate that a different route would be more appropriate.

The staple that we've put together does envisage the sale of the business as a whole. Having said that if one was to sell it in part then clearly, the financing of such transactions becomes much more manageable than a deal of the size of the whole.

Right, shall we just nip back for a couple of questions, Gerard? Have you got any questions over there?

Yes.

Good morning, it's Maurits Heldring from Landsbanki Kepler. Just coming back to the Exhibitions business. We talked a bit about the cyclicality or the non-cyclicality, but I was wondering what actually was the trough margin, in exhibitions during the last downturn.

Gerard?

That's a tricky question. Maybe, Mark, you can help me on this? You know it went down a couple of points in 2003 I believe, but instead of guessing at it we probably are better advised to look it up and give you a straight answer with the right numbers. I mean, I don't know, Mark, if you have anything you can add from memory there?

No I can't.

Well you've caught them both out. Well done. A second, easier question, Gerard?

I think we're done here, Crispin, so back to you.

Maybe I'll just comment on that margin. I mean, as you say, I mean Gerard's right, we ought to just look it up and tell you. But from recollection I don't recall any significant margin compression during the downturn at the beginning of the 00s. In fact the top line held up pretty well. I think there was a period when revenues came off, if you exclude cycling 3%. I think there's one year of 3% decline. I think it was reported 6% but half was cycling. And that 3% decline reflected not just the late cycle effects of the economy -- I think it was 2003 -- not just the late cycle effects of the economy but also, we had the impact of the Gulf War and SARS, and so we had a perfect storm and nobody was traveling and shows were shrinking. And so to deliver that result in that environment was pretty damn good. And I don't recall there being any significant margin compression at that time.

Gerard, I don't know if you remember any differently?

No, 2003 was the low year. It was actually caused by all the effects that Mark basically mentioned. There was an economic depression. We had SARS which, in essence, actually provided, to be the biggest issue of all, the Gulf War and also cycling out; so it doesn't get much worse than that I guess. But I guess we'll look it up and give you the answer.

Alright, let's have some questions here.

Morning, Tom Singlehurst from Citigroup. I just have a quick question on usage. You gave a specific figure for Elsevier. I was wondering whether you could give a similar figure for LexisNexis, or if it's not possible for the division as a whole, just for the US legal component, on usage in a downturn?

And, then, following that on with you mentioned specifically large law doing particularly well. Just whether you had any comments on small or whether that's more vulnerable to a pull back in the economy?

On usage, it is getting more difficult to provide -- first of all I don't, I can't give you any usage statistics here and now. What we're finding is it's getting more and more difficult because many of our solutions allow a researcher or a lawyer to isolate and get to the point of law with, in effect, less usage. So, in other words, if you go back in time 10 or 15 years ago, you'd have a librarian who did research on a particular legal matter and they would get back 1,000s of cases and then they would have to analyze those cases to determine which ones were pertinent to that point of law.

Now with what we have, we can isolate and get to the specific cases that pertain to that point of law much more quickly with a lot less usage. And so it becomes -- obviously if you have a productivity solution that means it takes less time and less work and therefore you're going to have less usage, quite often, with the things that you do. So that's why, as an explanation, as to why it's difficult to really get our hands on usage numbers that make sense when you compare them year to year.

In regard to your question about small law and large law, small law is more challenging. There's no question about it. And with small law you tend to have the law firms disappear at a more rapid rate and so forth. But at the same time, small law is more quick to respond to productivity solutions, much more quick than large law. Large law is as bureaucratic and as filled with past legacy systems and so on as you can well imagine. And large law is able to respond much more quickly and therefore takes up productivity solutions much more quickly.

Alright, one here?

Hi, Gareth Thomas from Collins Stewart. Two questions. First of all, on the legal slowdown, the 1% to 2% percentage point growth slowdown, does that differ between the US and the international side, if you could clarify on that?

And then secondly on Exhibitions, the margin decline, you've got 230 percentage point benefit in the first half. Does that carry through for H2 on H2? And, also is biannual 2009 negative impact, does the margin benefit fall away?

In regard to the impact, we're seeing the impact around the world. I will say in the United States, we've had a challenge with Martindale-Hubble over the past year or so and that is getting transformed. And we're moving Martindale-Hubble into a, if you will, a web 2.0 environment, in other words, much more online, much more interactive, much more community-oriented, and it is getting turned around. But overall, as far as the economic impact is concerned, the impact is reasonably equivalent around the world.

Yes, on the margin, yes there is an effect with cycling and that's because the -- a show cycling in brings with it, it's show contribution level, and if all other overheads were, for the sake of argument, fixed then that has a gearing effect on profit growth.

Right, let's have a last question and then we'll close, and if you've got anything more, then you can touch base with either Gerard or us, here. Let's just do the one in the front here.

Thanks, it's Usman Ghazi from Dresdner. I've just got a couple. On your double digit earnings growth target, has your view changed on that in the light of the current economic conditions and the slight slowdown you're seeing in US legal and Exhibitions, the seasonality of Exhibitions in '09?

The second question was on the ChoicePoint financing, is it in any way contingent on getting the RBI sale done? Or in other words, if for some reason RBI sale doesn't progress, is there a risk to ChoicePoint acquisition?

And then finally, if I look at the last downturn in 2001, I think your US B2B advertising revenues dropped off 13%. I was just wondering how early you saw that in the last cycle and whether -- and what's different going into '09? Thanks.

Double digit earnings, this year we've actually said it's our objective to deliver a better earnings performance than we did in '07, which in turn was the best for 10 years, and last year was 12%. And going forward it is definitely our objective to continue to deliver double digit earnings. Of course it's slightly harder to see where the world is going over the next few years but we remain confident that barring something pretty cataclysmic and major, that we will continue to deliver good double digit earnings growth going forward.

And that's underpinned both by the improved revenue performance we're seeing from workflow and of course the cost restructuring and margin improvement, as well as the portfolio enhancements, which improve the resilience of the portfolio. But also we're going to get meaningful enhancement from ChoicePoint from year two onwards.

On the second point I'll just quickly answer it. We've made it clear that the ChoicePoint, we have the funding, financing in place for ChoicePoint and it is not contingent on us selling Reed Business Information.

On the last point, US B2B, we did actually see US B2B start falling quite early and quite rapidly as you'll recall in 2001. And I do think there's a difference this time round, which we've outlined earlier, which is you've got a much more diversified portfolio. And of course we have divested the most cyclical elements of our RBI portfolio and equally expanded in the less vulnerable areas. You've now got 34% of the business in e, and the evidence is starting to suggest that that is much more resilient. We are continuing to see this 20% growth and very consistently, 20% growth and no fall off in that at all. So I think genuinely we can take some positive messages from the strong performance of RBI over the first half year, and we think a positive outlook for the rest of this year despite the overall economic environment we're operating in.

Okay, thank you all. Gerard, thank you and everyone in Amsterdam. Thank you all here. If you've got any more questions, we'll be around.