Reed Elsevier 2014 Results

26 February 2015

Reed Elsevier, the global professional information company, reports continued underlying growth in revenue, operating profit and earnings in 2014, and announces simplification of corporate structure.



Commenting on the results, Anthony Habgood, Chairman, said:
“Reed Elsevier continued to execute well on its strategic and financial priorities in 2014, and we are recommending a 6% increase in the full year dividend for Reed Elsevier PLC and a 16% increase for Reed Elsevier NV. We are proposing a set of measures at the forthcoming AGMs that will simplify our corporate structure and increase transparency for our shareholders.”

Chief Executive Officer, Erik Engstrom, commented:

“In 2014 we maintained good momentum across our key financial metrics of underlying revenue growth, underlying operating profit growth, adjusted earnings per share growth, and return on invested capital. We made further strategic and operational progress as we continued to transform our business, primarily through organic development.”

“We are now extending our efforts to modernise and simplify the company to our corporate structure, our share listings, and our corporate entity names. We are announcing a set of changes that represent a significant simplification without impacting the economic interests of our shareholders.”

“Business trends in the early part of 2015 remain consistent with 2014 trends across our business, and we are confident that, by continuing to execute on our strategy, we will deliver another year of underlying revenue, profit, and earnings growth in 2015.“

FINANCIAL RESULTS HIGHLIGHTS

Reed Elsevier continued to make good progress against its strategic and financial priorities in 2014.

Revenue of £5,773m/€7,159m; underlying growth +3% excluding exhibition cycling: Had exhibition cycling been included underlying revenue growth would have been +4%. The overall underlying growth rate reflects continued growth in electronic and face to face revenues, which accounted for 82% of the total (2013: 81%) growing +5-7%, partially offset by continuing print revenue declines.

Adjusted operating profit of £1,739m/€2,156m; underlying growth +5%: The improvement in profitability reflects a combination of underlying revenue growth, process innovation and portfolio development. Reported operating profit, after amortisation of acquired intangible assets, was up +2% to £1,402m/+7% to €1,738m.

Interest and tax: Adjusted net interest expense was £30m/€27m lower at £147m/€182m reflecting the benefits of term debt refinancings and currency translation effects. The adjusted effective tax rate was unchanged at 23.5%.

Adjusted EPS: Constant currency growth +10%: 56.3p (54.0p) for Reed Elsevier PLC; €1.07 (€0.99) for Reed Elsevier NV.

Reported EPS: Reported EPS was 43.0p (48.8p) for Reed Elsevier PLC and €0.85 (€0.91) for Reed Elsevier NV, reflecting the absence in 2014 of a non-recurring deferred tax credit recognised in the prior year.

Proposed full year dividend: +6% to 26.0p for Reed Elsevier PLC; +16% to €0.589 for Reed Elsevier NV. The proposed average full year dividend growth rate is broadly in line with adjusted EPS growth at constant currency rates. The Reed Elsevier PLC and Reed Elsevier NV full year dividends are covered 2.2x and 1.8x by adjusted EPS respectively.

Net debt/EBITDA 2.3x on a pensions and lease adjusted basis (unadjusted 1.7x): Net debt was £3.5bn/€4.6bn on 31 December 2014. The adjusted cash flow conversion rate was 96%.

Organic development: In 2014 we continued to develop our global technology platforms across the business, launch new products and services in both existing and adjacent market segments, and extend our reach in high growth markets and geographies. Capital expenditure as a percentage of revenues remained at 5%.

Portfolio development: In 2014 we completed 27 small acquisitions of content, data and exhibition assets for a total consideration of £385m. We also completed the disposal of 17 assets for a total consideration of £74m.

Share buybacks: In 2014 we deployed £600m on share buybacks. In 2015, we intend to deploy a total of £500m on share buybacks, based on our strong balance sheet and cash flow. Both amounts exclude annual employee share plan purchases of around £35m. £100m of this year’s total has already been completed, leaving a further £400m to be deployed by the end of the year.

FULL YEAR 2015 OUTLOOK
Business trends in the early part of 2015 remain consistent with 2014 trends across our business, and we are confident that, by continuing to execute on our strategy, we will deliver another year of underlying revenue, profit, and earnings growth in 2015.


CORPORATE STRUCTURE, EQUALISATION ARRANGEMENTS AND CORPORATE ENTITY NAMES

We are extending our efforts to modernise and simplify the company to our corporate structure, our share listings, and our corporate entity names. We believe that the set of measures that we are proposing will simplify our structure, help clarify the economic interests of parent company shareholders, and increase share price transparency.

This set of changes will be cost and profit neutral for the company, before and after tax. None of these changes impact the economic interests of any shareholder, and in particular, ownership, dividend and capital distribution rights are unaffected.

Ownership of all Reed Elsevier businesses, subsidiaries and financing activities below the two listed parent companies, Reed Elsevier PLC and Reed Elsevier NV, has been transferred to one new single group entity, effective 25 February 2015.

From 1 July 2015, we propose to further simplify the corporate structure by eliminating the cross-shareholding between the two parent companies, and aligning their direct equity holdings in the new single group entity with their external shareholders’ respective economic interests of 52.9% and 47.1%.

We also propose to increase share price transparency by moving the share equalisation ratio between Reed Elsevier PLC and Reed Elsevier NV to 1:1, and to adjust the multiples on their ADRs so that they each represent one Reed Elsevier PLC or one Reed Elsevier NV share (from current 4 to 1 and 2 to 1 multiples) respectively.

We have named the newly formed single group entity RELX Group plc. We believe that this shorter and more modern name reflects the transformation of the company to a technology, content and analytics driven business while maintaining the link with its proud heritage. There will not be any brand or name changes for any customer facing products or business units.

We propose to align the two parent company names with RELX Group plc. The proposed new names are RELX PLC for the London listed shareholding vehicle and RELX NV for the Amsterdam listed shareholding vehicle, effective 1 July 2015.

Details of the measures have been set out in an attachment (page 42) to this press release.



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Paul Abrahams (Media)
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