Earnings Call: Q3 2021

Oct 21, 2021

Earnings release

Good day, and thank you for standing by. Welcome to the RELX 9 Months Trading Update Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised, today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Nick Laff. Please go ahead. Thank you, operator. Good morning, everybody. Thanks for joining us today. As you may have seen from our press release, in the 1st 9 months of 2021, RELATEDIBIT's underlying revenue growth Of 6%. Based on the improved performance across the company, we now expect full year underlying growth rates In revenue and in adjusted operating profit as well as constant currency growth in adjusted earnings per share to be above historical trends. Turning to the performance of each business area. In Risk, underlying revenue growth was 10%. In Business Services, which represents nearly 45 The divisional total double digit revenue growth was driven by strong demand across all market segments. In Fraud and Identity, our leading digital identity solutions performed particularly well with both ThreatMetrix and EmailEdge continuing to see growth of around 30%. In Insurance, representing nearly 40% of the divisional total, we have seen strong growth in new sales for the last few months. In data services, which represents just over 10% of divisional revenue, we have recently seen a return to strong growth overall. And in government, representing just over 5% of the divisional total, revenue continued to grow strongly. For the full year, we expect underlying revenue growth slightly above historical trends, with underlying adjusted operating profit growth In STM, we saw underlying revenue growth of 4%, Driven by continued good growth in electronic revenue, which represented 87% of the total. Print revenue, representing 13% of the total, Was broadly stable for the period as a whole, but as expected, has returned to historical patterns of decline in recent weeks. In Primary Research, strong growth in the number of articles published continued to drive market share gains in both the subscription and open access payment models. Databases and Tools and Electronic Reference, which represent over 1 third of the divisional revenue, continue to see strong growth, Driven by Medical Education, Technical Solutions and eReference. For the full year for STM, We expect underlying revenue growth slightly above historical trends, with underlying adjusted operating profit growth slightly exceeding underlying revenue growth. In Legal, underlying revenue growth was 3%. Electronic revenue, representing 88% of the divisional total, Continued to grow well and print revenue declined broadly in line with historical trends. Growth across all key market segments was driven by the further development and rollout Industry leading legal analytics and new integrated functionality, generating good renewal rates and strong new sales. For the full year, we expect underlying revenue growth slightly above historical trends with underlying adjusted operating profit growth Exceeding underlying revenue growth. Exhibitions underlying revenue growth was 9%, driven by gradual reopening of exhibition venues across geographies. For the full year, we expect strong underlying revenue growth with total costs broadly matching total revenue. And with that, we are ready for questions. Thank Your first question comes from the line of Sami Crossat of Exane BNP Paribas, please ask your question. Thank you. Good morning, Nick. Good morning, everyone. I have three questions, please, Nick. The first one, Can you elaborate on the average revenue attrition per show for shows held in Q3 versus the 2019 performance? And whether you are seeing any improvement on that metric for show held in October. Secondly, Given the comment on strong new sales in insurance, is it fair to expect this segment to see an acceleration And lastly, in STM, You reported stable print revenues in H1 and Q3. So can you come back on why we should expect print revenues to decline In Q4, is there a phasing effect, a particularly strong Q4 2020 comp base? Any more color on the print performance expected in Q4 in STM, Yes, starting with the first one on Exhibitions. There's a very wide range actually of how the individual shows are doing compared to their previous editions pre pandemic. Some are up. Some are well down, but we've run quite different, much smaller events. Generally speaking, they are down. But I'm not sure you can read a whole amount into it given that also being held at the wrong time of year for that particular industry and they're different to normal. A little international participation, of course, and the lead time spent to be can be quite short. So I wouldn't read too much into it, but I think what's good to see is that we are able to run these events and are running them in almost all the major geographies We've got activity now. Your second question on insurance, yes, and we are seeing good sales And good product development, lots of things going on, developing new data sources, new products, Connected car data, bringing that into the infrastructure, using that in different ways. So that's good to see. What that means in terms of revenue growth of the business, obviously, having strong sales is an important component of that. It is a transactional business, of course, and you do get The normal ups and downs in the insurance market and activity levels going through the existing products, so we'll have to see how that all nets out As we go to the next few quarters, but clearly, it's good to have strong sales. And your final question about STM and The print revenue, yes, I mean clearly in the 1st 3 quarters of the year, print's been stable, as we said in the Announcement. But that, of course, is against a disruptive comparative. So as you get Into the Q4, that disruption wasn't there last year. And so we are and now we're already seeing, in fact, as we So in my opening remarks, we're already seeing a return to more normal decline rates, Which we would expect. And obviously, the focus over time is About how do we develop the analytic products on the databases and tools and the reference products, and they get bigger and continues to get smaller. Thank you, Nick. Thanks, Nick. Thank you. Your next question comes from the line of Nick Dempsey of Barclays. Please ask your question. Yes. Good morning, Nico. So just on exhibition, can you give us any indication on what you're seeing from Forward bookings from the shows that you've run into next year and whether there's any patterns there that are different to what you might have expected When we were talking about this back in July. Second question, any commentary you can provide regarding the kind of early start of Negotiations for German renewals into 2022, we always ask that at this point. But UK seems to be the largest one up for renewal. Anything you can say about that? And then the third question, just wonder whether risk given the strong growth In identity, etcetera, whether the momentum coming out of 'twenty one into 'twenty two Can mean that you can achieve a growth rate that's a bit higher than what you've done in 2016, 2017, 2018, 2019, that That's sort of 8%. You did through that. Yes. Okay. First question about exhibitions And forward bookings, yes, I mean, we are seeing good appetite for people to come to face to face events when we're able To hold them, clearly, it's sometimes difficult to interpret exactly what's going on. As I said earlier, international participation is not what it was. Sometimes the lead times are quite short as to when people are confident that events are Go ahead. So it's sort of as we expected and nothing different from What we were commenting back in July, but again, I think it's very early to comment on what that means for the business In 2022, we've got a reasonably full program. And obviously, through the second half of this year, Things have picked up very significantly, so we'll look to see whether that can continue. On STM renewals, Well, I think you went straight into the answer. It's just too early to comment. We're just at the start of the negotiations. As you know, every year, we've got different Customers on different contracts that come up, and we'll see what happens. Clearly, this time a year ago, it was a very Tough environment with the budgetary pressures that many customers are seeing, and that's obviously reflected in this year's numbers and The fact we've able to drive good growth and from mainly coming from the databases and tools and that you referenced, I think it's an overall good sign, but too early to comment on renewals for next year at this stage. And your third question on risk and the growth rate there, yes, look, I mean, I think the key point about risk is The value creation is from sustaining the high growth rate we've had. And our objective is to sustain that High single digit growth rate for many, many years to come. And we think we have the opportunities and The waterfront against we're operating and the market environment and the things we can do that give us the ability to do that, Recognizing from it's a transactional business, at least some 60% of the revenue, so it can vary from year to year, but that's the Objective there, in contrast to STM and legal, where we are looking to accelerate growth over time And risk it's about sustaining the growth. Thanks. Thanks. That's great. Thank you. Our next question comes from the line of Mandeep Singh of Redburn. Please ask your question. Thank you for taking the question. Thank you. Hi. I just wanted to sort of kind of step back and look at the sort of group as a whole. You're growing at 6. We kind of removed the, let's say, short term boost from the print comp being better and lapping effects and So on and so forth. I mean, is it fair to say that the 3 main divisions in aggregate are growing around 5? And Is there any reason to think that isn't a sustainable level of growth rate for the group, ignoring exhibitions for the minute? Yes. Well, you can do the weighted average of the growth rates of those three businesses. And as you say, You might take out a little bit from risk in STM in terms of the comp and how that's affected this year's growth rate. But we are seeing a return to the improved growth conditions The NSTM and legal that we were seeing in the early part of 2020 pre pandemic, and clearly, that is what we're Looking to do strategically, it is about sustaining the high growth that we have in risk and about looking to drive faster growth in FDM and legal, and Teddy, if you can if we can do that, then the overall group close rate will pick up. Okay. Can I just follow-up? So is it like why would it be unreasonable to think that the like for like for the group ignoring exhibitions is From being a 4% grower is now a 5% grower? You can do the math on the average, The weighted average of the growth rate and yes, the it's clearly if the growth rate for STM and legal It's higher, then it will the group growth rate will be higher. But we'll see how we progress from here. Okay. Thank you. Thank you. Your next question comes from the line of Adam Berlin of UBS. Please ask your question. Hi, good morning, Nick. Three questions, if I can. First thing, you made a comment in the release about market share gains in subscriptions and open access within STM. Can you just talk a little bit about what data you're tracking and what you're seeing around those market share gains and kind of how you know that's happening? Second question is on ThreatMetrix. I think in the past, you talked about the fact that ThreatMetrix is growing 30%, but realistically, it will probably slow down as the base got bigger. And that doesn't seem to happen this year. Can you talk a bit about what do you think is driving the sustaining of that 30%? Is it the More digital transactions because of COVID? Is it better product sales to more customers? Can you just talk about what's helping that business sustain that really good growth rate? And then the third question just to help with the modeling on exhibitions. Just an absolute revenue £1,000,000 do you think Q4 will have more revenue than Q3? So, yes, the first question on market share gains. Yes, we're in STM, we're tracking article Volumes. And this is very transparent. We have lots of analytics, of course, that enable people to other people We use them to have products that are based around article tracking and knowing what's being published by whom, where. And so we can see the volume of We're publishing both author pays and subscription journals. And if that starts in the overall market, then That's how we can calculate we're gaining market share. Right. Just market share of volume rather than revenue, sorry, just to Yes. It's volume. It's volume, yes. ThreatMetrix, yes, as you say, it's continued to grow well, and pleased to see that. What's driving it? I mean, the power of the data set and the associated analytics, The value that can add to customers, as you say, the increasing E commerce online, everything else that people do online where you need to be confident that the person you're dealing with is who they say they are, That you're not dealing with a potential fraud situation. That's expanding all the time. And as we integrate the ThreatMetrix product capability with our Physical identity, data sets and the like, that's able to add more value and get faster adoption amongst the customers. And We're seeing wider and wider applications for the ThreatMetrix product, and that's what's enabling us to keep the growth going. And your question on exhibitions, Yes. October is a very busy month for we have a lot of events that are normally scheduled this time of year And other events that have normally take place earlier in the year have been pushed back to this time. So we are very busy right now. And if you take consensus Revenue, which is a bit over £500,000,000 then that does imply quite a busy 4th quarter. Thanks very much, Nick. Thank you. Your next question comes from the line of Matthew Walker of Credit Suisse. Please ask your question. Thanks a lot. Hi. Hey, how's it going? Yes, just 3, please. The first one is on Exhibitions. So for 2022, can you tell us what percentage of revenue are you of 2019 are you running in 2022 In terms of the event, the actual events that you're planning to run, that's the first question. Second question is on analytics. Obviously, you've been saying now for a while that Analytics is doing better. The growth rate the underlying growth is helping the underlying growth rates of the division improving. Can you just pick a couple of to illustrate this point, can you just pick a couple of products and give us the total addressable market for those products And where they are on the customer adoption curve to sort of help us judge how early in this journey you are And where the opportunities lie? Because it was obvious from the risk day that the growth rates were improving, But they didn't provide that kind of TAM analysis or indeed the sort of competitive analysis in terms of who's competing with you in different pieces of the analytics pie, that will be super helpful, not necessarily now on this call, but at some point. And then finally, can you give us an update on net debt and acquisition and disposals for where you are in the 9 months? Yes. So Exhibitions 2022, obviously, we're Finalizing program at the moment, and we'll see exactly How it all lands. If you weight it by size of show, We have in the calendar at the moment perhaps 90% of the events that we're running in 2019 in order of magnitude. Obviously, it's just lower than that if you took it by number. But the when we rationalize the portfolio, We obviously focus more on removing some of the smaller, more marginal shows. On Analytics. Yes, look, it's difficult to give a total addressable market and market shares and comparing to other companies because The market opportunity is expanding all the time. On the previous answer to Adam's question about ThreatMetrix, The applications of ThreatMetrix just keep expanding. Initially, it was Sophisticated financial institutions primarily using the product, but now it's a whole range of different financial institutions. It's In e commerce situations, it's government agencies, etcetera. Those market opportunities are always expanding. So I'm not sure where it's real it's sort of helpful to give an addressable market. I think it's Better to look at the growth rates and even your question about penetration. Again, the products are being evolving all the time, the data sets expanding, the analytics evolving. And so you never really reached the point where you're sort of 100% penetrated because you've gone on to The next opportunity and then the next development in the product. So but I hear you. We'll see what we can in future presentations, see what we can do To help you get a sense of the overall opportunity. And your last question about net debt, etcetera, Yes. So far this year, we're just under £200,000,000 in terms of acquisition spend. I think we've done about 8 acquisitions now. So we'll see what happens in the remainder of the year, but obviously that's a bit lower than Our average has been for the last few years, you saw the leverage had come down From 3.3 at the end of last year to 2.8 at the half year. And Well, depending on where net debt is, that reduction in leverage, you'd expect to continue, Albeit, that's mostly coming, of course, from the EBITDA recovery and eliminating the loss in Exhibitions. Okay. All great. Thanks very much. Thank you. Your next question comes from the line of Matti Kaptoonen of Bernstein, please ask your question. Hello, good morning. A couple of questions. 1 on the Exhibitions. So you mentioned the sort of scheduling for next year. So where events have been pushed back from this year, Are they now scheduled to happen at least initially around the same time as they normally would pre COVID? Or is it perhaps a bit sort of backloaded towards the end of next year? And related to that, if you had biennial events, Which was supposed to take place in 2020 or 2021, which didn't take place, are those being pushed back to Next year or perhaps 2023 or is there any kind of clear pattern there? The second question on the customer billing trends In the U. S. Legal software market, I was wondering if you have any visibility on currently what sort of Proportion of research software costs, the law firms that you serve are able to recover from their own clients And how that's been trending over the past couple of years? Thank you. Yes, okay. On the exhibitions scheduling, broadly speaking, the schedule for next year, the events are The annual events are scheduled back in their normal slots, generally speaking. There's a few exceptions, but generally speaking. And the same is true of biennials actually. There's 1 or 2 that have switched from odd to even where that has made sense given the pattern of that industry, but only Mostly, it's back to at this stage, back to normal scheduling, but we'll have to see how things evolve from here. Your question on customer billings in legal, I think in most instances now, it's the costs of legal research are Built into the overall cost of the law firm rather than necessarily build on. And of course, that's what Using our tools and the fact that you can find things more readily, you can make yourself more Efficient as a lawyer and finding what you need to know, honing your arguments, the workflow Tools that help you become more efficient, quicker in drafting, more effective in drafting, and that's obviously helping to make Law funds more efficient, and they're obviously all looking to do that, and that's the value that these product developments can bring. Very helpful. Thank you. Thanks. Thank you. Your next question comes from the line of Tom Singlehurst of Citi, please ask your question. Hi, Tom. Good morning. Good morning. Thank you very much One question, you'd be pleased to know, on STMs. I mean, obviously, it's encouraging that you're looking for underlying Adjusted operating profit growth slightly exceeding revenue growth. I'm just wondering whether if you were to lean in OA, more and sacrifice margin, whether you might be able to sustain the growth? Because I suppose in terms of the overall investment case, You're going to get a lot more if you can keep the growth you're going to get a lot more on the multiple if you can keep the growth at 4% or 5% in STM And by delivering an extra 10, 30, 40 basis points of margin. Yes. To be clear, Our primary objective is to drive revenue growth across all of our businesses as fast as we can in a sustainable way. And clearly, in STM and Legal, as we've been discussing, our objective is to accelerate the growth Compared to where they've been historically, that does mean putting the resource Behind those growth opportunities and Open Access is part of that, as you say. But I think we have Historically, been able to as we've done in risk and as we've done in legal, historically, been able to manage the cost base in a way that ensures Cost growth is certainly no more than revenue growth and therefore, profit growth in line with or Above revenue growth, and that's a model we've been able to pursue and notwithstanding the fact that Number one priority is to drive the revenue as fast as we sense we can. Is there anything you can sort of point out as Specific sort of investment items, whether it's technology or individual products that can demonstrate that you are sort of Putting your shoulder to the wheel on trying to drive that incremental growth whilst also expanding the margin? Or is it just We've got to sit just sit tight and wait for Open Access volumes to just slowly ramp up by themselves or not slowly ramp up, but ramp up by themselves? Well, look at the number of open access delegated open access channels that we've launched. That requires some resource, I mean, these aren't investments in a capital expenditure sense. This is a capital light business. But in terms of Putting resource and the incurring costs and OpEx rather than CapEx mostly, but it costs money to launch New journals, it costs money money to launch new products. And so you can see the pace at which we're doing that is stepping up All the time. And that's where you can see how we're looking to drive the growth And the revenue over the coming years and clearly you're incurring costs today that is going Immediately, in this very short term, doesn't drive much revenue, but over the year or 2, it does. So you have to be willing to do that. And that is what we're doing. Okay. Thanks very much. Thank you. Your next question comes from the line of Rajesh Kumar of HSBC. Please ask your question. Hi, good morning. Hi. First question is on the total addressable market Point you made earlier. Totally agree that if you give us analysts a big number, we will spend us Trying to prove that it's wrong or that it's too low. And like the idea of giving us more granularity on How growth is coming? In that context, can you talk to us about how much of your growth is Coming from existing clients versus new clients? Or how much of the growth is coming because you're selling more of the existing products versus OpEx expenses or CapEx expenses in new products, that would be super helpful. 2nd question is on the Exhibitions business. I appreciate you've given you've answered a lot of questions around it. Could you give us some geographical or end market differences in terms of where you're seeing recovery and where you're not? That could be helpful to understand. And finally, on the Differences in revenue recognition timing on open access versus the print business, Would you expect the revenue to be a bit smoother through the year as the proportion of Open access becomes larger in the STM business or is it such a small proportion still that It wouldn't matter in the next 2 or 3 years. Yes. Okay. Yes. See what I can do with those total addressable markets and new clients. I mean, the new versus existing client is Very much varies between sectors. So if you focus on risks, first of all, In insurance, of course, almost all major insurance companies are customers of something. So there's opportunities clearly to We've historically been very strong in auto insurance, of course, but now have a growing presence in life insurance, household insurance, Commercial Insurance. And so it's the same insurance companies, but expanding the offering to them. In contrast, Business Services is a much broader customer set we gave if you saw the seminar we did on Business Services a few weeks ago. It's still on the website. You're going back to look at it. Then You saw just how broad the customer is and how it's expanding because the need to know who you're dealing with in an online situation It used to be just about banks, really, but now applies to any company engaged in e commerce. It applies to Government agencies, it applies to medical care providers and so on. So there's an ever expanding set of clients there. The other Thing that might help you, of course, is the distinction between the growth that's coming from new products versus existing products, and that's something we do give a I regularly give a table on, and the proportion of growth in risk that's been coming from new products It has been stepped up over the last, if you could go back 5 or 6 years, it's stepped up and has been representing Half or more of the growth in recent times. Obviously, 2020 was a bit distorted. But generally speaking, the new product introduction is A bigger and more important component of growth than it was historically. Your second question on exhibitions and geography. Yes, we've seen different timing in terms of when Markets have been able to operate. China has been operating in large pretty normally actually For all of 2020, as has Japan, although we did have the Olympics there, of course, which did Just dropped things in the middle of the year. The U. S. Reopened in March time, I think, was our first significant event. Europe's been taking longer, and we only held our 1st big events in France and the UK in September. So different geographies have reopened at different times. But I think the positive thing at the moment is we're operating pretty much In all significant markets that we've got opponents in. And your third question on revenue recognition, Yes. I mean, the volumes for transactional volumes in STM, including open access, they're not particularly seasonal. So they're reasonably Typically, reasonably smooth to the year. Obviously, the subscription side, you tend to be recognizing revenue every month as you go along. So it's very stable. So, I'm not sure you'll notice any significant change even if there's been some change in overall mix. Actually, you'll see that in the pattern of revenue recognition. Understood. Thank you very much. Okay. Thank you. There are no further questions coming through on the line, sir. Okay. Well, thank you, and thank you, everyone, for joining us today. And we look forward to seeing you again for the full year results in February. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.