reed elsevier preliminary results 1999 strategy presentation to analysts 24 february 2000
TRANSCRIPT
REED ELSEVIER
Preliminary Results 1999
StrategyPresentation to Analysts
24 February 2000
Mark Armour
Chief Financial Officer
Adjusted Profit and Loss
1999 1998 £m £m constant
Turnover 3,390 3,191 5,153 4,749 +5%
Adjusted operating profit 792 813 1,204 1,210 -3%
Operating margin 23.4% 25.5% 23.4% 25.5%
Net interest expense (82) (40) (125) (60)
Adjusted profit before tax 710 773 1,079 1,150 -9%
Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items
% change1999 1998 €m €m
£m - Turnover - €m £m - Operating Profit - €m
Science
Underlying turnover and operating profit up 2% Adverse impact on subscription renewals of currency Over 25% of journal revenues include ScienceDirect Weakness in Excerpta Medica and France
Turnover up 5%; Operating profit up 5%; Margin 35.4%
223
332351
231
0
100
200
300
400
622
926 991
652
0
200
400
600
800
1000
1998 1999 1998 1999 1998 1999 1998 1999
Legal
Underlying revenue up 5%; operating profit down 12%
Low revenue growth and increased investment at LEXIS-NEXIS
Non US performed strongly, particularly UK and France
Good sales and profit growth at Educational
Turnover up 13%; Operating profit down 4%; Margin 24.9%
1107
16481927
1268
0
500
1000
1500
2000
2500
322
479 480
316
0
100
200
300
400
500
1998 1999 1998 1999 1998 1999 1998 1999
£m - Turnover - €m £m - Operating Profit - €m
Business
Underlying revenue up 1%; operating profit down 11%
Cahners revenues flat; profits down 40%; restructuring implemented in second half
Recovery in advertising demand in Europe in second half
Strong growth in annual exhibitions and launches
Turnover up 2%; Operating profit down 9%; Margin 16.7%
1434
2134 2235
1470
0
500
1000
1500
2000
2500
268
399373
245
0
100
200
300
400
500
1998 1999 1998 1999 1998 1999 1998 1999
£m - Turnover - €m £m - Operating Profit - €m
Adjusted Profit Before Tax - Reconciliation
1998 Adjusted profit before tax 773 1,150
Base businesses (58) -8% (86) -8%
Acquisitions 1 - 1 -
Disposals (9) -1% (13) -1%
Currency translation effect 3 +1% 27 +3%
1999 Adjusted profit before tax 710 -8% 1,079 -6%
% % £m change €m change
Cash Flow
1999 1998 1999 1998£m £m €m €m
Adjusted operating cash flow 780 808 1,186 1,203
% conversion 98% 99% 98% 99%
Free cash flow 186 246 284 366
Acquisition spend (166) (1,232) (252) (1,833)
Exceptional items (61) 647 (93) 962
Total cash outflow (41) (339) (61) (505)
Earnings and Dividends
Adjusted EPS -8% -5%Equalised dividends -33% -31%
Growth versus 1998
Dividend Policy
Policy realignment to support investment in Internet driven growth strategy
Reduction by one third from 1998 level
£115m/€185m funds released
1999 total dividend 10.0p/€0.27
2000 interim and final dividends realigned
Long term dividend cover target of at least two times
Crispin Davis
Chief Executive Officer
Highlights
New Internet based strategy for growth
Three core businesses supported by brands, content, market reach and scale
Significant, detailed £750m/€1,200m 3 year investment programme
Strengthened management, re-emphasis of core disciplines and cost savings
Commitment to superior shareholder returns
Vision
Indispensable partner of scientist, lawyer and business professional
Demonstrably superior information driven services and solutions, increasingly via the Internet
Global capability and leadership in targeted sectors
Organisational focus on customer, innovation and speed
2002 : Above market revenue growth Double digit earnings growth
Focus on Science, Legal and Business
$6bn
$7bn
$10bn+
$8bn
Science and Medical
Legal and Tax
Business Magazines
Business Exhibitions
Global Market Size
4-5%
5-6%
5%
6-7%
Future Growth
Large and Growing Markets
1
Market position
Science No.1
Legal (US) No. 2
Legal (ROW) No.1 or 2
Business magazines No.1 in US, UK and Netherlands
Business exhibitions No. 2
Focus on Science, Legal and Business
Strong Market Positions
1
Leading Brands and Premium Content
Focus on Science, Legal and Business1
Upgrade Management Effectiveness
Unitary management structure
Creation of 3 global business divisions
New management appointments to drive strategy
Organisational separation of Internet activities
Redefinition of head office structure and role
Significantly enhanced incentive schemes
2
Deliver Demonstrably Superior Products and Services
Internet is prime focus
High value-added content
Ease of use and functionality
Customisation
Solutions, not just information
3
Internet Revenue Development
£1bn/€1.6bn Internet revenues in 2002 through migration/new revenue streams
0
200
400
600
800
1000
1999 2000 2001 2002
0
400
800
1200
1600
120
400
700
1000£m €m
Substantial Upgrade of Marketing and Sales Programmes
Significant expansion of sales and customer service
Focus on new user opportunities; expansion into new markets
Customised pricing to reflect product value and customer needs
Innovative, stand-out marketing behind “e” initiatives
4
Significant Increase in Investment Spend
0
100
200
300
1997 1998 1999 2000
0
100
200
300
400
500
5
5060
80
260
£m €m
Investment Spend by Division
£m €m
35 3015
0
50
100
150
Science Legal Business
1999 2000
240
180
120
60
0
35
115110
Aggressive Cost Saving Programme
Total savings of over £170m/€270m
– 7% of 1999 cost base
– headcount reduction of 1,500+
– over £130m/€210m to be realised in 2000
Total restructuring cost up to £250m/€400m
– £161m/€244m has been charged in 1999
6
Cost Savings - By Division
38%10%
14%
38%
Legal Business Centre/Cross business unit Science
Build Global Capability and Leadership
Global leadership is target in all 3 sectors
Increasing globalisation driven by Internet
Global divisional management and brand development
Legal expansion in Continental Europe and South America
Business to Business expansion in Continental Europe, Asia and South America
7
US South UK ContAsia America Europe
Science
Legal
Business
Geographical Presence
Target In-fill Acquisitions/Alliances to Accelerate Progress
Enhance content/services for Internet portals
Accelerate geographical expansion
Increase emphasis on alliances for Internet capabilities
$100m venture investment fund to support 3 core businesses
Strong balance sheet to support investment
8
Key Acquisitions and Internet Alliances
Science
Legal
Business
Acquisitions
Cell Press
Library Tools
Eclipse
FT Profile
Market Cast
Interbev
Internet Alliances
Links to STM publishers
Justice Link
IBM
Partminer
U-bid
Microsoft
Science: Strategic Initiatives
Development of ScienceDirect; content and functionality
Expansion and customisation to new usage groups
Accelerated migration to electronic, supported by revised pricing
Strengthened sales operation
Upgrade back office and editorial systems
Family of Solutions
Academic & Government
Science NavigatorScience Navigator
ProSD OnsiteSD OnlinePhysics Direct
ScienceDirectWeb Editions
PhysicsWeb Editions
SciTech Web
Industrial & Corporate
Engineering Navigator
Chem. NavigatorBioMed Navigator
Engineering Web Editions
ChemWeb EditionsBioMed Web
Editions
Tech WebChem WebBioMed Net
Professional & Society
Medical VillagePaper VillageComputer Village
MedWeb EditionsCardioWeb EditionsNeuroWeb Editions
Med WebCardioSourceNeuro Web
SOLUTION
SETS
Growth in Core
Markets
Migration of Print
Customers
New Market Development
MARKETS
Increased customer loyalty
Science: Growth Path
Migration to ScienceDirect
Better product/Higher usage
New sectors
Infill acquisitions
Opportunity
Today
Over 60% of Scientific revenues from Internet by 2002
Legal: Key Initiatives
Deliver demonstrable product superiority for online legal research
Customisation of online products, e.g. large law, small law
More aggressive and targeted sales and marketing
Focus on early adoption at law schools
Expansion into related professional areas
Build global capability, brands and leadership
Aggressive marketing and sales programmes
Legal: Growth Path
Superior online research product
User preference and share shift
New geographic and sector markets
Infill acquisitions
Opportunity
Today
40% of Legal revenues from Internet by 2002
Business to Business: Strategic Initiatives
Create sector leading Internet portals
Expand value chain into e-commerce
Improve growth from core magazines and exhibitions portfolio
Expansion in Continental Europe, Asia and South America
Rationalisation of print and exhibition portfolio
Business to Business: Internet Focus
GlobalVerticalPriorities(Learn, Find, Buy)
Entertainment
Horizontal Opportunities Jobs, News, etc.
New Organisation& Technology Alliances
ManufacturIng
Electronics
Construction
etc.
Business to Business: Linking to e-Transactions
InternetTrading
Manufacturing.Net
Chemical News
Interactive
Air Transport Intelligence
@ComputerWeekly
Estates Gazette
InteractiveTotaljobs.com
Variety.com
E-Insite
Buildingteam.com
Chemicals
Aerospace
IT
Real Estate
Recruitment
Entertainment
Electronics
Construction
Manufacturing
Print and exhibitions investment
Business to Business: Growth Path
Full service Internet portals
Traffic and e-commerce expansion
Infill acquisitions
Opportunity
Today
10+% of Business to Business revenues from Internet by 2002
Geographical expansion
Reed Elsevier: Conclusions
Strongly positioned businesses
Robust, customer led growth strategy and plans
Internet opportunity is fundamental
Major investment programme
Organisational issues being addressed
Clear and progressive growth targets
Total commitment to execution
APPENDICES
Turnover - Reconciliation
% % £m change €m change
1998 Turnover 3,191 4,749
Base businesses 77 +3% 115 +3%
1998 & 1999 acquisitions 134 +4% 198 +4%
Disposals (46) -1% (68) -1%
Currency translation effect 34 - 159 +3%
1999 Turnover 3,390 +6% 5,153 +9%
Dividends
Interim Final
1999 1998 % change 1999 1998 % change
Reed Int (p) 4.60 4.60 0% 5.40 10.40 -48%
UK tax credit rate 10% 20% 10% 10%
Reed Int (gross) (p) 5.11 5.75 -11% 6.00 11.56 -48%
Equalisation ratio 1.538 1.538 1.538 1.538
Exchange rate (€:£) 1.50 1.50 1.62 1.47
Elsevier (€) 0.12 0.13 -8% 0.15 0.26 -42%
Reported Profit Attributable
1999 1998 £m £m
Adjusted profit attributable 527 571 801 850
Amortisation of goodwill andintangible assets (373) (332) (567) (494)
Exceptional items (217) 533 (329) 793
Reported profit attributable (63) 772 (95) 1,149
Reed International EPS (3.4)p 34.7p
Elsevier EPS €(0.07) €0.81
1999 1998 €m €m
Sales by Market and Type - Continuing Businesses
Sales by Market Sales by Type10%
56%
13%
7%
14%
Rest of World North America
Rest of Europe The Netherlands
UK
18%
24%
9%10%
39%
Circulation Advertising
Exhibitions Other
Subscriptions
Currency Profile Adjusted Profit Before Tax
Exchange rate to £1:
1999 1998
US Dollar 1.62 1.66
Dutch guilder 3.35 3.28
Euro 1.52 1.49
Swiss franc 2.43 2.40
36%
30%
28%
6%
US Dollar UK Sterling
Euro Zone Other
Free Cash Flow
1999 1998 1999 1998 £m £m €m €m
Adjusted operating cash flow 780 808 1,186 1,203
Interest (81) (45) (123) (67)
Tax (173) (144) (262) (214)
Dividends (339) (362) (515) (540)
Other (1) (11) (2) (16)
Free cash inflow 186 246 284 366
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