RELX PLC (RELX) 2010 Q2 法說會逐字稿

Well good morning ladies and gentlemen, and welcome to Reed Elsevier's 2010 interim results presentation. Thank you for joining us, either here in person or on our webcast.

I hope you agree with me that these results represent a marked improvement in overall trading performance, as shown by the underlying trends measured in constant currency.

Underlying revenues grew by 1%, compared to a reduction of 6% for 2009 as a whole. Underlying operating profit was down 3% [compared] to a fall of 9%, again for 2009 in total.

This reflects the fact that, while we remain cautious, we believe our results show that our advertising and promotional markets appear to have stabilized, while our core subscription revenues have continued to see some late cycle effects.

The lower EPS in both the PLC and NV reflect the full 8% dilutive effect of last July's placing, which is concentrated of course in this half-year.

Personally, I'm very pleased with the progress that management is making on the business by business priorities that Erik went through with you in February. In particular, we're sharpening the market focus in LexisNexis prior to splitting risk from the Legal business by the year-end, and great progress has been made in reshaping RBI.

I'm sure that these, and the many other actions that management is taking, will lead to further improvements in overall results in the future.

Mark will now take you through the results for the half-year, and then Erik will go through the individual businesses and the overall outlook in more detail.

Thank you Chairman. Good morning.

The first half saw a recovery in Reed Elsevier's overall trading performance with underlying revenue growth of 1%, which reflected late cycle effects on core subscription revenues, and stabilizing advertising and promotional markets. The first half also saw increased investment, particularly in the Legal business.

Adjusted earnings per share were 13% lower for Reed Elsevier PLC, and 11% for Reed Elsevier NV, and that includes the 8% full dilutive effect of the July 2009 share placings. Cash generation was particularly strong.

I'll be presenting the figures today in sterling; the same charts with euro figures can be found in the appendices. And in discussing the results, I'll mostly be focusing on changes at constant currencies.

My first chart sets out the adjusted profit and loss figures.

At constant currencies revenues were 1% lower, including disposals, with adjusted operating profits 3% lower. At constant currencies revenues were 1% lower, including disposals, and adjusted operating profits 3% lower. I think I just said that actually.

Adjusted pretax profits were down 4%, and attributable profits 5% lower. And looking at these components in turn, excluding acquisitions and disposals, underlying revenues grew 1%, and underlying adjusted operating profits declined 3%.

Whilst the overall adjusted operating margin was down 30 basis points, the underlying operating margin was 1 percentage point lower. And this reflected the limited underlying revenue growth and the increased investment spend, particularly offset by additional cost savings coming through from the restructuring programs and the integration of ChoicePoint.

There was a 60 basis point pick up to the overall margin from the divestment of unprofitable, or marginally profitable, RBI assets.

The next two charts summarize the constant currency growth rates across our businesses for revenue and adjusted operating profit, both in total and underlying.

Elsevier saw underlying revenue growth at 2%, LexisNexis was flat, Reed Exhibitions up 8%, and RBI down 4%, giving the overall 1% underlying revenue growth for Reed Elsevier. After taking into account the disposals, RBI revenues were down 19%.

For adjusted operating profit, Elsevier, Reed Exhibitions and RBI all delivered 4% underlying profit growth, whilst LexisNexis saw profits 14% lower against the prior first half. Erik will later go into more detail on the performance of each business.

This next chart sets out how the underlying operating profit performance is derived from the changes in revenues, and in costs.

In Elsevier, underlying costs grew 1% to deliver the 4% profit growth after additional cost savings in production and operations, while continuing to add staff in new product development, sales and marketing.

At LexisNexis, the underlying profit decline of 14% reflects adverse operational gearing on flat revenues, and the increases on spending on new product development, infrastructure, and sales in marketing in the Legal business. This is partly offset by further savings from the restructuring programs and the ChoicePoint integration.

In Reed Exhibitions, costs grew faster than revenues. The net cycling in of biennial trade shows boosts both revenues and costs. But stripping these out, in the annual shows, revenues were 6% lower, whilst the cost to put on those shows can't be cut as far.

At RBI, cost reduction of 6% reflects the significant restructuring actions taken last year and this year to deliver an improvement in underlying margin, despite the revenue decline.

The adjusted operating cash flow was up 5% at constant currencies, and represented a very high 98% conversion of operating profits into cash, despite the step-up in capital expenditure. This includes a benefit to the first half from the timing of subscriptions, with renewals completing in early 2010 which, in a less challenging environment, might have been completed before the start of the year.

The second half cash flow performance is not expected to be as strong, particularly with the continued step-up in capital expenditure previously flagged.

Going further down the profit and loss account, the net interest expense is broadly flat, even though our net debt is substantially lower than it was a year ago. This reflects the higher coupon term debt that was issued in early 2009, which is included for the full six months, whilst the proceeds of last year's share placing, and the free cash flow, repaid relatively low cost ChoicePoint acquisition facilities and short-term debt.

The tax rate is higher than in the prior first half, but similar to the 2009 full-year effective rate.

My next chart shows how the Reed Elsevier attributable profit is divided between Reed Elsevier PLC and Reed Elsevier NV.

Taking into account the July 2009 share placings, the average number of shares in issue increased by 9.9%. This gives adjusted earnings per share down 13% for Reed Elsevier PLC, and 11% for Reed Elsevier NV.

Because of the timing of the share placing, the dilutive effect on year-on-year earnings per share growth is concentrated in the first half. The second half comparison is largely unaffected, and the full-year attrition is approximately 4%.

This chart sets out the adjustments made to the IFRS profit figures in arriving at the adjusted profit figures, which are our key performance measures.

The adjustments are for amortization of acquired intangible assets, which is slightly lower this year.

Impairment charges, of which there were none this year, last year's charges principally related to the RBI US assets, and some of the international businesses.

Exceptional restructuring costs, which in 2010 relate only to RBI and its ongoing restructuring. The 2009 figure includes the major exceptional restructuring programs across the business.

There are no further exceptional charges expected in relation to these programs, other than the RBI restructuring, and the targeted savings are being delivered. Regular restructuring spend of GBP11 million has been charged within the adjusted operating profit figures in the first half.

Next are acquisition integration costs which mostly relate to the ChoicePoint integration.

The reclassification of taxing joint ventures which, for IFRS purposes, is charged against operating profit, and for adjusted purposes is included in tax.

And small gains and losses on disposals, and revaluation gains on venture investments, giving us the statutory profit before tax increase of 119%.

After interest and tax [free] cash flow before dividends and exceptional restructuring and acquisition integration spend, was up 33% in sterling. Taxes paid were low after repayments related to realized tax losses on RBI retained US assets arising from corporate reorganizations made last year.

Ordinary dividends relate to the 2009 final dividend, the increase reflecting the increased number of shares in issue. And cash paid in respect of exceptional restructuring costs and acquisition integration amounted to GBP37 million, net of related tax relief received.

Cash spend is expected to be higher in the second half, reflecting the shutdown of the RBI US infrastructure in July, following the end of the transitional services agreements, which supported the various RBI US disposals.

So free cash flow, post dividends and exceptional spend, was GBP213 million.

Turning to the movement in net debt, most of our net debt is denominated in US dollars, so I've included in this chart the movement in net debt expressed in both sterling and in US dollars, and the reconciliation in euros is in the appendix.

In addition to the free cash flow, disposals net of acquisitions contributed to the debt reduction; and the most significant component of this relates to tax recoveries on prior year disposals, which is in the figure of GBP79 million.

Currency translation increases net debt expressed in sterling, but reduces it in dollars. Net debt at June 30, 2010 was $5.8 billion which compares with $6.3 billion at the beginning of the period, and with $8.4 billion which is what is was a year ago.

Following this dollar debt reduction, net debt to adjusted EBITDA on our last 12 months basis was 2 times on a vanilla basis, and 2.7 times on a pension and lease adjusted basis.

The second half won't see the same cash flow timing benefits and tax repayments as in the first half, and CapEx and cash spend on restructuring will be higher. This will constrain the level of further debt reduction in the second half.

Included in the appendix are our credit metrics, last 12 months to June 30, although the cash flow ratio (technical difficulty) because of the first half tax repayments which distort them.

Turning to our balance sheet, no significant changes to the shape of the balance sheet. Some currency movements are relatively modest, but that's boosted values to an extent since the US dollar strengthened from $1.62 to GBP1 at the beginning of the year to $1.50 to GBP1 at June 30.

And this is slightly offset by the weakening of the euro from EUR1.12 to EUR1.22 over the same period.

And the other point to note is the increase in the net pension obligations in the period, and that's principally as a result of the lower discount rates applied to liabilities.

My last chart is on dividends. The equalized interim dividends are flat at 5.4p for Reed Elsevier PLC, and up 2% at EUR0.109 for Reed Elsevier NV; the difference in the growth rates reflecting the slight weakening of the euro against sterling since July 2009, when last year's interim dividend was declared.

Dividend cover, on the basis of comparing the last 12 months adjusted earnings with the aggregate of the 2009 final dividend, and the 2010 interim dividend, is 2.1 times for Reed Elsevier PLC and 1.9 times for Reed Elsevier NV.

Now let me pass over to Erik.

Good morning, and again thank you for coming, and thank you for listening.

As expected, and as you heard from Mark, the second half 2009 business trends continued into early 2010. Our core subscription revenues, saw carryover of late cycle effects from the multi-year subscription renewals completed in 2009. Our more cyclical businesses, started off the year slowly, but are now seeing moderating declines or return to growth.

Overall, we saw a return to modest underlying revenue growth for the first half. But the strength of the recovery varies significantly by business and by market. But, perhaps more importantly, all of our businesses are making good progress on their specific priorities, the priorities that we talked about in February.

So let me talk you through each business and the progress they're making.

First, Elsevier; Elsevier saw a 2% underlying revenue growth, lower than last year, exactly as expected. And the pursuit of cost efficiency and process innovation continued, leading to profits growing slightly more than revenues.

Science & Technology grew 2%. Research saw strong unit volume growth, both in publishing and in usage, with usage continuing to grow in double digits. However, the academic budget environment remains constrained and, overall, our 2010 renewals came through as we expected.

Reference & education saw continued good growth in electronic reference and moderating print declines in the first half. And our databases and tools continue to show solid, sound growth in usage and in revenues.

Health Sciences grew 2% as well. Medical research saw the same trends as science research; strong volume growth, constrained budgets and renewals, as expected.

Clinical reference & decision support saw good growth online, in double digits, as a matter of fact, from most of our segments, but saw slightly longer sales cycle in some of its markets as some of the customers were grappling with budget uncertainties in the first half.

Nursing and health professionals saw continued strong growth in integrated solutions. And the pharma promotion market saw a modest recovery in the US, but continuing declines in Europe.

Overall, they saw a decline of 4% in the first half this year, compared to 11% decline in the first half last year, or a 7% decline for the full-year last year.

Elsevier has continued to make good progress on the priorities that we laid out at the beginning of the year. We're continuing to evolve our electronic tools for academic researchers. We're growing our suite of research performance and planning tools for institutions.

We're capturing high growth opportunities in the health professions with new tools like Simulation Learning System, the small acquisition of Nurse2, and we're restructuring our pharma promotion business.

Going forward, we see volume growth and strong demand for electronic tools continuing. And while the academic budget environment remains constrained, it will continue to vary significantly by geography, as well as by type of institution.

LexisNexis saw underlying revenues flat, and a profit decline of 14%, when you combine those flat revenues with a cost growth of 5%. The cost growth reflecting increased spend on product development and sales and marketing, only partly offset by other cost actions.

We also saw a sharpened focus on the two different businesses inside LexisNexis as we're preparing to split Legal and Risk Solutions by the end of the year.

Legal saw a revenue decline of 2%. US law firm markets, including directory listings, grew 2% underlying. However, if we had continued to account for revenue recognition in our directory listings, the same way as we did in the first half last year, revenues for law firm markets and directory listings would have been down 2% for the first half this year.

Renewals revenues in the first half reflect the low activity levels in the legal industry in 2009. However, the new sales were significantly higher, and our customer retention was stable. Also, the Martindale Hubbell directory declines are starting to moderate.

US corporate government and academic markets continue to decline at 6%, as budgets remain under pressure and we saw continued declines in news and business.

International legal declined 4%. Continued good growth in online and solutions of 6% was more than offset by print declines and print publication phasing in the UK.

Legal has also made good progress on its priorities. They've expanded their US sales coverage and their US marketing programs. They've continued to evolve their international online tools, and they made good progress in developing the next generation legal infrastructure.

And I think it's important to note here that, when we say the next generation legal infrastructure, we don't mean just a product launch of the next generation legal research product. We mean an integrated legal information architecture that will be rolled out gradually, often feature by feature, and one customer segment at a time over a period of time.

But I'm happy to report that the early steps we've taken on that journey have been very well received by our customers. Some of the features that we've shown them, we're getting good feedback on. And also, we're getting good, operational metrics from the few early commercial users of Lexis for Microsoft Office.

Going forward, we see the late cycle impact on our multi-year subscription revenues continuing. And the pace of legal industry recovery is still uncertain.

Even though, in the first half this year, it appears that US law firm billings were up a bit, employment in the legal industry is only stabilizing. After having been down significantly last year, it appears that it's essentially stable or flat for the first half this year.

But we will also see continued investment only partly offset by cost actions, exactly as we explained to you in February.

Risk Solutions saw underlying revenue growth of 4%. Insurance saw strong growth of 8%, driven by high transactional activity, and increased sales of analytics products.

Government market strength continued, partly offset by some Federal spend timing issues in the first half that we assume will continue to be ironed out throughout the year.

And screening saw a strong spring retail hiring driving growth of 9%. And we have to point out that the certainty of this continuing is not something that we want to bet on at this point, but we do believe that there is a gradual recovery coming in the screening business.

Other areas saw declines moderating; financial services and collections were stabilizing, but the mortgage-related revenue streams were still weak.

The ChoicePoint integration is progressing well; the synergies are still on track. And we're leveraging the HPCC advanced technology more broadly across our business. And also, the recent product introductions are growing well.

Going forward, we expect continued strong growth in insurance, but the strength and pace of recovery in screening, collections and financial services are still uncertain.

Reed Exhibitions saw underlying revenue growth of 8%, with revenue declines in annual shows significantly moderated, down 6% in the first half this year, versus down 17% in the first half last year. And the revenue benefit from the net cycling in of biennial events being 14% in the first half.

Over the past six months we have clearly seen an emerging recovery in Exhibitions. The revenue declines are moderating, the attendee levels are up in most annual events, forward bookings are trending up for 2011 events.

And it's clear that the customer value proposition is still strong. We're getting very good exhibitor and visitor satisfaction feedback.

We've also seen strong growth in China, Russia, Brazil and Middle East as a group. These countries are well into the double digits in terms of actual revenue growth in the first half.

We've also stepped up the number of new launches in high growth markets. We launched 15 new shows in the last six months, compared to five in the same period last year.

For the full-year 2010, we continue to expect overall underlying revenue growth, including the benefit of net cycling in of biennial shows, even though the benefit of the cycling is significantly smaller in the second half.

We're also seeing encouraging signs emerging, as you hear, for 2011. But it's important to keep in mind that 2011 is a net cycling out year for Reed Exhibitions.

Reed Business Information saw underlying revenue decline of 4%, significantly moderated from last year's minus 18%.

We also managed to halt the profit slide and saw an underlying profit growth this year of 4%, versus a profit decline in the first half last year of 43%, (sic - see presentation), and a full decline of 34%.

But, while online advertizing has returned to growth, print advertizing is still declining.

So in the first half, RBI continued to grow its data services, restructure its print portfolio, completed its exits from all US magazine titles, except Variety, also sold additional titles in Germany, Asia, Netherlands and the UK. And they reduced their cost base further.

Going forward, we expect to see slow recovery in advertizing, online growth continuing, but the ultimate pace and strength of print recovery in our markets is still uncertain.

We'll see continued portfolio development and continued cost reduction, and we will also continue to expand in data services and pursue emerging market opportunities.

So in summary, in the first half we made considerable progress on our business unit priorities. And we saw overall return to modest growth, even though there were significant variations by business and by market.

Going forward, while we've seen some improvement in the general economic environment and the actions we're taking are beginning to have an impact, our recovery will be gradual as conditions remain constrained in many of our markets.

Now against this backdrop, I'm very pleased with the way our business is developing. Thank you.

And we now have time for questions. Let's start up.

Hi, it's Mark Braley at Deutsche. Just a couple of questions. You said in Lexis that new sales are higher year-on-year, how do they -- presumably new sales this time last year were extremely low. How would they compare against a 2008 level?

And then the second question is around investment in the form of P&L spend, CapEx, but also M&A. You're clearly running with a higher level of CapEx and a higher level of P&L investment at the moment. You're doing very little in terms of bolt-on M&A.

Is that about balance sheet capacity? Is it about management bandwidth? When do you see yourselves returning to a more normal level of bolt-on deals?

Well, first of all you said LexisNexis Legal new sales. Yes, we are comparing that to the low level of new sales last year, and that's why we're saying it's significantly up from those levels. I apologize, I actually have not gone back to see exactly, for this exact time period, the new sales in that segment from 2008.

I think it is important to point out that new sales account for a very, very small portion of the revenue stream in legal markets, because the vast bulk, the vast majority of everything you do is really renewal of existing subscriptions and adjustments to existing subscriptions.

So net new sales is not a very good indicator for how the revenue streams are going in the near-term, or even in the medium-term.

But it is an indication that, when they are declining, the markets are heading down. And when they're starting to head up again, it's an indication of future potential increases that might come through.

But it's a very, very small piece of the revenue stream, which is why it's not a good indicator of our current revenue performance.

You said -- yes, we are clearly increasing our, if you want to call it, investment through the P&L or our organic operating expense spend, in certain areas, to drive growth in those areas, as we laid out in February.

And the impact of CapEx is also as we laid out in February, the overall investment. And we have spent less on M&A, if you would say, compared to what we've averaged over the last few years.

But our strategy, going forward, is focused on driving organic growth in the different business units that we operate in, and doing that in strategic segments, emphasizing the higher growth segments with good returns.

And, as we do that, we will use acquisition as one of the tools to pursue those strategies. We don't have a large acquisition-based strategy by itself.

So I would think that we would return, over time, to the kind of incremental bolt-on acquisitions within our business units that you would have seen over the past, except for some of the bigger moves that we made in the past that I, at this point, don't see in our future.

Just one quick follow- up. RBI, the minus 4% organic, are the figures for last year truly comparable, in the sense that the figures we got from last year include a bunch of assets that you've actually sold that were, presumably, falling fastest? So how does the minus 4% compare, on a true like-for-like-for-like?

Yes, it's true, we are using the accounting definition that we always disclose, which is underlying revenues are underlying, meaning for assets that were held in the two full periods. So it's a full -- and that's the definition that we use in all our charts exactly the same way.

I was just going to add that, if you look at the declines last year, they were broadly comparable across all markets. But you're right that the decline last year did include the decline of the RBI US assets that we have since sold or closed.

Which probably -- those assets represent a small portion of our business, but nevertheless, a material small portion. So it's not as dramatic as the current assets going from minus 43% to minus 4%, but it is something in between there, and a material improvement in declines from last year. It's a material improvement in that business.

Hi, it's Polo Tang from UBS. Just a few different questions. The first area is really Legal. Have you seen any impact on your Legal business from the rollout of WestlawNext?

And then, also just on Legal, do you believe that there have been any structural changes in terms of the legal industry, or do you think that the declines in 2009 were mainly cyclical in nature?

And then also, the second area is really just in terms of costs. Now that you've been CEO for a while now, do you see scope to take more costs out of the business?

And, related to that, Mark mentioned that there was GBP11 million of above the line restructuring charges in the adjusted number. So does this reflect the change of approach for Reed Elsevier in terms of how you're going to be accounting for cost savings and restructuring charges, going forward? Thanks.

Okay, first question, do we see any impact of WestlawNext. We hear a lot about it, and people talk a lot about it in the marketplace, and there are a lot of early rollout discussions. But if you ask the question, do we see anywhere in our sales or business metrics or revenues or new sales, anything that we think can be attributed to the WestlawNext rollout, I'd say, I don't think so yet. I really don't think so at this point. That does not mean, of course, that that will be the case in the future. But at this point, I don't really think so.

The second question was about structural changes. It's always hard to determine, ahead of time, what's structural and what's cyclical. But we haven't seen, in any indication, that there are structural permanent changes in the way we look at information tools for the legal industry.

The legal industry itself is going through gradual changes, and trends that have existed for a few years are continuing. And those kind of trends to be accentuated when the industry goes through turmoil. But fundamental structural differences in the market, the way we serve it, we haven't seen, no.

Cost, scope to take more costs out. Well, I remember I was in one of the rooms like this, maybe five years ago, and I got that question regarding Elsevier at the time.

And I said, I'm not sure. It's a pretty lean operation and I don't see any big step changes, or anything we can do dramatically. But we'll continue to work as hard as we can to make sure we keep our margins at least even. But we'll relentlessly pursue process innovation and cost reduction on an ongoing basis.

And I think I'm going to answer it the same way this time; that I don't see an immediate step to come in and do another restructure and take a step-up costs out of Reed Elsevier.

But I do see scope for looking at working through our cost base on an ongoing basis, and relentlessly pursue process innovation. And I think that is probably then what you're going to see on an ongoing basis, when you look at restructuring costs. And I don't foresee at this point a big below the line except for restructuring effort.

But I do foresee on an ongoing basis us continuing to do things to adjust our cost base to change our processes on an ongoing basis as part of running our business and, therefore, incurring some charges every year.

But just to clarify, restructuring charges going forward will be taken above the line?

Well, as a general rule, yes. It's always very difficult for me to stand here and say what we're going to do three years from now or at some point in the future, but my general approach will be to do that.

And again, I refer back to how we've actually been doing it at Elsevier on an ongoing basis, which is an approach that is gradual, systematic, step-by-step, area by area; small steps all the time. And that would not lend itself to trying to separate out a big bucket and put it somewhere else.

Hi, it's Tom Singlehurst from Citigroup. Just on that GBP11 million of above the line restructuring, should we assume that's all within Lexis? And then linked to that, should we assume that the 1H margin at Lexis should represent the real low point for Lexis margins over the next few years? That was the first question.

The second question was on RBI. I know the aggregate closure/disposal impact is anticipated to be something like $170 million; can you just, on a full-year basis, clarify just how much of a loss is associated with those revenues so we have an idea of the full-year profit impact, both closures/disposables? Thank you.

First, the GBP11 million, I think to a large extent in the first half that's in LexisNexis, but not 100%.

There are restructuring costs also in Elsevier on an ongoing basis, as Erik was describing earlier, and also in Exhibitions. The RBI restructuring costs, given the scale of the restructuring that's going on in that business, are in exceptionals. And we would expect that to continue in the second half.

And when you talked about the Lexis margin, traditionally, we've had slightly higher margins in the second half the way we report, compared to the first half in LexisNexis. And we think that the margin impact that you are seeing right now is probably similar to -- the relative impact of margins on the first half, if you look at it that way, if you look at first half on first half, I think is an indication of the overall margin impact on LexisNexis for the full-year. But broadly speaking, not exactly.

Just on the question on RBI, I'll just pick that up, the revenues we're selling were not contributing to profit in aggregate. So, these are marginal and unprofitable titles that have been sold and closed in aggregate.

But if you look at your question, overall, the amount of revenue that has been sold, if you look at the total revenue of those businesses in the 12 month before they were sold, order of magnitude I think we're talking here, $250 million, something like that.

But of course, they have been sold at different times and revenue clicking out, and I haven't done the exact accounting for saying which one clicked in and declined in the first half versus so on. But that gives you scale.

And net-net, I would argue that if you assume that that whole operation that's gone was close to a breakeven operation on either side, depending on if you look back or look forward, I think that's probably not a bad indicator of roughly what happened.

Good morning. It's Giasoni Salati from Execution. The original reinvestments announcement on Legal were given before Thomson Reuters announced lower margins for 2010 and 2011 for further investments across pretty much the whole business. You think your current levels of investments and margin is still appropriate, given what seems to be an increase in competition from Thomson Reuters since you announced it?

Kind of related to that, from where you sit now on recovery across pretty much most businesses and the pretty heavy restructuring injected in Legal and some disposals elsewhere, do you think you can already foresee 2011 margins being stable or higher, assuming there is no shock on the economy either way?

And lastly, RBI, you even mentioned, I think, small acquisitions in data and emerging markets from the intention of disposing of it no later than 12 months ago; do you think any disposal seems unlikely across the whole portfolio business? Any disposal of any size?

Let me take those in order here. Current investment levels and margin outlook appropriate? Yes, I think so. I think that we have looked at the amount to spend, the ongoing cycle of investments in that business, and we've primarily determined that, based on what we see in our customer environment, what we see going on with our customers, how we think we can add value to those customers.

And as you may know, we laid that out also even before, you mentioned Thomson Reuters, even before they announced their new product, or what it looked like, or even then their follow-on investments.

So, that investment effort, which is not a one-off effort but is rather a rethink, I think, about, in the new world of new flexible service-orientated architecture technology, how are you going to spend on an ongoing basis to service these customers and continue to increase value for them?

We think that's roughly the right level. So we have not changed that outlook and not changed the level that we talked about in February.

You asked specific on 2011 margins. I think it's too early for us to, at this point, try to predict or give you an outlook for 2011 margins. That depends primarily on the shape of the economic recovery in our markets more broadly and then how that trickles down into our market.

So, I think the number one driver for margins going forward will be the shape of the economic recovery in general, and specifically in our markets.

If you ask any question of do I see continued step-ups in spend that would drive it if we didn't have any fluctuation on the revenue side, I would say I think we have now laid out our spending plans and our investment plans and I don't see them, at this point, going higher than we said before or being materially different. And I think this year is essentially a full spend year, 2010.

Now, I'm not sure I exactly followed your question on RBI disposals. I want to make sure I understand exactly what it is you're asking because we're doing a lot of different things in RBI right now.

Sure. You closed the disposal of RBI US, and that was very large compared to the size of the business; I'm wondering if you're satisfied with the shape of RBI and anywhere else in the business within Legal and Science, or if you think there are more disposals which could contribute to a better portfolio mix.

Well, I think at this point what you will see going forward are continued portfolio adjustments on the margin. Meaning we will continue to sell small businesses here and there, just like we'll continue to add small businesses here and there.

When we see that smaller businesses somewhere are not helping drive our strategy forward, then we'll consider getting rid of them. If there are businesses that we think can help us advance our strategy, we might buy small businesses.

So, I see it as an ongoing, step-by-step, small portfolio adjustment approach as opposed to one big chunk of our business that we're now preparing to get rid of.

Thank you. It's Richard Menzies-Gow from Merrill Lynch. Just three quick ones, if I can. On Exhibitions, I just wonder whether you could give us, perhaps, some sort of flavor of forward bookings in terms of where they stand versus maybe this point last year; some sort of metric around that.

On the International Legal business, I think you mentioned there was some publishing phasing; if you could just provide a bit more color on that, and whether that equals out in the second half.

And then last point, on the US Legal business, there's lots of industry speculation about Lexis Advance and the new product, and lots of talk about, perhaps at least in the core Legal business, that the rollout starts in the second half of this year; I just wondered whether you could comment on that.

Okay, Reed Exhibitions' forward bookings; there are many different ways to look at forward bookings, as we've discovered in the last 18 months. There's normally a booking cycle.

Reed Exhibitions look at booking cycles from one show up until the next show, basically, and they have a booking curve. And it's not just the amount of bookings; it's what the shape of the booking curve.

And what happened in the economic downturn was that the booking curve had started off well and then in the end it slowed down and had cancellations. Then, in the last 12 months what's actually happened is the booking curve started up slower and later, and then, in the end, you then have last minute bookings and accelerated showing up.

So, a specific number that I would try to give you would then try to blend all of those to illustrate something. Therefore, I don't want to give you a precise number. But I think it's fair to say that what I just said is happening. It used to be early bookings, tapering off and cancelling; now we're seeing delayed bookings and then picking up towards the end and more people showing up.

But having said that, if you try and do a curve by curve direct comparison on where we are for 2011, versus where the actuals were for 2010, it's clear that no matter how you cut it, it's up a bit. Now, exactly what that number will be, I think we'll need to get into 2011 to see, and that's why I don't want to give a specific number ahead of time.

Now, second question, you said International Legal; International Legal, as I said, good online growth, which is -- online is now starting to represent virtually half our International Legal business was offset by UK print declines, print attrition in some big encyclopedic print works in the UK, as well as some print publishing phasing issues, in the UK.

So, part of that should reverse itself in the second half, as you asked, but some of that print attrition that's lost in the early part of the year will not come back. So, the true answer is somewhere in between; a complete phasing issue and some attrition in print in the UK.

Then you asked US Legal, industry speculation about when things will be rolled out. I think again I'm going to emphasize that it is important here to say that we are not launching one new legal research product.

We are re-architecting the whole information infrastructure for delivering legal information and solutions around it, and we're doing that because we want to help lawyers work differently. We want to help improve their productivity and improve their outcomes by letting them do things differently.

And, therefore, we're going to launch different features at different times, often customer segment by customer segment over a long period of time. So, therefore, speculation that a product is being launched out at a certain point in time is inherently thinking of it differently from the way we think about it.

And you've seen some of the things we have talked about, specific features being showed to certain customer groups and also this little feature Lexis for Microsoft Office, which completely changes how actually you use legal information and integrate it.

These are just indications of the kinds of things we're going to continue to roll out at different times to different customer segments.

Andrea Beneventi from Exane. I have three questions, if I may. The first one is on Events; if you could please provide a split of growth by geography.

On Events?

On Events, yes. If you could just detail the growth by geographical area.

And second one, on RBI, what is your target in terms of profitability of margins for this division? And if I'm not asking too much, if we assume the economy to stay as it is now, how many titles would you have to close to get to this level of profitability?

And the third one is on STM; how much of your total STM revenues are exposed directly to US Government spending? And what do you expect from this item, please?

Okay, let's take these in order too. Reed Exhibitions split of growth rates by geography; now, we itemize it by our major regions in the document that we've handed to you, which I'm not having right in front of me. Maybe I could just ask Mark to read them to you.

Yes, in Europe, the annual shows were down 2% year-on-year, and in the US it was 10%. And the Europe and the US between them account for 80% of the annual show revenues in the first half.

And as I said before, the countries that I listed, Brazil, Russia, China, and Middle East, those groups were growing in the first half as a group, well into double digits.

So, we don't disclose exactly by market every show because we have so few in some of them, but that gives you an indication in the large markets and the small markets. On the other hand, we saw very steep declines, in particular, in Japan.

Is it accelerating, growth in developing economies?

Well, if you look at acceleration compared to a year ago or two years ago, if you look at since the world started slowing down, absolutely it's accelerating.

But I think the interesting question is when we get back to normal ongoing growth as opposed to recovery growth, coupled with ongoing growth, when we get back to normal growth rates, we expect that the growth rates there will continue to be very strong but not as strong as they are during the rebound itself.

But we see those markets as continuing with very strong growth, and we'll continue to launch new shows and do well in those markets.

Let's see. You asked RBI margin targets; well, we don't have a specific margin target for RBI. But I believe that we will continue to shape our portfolio a bit and that will help improve our margins.

But I think more importantly, we will continue to operate that business differently. Year by year by year, we'll continue to drive growth in the attractive markets, and we will continue to operate some of the other businesses for value, as opposed to looking at every asset the same way.

So I think as we segment those businesses differently, we'll look at the major data businesses for driving -- as growth driving value and driving margin. We'll look at the online marketing solutions business, the four big businesses there, as capturing the economic rebound and, therefore, driving margins up to the revenue growth and economic recovery.

And then we have others; we'll rework our big brands and then the long tail of business magazines and other services; it's a question of running them for margin as opposed to looking at them evenly.

So, it's a combination of slight changes in portfolio, but significant operational improvements also.

So, STM, you said US Government spending; if you look at STM as a whole, meaning our Elsevier business as a whole, the geographic breakdown for the whole business is basically North America, 40; Europe, Western Europe, 30; and the Rest of the World, 30.

If you look at our S&T business, it's probably North America, including Canada, which is important of course for our revenue stream, probably one-third, so it's one-third North America; one-third Western Europe; one-third the Rest of the World.

So, now you take down, you said US Government specifically, now you take it down to the US and then you take off US corporate customers and US private academic environments, and so on, you're down to a portion of that portion that is directly exposed by US Government spending. I can't give you an exact figure, but you get down to what it's similar to.

Thank you very much.

And it's not just Federal spend; a lot of that is State spend, of course.

Thanks. It's Colin Tennant at Nomura. Can I just come back to Tom's earlier question about the LexisNexis margin and where we are in that phasing?

I appreciate that you're going to be splitting out Risk and Legal at the year-end, but is there any reason why, in the longer-term, the US Legal margin should be any different from the numbers we see in the peer group, mid-20s margin? Or is there any structural things which would mean it would be lower than that?

And then turning to Elsevier, you said in the presentation -- you pointed about volume growth there, but maybe you could say something about pricing in that market.

And also, in the conversations that you're having with the libraries, etc. now, I appreciate that their negotiations are really done at the end of the year, but are you getting any indication that they are thinking differently about the way they're approaching the whole buying process this year as opposed to last year and the year before? And is there any major change going on in what's happening to their budgets and where they are in that cycle?

So, you said long-term margins in US Legal. Because we don't operate the business as a separate Legal business today, we really don't, we have huge shared operations, we even have shared product sales through those channels, and so on. So we have not done an internal estimated separation or anything like that.

We're working to prepare for that, and when we get there we will actually -- we're very clear on what our margins are and how it operates.

Therefore, I don't want to get into a point of saying what should they be in the long run because we haven't laid out what they are today specifically in the different businesses.

But if you look at it fundamentally, I don't see any reason -- you asked a conceptual reason of why we would have lower margin or higher margins than somebody else.

I think there is a certain element of scale in the absolute margin, which is the larger your business is, the higher margins you can operate in a technology-driven information business. So, there will be a scale difference if you compare it to a larger player or you compare it to a smaller player.

And I think that that will have a larger effect in the online world than it did if you go back 15 years in the print world, when it was entirely print, when scale, scale advantages were not so large probably.

So there will always be some margin differences based on size of business but I think it's too early for us to try to look for margin outlooks specifically for that business at this point.

But we are bringing it down now as you can see, and we do believe that any margin recovery from there will then be gradual, and it will depend on, first of all, returning to revenue growth as the markets recover.

The legal markets in the US are still not showing increases in employment, they're still not growing their legal employment. And when they do and when business activity starts picking up, which relates to business activity, increased litigation, increased regulation and so on, which we are all convinced will happen again over the next several years, as that revenue growth then rolls through and we will be able to continue to adjust our cost structure, you will begin to see a gradual recovery of margin, one year at a time, one step at a time. But I can't tell you where it will end exactly.

You also asked about Elsevier. Yes, we are seeing continued good volume growth in the scientific market, the number of scientists, the number of research papers published, as well as double digit growth in usage.

But how you turn that into revenue growth, when there are constrained budgets, is what we talked about as moderating the revenue growth this year. All those different factors, all the different budget constraints are then leading to the 2% revenue growth you saw in the first half.

And 90% of our science journal business is now under some form of electronic contract in some shape or form, where you negotiate and discuss the content blocks, the tools, the features, the archival rights and so on and agree on a total spend growth over a period of time. And that, I think, is a reflection of the budget situation that most of these customers are in.

And you asked the question, is that changing right now? Well, we aren't in the middle of a discussion season right now. You know the history, you know exactly how this works with the annual cycle.

But all the indications we have right now is that the budget pressures continue in most of those markets, even though some of those categories went through very difficult times with steep declines, rapid declines and turmoil in the last two years.

Now I think that the pressures are continuing and it's a challenging environment, but there isn't at this point another big blow-up that we're looking at for this year's discussion but more a continuation of last year's type of discussion, customer by customer, understanding exactly what they're trying to do and working with them on the renewals to try to figure out how they can best meet their information needs.

Thanks, it's Paul Gooden from RBS. Just a question on the overall shape of the Group. At year-end, you're splitting out risk, so going from four divisions to five. Reportedly, there are interested parties in Reed Exhibitions.

I wondered if you could just talk philosophically, do you feel comfortable with the portfolio? Do you like having a defensive core and a cyclical side of the business as well? Are you pragmatically minded to offers for businesses?

Well, I would like to think that we are, at this point, looking at this very pragmatically, and looking at how do we take the portfolio that we have today and manage it for value creation.

And I believe that if we, in the portfolio we have today, focus on creating value for our customers in each one of our segments, the best way we would do that in our markets, and then operating the businesses in a way that also make them more profitable and grow faster and create value for our shareholders, I believe that at this point, we can work our portfolio that we have today with small adjustments of divestments and small acquisitions to drive significant value creation over the next few years.

Now, what the portfolio will look like in the very long-term, I think we have to be very pragmatic about, but at this point, I see it as a -- as working with the portfolio we've got.

Do you have a question?

Yes, sorry. Paul Sullivan from Barclays. Just a couple of questions. Just to be clear on Elsevier, given the lag and the budgetary constraints that you're operating under now, should we expect, as a base case, more of the same for next year, it's probably too early to assume any sort of recovery at Elsevier going through into 2011 and that's more of a 2012 story.

Then on Elsevier, in terms of the margin, you had about 40 bps of hedging gain on the margin in the first half. That looks like, when you look at the three-year rolling hedges, that that's starting to kick back in more positively now. What's your expectation for the full-year from the hedging gains?

And also, it looks like there should be another positive effect in addition to that next year as well. So maybe, Mark, you could talk about that.

And then finally, just on the below the line restructuring acquisition integration charges, you talked about the first half restructuring charges repeating themselves in the second half. Can you just quantify the acquisition-related charges as well? Thanks

Okay. Let's start with Elsevier and the environment and looking at forward growth. I think it's too early to tell exactly where it will come out in 2011 because we haven't started that big renewal season yet and that big interaction, so it's a little too early to tell.

But what I said before, the general environment continues to be difficult, the general academic budget environment continues to be difficult, and, even though there are significant variations. So many markets that are growing very rapidly and there are many areas that are expanding and investing more in scientific research and academic education and technology.

So exactly where that blend comes out is difficult and too early to say, but you also know the cycles, that these are on average three-year contracts. The majority of our revenue is contract based, and then the majority of that is set multi-year. So there will be lag factor and there will be a slow recovery. But it's too early to say exactly -- you are saying, it's not '11 is it '12? Don't know yet exactly how that shape will look.

You referred to our hedging games. I'll let Mark answer exactly what the numbers are, but I just want to say one thing. We do not actually try to win or lose in a hedging game. All we do is to mechanically spread forward our revenues. It's a mechanical smoothing.

We never try to make a bet or have an opinion on a future. It's just saying, because we're locking in these contracts in multi-years, we're also mechanically, therefore, hedging forwards. So any effect on currency will be smoothed out over a period of time. There's no betting going on in any way, trying to assume currencies go up or down. But Mark can tell you the exact math.

Yes, as Erik described, the effect of currency movements gets into our results in a systematic basis over a period of time. So what you saw in the last few years is when the dollar declined significantly, we were well protected against that. And that got into our results though, over a number of years, so you saw that drag on margin from the net effect on the currency hedging program.

That has turned, and what you've seen is the weakness of sterling effectively getting into our results over a period of time as well, so we'll have a net benefit of that that will eke its way in.

Now clearly, it depends rather what happens on rates going forward but we should see the same benefit in the second half that we saw in the first half for 2010, and the momentum in the system is that we should see further gains in 2011.

And now, also the specific question of restructuring. Maybe I'll just let you start.

Yes, the acquisition integration costs largely relate to the integration of ChoicePoint, and that's a three-year program and we're in the middle of it, so I think we should expect to see more of the same in the second half.

In terms of the other exceptional restructurings, it is in relation to RBI. That is an ongoing process. Clearly, we've done a lot, and so I think we should expect to see further exceptionals in relation to RBI; quantum a bit difficult at this stage to be precise about.

The other point I made was in terms of the cash spend. The cash spend is higher now than the exceptional spend for the -- not for the acquisition integration but for the other exceptional restructuring, because the recognition of the expense is ahead of actually the payments being made, particularly when you're downsizing.

So you'll expect to see cash spend higher in the second half than it was in the first half for the reasons I stated earlier, and that is that the RBI US business, we've sold a lot of the businesses, we've closed a lot of the businesses but we had transitional services arrangements whereby we're supporting the assets sold for a three-month transition period. And as those transition periods come to an end, so then we're shutting down the infrastructure and that's happening as we speak.

Okay. Let's come back over here.

It's Patrick Wellington at Morgan Stanley. I've got one for the Chairman, actually. The management incentives require the management to beat a number of [45.9p] of earnings in 2012 and do 9% earnings growth in '11 and '12. Arguably, that might look a little bit undemanding, given the robustness of the apparent 2010 results. So do you want to talk about your approach to that target at the time?

The target when we put it in? Well, we did our best, as one always does, to put in what one thinks is a reasonably challenging target, and as you look at that plan, it's got a number of different strands in it. As you know there's return on capital, earnings per share, three different TSR measures.

I have to say that in my -- all my life of trying to put these schemes in, and indeed, performing against them, I'm always thrilled when the targets that are put in get beaten.

Well, they don't look, on the earnings side at least, quite as challenging this morning as maybe they did back in March and April time.

I'm pleased about that too. If they look more challenging now than they did then, I think I would be more worried than I am now.

The point of putting in those -- of course, as time goes on, one's views will change a bit. That is inevitably the case, I think.

I just think it's important though to point out that this is a five-year plan; this is not a three-year plan. It's a five-year plan, even though it has some intermediate hurdles as well.

And I think you would have reason for concern if we weren't moving in the direction of the target.

Okay. One last question in the end, and then I'll let you go.

It's Ian Whittaker from Liberum. Two questions. First of all, just following on from an earlier comment where you said there's various shared functions between Risk and Legal, can you just reassure us that when Risk and Legal are split up that there's not going to be extra significant costs from having to duplicate processes which at the moment are actually shared?

And the second things is, again, more of a philosophical longer-term question, but you mention the difficulties of seeing structural challenges ahead, when you do your medium-term strategic planning, what do you see as potentially the most difficult strategic pressures that could face you on a three to five year view?

Okay. The question on Risk and Legal separation, yes, I am fairly certain, or I can say I am absolutely certain that there will be no one-time costs in that separation and that we are not going to duplicate costs.

We are taking that opportunity to look at different types of shared costs and shared services, whether they belong in a LexisNexis Group, meaning shared between Legal and Risk.

Then we can continue to share them, putting them in one place servicing the other, or we can say, you know what? There's slight benefits to be had by moving those up into a regional Reed Elsevier structure and sharing with Elsevier as well. So we might be able to save some that way, or make them more productive higher quality for the same cost.

Or we may decide that, well, wait a second, they're separated already. They're doing it separate but in a certain department, and then you can allocate those two areas out without having the infrastructure overhead of LexisNexis Group.

So I'm convinced that there won't be any one-time costs, and there won't be any duplicate costs. And it's up to us over time then to manage so that we don't grow our cost base unnecessarily on an ongoing basis in all our businesses, and that we'll do for Risk and Legal as well.

Second question on medium-term strategic plan; what are the key issues we're looking at? To me it's very, very clear what the key issue is. That is the evolution of the professions that we serve, the customer industries.

How do the professionals in those industries operate today? How will they operate in the future? How will they do their jobs? And how do those customers make money? And how will that evolve over time?

And how can we, given information and tools that we own today and can create over time, how do we build them so that we help them become more productive, reach better outcomes and make more money?

And that's what we spend our time doing, and then we organize around that theme and try to get there. That's the one issue.

Thank you very much. I know you have a busy day, and thank you for attending this meeting this morning.