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ARCOURT: FINANCING

ARCOURT: FINANCING. Preliminary Results 2000 Execution and Delivery on Strategy. ACCELERATED REVENUE AND PROFIT GROWTH. HIGHLIGHTS. Results ahead of target Execution and delivery of strategy on track across all businesses Acquisition of Harcourt is major opportunity

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ARCOURT: FINANCING

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  1. ARCOURT: FINANCING Preliminary Results 2000 Execution and Delivery on Strategy ACCELERATED REVENUE AND PROFIT GROWTH

  2. HIGHLIGHTS • Results ahead of target • Execution and delivery of strategy on track across all businesses • Acquisition of Harcourt is major opportunity • Confidence in future growth targets

  3. Financial Results 2000Mark ArmourChief Financial Officer

  4. ADJUSTED PROFIT AND LOSS 2000£m 1999£m 2000€m 1999€m % changeconstant 12 months to 31 December Turnover 3768 3390 6180 5153 +9 % 793 1301 -1 Adjusted operating profit 792 1204 % Operating margin 23.4% 23.4% 21.0% 21.0% Net interest expense (103) (82) (169) (125) Adjusted profit before tax 710 1079 % 690 1132 -3 Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items

  5. 1999 1999 2000 2000 1999 1999 2000 2000 SCIENCE & MEDICAL REVENUES UP 7% - OPERATING PROFIT UP 12% - MARGIN 36.4% Operating profit €m £m €m £m Revenues • Underlying revenues up 8%; operating profit up 12% • Strong take up of ScienceDirect and lower attrition • ScienceDirect adds 2% pts to revenue growth • Additional investment funded by cost savings

  6. 1999 1999 2000 2000 1999 1999 2000 2000 LEGAL REVENUES UP 5% - OPERATING PROFIT DOWN 19% - MARGIN 19.7% €m Operating profit £m Revenues €m £m • Underlying revenues up 3%; operating profit down 19% • Substantial investment programme; major cost savings • LEXIS online up 5%; NEXIS online up 4% • LEXIS-NEXIS International solid performance

  7. 1999 1999 2000 2000 1999 1999 2000 2000 EDUCATION REVENUES UP 9% - OPERATING PROFIT UP 15% - MARGIN 19.8% Operating profit €m £m Revenues £m €m • Rigby US supplementary revenues up 37% • UK secondary revenues up 23% • Reduced funding for UK elementary literacy

  8. 1999 1999 2000 2000 1999 1999 2000 2000 BUSINESS REVENUES UP 12% - OPERATING PROFIT UP 7% - MARGIN 15.8% £m €m Operating profit Revenues £m €m • Underlying revenues up 4%; operating profit up 3% • Revenue recovery at Cahners and restructuring benefits • Good growth in other markets; exhibitions adverse show cycling • Significant increase in investment; cost savings delivered

  9. ADJUSTED PROFIT BEFORE TAX : RECONCILIATION %change £m €m %change 12 months to 31 December 2000 710 1079 1999 Adjusted profit before tax -1% (8) -1% (13) Base business -1% (8) (12) -1% Acquisitions -1% (12) Disposals (8) -1% Equity issue 5 8 +1% +1% (1) Currency translation effect 0% 82 +8% +5% -3% 2000 adjusted profit before tax 690 1132 Adjusted figures exclude amortisation of goodwill and intangibles and exceptional items

  10. CASH FLOW 2000 £m 1999£m 1999 €m 2000€m 12 months to 31 December Adjusted operating cash flow 775 780 1271 1186 98% % conversion 98% 98% 98% 286 Free cash flow 334 187 548 (914) (167) (1499) (254) Acquisition spend 251 5 153 3 Disposals (63) (64) (103) (98) Other exceptional items (61) (803) (41) (490) Total cash outflow

  11. EARNINGS AND DIVIDENDS change constant Reed International Elsevier • Adjusted EPS 23.3p -5% €0.59 +4% -5% • Equalised dividends 10.0p 0% €0.28 +4% 0%

  12. HARCOURT REPORTED 2000 RESULTS Revenue Adjusted Operating Profit Year to 31 October 2000 1999 Growth 2000 1999 Growth $m $m % $m $m % STM 688 633 +9% 161 138 +17% Education and Testing 990 787 +26% 210 159 +32% 1678 1420 +18% 371 297 +25% Notes: Segment analysis adjusted from reported figures to reallocate revenues to respective businesses Adjusted operating profit is stated before amortisation of goodwill/intangible assets Businesses to be on-sold excluded; also corporate expenses of $26 million (1999 $21 million)

  13. Strategy and ExecutionCrispin DavisChief Executive Officer

  14. KEY STRATEGIC FOUNDATIONS • Focus on core businesses • Upgrade management effectiveness • Deliver demonstrably superior Internet products • Substantial upgrade of marketing and sales • Significant increase in investment spend • Aggressive cost savings programme • Build global capability and leadership • Target infill acquisitions/alliances

  15. CLEAR STRUCTURE AND MANAGEMENT Group CEO Crispin Davis CTO Keith McGarr HR Director Jean Luc Augustin CFO Mark Armour EDUCATION CEO Andrew Prozes SCIENCE CEO Derk Haank LEGAL CEO Andrew Prozes BUSINESS CEO Gerard van de Aast EDUCATION

  16. SCIENCE & MEDICAL: DELIVERY OF STRATEGIC MILESTONES • ScienceDirect successful rollout • Customised products launched and well received • Sales force expanded • New pricing policy affirmed • Investment programme executed as planned • Targeted cost savings exceeded • Acquisition of Harcourt STM announced +

  17. SCIENCE & MEDICAL: PROVEN BUSINESS MODEL UPGRADED SCIENCEDIRECT PRODUCT AGGRESSIVE SALES AND MARKETING MODERATE PRICING POLICY INTERNET MIGRATION CUSTOMER PREFERENCE LOWER ATTRITION HIGHER PENETRATION HIGHER USAGE ACCELERATED REVENUE GROWTH

  18. SCIENCE & MEDICAL: REVERSAL IN ATTRITION %

  19. SCIENCEDIRECT: INCREASE IN PENETRATION %

  20. SCIENCEDIRECT: INCREASE IN USAGE m

  21. HARCOURT: STM • Excellent fit with Elsevier Science • Outstanding portfolio in Science and Medical • Strong platform for faster internet growth • Well positioned to take on integration and expansion ACCELERATE REVENUE AND PROFIT GROWTH

  22. SCIENCE & MEDICAL: 2001 PRIORITIES • Further upgrade of ScienceDirect • new customised products • enrich content, including backfiles • add navigation tools • Broaden user base • upsell existing users • expand to new users • increase overall usage • Successfully integrate Harcourt STM • reorganise medical operations on key clinical disciplines • realise $40 million of synergies • accelerate online solutions

  23. LEGAL: DELIVERY OF STRATEGIC MILESTONES • Deliver competitive online product v West • Achieve parity preference in US Law Schools • Introduce US small law turnaround programme • Launch of legal portal • Launch of significantly improved nexis.com product • Investment in upgraded products, sales, marketing • Targeted cost savings delivered • Acquisitions to expand global capability and reach

  24. LEGAL: SOUND BUSINESS MODEL COMPETITIVE PRODUCT lexis.com nexis.com US LAW SCHOOL PREFERENCE UPGRADED SALES AND MARKETING SMALL LAW PROGRAMME CUSTOMER PREFERENCE INTERNET MIGRATION ACCELERATED MIGRATION ACCELERATED IGRATION HIGHER USAGE NEW SALES STRONGER RENEWALS ACCELERATED REVENUE GROWTH

  25. LEGAL : PRODUCT UPGRADE PROGRAMME TAX CCH/Tax Analysts LEGAL Expanded E-treatises Improved Linkages CITATOR Functionality Upgrade CASE SUMMARIES 300  700 Editors $19m Investment in 2001 PUBLIC RECORDS Riskwise/Corp America Acquisitions WEB RELIABILITY Private Nodes EASE OF USE New lexis.com New WebSphere Platform NEWS & BUSINESS FT Profile/ Company Dossier

  26. LEGAL: US LAW SCHOOL PROGRAMME LEXIS Preference Overall % 54 35 32 22 19 15

  27. LAUNCH OF LEGAL PORTAL FOR US SMALL LAW Paid Legal Research Legal and Business News Free Case Law, Forms etc Client Development Legal Internet Guide LexisONE.com Community Travel, Sports Entertainment etc Legal Firm Supplies Professional Development Practice Management JANUARY 2001: 43,500 REGISTERED USERS, 8.2M PAGE VIEWS, AVERAGE TIME 18 MINUTES +13% REVENUE; STRONG SHARE GROWTH OUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%

  28. LEGAL: NEXIS.COM RELAUNCH Plain English Search • SUBSTANTIAL REVENUE PROGRESS: +18% • SUBSTANTIAL REVENUE PROGRESS: +18% Simple Search Results Reports Tailored Results Point and Click Access to News, Company, Legislative Sources +13% REVENUE; STRONG SHARE GROWTH OUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5% REVENUE GROWTH TURNAROUND: 2000: +4%; 1999: -4%

  29. LEGAL: ACQUISITIONS AND ALLIANCES Mealeys CCH alliance Tax Analysts alliance State code publishing Long term license Long term license US Legal FT archive and license Online validation Media database and planning software US Corporate/Federal FT Profile Riskwise Press Access Chile UK Chile Hong Kong Publitecsa Eclipse Conosur THC Press International +13% REVENUE; STRONG SHARE GROWTH OUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5% BUILDING GLOBAL CAPABILITY

  30. LEGAL: 2001 PRIORITIES • Continued product upgrade: content, customisation, functionality • Build targeted marketing/sales efforts behind upgraded products • Monetise increased usage • Improve print performances within on-line migration strategy • Adopt Lexis Nexis as global brand and product platform • Expand geographical presence in key markets

  31. EDUCATION: 2001 PRIORITIES • Maintain momentum in existing business • continued share progress in UK • capitalise on new Rigby supplemental programmes • Integrate Harcourt Education and Testing businesses • maintain momentum in US state adoptions • combine Steck-Vaughn and Rigby • step up investment in US secondary • accelerate Testing through Internet delivery and services • expand e-learning programme: +18%

  32. BUSINESS: DELIVERY ON STRATEGIC MILESTONES • Investment programme driving print growth • Successful launch of Internet portals • Expansion of portfolio through acquisitions and launches • Major cost savings delivered • Global division established • Focus on fewer, faster growing sectors

  33. BUSINESS: NEW AND UPGRADED PORTALS LAUNCHED

  34. INTERNET B2B REVENUE GROWTH £m • SUBSTANTIAL REVENUE PROGRESS: +18% • SUBSTANTIAL REVENUE PROGRESS: +18% 70 39 15 Including Acquisitions Organic • Traffic and revenues building • Size of market opportunity smaller • Investment slightly reduced and reprioritised +13% REVENUE; STRONG SHARE GROWTH

  35. BUSINESS: PORTFOLIO REFOCUS AND EXPANSION - + Travel Construction US Auto, Metals, Food Processing Entertainment Tuition Businesses Electronics Global Chemicals Bowker Directories European Exhibitions Non Core Titles, Exhibitions, Reference +13% REVENUE; STRONG SHARE GROWTH OUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5% FEWER, FASTER GROWING, HIGHER QUALITY SECTORS

  36. BUSINESS: 2001 PRIORITIES • Maintain print momentum through upgraded product/sales programmes • Maximise revenues and returns from internet programme • Drive global strategy: organisation, portfolio, platforms, acquisitions/disposals • Complete integration of CMD Group and Miller Freeman Europe • Respond quickly to changing economic environment

  37. INTERNET REVENUES £m 1000 700 436 120 Actual Target +13% REVENUE; STRONG SHARE GROWTH 2000 TARGET EXCEEDED OUTSTANDING REVERSAL: REVENUE GROWTH: 2000: +4%; 1999: -5%

  38. PROGRESS ON HARCOURT ACQUISITION • Results (year to October 2000) reaffirmed very positive momentum • Meetings with management encouraging and confirmed opportunity • Integration plans well advanced • Strategies and programmes for growth developing well

  39. CONCLUSIONS: 2000 • Organisational issues addressed • Clear, customer led growth strategies and targets • Investment programme showing real benefits • Increasing evidence of business turnaround • Harcourt acquisition is substantial opportunity

  40. KEY OBJECTIVES FOR 2001 • Drive benefits from strengthened management structure • Continue to execute effectively against strategic milestones • Accelerate revenue growth, exceeding market growth in 75% of businesses • Grow operating margin through increased efficiency • Accelerate profit growth strongly towards double digit • Integrate Harcourt successfully

  41. ARCOURT: FINANCING Preliminary Results 2000 Execution and Delivery on Strategy ACCELERATED REVENUE AND PROFIT GROWTH

  42. Appendices

  43. TURNOVER: RECONCILIATION % % £mchange€m change 1999 Turnover 3390 5153 Base businesses 146 +5% 237 +5% 1999 & 2000 acquisitions 205 +6% 336 +6% Disposals (59) -2% (97) -2% Currency translation effect 86 +2% 551+11% 2000 Turnover 3,768 +11% 6180 +20%

  44. INVESTMENT SPEND £4m/€7m £35m/€57m £105m/€171m £126m/€205m • Applied to product upgrade, sales and marketing • £10m/€16m higher than budgeted • Additional £20m/€32m budgeted in 2001 2000 TOTAL: £270m/€440m

  45. COST SAVINGS £8m/€13m £19m/€31m £53m/€87m £61m/€100m £2m/€3m • Principally production, infrastructure and support staff • £13m/€21m ahead of plan • On track to deliver targeted £170m/€278m savings in 2001 2000 TOTAL: £143m/€235m

  46. DIVIDEND EQUALISATION Interim Final 2000 1999 % change2000 1999 % change Reed Int (p) 3.10 4.60 -33% 6.90 5.40 +28% UK tax credit rate 10% 10% 10% 10% Reed Int (gross) (p) 3.44 5.11 7.67 6.00 +28% Equalisation ratio 1.538 1.538 1.538 1.538 Exchange rate (€:£) 1.62 1.50 1.57 1.62 Elsevier (€) 0.09 0.12 -25% 0.19 0.15 +27%

  47. REPORTED PROFIT ATTRIBUTABLE 2000 1999 2000 1999 £m £m €m €m Adjusted profit attributable 511 527 838 801 Amortisation of goodwill and intangible assets (468) (373) (768) (567) Exceptional items (10) (217) (16) (329) Reported profit attributable 33 (63) 54 (95) Reed International EPS 1.0p (3.4)p Elsevier EPS €0.04 €(0.07)

  48. ACQUISITIONS Science Endeavor Afferent Legal Conosur and Publitecsa Eclipse Riskwise FT Profile Mealey Press Access CorpAmerica Business CMD e:Logic Market Cast/LA411 Schnell Institut Verlag Miller Freeman Europe TOTAL ACQUISITION SPEND £952M/€1562m; CONTRIBUTION AHEAD OF PLAN

  49. DISPOSAL PROGRAMME Science Springhouse Legal RTIS Business Tuition businesses REZsolutions KG Saur US Exhibitions In Progress OAG Worldwide Cahners Travel Group Bowker TOTAL 2000 DISPOSAL PROCEEDS: £153M/€251M

  50. EXCEPTIONAL ITEMS 2000 1999 2000 1999 12 months to 31 December £m £m €m €m Reorganisation costs (77) (161) (126)(244) Acquisition related costs (38) (28) (63)(43) Year 2000 compliance costs - (50) - (76) Charged to operating profit (115) (239)(189)(363) Net profit on sale of businesses 85 7 140 11 and fixed asset investments Total exceptional charge (30) (232) (49) (352) Net tax credit 20 15 33 23

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