RELX PLC (RELX) 2009 Q2 法說會逐字稿

So, good morning, ladies and gentlemen. And welcome to Reed Elsevier's interim results presentation for 2009. For those of you who are here, thank you for coming. And for those of you who are listening to the webcast, thank you for tuning in.

I'm Anthony Habgood and, as most of you will know, I've been Chairman of the Boards of Reed Elsevier NV and PLC for just two months, so it's early days for me. And it gives me great pleasure to be here at my first results presentation, and to meet many of you for the first time.

I hope you will agree with me that this is a pretty robust set of results. I believe they demonstrate what has struck me as I have started to get to know the various parts of the business, and that is the high quality of the majority of our businesses in what are, and I certainly don't need to tell any of you this, unprecedented and continuing tough economic conditions.

As you'll hear from Ian later, our priorities are to manage through this environment, while at the same time developing and implementing strategies to build on our competitive strengths, and emerge from the recession competitively stronger and with greater focus on growing products and markets.

As you know, we've announced an equity placing this morning. Let's be clear; we've done this not because we have a short-term liquidity problem, but simply to address our stretched credit metrics and position the balance sheet to support the Group appropriately through its continuing evolution.

Ian will now outline the highlights of the presentation, Mark will then take you through the results and the trading outlook, and then Ian will give you his thoughts on strategy. Ian?

Thank you, Tony. I'm Ian Smith. Thank you for joining us today. I'm going to give a brief introduction, and then Mark Armour will talk, and then I'll come back and speak about our strategy.

I think the results we're announcing today, a 1% growth in earnings per share in the first half at constant currencies, is really a very robust performance in these very tough economic circumstances. As Mark will talk about, and I'll talk about as well, obviously, we've got challenges, particularly in the advertising and promotion parts of our business. But, overall, this is a very robust and resilient set of businesses.

We continue to be very focused on cost control, especially in these circumstances. The full-year $205 million of restructuring savings that we announced at the start of this year and early last year is absolutely on course. The savings that we announced we would get from the ChoicePoint acquisition are also on course, $150 million by 2011. So we're being very attentive to our cost structure and, obviously, that's important in this recession.

But one of the things that I'll talk about when I talk about strategy is also the need for us to lift our eyes and look beyond this recession. Since I've been here I've become convinced that we have a fantastic opportunity at this Company. Trends that are occurring, some of them are actually accelerating through the recession, like online migration, are causing our customers to change what they want from us, and change what they want from us in a very positive way.

So I'll talk about the priority that we have spread throughout the Company since I've arrived, which is that we want to put in modest amounts of extra investment, incremental investment, not large amounts of investment. But we believe that we can drive higher rates of organic growth, and I'll talk about the opportunities when I talk about the strategy.

As Tony says, we are seeking to raise 9.9% of our issued share capital in both Reed Elsevier PLC and NV, and we're doing that because we want to see better credit metrics. We're raising this because of our leveraged balance sheet.

Obviously, the macroeconomic environment looks challenging. But, as I say, when I come back to talk to you about the strategy I will talk about the enthusiasm I have for our medium and longer-term prospects.

So, I'll hand you over to Mark Armour now, and I'll be back in 15 minutes or so.

Thanks, Ian. Well, good morning. I am pleased to report on quite an interesting first half, with a relatively robust performance from our professional information businesses, whilst those businesses reliant on advertising and promotion were significantly impacted by the global recession.

Currency translation effects have had a significant impact on the reported results. Our revenues were up 25% in sterling; they were up 8% in euros, and 3% when expressed at constant exchange rates. Similarly, adjusted operating profits were up 26% in sterling, 10% in euros, and when expressed at constant exchange rates they were up 5%. The results include a first half contribution from the ChoicePoint acquisition, which we completed in September 2008.

Adjusted pretax profits were 2% lower at constant currencies after ChoicePoint financing costs. And the earnings per share benefitted from a lower effective tax rate, due mostly to financing efficiencies and currency mix effects.

Adjusted earnings per share for Reed Elsevier PLC were up 21%, for Reed Elsevier NV up 5%, and up 1% at constant currencies. The first half also saw strong operating cash flows.

The US dollar was significantly stronger in the first half of 2009 than it is today, which suggests that the currency translation benefits seen in the first half will be more muted in the second half.

As in previous years, I will be presenting the figures in sterling. The same charts with the euro figures in them can be found in the appendices. In discussing the results, I'll mostly be focusing on changes at constant currencies.

Reported revenues were up 3%, and adjusted operating profit up 5%, as I said, in constant currencies, with adjusted operating margin up 40 basis points. Tight costs control on the benefits of the restructuring program and the integration of ChoicePoint more than offset the gearing effect on an underlying revenue decline and increased investment.

The net interest expense more than doubled with the ChoicePoint financing costs, and currency translation effects on our predominantly dollar-denominated debt, giving adjusted pretax profits 2% lower at constant currencies.

An analysis of our pretax profits by currency is included in the appendices, together with the respective average and period end rates. I've also included a projection of the full-year average rates, should currencies remain where they currently are.

The next two charts summarize the total and underlying growth rates from our businesses for revenue and adjusted operating profits at constant rates.

Our underlying revenue, stripping out the effects of acquisitions and disposals made this year and last year, were down 7%. This is derived from 3% growth in Elsevier, with LexisNexis 3% lower, Reed Exhibitions down 24%, and RBI down 18%. And the acquisition of ChoicePoint takes the total growth rate in LexisNexis up to 26%.

Our underlying adjusted operating profits declined 8%, with 13% growth from Elsevier, a 6% decline at LexisNexis, with Reed Exhibitions down 28%, and RBI down 42%. The addition of ChoicePoint gives LexisNexis a total increase of 36% at constant currencies.

Turning to each of the businesses, Elsevier had a robust first half, with strong subscription renewals and growing online sales, partly held back by further weakness in pharma promotion markets.

The margin improvement was 1.7 percentage points, driven by the revenue growth and cost savings. The margin growth would have been even stronger, had it not been for the effect of currency movements on the relative proportions of different geographies in the overall translated results.

I've included in the appendix an analysis of the components of Elsevier's margin growth, including the effects of the currency hedging program and these other currency translation effects.

The 5% underlying revenue growth in Science & Technology reflects good growth in ScienceDirect subscription revenue and in online databases, most notably Scopus. Usage continues to grow strongly in ScienceDirect, and online revenues now account for over 80% of Science & Technology revenues.

Increasing pressures on academic budgets are likely to lead to a moderated pricing environment for science journal subscription renewals later in the year. And Elsevier will be working with its customers to ensure that their growing information needs are met, and we continue to help improve the productivity of research.

In Health Sciences, good performances were seen in medical research, and in nursing, and other health professional education. Particularly strong growth was seen in online clinical diagnostic tools and clinical decision support.

Pharma promotion revenues account for 20% of Health Sciences and were down 11%. This reflects the paucity of new drug launches and a continued contraction of pharma marketing budgets as pharmaceutical companies address the pressures on drug pricing and from generic competition. Excluding pharma promotion, Health Science revenues were up 6%.

Turning to LexisNexis, the ChoicePoint acquisition made a significant contribution in the first half, with the Insurance business growing strongly, and significant integration benefits now being delivered.

In legal markets, LexisNexis faced a more challenging environment, with the legal services industry quite significantly impacted by the global economic downturn. The core law firm businesses, however, proved resilient with underlying growth of 1%, both in the US and internationally.

By contrast, the US Legal Directory Listings business saw a sharp decline as law firms cut back on marketing services. Government, corporate, and academic markets were also lower.

The operating margin was up 1.8 percentage points, despite lower underlying revenues, reflecting the impact of the restructuring actions taken last year and the higher margin contribution coming through with the ChoicePoint integration. This margin improvement is expected to unwind in the second half as the investment increases in the business.

In US Legal, core law firm revenues were up 1%, excluding the Martindale-Hubbell Legal Directory Listings business. Martindale-Hubbell accounted for 7% of US Legal revenues. This business saw revenues down 29% for two reasons. Firstly, the directory saw less volumes published in the first half of 2009 versus the first half of 2008 because of publication phasing. And secondly, in the current economic environment law firms are cutting back on marketing spend, particularly in directory listings.

Government, corporate, and academic markets were also down by 7%, reflecting the decline in transactional activity and as budgets were cut back. Included in this segment is the Nexis News and Business Service, which is more vulnerable to declines in corporate activity.

The first half also saw our investments stepping up against our three major programs; the building of the next generation of online research products; transforming Martindale-Hubbell from a legal directory to a web marketing services provider; and a major upgrade in our back office infrastructure.

The LexisNexis International business, that's the non-US businesses, saw underlying growth of 1% and faced many of the same challenges in law firm markets that we are seeing in the US.

The online revenues continued to growth well as international markets follow the US in adopting online services, and we are particularly well placed with a leading online platform. In this economic environment, however, this online growth is largely offset by a decline in print, caused partly by migration to online and partly by cutbacks on information budgets.

Turning to Risk Solutions; the Risk Solutions business, other than ChoicePoint, saw revenues down 2%, with strong growth in Government offset by declines in Collections and Financial Services. The ChoicePoint business, on a pro forma basis, saw revenues down 1%, with strong growth in Insurance offset by a decline in Employment Screening and Financial Services. Combining the businesses on a pro forma basis, revenues were down 1%.

Now the Insurance business was up 9%, driven by insurance policy churn in the industry, which drives our transactional volumes, as well as the increased adoption by insurance carriers of more sophisticated data and analytics. The Insurance business now accounts for half of our risk revenues. Screening was down 27%, reflecting the significant downturn in employee hiring by US companies.

The Collections business was 4% lower. This is somewhat counterintuitive, given the focus on debt collection in a tougher economic environment. The slowdown in transactions though, across the US economy has had an impact. We've also seen companies delay collection efforts on delinquent debt until there is a better chance of recovery. Government revenues grew strongly at 8%, with a focus on law enforcement and homeland security.

At ChoicePoint, adjusted operating profits were up 44%, reflecting the strong growth in the high margin Insurance business, cost actions in the Screening business and the cost savings from integration. I've included in the appendix the ChoicePoint pro forma results first half -- on first half 2008.

Reed Exhibitions had a very challenging first half, as companies cut back on promotion spending across the world. Underlying revenues were down 24% and profits down 28%. That, however, does include the cycling out of a number of biennial shows, and excluding cycling, revenues were down 15% and profits down 18%.

The margin was down only 60 basis points, despite the decline in revenues and the cycling out of the (technical difficulty). Firm action was taken on costs across the business. The margin also benefited from currency translation effects on the margin mix, due to the lower margin in the UK, where Reed Exhibitions has its global operational headquarters.

Exhibition Space sales and Ancillary Services were down 12% ex cycling, from a combination of a lesser number of exhibitors and exhibitors taking less space. Revenues from paying delegates, a relatively part of the small part of the revenue mix, as most of our shows are free to the attendees, but they are high margin. The sharp decline in delegate revenues principally related to the international shows held in Cannes, in particular MIPIM, for the real estate industry.

All the feedback from exhibitors and attendees has been very positive about the success of the shows and attendances remain encouragingly strong. The shows have generally increased market share as exhibitors focus their marketing spend on the leading shows in their sector. We've only cancelled eight shows out of 450 around the world, and this is not untypical of a more normal year.

Whilst we have reasonable visibility for the shows in the second half, exhibitors are generally committing later, which gives us more limited visibility beyond that.

RBI had a very difficult first half, with a significant impact on advertising markets and global economic recession. Underlying revenues were down 18% and although significant cost actions have been taken, and continue to be taken, the drop-through of lower revenues has decreased margin by 4.4 percentage points, with underlying profits down 42%.

The picture was pretty consistent across the RBI businesses globally, with the US particularly hard hit in its controlled circulation print magazines.

Within the 18% underlying revenue decline, there is a sharp divide between user revenues, which are print and online subscriptions and data services, and advertising. User revenues, which now account for 53% of RBI revenue, only declined 2%. Indeed, online user revenues actually grew 7% underlying, driven by services such as Xpert HR for HR professionals, ICIS Pricing for the petrochemical sector and Bankersalmanac.com, which is a vital cog in the international banking payment system.

Advertising, by contrast, was down 30%, with print advertising bearing the brunt, down 36%. Online advertising revenues were down 17% underlying or 10% excluding online recruitment, demonstrating a more visible ROI and lead generation for advertisers in an online environment.

The restructuring program announced in February 2008 and 2009 is on track to deliver the targeted additional $160 million of cost savings this year, with half of that delivered in the first half.

The costs in the first half were $152 million, bringing the total restructuring costs to $433 million out of the expected $510 million. Most of these costs relate to severance payments, the upfront cost of outsourcing operations, and charges in relation to vacant space as we downsize.

Given the economic environment, we are pushing very hard on cost and, not including the savings here, our significant cutbacks on discretionary spend, salary freezes, freezes on new hires and vacancy replacement, supply renegotiation and the like, as well as variable cost reductions.

In managing the business and in our reporting, we focus on adjusted operating profits, which are stated before the restructuring cost and the non-cash charges for intangible assets and goodwill amortization and impairment.

Adjusted operating profits grew 5% at constant currencies, whereas reported operating profits declined 36% at constant currencies. This chart shows how we get from one to the other. The amortization of acquired intangible assets jumped, due to the inclusion of ChoicePoint and currency translation effects.

Impairment charges on acquired intangible assets and goodwill relate to the RBI US Controlled Circulation Magazine business, together with some smaller elements of RBI and three small exhibitions.

Restructuring costs relate to the program I mentioned, and acquisition integration costs relate, primarily, to ChoicePoint. We also exclude gains on disposal of businesses and reclassified tax and joint ventures, which under IFRS, are charged against operating profit rather than the tax line.

Adjusted operating cash flow was up 1% at constant currencies, or 22% in sterling and 6% in euros and represent a 92% conversion of operating profits into cash. Our operating cash flow is more back-end loaded because of the seasonality advanced subscription receipts and exhibition deposits. And looking at the last 12 months to June 30, operating cash flow was 100%.

The small decline in conversion rate in the first half largely reflects lower share-based payment costs, which are non-cash charges.

After interest and tax paid, free cash flow, before dividends, was up 12% in sterling and 2% in euros. Given the seasonality of the operating cash flow, and the payment in the first half of the prior year final dividend, free cash flow in the first half post-dividends is typically lower than in the second half.

I've included in an appendix a reconciliation of the movement in the net debt in the period, which principally comprises the free cash flow shown here, together with acquisition related payments, mostly deferred consideration in relation to ChoicePoint and other prior year acquisitions, and currency translation effects.

As described earlier, the effects of currency movements is to turn a 1% growth in constant currency adjusted earnings per share into 21% growth for Reed Elsevier PLC and 5% for Reed Elsevier NV.

The equalized interim dividends are up 2% to 5.4p for Reed Elsevier PLC and 6% lower at EUR0.107 for Reed Elsevier NV. The difference in the growth rates reflects the 9% appreciation of the euro/sterling exchange rate since July 2008, which is when last year's interim dividend was increased -- sorry was declared.

Dividend cover, on the basis of comparing the last 12 months adjusted earnings with the aggregate of the 2008 final dividend and the 2009 interim dividend, is 2.4 times for Reed Elsevier PLC and 2.2 times for Reed Elsevier NV.

Turning to the outlook, for Elsevier, we expect to see continued good revenue progress with good subscription growth and online sales. The medical publishing program is more skewed to the second half and we expect it to continue to perform well, although pharma markets are expected to continue to be weak. All in all, we expect a satisfactory year.

At LexisNexis, we expect to see legal and corporate markets continue to be soft, both in the US and internationally, although we won't see the same adverse publication timing in the Directory business. We expect, therefore, a modest overall decline in LexisNexis 2009 underlying revenues before ChoicePoint.

The ChoicePoint Insurance business is expected to continue to grow well, with good profit momentum and increasing integration benefits.

The overall margin of LexisNexis is expected to be lower in the second half against the second half in 2008 on increased investment, and broadly flat for the year against the prior year. Pushing it down is the operational gearing on a marginal underlying revenue decline and increased investment. Pushing it up are the further restructuring benefits and the increasing profitability of ChoicePoint.

At Reed Exhibitions, we're expecting more of the same; a difficult trading environment and further cycling out of shows in the second half. Reed Business Information is also in for a tough second half, although the cost actions taken will have more of a mitigating effect.

As you can see from the pie charts down the left-hand side of this chart, Reed Exhibitions and RBI, where trading is toughest, together accounted for around 20% of Reed Elsevier's profits in the first half, although this will be closer to 15% for the full year, as the majority of Reed Exhibition's profits arise in the first half.

On earnings guidance, at the beginning of the year, was for positive adjusting earnings per share growth at constant currencies. We now think, given the trading conditions, that we are unlikely to hit this goal, particularly if we increase investment later in the year.

As we've said in today's statement, we see current trends broadly continuing with constant currency adjusted results, therefore, expected to be under some pressure for the full year and going into next. If current exchange rates prevail, the results will, however, have a positive translation impact, which should ensure positive progression for the two parent Companies, particularly in sterling.

I should note that the equity placing we launched today will be dilutive to our earnings per share both in 2009 and 2010.

Let me finish with the equity placing. The equity placing we've launched today is focused on reducing our net debt and improving our credit metrics. This will enable us to maintain a solid investment grade credit rating and be more appropriately resourced to support our business strategy.

Without the placing, Reed Elsevier's credit ratings would be downgraded, and we would see significant constraints on our ability to restructure and invest in the business.

From a liquidity perspective, we're in a strong financial position, with our term debt and facility maturities well spaced, and strong free cash flow and revolving credit facilities to support short-term borrowings.

Our net debt, however, at $8.4 billion is too high and our credit metrics too stretched, given the current economic environment and the latest cycle nature of our businesses.

Our ratios set out here, with further details in the appendix, are not consistent with our credit rating. And, given the current economic environment and business trends, we won't get there any time soon without this placing.

It is worth recalling how we came to have so much debt. We returned all of the $4 billion net proceeds of the Education sale to shareholders last year and the $4.1 billion acquisition of ChoicePoint was debt financed, in the expectation of a successful sale of RBI and a less difficult economic environment. The RBI sale did not take place and the global recession is unprecedented.

With this placing, Reed Elsevier expects to be properly positioned for long term commercial success and financial growth. Over to Ian.

Okay, thank you Mark. Okay this is what I'd like to say over the next 20 minutes or so. Fundamentally, I believe Reed Elsevier is extremely well positioned. I also think there are a number of things occurring in the marketplace that are increasing our opportunity, increasing the potential for us to accelerate our rate of organic growth.

In particular, I think the online migration is allowing us to get closer to our customers, to engage more fully with them and find new ways, additional ways, of creating value for them. I think our customers are also becoming more demanding, demanding that we're more innovative and that we do more with them and I think that gives us a great opportunity.

There are three pillars to our strategy that I'll talk about, three things that we need to do to ensure that we grasp that opportunity, that we realize that potential and ambition.

Firstly, is to leverage our content, this of course, is the traditional strength of Reed Elsevier. We need to take up the privilege of being closer to our customers by understanding their needs better and designing products and services that will satisfy their needs. And we are -- our ambition is to engage digitally online with our customers, to be involved in their business. And that means that we must improve and keep pace with our technological base.

We got about 100 of our top managers together in the United States last month, and the message that we gave to them is that, raise your eyes above this recession. We have a fantastic opportunity in this marketplace. Trends, despite the recession or maybe even because of the recession, are going forward -- are going for us. Go away from here, build up your plans and, over the next six months or so through the autumn, through the budget cycle in November, we'll be working out through those plans and putting detail on them so that we can drive higher rates of organic growth. And that's very much the same message that I'd like to share with you today.

So what's happening to our markets? Traditionally, content is, of course, a great strength to us. In the case of Elsevier, it's a 400 year old Company. We've been doing this for a very, very long time. It's a key source of our competitive advantage, and we're not going to go away from it. But what's happening as companies go online, and increasingly go online, is that we're being sucked into our customers' world. We're being drawn into our customers' world in a way that we have not traditionally been. Our traditional model was to produce content, push it out through channels, Barnes & Noble, and it somehow arrived at the customer.

What's happening now is that we are engaging directly with those customers. We're not using those channels of distribution any more. We are engaged directly with our customers.

And one example I'd like to use to illustrate that is the example of Evolve, which is our online nursing tuition service. So this is an online service to our customers, backed up by high quality content, 1,800 medical titles, including world famous titles like Mosby, Saunders, Gray's Anatomy. But increasingly these are online; they are integrated into the teaching programs that our customers, in this case nursing professionals, are conducting.

Very early on, when I joined Reed Elsevier, I went out on a sales call, what I thought was going to be a sales call with Stephanie Martin, who's one of our sales people at Elsevier Health Sciences, and I thought it was going to be a sales call. What it turned out to be was a two and a half hour consultation with the teaching staff, the nursing and teaching staff at the institution we visited. A consultation about how what we were providing was going to change the way they shaped their course, how much would be done outside of the institution, how we could develop new content, simulation -- clinical simulations to help their nurses. A real dialogue about how our content and what we do was going to bring about different outcomes for that customer.

And this trend of getting us closer to our customers and engaging more deeply with our customers, I think, is the real driver behind the ambition and opportunity that I believe we have. Because I think we have the opportunity to expand our value proposition. We had a good value proposition. The quality of content that we produced was very good.

But as we get closer to our customers, as we get drawn into their world, so we can expand that value proposition. We can make them better, we can make them differentiated in what they do. We get involved in their workflow, so we can see how they work and we can make them more efficient in what they do.

As we learn more about their businesses, so we can make them less risky. We can begin to design our content so that we make them less risky in the work that they do. And increasingly we can get more and more integrated and embedded into our customers.

And I'd like to take an example of each of those. MEDai is our Clinical Database business. This generates real-time clinical information on patients. That information is crucial for the way that insurance companies in the United States assess risk around their patients. It allows them to make preventive courses for their customers. But more importantly for clinicians, and this is critical care, so this is looking at critical functions in the intensive care unit, the way that we've organized that data allows our clinicians -- allows the clinicians to use this data to make better decisions about the health of patients.

And I can't think of a better example of where what we do has a direct and quantifiable and real impact on the way that our customers bring about their outcomes; in this case better health outcomes.

Take an example from LexisNexis of where we make our legal customers more efficient. Traditionally we would provide content, statute and case law. We launched a couple of weeks ago in the United Kingdom here, Lexis Legal Intelligence. And that really extends from the content that we provide to our customers to look at everything that the lawyers do in their day to day work. How do they formulate cases? How do they structure cases? How do they go to court? How do they produce the outcomes, and how can they produce them more efficiently that they want to produce?

Lexis Legal Intelligence is a suite of three things. It's a library, so it allows our customers to take our content, but to put it in a much broader and accessible context. It links with their internal systems by the way.

Secondly, a training suite. So for new associates within law firms, they can figure out what they need to do to get to the right answer and structure the right type of case.

And finally, it makes the work of the professional support lawyer more efficient. So really getting into the workflow, the value chain of what our customers do and making them more efficient.

And we can really quantify that benefit. We've worked out that, in the average law firm the cost saving by using Lexis Legal Intelligence per annum is GBP90,000. That's real money per lawyer in the average UK law firm.

So real tangible ways that we can measure and we need to do -- we do this in large parts of our Company. But I think we can do an awful lot more within Reed Elsevier. Real, quantitative measurement of the impact that we have on our customers' world.

We can make them less risky. Mark mentioned XpertHR, which is a product within our RBI business. This is an online service to HR professionals; provides them the full range of content and information that they need to do their job effectively, particularly employment law. Particularly important at the moment, of course, as people are laying staff off.

It's a 24/7 service, so the HR professionals can phone up 24 hours a day, seven days a week, to get the answer that they need. The employment law is constantly updated, not only with case law and statute, but also with comment and advice on how it will work in certain situations.

And finally, an example here from ChoicePoint. This was actually a product developed by Bill Madison in the United States. And what he noticed by getting close to customers and understanding customers, is that if insurance companies, as they receive phone calls from people trying to buy home and car insurance, if at the point of contact -- that's when the customer phones up and says I am so and so, they can get a pre-fill, a screen full of all of the information about that customer, about the number of cars in their household, how many of them are insured, what the claims history is, and a whole bunch of other information about that person. Then they can begin to engage with that customer much earlier, and therefore make a sale much more easily.

And this is from a major US insurance carrier. Again, quantifiable real impact on our customers' world, well beyond our traditional, let's send them content, and not know what goes on after that.

We saw a tenfold increase in improvement on first call close rate, leading to a significant uplift in new business and reduction in acquisition costs. And that product alone will generate us $30 million of revenue this year, that auto pre-fill product.

So getting closer to our customers, understanding what they're doing. This is the opportunity that changes in the outside world online migration is giving to us.

It means, of course, that we have to become better at marketing. We have to pick up that opportunity. We have good examples within the Company, but certainly we can go a lot further. There's a lot more opportunity out there than we're currently getting hold of. And we need to become better at marketing, getting better deep customer insight, doing the type of thing that Bill Madison did at ChoicePoint. Having the organizational agility to be able to get that product at innovation out of the door, not hang around. This is a highly competitive world. We've got to improve the speed with which we get our products and services to market.

Part of that is to do with our technology, which I'll come back to. But a lot of it is to do with the ambition and the drive and the processes that we have within our Company. Go to market strategy, not a traditional strength of publishing companies. Really well designed go to market strategies that really target our customers.

Get the value from those customers. Value pricing is a very important part, I think, of our future. We've got a unit in Reed Elsevier that works with the units to analyze pricing and get value pricing. We'll be expanding that capability. And the more, of course, you engage with the customers and you're out there talking to them, the more you will spot what those customers need, and you're into a cycle of product innovation.

The example I've used here is Spotlight, which is a product we launched a couple of weeks ago. This takes information from Scopus, which sees not just the content that we produce within the academic world, but looks at the whole world of science. And this product maps out the world of science, so the cognate disciplines are around the side.

This is an example taken from a Dutch university. And it maps which areas of academic endeavor this institution is strong in, and measures the citations that individual practitioners, individual professors are achieving. How prominent are they in the industry, what are the overlaps, how much of this is overlapping cognate disciplines.

And allows, therefore, the rector to say well, we want this institution to go in this direction; these are the specialties that we want to promote. And what is more, these are the type of people that we really need to recruit to this faculty, if we are going to build the faculty. And, of course, then allows them to do what they're in business to do, which is basically to get research funds. So to target which disciplines they're going to build, and therefore target the research funds that they're going to build.

I've now been in three sales meetings, three customer meetings with this product, and I tell you, it's really exciting. When the rectors and deans realize how this can impact their strategy for their institution, how it can allow them to better raise funds to build their institution, that is very exciting. Those were three sales within the first half an hour; that's very exciting.

And that's one of the things that struck me about Reed Elsevier and this customer opportunity. A lot of people talk about customers, but what struck me about Reed Elsevier throughout our business, is that our customers really want to talk to us, actually; they call us. These are busy professionals. These are people, lawyers, highly paid, hourly people, clinicians racing around. There isn't one customer meeting that I have sought where I've been turned down.

When I worked at [Excel] in logistics, that was a completely different world. You'd spend six months arranging a customer meeting with a Tesco or a Ford Motor Company, or Wal-Mart. They would deliberately cancel the meeting the day before, because these procurement people get up. That's why they went into procurement in those businesses, to jerk around hapless suppliers like Excel. They'll cancel the meeting.

That is a completely different world in Reed Elsevier. Our customers realize just how important what we do is to what they want to do, and how they build their careers, or how they build their business. And I think that's -- it struck me so strongly, coming to Reed Elsevier, visiting customers, just how much they want to engage, just how much they want to have us innovate, how they challenge us to innovate. We're not going to them with ideas, they're coming to us with ideas. And I think that's really, really exciting.

So marketing is a great opportunity for us. We do it well in parts of the business. Spotlight, I think, was very well developed; 100 intense customer relationships as we worked through the products, 1,800 test customers. Very careful and thoughtful go to market strategy. Value pricing; again, really figuring out what value are we creating and what fair share of that value can we get for ourselves.

Technology is the other area where we need to keep pace with the world. This is a crucial pillar of the ambition that I'm outlining to you this morning. Four areas where we need to keep pace, where we need to be as good as other people.

Firstly, online responsiveness; we are an online Company. Google's response times are an eighth of a second. I think all of us in this room 10 years ago would have put up with five or six or seven second response times. Frankly, we don't put up with that today. So our online services have to be on response times that are equal with Google. We need to be able to build up user metrics, understand what people are doing on the screen. All of those things that the web-native companies do.

Time to market; if we're listening to our customers, and we're designing good products and services for them, if we can't get it to market quickly because our infrastructure isn't able to build applications that are replicable and scalable, then we're going to miss that opportunity. So we need systems, we need platforms that allow us to get our products, our digital products to market quickly.

Our internal infrastructure; if we're going to be agile, if we're going to respond to changing customer needs, then we need internal systems, HR systems, finance systems that will show us where the opportunities are. CRM, so that we can be effective about how we market. This is, again, not a traditional strength of publishing companies, not a traditional strength of Reed Elsevier, but it's one I think is extremely important and we're going to do better at.

And finally, analytics and communities. Keyword search is what is out there, but there are very exciting technologies like semantic search, like actually the technology that we have at ChoicePoint from the -- or risk solutions business from the Seisint acquisition, that allow us to refresh that content; to make it more relevant; to make it more actionable; to make it more important; to see the relevance; to see the patterns within data that you couldn't see before.

And I thought I'd use another example of that, using HPCC, which was the Seisint technology that we bought in 2004, which we've creatively renamed High Performance Cluster Computing. And what we're trying to do with data is to take static data, high quality but static data, do things with it that make it more smart, make it integrated, make it actionable. Turn data into information, information into knowledge and, most importantly, knowledge into action.

I mentioned MEDai before. They generate -- at MEDai we generate huge amounts of data. And getting that data analyzed, seeing those patterns quickly is very important. It's important to insurance companies, but it's crucially important to clinicians. So recently, we did a test using HPCC, which is a super fast computing system; probably the best in the world. The Lawrence Livermore National Labs in America were who use it, say there is no other technology that is as good for that type of very, very fast processing as we have in HPCC.

So we ran for MEDai, who were using pretty good technology, SQL relational database, we ran some very large databases, 240 million claims records for 2.5 million people, and five different claim sheets for the insurance companies. And we got results from that, literally within minutes, for something that on SQL relational database would take days.

So that's the way that technology, particularly analytics, can leverage our content and create more relevance, and create more value for our customers. That's real, tangible value. And I think if we can do that, this really is a virtuous circle that we can get into. Our traditional content, engaging closely with our customers, getting applications out to them quickly, developing analytics that will allow us to refresh our content, get close to our customers, and get into this virtuous circle. And it's the velocity, if you like, of that triangle that is at the core of our competitive purpose.

And this guides where we're going to put our effort. It guides the choices, the strategic choices that we make. We will be targeting information intensive sectors. We will be getting out of areas, and I'll talk more about that later, that are not information sensitive. The sectors and customers we want to target are those people who value high quality information and the type of dynamics that we can set up in this triangle that I've described. That's where we're going to put our effort and resources.

We're going to keep focused on content. We're going to get closer to our customers, keep pace with technology. And if we can do that, and choose where we are going to compete, but stop competing where we don't have competitive advantage, then I think we have a fantastic opportunity.

And that's really the strategy that I believe, through some incremental investment, not huge amounts of investment but incremental investment in product and market strategies, and in technology that will allow us to build higher rates of organic growth going forward.

Let me talk about how that relates then, briefly, to each of our businesses. Now firstly, the RBI sale is no longer on the agenda; the RBI sale is off. Now part of that business had been hit particularly badly. It's right in the tsunami, if you like, of this very, very important structural shift of offline advertising moving to online advertising. Our offline advertising revenues have reduced from $720 million in 2007, to $430 million today, in two years. Some indication of just how powerful these trends and these changes are.

Now we've done a great job, I think, at rationalizing the portfolio. Mark talked a little bit about the cost savings that we're making. Keith Jones and his team had a really rough last year, going through a year long sales process, very bruising. I'm very impressed with the way that they've just got back into the job and actually followed through on some pretty painful stuff. Keith and his team have cut out $200 million of cost in the last six months. That's a full year 2009 figure. And only $45 million of that is in the $205 million restructuring charge that you've heard about before.

We're really fighting hard to stay competitive, to maintain our margins. It's tough. With that type of market fall that I've talked about, it's very tough, but we're on the case.

We're also on the case of managing that portfolio actively, making those choices that I talked about; where are we going to compete and where are we not going to compete? Since I arrived here, we're taking a very active approach to management of our whole portfolio, but RBI in particular.

We're announcing today our intention to divest our Controlled Circulation business in North America. That, we believe, is right in the path of that storm -- shift from offline to online. It had no subscriber revenues, it was purely an advertising controlled circulation business. We're announcing our intention to exit that business today.

So a good example, I think, where we're not sitting on our hands and our [beds]. It's only 5% of our operating profit but, nonetheless, we are on the case there and we're on the case in other parts of our business. We've also announced some other divestments from that portfolio recently.

But also, when I look through the portfolio, I think about content, customers' technology, about information intensive customers. And actually, there's part of the RBI portfolio which fit that absolutely perfectly. And actually these 20% or 25% of that RBI portfolio is amongst our fastest growing operating profit businesses this year in 2009; growing at 7%, some of those businesses.

So there's some real pearls within there. Mark mentioned them; XpertHR I've talked about. We believe we can take that product much further. Bankersalmanac, again, Mark mentioned that, for international transactions, an increasingly, of course, online product. ICIS, which is the pricing template for 300 petrochemical products. Petrochemical traders talk about the ICIS number; that is the way they refer to it.

Good examples, and many others within RBI, of where this fits our strategy of content customers' technology, targeting information intensive businesses, capturing the value that we create for customers, and driving organic growth.

Reed Exhibitions also hit by the recession. But I've also been impressed with the importance of Reed Exhibitions to many of our customers. This isn't a circus that we do at these places. These are really important parts of the marketing mix of our customers. And actually, the customer relationships that we have at Reed Exhibitions are very high level within organizations; they are the marketing director.

And it's no surprise really, when you understand just how much business is done at these exhibitions. At the London Book Fair, for instance, which I went to a couple of months ago, we estimate that something like 40%, 40% of a publisher's total year deals -- total year sales is closed in that three days at the London Book Fair. This is really an important part of what our customers do.

This part of our business hasn't digitized, of course, as fast as other parts. We believe that it is beginning to digitize. And the digitization gives us the opportunity to move from that three day intense -- that three day relationship or four day relationship with our customer, to extend that over 365 days. And I think that is -- we have an opportunity to do that.

We've developed, for instance in France, a business called Observatoire de la Franchise, which has allowed us to extend the three day conference that we do for the Franchise Association in France, to a 365 day online engagement. So companies that are trying to find franchisees or business people trying to find franchisers. So a good example of where we're [extending]. It's very small at the moment in Reed Exhibitions. Mike Rusbridge and his team are very enthusiastic about it. But that's where I believe that market is going.

As Mark says, Reed Exhibitions and RBI are a small part, 15% of our operating profit full year. But our real, big, solid business is LexisNexis, again, fits perfectly that strategy that I've talked about. Great brands, great content. But the way that our customers are changing, especially our younger customers, the associates in these law firms, the way they're changing, I think is giving us increased opportunity.

Good drivers of long term growth, of course, compliance and so on. Mark referred to our investment in New Lexis. And New Lexis is all about taking that opportunity that I've talked about. It's understanding the daily workflow in detail, the process workflow of legal customers. How can we shift New Lexis? How can we shift the traditional search that we've had to semantic search, so that we create more meaning? How can we build citation maps that give more relevance to our customers? How can we, very interestingly, give it a Google look and feel, with suggested content? And much better integration and engagement with our customers.

Mark also talked about Martindale-Hubbell, which is having a very bad time as a print offline advertising business; very much similar to the forces that are hurting us in RBI. But we also have a great opportunity to move that online. $3 billion a year law firms in the United States spend on marketing. And we have, in Martindale-Hubbell, in the old world of print offline, the brand. Our challenge is to move that online and to begin to participate in the communities and marketing strategies that our customers are developing.

And Lexis Legal Intelligence, the example I gave earlier; an example of where we're getting involved in all parts of this chain.

ChoicePoint; very happy with the ChoicePoint acquisition. I think that's a great acquisition. Fits, again, extremely strongly with the strategy. Very encouraging growth in insurance and other parts of that business. Really being leveraged as well by the Seisint technology that we bought in 2004, both in terms of what we can do for our customers like the auto pre-fill I talked about, but also actually in terms of the efficiency. And we're using HPCC to make that a much more efficient operation than previously.

I think Andy Prozes has done a great job at building that business; really stuck with it, started with it many years ago; did the Seisint acquisition, now leveraged up with ChoicePoint. I think he and his team have done a great job there.

Elsevier Science & Technology; again, what a fantastic position to be in. 25% of the world's citations, one quarter of the world's academic articles are published through Elsevier. 250,000 articles a year. What a great place to be in terms of content.

But also, with this online migration, changing customer needs, if we can develop our marketing strategies, build the technology, then we can broaden our value proposition, which has traditionally been with the librarian, and will continue to be with the librarian. Librarian will remain a very important customer to us, especially as they become more of a digital conductor, if you like, rather than the person who stops you going into the -- smoking in the library or whatever. As they evolve so we'll evolve with them and stay with them.

But products like Spotlight that I talked about, an opportunity to engage directly with the dean and rectors of universities, to have a different type of dialogue, to find new ways of creating value.

I think we've got, and I know Erik Engstrom thinks as well, we've got a great chance here of extending our value proposition to work with scientists on how they actually do research, developing products like Article of the Future, which we're developing at Cell, at the Cell Journal in Boston. An opportunity to broaden -- a great example of the opportunity to broaden our value proposition from our traditional customer who we'll stay with the librarian, but access a much broader value proposition, a much broader group of customers.

And again, I think Erik Engstrom's done a great job there building the quality. Our customer relationships there are excellent. These customers don't only need us; they really do want to engage with us and find how we can help them take forward the business.

Health Sciences, this, again, is the fastest growing part of our business and it's no surprise. I worked at General Healthcare Group; we ran about 70 hospitals in the UK and 13 in Switzerland, Hirslanden. And back then, four or five years ago, what my strategy was, was to differentiate my hospitals based upon patient outcomes. So would you have a better patient experience, and more importantly a better outcome, if you came to my hospital compared to someone else's?

And to do that I needed data on patient outcomes. To do that I needed data-driven clinical pathways that I could take to the clinician teams and say, this is what works; this is what doesn't work; let's try this; let's see if we get a better outcome here; recruit the type of doctors that would give us competitive advantage in the clinical area.

We had to generate that data ourselves within our hospitals at General Healthcare Group. At Reed Elsevier, at Elsevier Health Sciences this is a very core part of what we're doing. And I think we're very excited and privileged to be in the United States where much of this online revolution is occurring, and where there's much more concern about patient outcomes.

All this talk about evidenced-based medicine throughout the world, even in the United States, frankly, are just words. It's only now that institutions and governments are really beginning to look for the type of data, look for the type of stuff that we can do to support those what have in the past been empty words evidence-based medicine. So a great opportunity, especially in Health Sciences.

So let me summarize there. Tough times; dreadful recession; none of us have lived through anything this bad before. But also, it's very important, I think, for us to raise our eyes to internally get our people looking at this prize. How can we begin to manage our content, get closer to our customers, keep pace with what is happening in a very fast-changing world of technology, build plans with incremental investment, not massive amounts of investment but much more attention to the customers. And how can we do that to drive higher rates of organic growth coming out of the recession? That's our ambition.

Thank you very much. Now, I think we'll take questions.

Thanks very much. It's Ian Whittaker from Liberum. Three questions. First of all, just in terms of Exhibitions, you say there's opportunities online. Do you think there's a potential risk as well of cannibalization, just in terms of you turn from exhibitions that are three days long to having them available 365 days a year, that that raises the potential threat of cannibalization?

And then the other two questions, the first one's on the debt. You've explained in a bit of detail why you took the issue to raise some equity, but just trying to dig a little bit deeper behind that. Because your operational performance seems to be a little bit worse for the full-year than what we had expected, but not dramatically so.

What exactly has driven this decision to do a rights issue? Is it that you didn't do the sale of RBI and the rating agencies came to you and said, you need to do a rights issue to protect your rating? Is it more that they suddenly got cold feet over the underlying operational performance? Just trying to get a little bit more detail as to what actually drove the decision there.

And then the third point is, again, a lot of details we got in terms of the drivers behind the extra investment. Just on the legal side, the extra investment you're putting through in the second half of the year, is that more driven by the fact that you see there are new markets to be gained that perhaps haven't been exploited before? Do you think it's more of an element of catch-up with regard to some of your competitors?

Okay. Well, let me have a go at those three, and then I'll ask Mark to comment as well. On cannibalization, I think probably not. My take on the Exhibitions business is that the face-to-face three or four day event will continue. And what I've seen of virtual conferences, which work in some environments, I've seen some in student organizations for instance, don't really cut it, I think.

So I think, when I talk about the digital opportunity, I mean about taking the incredible data that we have about customers. Some of our exhibitions we actually see where delegates walk, which sites they go to, it's fantastic data, and then use that to take more than our share of that customer's marketing spend. So I think it's about touch points.

I think it might cannibalize parts of it. But, again, one thing we've all learnt in business, I think, is if your market is going to be cannibalized then somebody else will do it if you don't. So if it is the case, let's do it.

The debt, the equity raising is absolutely because of the metrics -- the stretched credit metrics on our balance sheet. I think there's a lot of small and big things that have got us here. Obviously, the ChoicePoint acquisition is the major reason; it was $4.1 billion funded by debt.

RBI, that would have helped if we had sold that, but we didn't. The trading conditions, as you say, are not dire, but they are more challenged. The world economic environment, obviously, is a very different place with much more uncertainty about the future than before. So I think it's a whole bunch of reasons that have got us to where we are, and also partly the ambition.

We believe there is an awful lot of opportunity here to go for, and we don't want to be looking over our shoulders concerned about the balance sheet when we should be out with the customers looking at the opportunity. I'll let Mark comment more on that in a minute.

In terms of North America, it's partly new markets. We've got a very competent and capable competitor in Westlaw, and they're very good. They do some things better than us, we do some things better than them. And I think in anything as intense as a competitor, I don't really -- I know it doesn't feel good day-by-day, but good competition is a good thing. It does make you innovate; it does make you go and talk to your customers; it makes you do the right things. But they are a good competitor, I respect them very highly. And in some areas we are behind, and in some areas we're ahead.

Why don't you comment on [those as well]?

Yes, on our metrics, our metrics, even without the deterioration in trading environment, were outside the metrics required for our current rating. But the trajectory was such that we would get there in reasonably short order.

Now what's happened since is a number of things. A combination of dollar strength means our dollar debt when you convert the non-US business you get lower dollars of EBITDA as a result. Pension deficits, and all our ratios here are pension and lease adjusted, which is the way the agencies look at it, pension deficits have grown. And coupled with that trading is tougher.

And we were saying earlier on in the year that we expected, for instance LexisNexis, to see limited underlying growth. Now we're saying it's modest decline. It's an indication of, not a significant shift, but it is a shift. And so what you see is that our metrics, having been below where they needed to be, have got further back, and the time taken to get to where they need to be is longer.

Our net debt to EBITDA at June 30 is 3.6 times on a pension lease adjusted basis and charging acquisition integration costs against the EBITDA and part of the restructuring costs, which is the way the rating agencies look at it. And 3.6 times is significantly outside our 2 times to 3 times target range.

So for all of these reasons you just look now, particularly with the uncertainties in the macroeconomic environment, $8.4 billion of net debt and 3.6 times net debt to EBITDA is just too much. And so this placing is to properly position our balance sheet so we can manage this business appropriately to be on the front foot in our markets and to capture the growth potential and to drive value. That's what this is about.

And the trigger, and the decision not to sell RBI, was that a trigger? So if you had of sold RBI -- sorry, just a decision to sell or not sell RBI, that wasn't the trigger for this?

Well, it is certainly part of it, because if we had sold RBI we would have significantly less debt. We'd have less EBITDA, but we would have less debt, so it's part of that, as explained earlier, I think Ian echoed.

The reason that we have so much debt at this particular point, more than we expected, was because we weren't able to sell RBI. And also, at the time that we were making the ChoicePoint acquisition back in -- we contracted in February '08, it was a significantly different economic environment, and we were expecting to sell RBI. Neither of those things turned out to be the case. Then, coupled with the trading outlook, the dollars, the pensions, and everything else, we get to this point, which is hence this.

One thing, and we made the point about the change in a bit worse, not dramatically, and I think that's right. Our guidance, we're not shifting it dramatically. We are comfortable with market estimates pre-placing for 2009. And I think that's because, if you like, estimates were actually taken when we've said positive earnings per share growth at constant currency. I think the estimates are aimed off that a bit, and were aiming off that a bit now.

Thanks.

Colin.

Thanks. It's Colin Tennant at Nomura. A couple of things. You've talked a lot about the opportunities in the technology, the content, etc., a lot of those things Reed was already doing and engaged it. But I think the implication there is that that can be accelerated and you can do more. And I just wondered if you can give us an indication of what you think the gap is between what has already been done and how much more you want to achieve in terms of investment levels and CapEx.

And you also talked about value pricing, and Mark also mentioned there's pricing negotiations coming up on Elsevier. I wonder if you could just elaborate a little bit on what might be happening in pricing, not only in Elsevier, but across the piece.

And one final thing is just on timescale, the things that you talked about in terms of investment in technology. Do you have any timescale in your own mind about you'd like to have achieved a certain amount of this by the end of next year or whenever?

Yes. No, I think, on your first point, we are doing a lot of this, and in fact I used examples like Spotlight and the investment in New Lexis, which demonstrate we're doing that. And I think in terms of the journey, of where we're going, a lot of what we have done we needed to do. But there is a difference between putting your content online or digitizing your content, a big difference. And we had to do that, obviously, and that's where we are in many of our businesses.

But there's a long way to go from there to really engaging digitally with your customer. So I don't think there's a competitive gap in any of our markets actually. But I think also the markets, and our customer expectations, most importantly, are changing fast. Now, that's a threat if we don't respond to it, but it's also a great opportunity. So I think we're in a good place. I think we've got -- I think we've just to keep pace with where the market and our customers are going.

In terms of the amount of that; I've only been here four months, as you know. We are working hard on those plans. I think it's too early to tell where they'll come out. As I say, we are talking about incremental investment. This is investment in product and market strategies. Technology will be more of a CapEx item, obviously. But it's too early to tell.

I think that the issue is not going to be, do we have enough opportunity. If I'm right, the issue isn't going to be too much -- too many opportunities. The issue is, what can we afford? And even more importantly than that, I think the management bandwidth. I think that'll be the real constraint that we have to relax somehow to go after this stuff. But we're talking -- we're not talking hundreds of millions of dollars of extra investment here.

On the value pricing, I'll let Erik come back to it as well, actually, on Elsevier Science & Technology. I should have mentioned it; this is tough. Some institutions are having a tough time in terms of academic budgets and government budgets. I think the approach that Erik has taken, which I think is -- he'll describe about in a minute, is very sensible, and that is to negotiate with each separate institution. And it's all part of this story, I think. It's getting close to your customers.

Harvard University has a very different set of issues and ambitions than Georgetown or Oxford, and so Erik and his team are taking this on a very one-by-one basis. Let's figure out your current circumstances; do we need to give you a bit of relief; can we get a longer term contract; can we expand the offering that we can give to you; can we sell you Spotlight; whatever it is. And I think that's a very sensible strategy, and Erik will talk [more] about it.

On balance, I think we will see lower absolute -- total price rises next year than we had this year. But it still will be positive.

Erik, do you want to comment on that? Well, the timescale, I think, just very quickly; it's too early to tell. Erik, do you want to talk a bit about academic prices?

Yes. I can't add very much to what Ian said, but many of you have been around this business for a long time, looking at the history of the traditional print model at Elsevier. Which is you have print subscriptions; you renew them every year; you have -- or you have contracts; and you have a price rise; you have attrition, you have new sales. A certain mechanical view of this, right?

I think increasingly, because we're under long-term contracts, multi-year contracts that cover subscriptions but also collection blocks, content blocks, additional subscriptions, things on our platforms over multi-years, the traditional model of annual price increase attrition and new sales really only applies to 10% of Elsevier's Science Journal Subscription business. And Science Journal Subscription, as you know, is less than half of Elsevier.

So when we talk about the traditional pricing question it's really looking very different. And I think nowadays the approach we are taking is to say, it's not about one annual price increase number. It's about customer-by-customer what are their content needs; what blocks are they looking for; what kind of long-term agreement do you sign; and at what total spend increase by year; or what total change to the spend plan for that customer. And that's really what we're going through right now.

And as you probably know, since you cover us, you probably know that the season of starting to discuss 2010 renewals really starts now. That we operate between now and into the early part of year is really when that season goes. So as far as what specifically that means, or some kind of global number, I can't give you any at this point. But at least that's our approach.

And, as Ian said, every customer is very different. In the -- we have health customers and we have different type of commercial customers who have their own economics. But if you look at the core academic world, universities have very different sourcing of funding and follow very different strategies. Privately funded with endowments and contributions versus government-funded universities that maybe are in countries where the governments have gone for stimulus packages, an increased emphasis on education, increased emphasis on spending on research.

We have an enormous range of customer situations. And, therefore, I think this is going to be a very unique year, I think is the right way to describe it.

Thank you. It's Mark Braley at Deutsche Bank. Two questions. Just to clarify on the earnings commentary for this year, that's inclusive of the incremental investment; it's exclusive of the placing dilution for the part year? Is that correct, first of all, those two?

Correct.

Is it inclusive of the disposal dilution from selling North American Controlled Circulation?

If only it was diluted.

Right, okay. Very useful answer, thank you. And then my second question is I guess around portfolio management. If we -- there are a number of businesses in the portfolio which, 10 years ago the long-term profile looked rather uncertain, so Nexis, Martindale-Hubbell, RBI itself, at least in the Print business.

Should we expect a much more aggressive management of the portfolio over the next few years to try and get ahead of some of the longer-term technology shifts? And if so, are you happy with where you are in terms of the print-founded business within the Health side of Elsevier?

Yes. Well, on the last one specifically, yes, we're very happy with it. We want to serve our customers, and those who want to take print will stay with them for as long as they're there, frankly. So yes, we're very happy with that.

I think the choice is more about those advertising and promotional markets and also the adjacencies. I think in terms of the portfolio, if your question is more about big acquisitions, I think our priority is organic growth. I think there is a big opportunity there. I think we can expand our footprint into areas like oil and gas or environmental services or whatever, which Erik and his team are thinking through.

But I think this is an organic growth opportunity which, frankly, is much more attractive, I think, for shareholders. It will be a much less risky return than paying big multiples for big companies.

Now, I think ChoicePoint was a great acquisition; I think that has fitted great. I think it's integrating extremely well, so it was a good acquisition. But the number of ChoicePoints that come along generally I think are relatively few. So the strategy here is absolutely about organic growth.

Of course we will identify bolt-on acquisitions or acquisitions that will get us to where we want to get to faster. But the message to the 100 managers that I talked about last month was, don't come to me with fancy acquisitions; come to me with organic growth strategies. And then, and I know this is a paradox, if you can tell me you can do this acquisition as a means to an end to accelerate organic growth, I know that doesn't really make sense, but then that's fine; we'll look at acquisitions. But I want to hear about the customer opportunity. I want to hear about how we engage digitally with our customers; that's the priority.

Do you want to add anything to that Mark?

No.

Polo.

Thanks, it's Polo Tang from UBS. Just have a couple of different questions. The first question is both for Ian, and also Anthony. I was just wondering, just having arrived at the Company, what are your initial first impressions in terms of what's been the thing that's most positively surprised you? And what do you think the main development area is in the Company?

The second question is just to be really clear in terms of your net debt situation post the placing. How comfortable are you with your net debt and does it give you the full flexibility to invest in your business, and also make bolt-on acquisitions if you want to?

And the third question is really just to clarify clearly the top line environment remains very challenging, but are you comfortable that you can protect profitability by taking out costs? So, for example, you mentioned that in RBI you've just taken out $200 million of costs savings. Could that be replicated elsewhere in the portfolio to protect profits? Thanks.

Tony, do you want to go first?

Go ahead, go ahead.

No, you go you're the one (inaudible)

My first impressions, as I said at the beginning, are that the majority of these businesses are very well positioned in their markets and have very strong competitive positions in markets which are, I won't say growth markets, but they are fundamentally growing markets. If there was a slight disappointment in that, looking back over the history, it would be that I think the organic growth of the Company has not been as much as you might hope it might be in those sort of markets over a period of time. But that's kind of easy to say, too.

But my first impressions of the Company are that the vast majority of it, and that includes some parts of it which are currently cyclically down, are fundamentally very well positioned in their markets.

On the debt question, from my perspective the main reason for raising the equity today is quite simply that the $8.4 million of debt is too much just now for the Company. The credit metrics are too stretched. As I said at the beginning, it's not about liquidity from my perspective; it is quite simply that. And the main reason for that is that we're starting where we're starting.

And we're starting where we're starting because of, and somebody alluded earlier to buying ChoicePoint and not selling RBI and so on and so on and so on. You can look back and you can say, with the benefit of hindsight, had we known those things were going to work as they did would we have structured the deal for ChoicePoint differently? Would we have returned all of the cash from Harcourt Education as we did had we known etc., etc., etc.? The answer to that no, but that's easy; of course you can look back and say that in hindsight.

I think the interesting thing, from my perspective, is just how strongly the entire Board feels that this vendor placing is the right thing to do and it is, by chance, that in, I think all of our views, the 10%-ish is about the right amount. There is not a feeling among any of us that, ooh I wish we could get to 20% without going for a full rights issue, for example. There is not that view. The view is this is about right to give us an appropriate balance sheet structure to support the continuing evolution of the Group.

Mark, do you want to pick up net debt and protecting profitability? And if you have a memory that long you can give us your first impressions when you joined.

No, I think I just echo what Anthony said about net debt. I think this is not about building huge headroom and having war chests and things like that. It's absolutely not about that. This is about addressing our metrics and getting them to where they need to be. We'll end the year at the top end of the 2 times to 3 times. We're not going to end the year in the middle or lower end of that range as a result of this placing.

But we are very cash generative. We are very focused on debt reduction., and that will continue to happen. So it's getting to the right point for that to happen, rather than trying to get one level, one step that you can take your management focus off this. But it is, and I agree with Tony, this is the right amount. It does the job. It doesn't put you in a position where you're so comfortable you can get lazy.

I think on the first impressions the one I mentioned actually about the customers really has struck me incredibly strongly. I feel a bit like, having dealt with grocers, retailers and motor and car company procurement departments, I did feel like the battered dog that's been rescued. Engaging with these customers is really fun. They really do see the potential of what we can do for them, and it's hugely engaging, and that's part of the opportunity.

I think in terms of what we need to do, I think more ambition, more drive to get after those opportunities, get out there, invest behind it. Whatever constraints you feel you have, let's talk about it and [we'll axe them] organizational or whatever and get after them. And whilst we're not behind in these things, we need to get better and better because our customers are demanding us to get better in marketing and technology. They are the two [criteria]

You've got to protect your profits.

Protecting profits, yes, Mark

Yes, clearly we'll be very, very focused on squeezing every drop out of cost efficiency in order to pay against increased investment. And as Ian just said, the step up investment is not a radical change, so one should not expect that. Part of which is just the bandwidth issue that Ian talked about, which is doability. We are doing a huge amount in our markets today. We're going to press ahead with more ambitious organic growth strategies.

This is not about throwing money at the wall and seeing what happens; this is about building capabilities and competencies. This takes time; products take time to build. And if you take some of LexisNexis legal intelligence that Ian was talking about earlier, that was not a money issue. It was about people focusing on the right things, doing the right things, coming up with the right design, reprioritizing resources against it and building products and getting into the market in a smart way. That is what has an impact rather than just saying, give me $30 million and I'll see what I can do with it.

So will it cost more money? Yes. Will we try and frank that with additional cost savings? Absolutely. And the net will impact margin, but, as we say, this is not a radical shift; this is an incremental shift and it will come in over time.

No, I think that's absolutely right.

Sorry, I've gone on the front row again.

Thanks, it's Paul Gooden from RBS. Ian, you've set out qualitatively where you want to take Reed. I was wondering if I could tempt you to put some quantification around that in terms of numbers. So in three or four years' time do you see Reed as a GDP top line growth business? Do you think margins will be higher or lower than they'll be this year? And do you think Reed could ever be a double-digit earnings growth Company that it has been, certainly not in this year but in previous years?

Yes. Well, I won't get drawn on the (inaudible) and it is too early to tell and we are working hard on those plans. But on a number of the things you've talked about, GDP and so on, I think we have got to have the ambition. If we're right here and we can do this and take this opportunity, then I think we've got to hold ourselves to account to deliver the results.

Right. Sami, your turn.

Thank you very much. Good morning, Sami at Exane BNP Paribas. A few questions, if I may? The first one still on the investment plan. I understand the full amount will probably be decided in the autumn and the coming months. But still, can you remind us what investment level was last year, as expressed in terms of a percentage of your revenues? And possibly quantify where that level will go going forward? Was it, say, 10% and it will be up maybe to 11%? Or will it go up towards more technology-intensive industries, maybe in the 14%, 15% range?

And still on investment, can you tell us whether you plan to allocate equal capital to all the divisions, based on their contribution to profit? Or whether there are certain divisions that are more in need, or offering more opportunities to having an excess of investment?

And the second question relates to the top line, and can you comment on the new sales activity? New sales seems to be a growth driver going forward. We heard yesterday [Walter Stengers] they were suffering from their new sales activity. Can you share with us how your new sales activity is going, and whether this, if it's not too early to say, makes you confident you can grow EPS next year at constant currency, please?

Do you want to start, Mark, on the historic investments?

Yes. I think, as you know, most of the investment in our Company is about people, and these are the marketers, the product designers and engineers, and these are embedded in the cost base of our Company. So we have several thousand new products every year, so you could say most of the Company's cost base is about investment.

Where you can see it most visibly is in terms of CapEx. And CapEx is in offices and buildings and things of that ilk, but also capitalized development spend, and computer kit and things of that ilk. And our total CapEx spend has been running round about 4% of sales. Now, as we invest in infrastructure as in the past you'll see, I think, that creep up, not dramatically, but last year actually for timing reasons it was 3.5% rather than 4%. But I think that you may see that go up a bit, but I don't think there's going to be a dramatic shift.

I think the investment that Ian was talking about is more going to be about deployment of people, reprioritization of people, additional people, and that's where it will come in. And so as you step up that you can say, right if I hired an extra 100 people to do this, I can see the additional investment. One year later the design department, the product engineering department are doing stuff. So no company in our field is able to actually measure that and say, those people are new and those aren't and this is the percentage. It doesn't lend itself to that.

On the allocation, no, it's definitely not just by division. We'll look at the full range of opportunities that we get across the Company, rank those based on economic value, basically, net operating profit after tax better than the higher than invested capital, or whatever measure you like to choose, and invest in each of those opportunities rather than bundle cash out. Because as I say, I think the problem -- the issue is going to be, already is to some degree, is there are too many opportunities. And therefore, I think we do need to make really rigorous choices across our business about where we're going to put investors' money.

I missed the last question, actually.

Shall I pick it up? It was about EPS next year at constant currency, I think was the point. I think, as we said in the statement today, and I said earlier, we expect the business trends going into this year to continue into next. I think, given the uncertainty of the macroeconomic environment and the fact it's 2010, it would be wrong of me to start giving prescriptive guidance what 2010 looks like.

But I think the overall shape you can see. And if you look at some of the estimates in the market some people have already got there, so to speak, in terms of the continuation of business trends. So I can't really help you much more than that.

Can I take up there?

Claudio Aspesi from Sanford Bernstein. Two questions. One is you give us a very detailed description of the pricing environment at Elsevier. Can you give us some sense of pricing for next year in legal, in the exhibitions in particular? Do you still see pricing flexibility or do you see pricing deflation?

And the second question, what do you think was the impact on RBI's management and strategy of being for sale for such a long period of time? And do you have to take any additional corrective actions to help them catch up after a year of uncertainty?

Yes, well let me start with RBI. Maybe if Mark talks a little bit about the pricing environment.

I think it was very bruising, frankly, to go through a year-long sales process, dealing with the private equity. I've been in a private equity owned operation at General Healthcare Group and I think to go through that process was very bruising. As I said, I am immensely impressed how they've picked themselves up and gone into what has been an incredibly tough operating environment. When it's off in December and in January you're taking out $200 million worth of cost. So I really do admire those people; I think they've done a fantastic job.

Mark, do you want to pick up the pricing?

Yes, on the pricing you mentioned exhibitions. I think we do have premier events delivering real value to our customers. And so it's important that we maintain the right pricing stance in terms of value delivered and what we're doing for our customers, at the same time recognizing the environment in which they do. So what you will not see is significant discounting to try and drive volume, because that undermines your value proposition for a much longer period than just that one year.

So I think, as reference in terms of Elsevier's Science subscription, you engaged -- our products every year, particularly in the legal information, are different every year. They're constantly having more feature functionality, additional pieces of content and direct price comparison of product today versus product two years ago is not so obvious. And it's up to us to work with our customers the way we are delivering more value and be rewarded for that.

We're just going to have one there. I think we've probably got time for another couple after that and then --

Good morning, it's Giasone Salati from Execution. The first one very simply, without quantifying these additional investments, will they be included in adjusted operating margins and in adjusted EPS?

Yes.

And you were saying about additional cost savings, that the restructuring relative to those cost savings will likely be excluded, as in the past.

The costs? Or --

The restructuring costs to generate those additional cost savings, if any, will be excluded as in the past.

Yes. And you have complete visibility on that as I demonstrated earlier on.

Okay. Second one, speaking about second half 2009 and just sticking to what you said about 2010, could you just focus on the legal market? It looks like we have seen a continuous deterioration, and it's difficult to explain that with cyclicality for what we know of the legal market from the last few decades. Is there anything changing? And do I understand correctly that you are expecting a second half slight improvement in terms of organic revenue growth in the Legal division?

To comment on that, I mentioned the fact that in the first half we had adverse publication timing, particularly in the Legal Directory business. We don't have that issue in the second half, so in that respect there's some phasing but I don't think I commented on any acceleration of growth of whatever. I don't think it would be appropriate to do that in July.

I'm sorry, the first piece of your question?

Just to add to that, I think the issue, as we said, is the client development. Martindale-Hubbell is the bit that's been most badly hit. The core research business in US Legal is ahead by 1% -- the law firm, sorry. International is ahead 1%. So the mix, the Nexis sales to government and academic and law firms is down, as you'd expect in a recession. So there's lots of moving parts in the US Legal business.

You do have visibility in Legal to expect a better 2010 then? You have visibility in the Legal division to expect an improvement in 2010.

I think very few people have visibility on 2010 at this point. I think what we said is, you can see the trends in our business, in the different components of it, and we'd expect those trends to continue into 2010 until one has evidence that the macroeconomic environment is such that things are changing, hopefully for the better. But it's premature to start talking about green shoots and recoveries and bounce backs or anything like that. And I think you'll find that across the sector and across most industries at this time.

Thank you. Hello, Simon Baker, Credit Suisse. Two questions just following on, on investment, if I may? First is in terms of your primary driver, as to what you're targeting, Ian. Is it all about organic revenue growth from here, and if so, what is it particularly that you are most dissatisfied with the current run rate? Is it simply organic revenue growth relative to your market, or have you got a hard number, or is it a three year timeframe from here? Just a sense in that respect.

And secondly, in terms of this pick up in terms of product and marketing strategies, there's no numbers now. Is it purely because you're still doing a little bit of work behind the scenes to come up with a hard number later on in the year? Or was it because the incremental amount is sufficiently absorbable within additional cost savings that may be able to come out, and the materiality is more the significance?

Yes, I think on the last one, we are working on it, and we will obviously, internally, come up with pretty hard numbers and targets. And frankly, I hope people speak to the [flyer] to deliver them, so absolutely. I think dissatisfaction's a bit too strong. I just think we need more ambition. I think we need to look at the opportunities, think more creatively, get out and listen to the customers, attack segments of the market where we feel we can gain that ambition.

It is, as I say, mostly about organic growth. That's where I think the real opportunity is here. Again, acquisitions play a role in that and can be a means to an end there and can help us achieve our ambition. But the real focus is on customer value and the opportunity that I outlined in the strategy.

Last one.

Hi, it's Richard Jones at Goldman. Sorry to labor the point slightly on this, but just wanted to clarify, the reduction in the EPS guidance, is that all to do with, effectively, the trading conditions, or does that include an impact from the additional investment that you're talking about? And when you say that you're working on some of these numbers, does that mean that at some point in the future we should expect you to announce a specific investment number and a specific cost saving plan associated with that?

On the guidance -- the shift in guidance for this year, I mentioned there may be additional investment later on in the year. But to be frank, the plans that are being developed in terms of driving organic revenue development harder won't have any significant impact this year. So this is mostly referencing the trading conditions that you're seeing in the first half, continuing into the second half. Although, as I said in law that we may not have quite such the adverse publication failing, but that's what it is.

In terms of the impact, I think it is just too early to tell;, I think we'll just have to work through this. As I say, I'm not worried about the opportunities coming up, and if there are more opportunities than we can fund, obviously we need to think about the best interests of shareholders. And if we're confident we can get those returns then I'm sure people will be supportive of us. But it is too early to tell; we're just embarking on this program.

Thanks.

Good, well, thank you very much indeed and thank you for your support.

Thank you.

Thanks very much.