Welcome to the RELX 2016 results presentation. Thank you all for coming, and for those of you on our webcast, thank you for joining us. As you can see, we are continuing to execute against the strategic priorities that we set out some years ago. These were, and still are, aimed at achieving more predictable revenues, a higher growth profile, and improving returns. It is gratifying that largely as a result of this focus, we have seen a gradual improvement in these measures. I hope you'll agree with me that our results have become more predictable over time. In addition, in 2016, 4% underlying revenue growth was achieved with adjusted operating margin up 20 basis points and return on invested capital up 30 basis points. In the latter's case, up to a new high of 13%.
All of these 2016 results, when expressed in GBP, have clearly been affected by the positive translation impact of the reduction in the value of the GBP associated with the U.K.'s decision to leave the European Union. As you will have seen, while constant currency growth of adjusted earnings per share increased by 8%, EUR-adjusted earnings per share grew 5% and GBP adjusted earnings per share by 17%. Likewise, the dividends we're proposing are for a full year increase of 5% to EUR 0.423 for NV holders, and a 21% increase to GBP 0.3595 for PLC holders. The relationship of these two growth rates is, as you know, driven entirely by the governing agreement between the two parent companies. These short-term effects do not change our long-term dividend policy.
We will continue to grow the dividend broadly in line with adjusted earnings per share, subject to exchange rate considerations, while maintaining cover of at least two times over the longer term. Erik and Nick will now take you through the 2016 results in some detail. Erik.
Thank you, Anthony. Good morning, everybody. Thank you for coming and for taking the time to be here today. As you probably all seen from our press release this morning, our positive financial performance continued throughout 2016, with a slight increase in our underlying revenue growth rate and with underlying revenue and profit growth across all four business areas. We made further strategic and operational progress with a slight increase in our revenue growth rate, reflecting the continued improvement in our business profile and the organic development of increasingly sophisticated analytics and decision tools. Our underlying growth rates strengthened slightly in 2016 with underlying revenue growth of 4%, underlying operating profit growth of 6%, and earnings per share growth at constant currencies of 8%. Our overall financial performance trajectory was consistent with recent trends, including a slight improvement in return on invested capital to 13%.
All four business areas again delivered underlying revenue growth as well as underlying operating profit growth. Let's look at the results for each business area. Our STM business grew 2% with key business trends remaining positive. Primary research, which represents just over half of the division's revenues, saw continued strong growth in usage and in article submissions, and we launched 64 new journals. We saw continued good growth in databases and tools and in electronic reference across segments. Print book revenues, which now represent only around 10% of Elsevier's revenues, saw steeper declines than in recent years, particularly in the second half, reflecting market conditions. Underlying profit growth was again slightly ahead of underlying revenue growth. Going forward, our customer environment remains largely unchanged. Overall, we expect another year of modest underlying revenue growth, with underlying profit growth continuing to exceed underlying revenue growth.
Risk and Business Analytics revenue growth improved to 9%, with strong growth across all key segments in both subscription and transactional revenues. Insurance continued to achieve strong growth driven by volume growth, good take-up of new products, and expansion in adjacent verticals. Business services saw strong growth in identity and fraud solutions across sectors. The government and healthcare segments continued to develop strongly and major data services maintained strong growth. Underlying operating profit growth broadly matched underlying revenue growth. The internationalization of the old risk solutions business, the old U.S. risk solutions business, is progressing well and will generate around $100 million in non-U.S. revenues this year. Going forward, the fundamental growth drivers of Risk and Business Analytics remain strong. We continue to expect underlying operating profit growth to broadly match underlying revenue growth. Legal revenue growth improved slightly to 2%, with key trends essentially unchanged.
Continued growth in online revenues was again largely offset by further print declines. U.S. and European markets remain stable but subdued, while other international markets continue to grow well. Rollout adoption and usage of new platform releases and applications continue to progress well, both in the U.S. and in international markets. Underlying profit growth was strong. The margin increase reflects organic process improvements and the ongoing decommissioning of systems, largely offset by lower profits from joint ventures and other portfolio effects. Going forward, trends in our major customer markets are unchanged, continuing to limit the scope for underlying revenue growth. We expect underlying profit growth to remain strong. Exhibitions achieved underlying revenue growth of 5%, in line with prior year. Revenue growth was strong in the U.S. and moderate in Europe. Japan continued to grow strongly, China achieved good growth, and Brazil remained weak.
Most other markets continued to grow strongly. We launched 32 new events and completed seven small acquisitions. Underlying profit growth was 7%, with a slight margin improvement largely due to exchange rate movements. Going forward, we expect underlying revenue growth trends to continue, and we expect cycling out effects to decrease the reported revenue growth rate by around four to five percentage points this year. Our strategic direction is unchanged. It is still to be a company that delivers improved outcomes to professional and business customers across industries, with our number 1 priority being the organic development of increasingly sophisticated information-based analytics and decision tools that drive higher value for our customers. On this slide, you can see our 2016 revenue breakdown by format, geography, and type, as well as our underlying revenue growth rates during the year.
Electronic and face-to-face are now 87% of our revenues, as you can see, recent format trends are continuing. Our electronic and face-to-face revenues continue to grow in mid-single digits, our print revenues are still declining in the mid to high single digits. By geography, growth rates have converged slightly across geographies, with growth rates outside North America and Europe now holding up. By type, both subscription and transactional revenues are growing around 4%. As before, our second strategic priority is the selective reshaping of our portfolio. In 2016, we continued to focus our acquisitions on small, targeted data sets and analytics and assets that support our organic growth strategies and are natural additions to our existing businesses. We completed 17 acquisitions for a total consideration of GBP 338 million, very close to our average spend over the past few years.
We also completed the disposal of a number of minor assets for GBP 16 million. I will now hand over to Nick Luff, our CFO, who will talk you through our full year results in more detail. I will be back afterwards for a quick wrap-up and our usual Q&A.
Thank you, Erik. Good morning, everyone. Let me start by expanding on the financial highlights. As Erik said, underlying revenue growth improved slightly in 2016 to 4%, coupled with tight cost control that enabled us to deliver 6% growth in underlying operating profit, improving the margin by 20 basis points to 30.7%. Growth in earnings per share at constant currencies was 8%, ahead of the profit growth, reflecting the effect of the share buyback program. Return on invested capital improved to 13%. Cash conversion was again strong at 95%. Leverage remains within the range we have seen in recent years at 2.2 times EBITDA, adjusted for pensions and leases. The equalized full-year dividends are up 21% for the PLC in sterling and up 5% for the NV in euros. 2016 share buybacks total GBP 700 million.
Looking at the income statement in sterling, 4% underlying revenue growth gave us 4% constant currency growth, with the combined effects of acquisitions, disposals, and exhibition cycling being a net neutral at the group level. Against sterling, the dollar and euro averaged 13% stronger in 2016 compared with 2015. The effect was to benefit reported revenue growth by 11%, contributing to total growth of 15%. Adjusted operating profit increased by 6% on an underlying basis. After portfolio effects, constant currency profit growth was 4%, a little behind the underlying growth. The sterling figure was boosted by currency, resulting in 16% overall growth to deliver operating profit of GBP 2.1 billion and giving that improved margin of 30.7%. The interest charge increased, a result of higher average borrowings and currency effects. The average rate paid on debt was 3.8%, in line with the prior year.
The tax rate on adjusted profit declined slightly to 22.7%, resulting in adjusted net profit of just under GBP 1.5 billion, up 17%. Reported net profit rose 15% to just under GBP 1.2 billion. The average share count was down just over 2% due to the share buyback, converting 5% constant currency net profit growth to 8% constant currency earnings per share growth. The relative weakness of the pound meant that adjusted earnings per share in GBP was up 19% to GBP 0.722. In EUR, it was up 5% to EUR 0.88. Following the elimination of tax credits on U.K. dividends, reported earnings per share are now equivalent for both PLC and NV. Compared to the prior year, the higher growth for the PLC reflects weaker GBP and the effect of the elimination of the tax credits.
When the boards consider the equalized dividends in GBP and EUR, they take into account earnings growth, the impact of year-over-year currency movements, and overall dividend cover. We are proposing final dividends that will take the full year totals to GBP 0.3595 for the PLC, growth of 21%, and to EUR 0.423 for the NV, growth of 5%. In each case, the dividend growth is broadly in line with the growth in earnings per share. The dividend growth remains at just over two times. Dividend cover, rather, remains at just over two times. Turn to the business areas. As Erik described, all four areas contributed to the underlying revenue growth, with Risk & Business Analytics again being particularly strong, and Legal improving. Cycling increased Exhibitions revenue growth by three percentage points.
M&A was a slight drag on the growth of R&BA and a slight positive for Exhibitions to be neutral overall. With the GBP weak against both the USD and the EUR, currency movements boosted GBP reported revenues in all four business areas by between 10% and 13%. Underlying profit growth was ahead of revenue growth for the group as a whole by 2%. The growth was driven by a strong performance from R&BA, up 9%, and from Legal, up 12%. Legal profit growth was significantly ahead of revenue growth, reflecting efficiencies within the business and the decommissioning of legacy infrastructure. STM also had underlying profit growth above revenue growth. Exhibitions profit growth benefited from the cycling in of biennial shows.
As I mentioned earlier, portfolio effects were a drag on profit growth, particularly for Legal, where we saw a reduction in contribution from the Martindale-Hubbell directories listing business, which we put into a joint venture in 2013 and which is now running down. Going the other way, for the GBP figures, currency movements were a significant boost for all four areas. The group continued to make progress in improving margins, adding 20 basis points to reach 30.7% overall, with each business area contributing to the increase. STM's margins were up 10 basis points, with underlying improvements largely offset by currency effects. R&BA's margins were also up 10 basis points. Legal's underlying profit growth being well ahead of underlying revenue growth was a significant positive for margins, but the effect was largely offset by the lower contribution from the Martindale-Hubbell joint venture, leaving margins up a net 20 basis points.
Exhibitions had a 40 basis point improvement, largely reflecting exchange rate movements. I've been highlighting the different currency effects as we've gone through. Overall, we are most significantly a U.S. dollar revenue business, with substantial revenues also being generated in euros and other currencies. We do hedge certain of our future cash flows to smooth the year-on-year variation in revenues and profits, primarily in STM subscriptions, giving more stable euro and sterling reported results. FX rates will, of course, move from today's levels, but sterling is currently weaker against both the dollar, by 8% to 9%, and the euro by 3% to 4% than its average level in 2016. If that's sustained, the currency impact on adjusted earnings per share growth relative to constant currencies would be positive by a low single-digit % in euros and by a mid-single digit % in sterling.
Turning to the balance sheet, currency movements increased the value of assets and liabilities in sterling terms. As you can see, net pension obligations increased, reflecting reduced discount rates in the U.K. and currency effects in relation to the U.S. scheme. Increased profitability and a slightly lower effective tax rate delivered a 30 basis point improvement in return on invested capital to 13.0%. Turning to cash flow, CapEx was GBP 333 million, equivalent to 5% of revenue. Legal CapEx remained at 10% of revenue as we continue to roll out the new Lexis platform. CapEx was stable in both STM and R&BA at 4% of revenue as we invest in new products. Cash conversion remains strong at 95%, slightly flattered by timing effects on accounts receivable around the year-end. Cash interest and cash taxes increased, driven by exchange rate movements.
Over time, cash taxes paid are expected to be similar to the adjusted tax charge, and that was the case for 2016. Overall, total free cash flow was GBP 1.4 billion. Here's how we used that free cash flow. Spending on acquisitions was GBP 338 million, and the share buyback was GBP 700 million. With the majority of our debt in US dollars and euros, currency translation had the effect of increasing debt by just over GBP 500 million in sterling terms, leaving net debt at GBP 4.7 billion. In US dollars, net debt increased by only $230 million to $5.8 billion. Leverage was 1.8 times, or 2.2 times, when you adjust for pensions and leases. We calculate leverage in US dollars, so the ratio was slightly flattered by the sterling spot rate at year-end relative to the average rate during the year.
Finally, let me expand on our priorities for use of cash. Our first priority is to invest to support organic growth through CapEx. As I said earlier, CapEx was 5% of revenues in 2016, in line with the average of the last few years. Second, we look for value-enhancing acquisitions which support our organic growth strategy. At GBP 338 million, 2016 was broadly in line with the recent average of around GBP 300 million, albeit you should perhaps think of that as a historic average of $500 million, which is more like GBP 400 million at today's exchange rates. Next, we look to provide a reliable growing dividend, managing currency fluctuations as we do so. At current levels, the dividend accounts for around half of our free cash flow.
We aim to maintain leverage measured on a conservative basis, including pensions and leases, in or around the 2.1-2.5 times range we have been in recent years. Of course, with a growing business, increasing EBITDA does provide increasing debt capacity each year. With that overall approach to the utilization of cash and to leverage, we've been able to fund share buybacks of GBP 2.4 billion over the last four years, retiring about 10% of the combined total shares in issue. For 2017, we are planning to allocate a further GBP 700 million to buybacks, with GBP 100 million having already been deployed. With that, I will hand you back to Erik.
Thank you, Nick. Just to summarize what we've covered this morning, during 2016, our positive financial performance continued, and we made further strategic and operational progress. Going forward, key business trends in the early part of 2017 are consistent with the early part of 2016, and we're confident that by continuing to execute on our strategy, we will deliver another year of underlying revenue, profit, and earnings growth in 2017. With that, I think we're ready to go to questions. Okay. You know what? Today, I'm going to start over there.
Thanks. It's Ian Whittaker from Liberum. Actually, just two questions. First of all, just in sort of our scientific journals. Do you have any concerns whatsoever in terms of the Brexit vote that sort of the U.K. leaving the European Union could make the remaining countries in the EU more inclined to push a more aggressive open access policy sort of post the U.K.'s departure? Second of all, just in terms of sort of AM Brazil, just coming back on your comments there. It seems to be sort of statement from a number of companies that Brazil is not growing, but if you look at the news, there's been some tentative signs of people feeling a little bit more positive on there. Sort of just in the indications over the next 12 months, how are you feeling that things are going?
Would you still say you'd be very, very cautious on Brazil?
Okay. First question there on our scientific research business. The way we look at it, that is an extremely global business. It cuts across many different countries. We have customers in basically 180 countries, we are sourcing material, working on material, and distributing, basically all of them across all borders. Of course, what has happened over the last, many decades we've been in that business is that it's become even more international and more global. We have operated across many countries that are in the EU and many countries that are not in the EU. Of course, if there are some changes based on the U.K. exiting, we will have to adjust to that.
We see as our main focus here to stay focused on the research community and the best way to help our customers, and customers meaning the institutions and the individual researchers, do their best to advance science no matter what sort of different countries are involved in or what organizations they're a part of. When it comes specifically to your question around different types of so-called open access policies, which can come in many different forms, we believe that the current policies that have been implemented around the world have all been done with a fair amount of thinking about what is sustainable and what's best for science.
Of course, we're engaged in those discussions all the time, we are very open to serving our customers under any existing business model that can be sustained, and that includes the current different types of open access that exist. We are really relatively indifferent between the alternative business models for scientific research, and very happy to interact with different business models in different geographies or from different institutions. Brazil, the second one. If you look at what we have in Brazil, we really have industries that I think would lag the general economic development. Our two largest businesses, revenue streams in Brazil relate to exhibitions and science research. Science research is a subscription business that has a lag factor in multiyear contracts. Exhibitions, people tend to book in the larger, heavier sort of industry segments that we're in Brazil.
They tend to book and plan them ahead of time, which means there is a lag effect. What I was describing earlier was what happened in 2016, and I don't think we're the right place to go for a prediction of the future there because our business are inherently lagging behind the economic trends. I don't have a prediction for you for the future.
Can I just ask a quick follow-up question? Just in terms of the U.S., there's more sort of Thank you. There's a sort of more positive feeling about the U.S. consumer.
Can you just sort of give us an indication of how that sort of would feed through to your business in areas, for example, such as Risk & Business Analytics in terms
Yeah
of insurance or any other areas?
It is a very interesting question that many people have asked us, and people try to find correlation with, but it's not clear to us that there is a direct correlation between consumer, sort of retail consumer behavior, and the value we add to our institutional corporate business customers in the Risk segment. For example, you mentioned there insurance, and it is interesting that during the last severe economic downturn, our organic revenue growth rate in auto insurance did not decline during that time. It actually went up slightly. There was, at that time, no correlation we could find between an economic downturn or slowdown. As a matter of fact, at that time, it was slightly the other way.
Of course, these things don't happen very often, so we don't try to develop correlation models, but we think that the main driver of growth in our businesses is the value that we add to our institutional business and other types of customers, and if they can see more value, they will use more of it. Of course, it also helps if the markets that our customers operate in are growing rapidly. That helps. I don't think that there's an immediate direct year-on-year correlation with consumer spend in America that I can identify. It could very well be that a general economic growth over a period of time will help us. I don't think there's a direct consumer immediate effect. Sorry. Okay. Over there.
Good morning. It's Ruchi Mulye from Bank of America Merrill Lynch. One question on the outlook. You talked about 2017 trends being consistent with the early trends in 2016. Can you just clarify for us whether you were talking about first quarter 2016, which I believe was more a sort of 3% organic growth rate, or the first half 2016, which was more a 4% organic growth rate? Are we still tracking at 4%, is the question. Any color you can give us within the divisions, particularly Risk, that being the one that sort of had a changing trend throughout 2016. Thanks.
Well, two things. I just want to make sure that you're aware that we don't actually disclose growth rates for the first quarter. In some way, you'd try to estimate them and different things. We don't actually disclose them, and down to the last percentage point of growth may not be that precise in a time when we don't talk about. We just give a trading update in late April, as you know. We disclose the financial results in the first half.
When we refer to growth rates in the first six weeks, which is really what we have concluded so far this year, which is a very short amount of time, we're saying that the trends here in general look very similar to the ones that we disclosed in the first half of last year, which is the ones you're aware of for our first half financials. Six weeks is a very short period of time. We haven't noticed anything different from what we were seeing during the first half of last year. You specifically asked on Risk. I just want to make sure I understand what you meant on Risk.
Just to understand if there's any other color around the beginning of year trading. Oh, mic please. Just to understand, because Risk started at 8% in the first half of last year, then accelerated in the second half.
Yeah.
Is that the profile that you're seeing again for this year, in terms of sort of maybe edging back from the strong growth in the fourth quarter, but you're expecting the profile to accelerate?
Well, Risk is growing very strongly. Risk has been doing very well over the last few years. As you know, the overall annual growth rates have gone from 6% to 7% to 9% over the last three years. We believe that is primarily a result of how we have been evolving the whole business profile of Risk. Which is to shift it more towards more sophisticated analytics and higher value-add decision tools, and we're doing that across the entire business. When I think across the entire business, we're talking about really four different segments. We're talking about the original U.S. Risk core segment, the U.S. adjacencies, the internationalization of the old U.S. Risk segment, as well as that kind of changeover in what you might think of as the old RBI segment, the data services segment.
We're doing that across all four, and we're seeing the growth rate improve across all four. Having said that, if you look at specifically what has happened in the first six weeks of the year, you have to remember that this is a transactional business. The 60% of the revenue stream is transactional. To try to draw conclusion from six weeks of transactions. When we look at growth rates up or down one percentage point on the growth rate, that is very, very difficult to extrapolate. All I want to say is we're basically in the same range as we were last year, and our objective in this business is to continue to grow in this range and to continue to improve the sort of capacity to grow inside the entire division.
It's going well, and it's looking similar to a year ago, but we're six weeks in, and the business is 60% transactional, so I wouldn't be too precise in this one.
Thank you for the color.
Morning. Katherine Tait from Goldman Sachs. A few questions from me. Firstly, when you've laid out your strategic direction and the priorities that you have, you've talked a lot about data and analytics, and I think that's very consistent also with your bolt-on acquisitions that you've been pursuing. I can see how that relates very clearly to risk and also to legal, but I wonder if you'd give an update on your strategic direction within Exhibitions, and a bit more color about what we can expect, going forward there. Then secondly, just on legal, clearly very strong improvement in underlying operating profit. I wonder if you could talk about the cost-saving projection going forward. I think you made some comments implying that a lot of that was driven by cost savings. How much more is there to go? Should we expect similar levels of that going forward? Thank you.
I'm going to hand over question two to Nick later, but let me answer the first one here. Yes, our strategy of serving professional and business customers across industries and across segments is the same across all our different market segments, including, as you said, risk legal science, where you see more data analytical tools at this point, but also in Exhibitions. Exhibitions is an interesting segment for us. We are the clear global leader in terms of volume, quantity, as well as in terms of what we think of as sophistication in that industry. Right? Given that we are fundamentally serving businesses and we're helping them make decisions, we're helping them get better results, be more productive, even with Exhibitions. We're helping them interact with, to match up with buyers, sellers, and to transact and know who they're dealing with.
We think that the same kind of approach to helping our business customers be more informed, be more analytical, that we've done in the old business information when it migrates, can also be applied over the next decade or two to the exhibition industry, where you're actually also meeting and interacting and transacting with people. The exhibition industry is at the early stages of that right now. We're piloting different data-driven experiments with different exhibitions at this point. This transformation is ahead of us. The way I look at it is that the exhibition industry is a good business for us to be in the way it is today. We get good organic revenue growth, although with a little bit more of fluctuation by industry segment and by geography than maybe some of our subscription-based businesses. It's a good organic growth business.
It has good cash on cash returns, both for organic development and for acquisitions, the way we tuck them in. It's a good business to be in for our shareholders. When you add to that we are the global leader in a fragmented industry, that's not a position that we think is a negative place to be. We actually think it's a positive place to start for then adding more technology and more sophisticated analytics and information-based interaction to that industry over the next decade or so. We're very early stages. Now I'm going to come this way, I think.
The second-
You first. Sorry.
Yeah. In legal, obviously, as you say, very good cost control, and that's a whole range of things. Part of it is due to the new Lexis platform that we are migrating to. We've seen the effect of that and the cost savings coming from transitioning to that platform, taking out some of the dual running. We've seen that coming through for a couple of years, and we've got a few more years left of that, actually. It's not one big moment where it's all going to happen. We're transferring hundreds of products, hundreds of applications across to the new platform, and you'll continue to see us taking costs out as we do that. That will obviously help that differential between profit growth and revenue growth.
Again, I should point out with that Martindale-Hubbell joint venture that I mentioned, that's still running down, and that will be a drag on margins. It's outside of underlying, but the drag on margins for a couple of years as well, so that you'll see that net effect coming through in the legal margins.
Okay. We go to this side here.
Okay.
Thank you, Erik. I'm Sami Kassab. I have a few questions, please. The first one, the strategy is to accelerate organic revenue growth, and it's to move more towards a data and analytics-based business. Can you remind me as to why you continue to consider textbook publishing, which is structurally declining, performing below expectations, as core? Secondly, the group margin expansion, 20 bps, has been the slowest in a few years. Shall we think this as the new going rate, or should we think of perhaps another midterm outlook in terms of the capacity of the group to expand margins? Lastly, you've argued that business conditions remain largely unchanged, including Elsevier. On the other hand, we heard through the press, Germany, Taiwan, Peru, arguing that they may not renew their deals with Elsevier. To what extent is that playing a role? Have you settled with those countries?
Are the factors of setting that in your assessment that the environment is unchanged? I can't remember last year that countries argued they would not renew their national licenses. Thank you, Erik.
Okay. I'm going to give the margin comment to the question to Nick, and I'll do that last, if you're okay with that. I'll cover the other two. Textbook publishing. Just to make sure it's clear to everybody, we are in textbook publishing in one small segment, which is medical textbooks that are used for medical education for doctors, nurses, other health professionals. That's the only place where we're really in textbook publishing. Our total print book revenues for the whole company is about If you took the way we talk about books, that's really 3% of the whole company, and the textbook piece is about half of that. Elsevier, we say 10% is print books of Elsevier, and about a half of that is what I consider sort of print textbooks. Right? We're talking about 1.5% of the whole company that is in this segment.
The reason we are still in that is not because we want to be in that small segment. As you know, we sold our educational businesses about 10 years ago for about GBP 5 billion, right? Because we didn't think the educational business was a business we wanted to be in. We're not in the educational business today. We want to be in the lifelong career professional tools for medical professionals, just like we want to be in the lifelong career for lawyers. In order to do that for lawyers, you have to be present, and a very big presence in the law schools, because that is when lawyers get used to using information analytical tools. We have increased our presence in law schools over the last 20 years in terms of getting them ready for a lifelong use of our LexisNexis legal tools.
We have exited anywhere we had little pockets of true education or academic books there that weren't linked to that, right? In most places. There are some little leftovers here or there that's basically irrelevant, right? In the medical business, we are still present in a sliver of educational print books because that relates to the tools and the education and the practices that they will then have to become certified medical professionals and through their lifelong learning. We're not in that because we want to be in the education business. It is, we will only remain in it over time to the extent that we believe there continues to be a link to the lifelong professional career work that they work in their main careers. In case there is no such link, we'll gradually adjust our presence.
At this point, we think there's still a link between how you spend your time and the tools you use and what you learn with in the medical profession during medical school and what you do for the rest of your career. Right. That's why we're in that segment, when we sold the other GBP 5 billion education business. Sorry, the last one here you had was Elsevier. Yes, you asked about specifically, contract renewals for our science research business. Yeah. As you probably know, we never comment specifically on any one individual customer or any one contract negotiation, any one country. We haven't done that in the past, and we're not going to do so now. I can tell you this, that in general, we have a few thousand institutional customers around the world. Most of those are multi-year agreements, right.
Which means that they come up for renewal every so often. The average length of those is three years, but there are five years and two years and other things in between. Therefore, every year, there are more than 1,000 institutional contracts up for renewal. Once in a while, there are institutions or individuals in some of those institutions that comment publicly on the process of renegotiation, sometimes they feel that that might help them. We have full respect for them using any tool or any communication tool that they think is helpful for them in a negotiation, because we're ultimately focused on what's right for the institution and the researchers. I can tell you this. This year, we do not engage in those debates in public, and we don't comment on them in public.
We only engage directly with the institution, with the institutional negotiators, and with the researchers, and try to make sure that we fully understand all their concerns and their issues and address all of them in the one-on-one negotiation that we have with them. Most of the time that, or virtually all the time so far, we end up with situations that are workable and mutually beneficial. This year is no exception.
If you look at the completion this year of our agreed contracts, the completion so far compared to last year or compared to the last three years, when I last checked a few days ago, our completion rate was exactly the same as last year and marginally ahead of the average over the last three years for what has been done at this point in terms of volume of contracts and in terms of contract amounts, revenues, and in terms of what has been agreed in those contracts. I don't see any reason to say, in terms of what's actually happening out there, to say this year is any different from the last three years. We'll hand over to-
Sami, obviously margins in any one year are a combination of how they move year-on-year, a combination of factors starting with what happens to underlying revenue, underlying costs. You get some portfolio effects. You get currency effects. If you look at 2016 over 2015, we actually had about a 30-basis point underlying improvement in margin. You then had a small positive actually from currency overall net for the group, and a slightly larger negative from portfolio effects, particularly in legal, which I touched on earlier. The net effect of that was to take that 30-basis point of underlying improvement just down a little bit. We ended up with 20 basis points improvement overall.
Looking forward, I'm certainly not going to give a forecast of margins because some of those factors I can't easily predict. What I can say is that our objective with all of our businesses is to continue to seek to make sure underlying cost growth is below underlying revenue growth. If you do that in itself should be positive for margins.
Thank you.
Yeah. Hi, it's Nick from Barclays. Just one more question, please. Just going back to Sami's question about academic books. I know it's a small part of your business. You have flagged it's getting worse, which is a rarity for you. How much of that is to do with textbooks, i.e., a Pearson-style effect in terms of bookstore de-stocking, different ways of buying textbooks? How much of it is academic books bought by post-grads, bought by libraries, seeing extra softness to what you've seen in the past?
If you look at our print books, the piece we just talked about, total print books in Elsevier, which is really what you're focused on now, that's where we saw a change. Total print books in Elsevier, as I said, is now about 10% of that. I would argue that if you try to do it, let's call it roughly half is educational, half is more scientific reference, broadly speaking. In those, we have seen, across both of those, we have seen print book declines over the last few years that have fluctuated a bit because it's a transactional business, but have been mid to high single digits or touching double digits in bad years and touching just about mid-single digits in the good years. Right. That's sort of been the range. Sort of just above mid-single digits to just into double digits.
That's been a typical range. Last year, as you know, it was heading up a little bit by the third quarter, even on a like-for-like basis, as you might have seen. It got slightly worse at the end of the year. Right. We ended up more in total declines of basically I'd describe it as mid-teens now, right, for that year. You're comparing to other people who are specifically in education. We have not attempted to try to break up, because it's such a small piece of our business, we have not attempted to break down the difference in decline in any detail, right, to what are the contributing factors. We have looked at it.
What other people have said, I know not just the one you mentioned, but other companies have said that there was a channel de-stocking or a channel reduction in the U.S. sort of print book distribution chain last year. Lots of people have said that seems to fit what we are seeing as well. It is very possible that a significant part of that difference from the last five years average to what we saw this past year could be attributed to that. We haven't tried to quantify it exactly and precisely in what's out there in the channel.
It wouldn't surprise me if it turns out that some of what we saw was similar to what other people have commented on, even though it looks to me like the percentages we saw might have been slightly milder than what some other people said in the fourth quarter. We might have had a slightly smaller impact overall and a slightly smaller reduction than some of the ones that have been out in the public.
Thanks.
Yeah. Okay.
Thanks. This is Matthew Walker from Credit Suisse. I've got three questions, please. The first is, I know you're growing costs below revenue growth rate. Have you ever tried to look at even excluding investment levels, which are obviously necessary, doing a zero-based budgeting exercise for your businesses to see whether that actually makes sense for your business? You're probably going to say no, but it would be interesting to know whether you've thought about it. Second thing is, could you maybe give us some concrete examples of where you are starting to introduce artificial intelligence products to improve your overall business, maybe including the decision tools? Lastly, could you give us some more detail on home life and commercial insurance, which you don't talk about very much.
Can you scale that for us and tell us how fast it's growing, what the different pieces are, and where you're going with that business in general?
Okay. How fast it's growing, pieces are out. Okay. Yep. Okay. You know what, why don't I start with that because I'll forget the sub-questions. You said home life commercial in the U.S., how fast, what are the pieces? The way we look at it is that we have core old traditional segments that we've been very established in for a long period of time in the old U.S. risk solutions business, right? Clearly, auto insurance is one of those. That was the original core in the insurance business, and I consider the insurance business to be core at this point, even across the additional segments, but they're smaller. You asked to scale it. You said order of magnitude here. We think in dollars internally. Order of magnitude, the risk business in total, Risk & Business Analytics, about $2.5 billion, roughly.
Close to 40% of that basically is the insurance business overall. Roughly in scale, I've said this before, 20% of that revenue, roughly, is in the non-auto segments, the adjacent insurance segments in the U.S., and they include home, life, and commercial, as you mentioned, and some other categories that are smaller that you might put in slightly different headlines on. Those categories are in there. You said, how big are they? I told you that roughly 20%, and it splits into three small segments or four, maybe if you want to look at some other subcategories. How fast are they growing? Slightly faster than the overall risk business. Right? Because we're newer into them and growing slightly faster, right, as you would probably expect. I think that covered that, right? Now let's move over to your first question. Zero-based budgeting.
Well, as you predicted, we have thought about it, we're not planning to do it. We believe that with a business that among most of our places are subscription-based, and in some of our segments, there's a part subscription and then transactional volumes on top of that after you've installed them over a period of time. We believe that the best way to manage a business like this in the long run is to always have a philosophy about always improving everything, every day, every year, forever. Right? That means that we have to give better value to all our customers every single year, all the time, forever. That's the value enhancement to the customer. We have to use information technology, software tools, analytics, and everything you can do, process redesign, to help our customers do better, to add more value to our customers.
That's what half our people do, right? To get revenue growth. If you add more value to your customer, they want more of it, they use more of it, the revenue goes up faster, right? That's basically half our thinking. The other half of our thinking is the internal thinking, which is to say, we have 30,000 professionals around the world that we should be using all the information tools we can, all the software tools, the technology platforms, the analytics, and everything we can do to help them become more productive every single year, all the time, forever as well. That means that every year we've got to tune it and tune it and tune it and innovate just like we do for our customers.
It's the same philosophy, it's the same approach, it's this gradual tuning of our cost base all the time, our processes and our tools, which enable us to keep the cost growth below our revenue growth, and in some cases, even below what some people would label some kind of global inflation number or whatever. It's because we constantly innovate around processes and using technology and information tools differently for our own people, right? That's the philosophy, that doesn't mean that a zero-based budgeting would be a bad idea. It's just not our strategy and our approach, right? We run this business differently, it's this gradual, ongoing, never-ending pursuit, relentless pursuit of operating efficiencies and innovation and process for our customers and for ourselves, and it fits our culture. All right. The second question you asked was about artificial intelligence. Yeah.
Artificial intelligence is a very big word, and we think of it as saying that we first have sophisticated analytics, and then you move on to what we would probably look at sort of, well, machine ingested data. Then you look at what we would probably label machine learning. We do a fair amount today that I would categorize as machine learning as opposed to true artificial intelligence research, which is very advanced. We apply a fair amount of algorithm development and machine learning tools today. Of course, we look all the time at what scientists might also call artificial intelligence. You could argue that some of the things that we're doing in terms of predictive analytics and machine learning tools inside our risk business and inside some of our linking in legal and so on might border on artificial intelligence.
I think that's slightly big word for what we're doing. Are we looking at it? Yes. Do we have thousands of people that spend time thinking about this? Yes. We have 7,000 technologists. When we have our CTOs get together, we talk all the time about what's going on in the world and who's using what kind of predictive analytics machine learning tools or artificial intelligence tools, and how do they apply to each one of our segments, both for how we serve our customers better, which is one point, and interestingly enough, linking it to the prior question, to how it is that we ingest data, process data, categorize data, and build up our databases and our internal linking tools, which is really a speed and a cost issue rather than a customer service or a customer enhanced product quality issue.
Again, we apply it equally to our customer value development, customer product development, and to our internal processes and tool development. I don't know which one will actually run ahead of the other, but I'm assuming they're going to run pretty much in parallel over the next few years. That's how we think of our business, and it's very much about what we look at as a potential new layer of innovation types for our customer value and for our internal processes over time. I don't think there's any one big step or any one big holy grail there. We're going to go over there now. Why don't we go in the back row first here? Yeah.
Hi, it's Jason Salata from Macquarie. Three questions, please. First, I think your guidance implies a small slowdown in risk in H1 versus H2 last year. Do you have any more color on legal and exhibitions on the same line? Secondly, on risk on the transactional side, the 60%, can you give us any indication on volume and pricing of that? Is that any price increase or it's just driven by a volume increase that the boost you had in Q3, Q4? Lastly, one on this side. Can you give us any color on currency impact on margins for 2017, rates being as they are?
I'm going to let Nick handle the last one later. Let me just make sure I understand what you said. You said I am implying that there is a slowdown in risk in the first six weeks of the year. I'm not sure that given what I said before, that this prediction of tracking exactly which % it is up or down, that there is anything that I can quantify materially. If you look at it like for like, it looks pretty much like what we had over the first half last year. To try to predict the exact growth rate in a 60% transactional business over a year based on six weeks and day by day and so on, it's very difficult. I just want to tone that down. I'm not trying to imply anything here.
We're just saying it's roughly the same as last year, right? The first half last year, which was trending in the same way, right? Legal and exhibitions, we're six weeks in, and what we have seen in terms of exhibitions and what we've seen in terms of legal, I don't see anything that's materially different lead us to believe that the trends are significantly different right now from what we had last year. You have to understand that we're just talking about a few weeks here, and very little happens in January and the first half of February in many of our markets. I wouldn't read too much into this. You asked on risk, you said, "How much is volume? How much is price?" Well, I know I've said this before, but our philosophy in the risk business is that this is a volume-driven business.
It's a value-add driven business and volume-driven business. As a matter of fact, in the insurance segment, which is the largest individual segment, we have said several times, and I'll say it again, that we have never had a like-for-like price increase, meaning we've never taken an existing product and raised the price. We have no plans to do so in the future either. If you look at it historically, you would then say that by that definition, it basically all has to be volume. We of course, look at it and say that we also introduce hundreds of new different sophisticated analytical tools all the time and roll them out across the insurance segment and across other segments.
When you come up with something new to a customer set that's high value-add, it is priced according to its value and then is rolled out, and that drives volume growth, right? It's not just pure volume on a like-for-like sense. It's volume-driven by innovation, product launches, and product rollouts in our core markets and in adjacencies and internationally. That's what drives the volume. It's a slightly different twist, I think, on that. I'm going to let Nick answer, sir.
Obviously the currency impact is quite complex. You've got all sorts of different currency pairs going on, it's quite hard to be definitive about it. If you look at where we stand today, obviously exchange rates will move from today sterling clearly is weaker than its average last year, and that's mild positive for margins against the U.S. dollar. Of course, the euro's actually got a bit weaker again, that's probably mild negative for margins. You have to overlay the hedging programs. It makes it more difficult. Bring in the yen and so on. In an overall difficult to say, and I wouldn't at this stage want to give out any sort of indication of which overall direction.
Okay. Can I just come back to the second question? When you speak about risk and being mostly volume driven, the acceleration we see in the second half, does that give you a difficult comp in the second half this year, 2017?
The way I look at it is our objective for risk is to grow, is to increase the growth capacity in that business by moving to more sophisticated, higher value-add tools that people want more of. To do that across, as we said, the old U.S. core, the U.S. adjacencies, the internationalization of the U.S. and across the old RBI. It's lots of different segments, lots of different efforts that do that. I am less focused on exactly what's the growth rate one percentage point higher or lower. Our objective with risk is to keep the organic revenue growth in this range for a very long time. We think the highest value-add is by doing an organic growth driven strategy that maintains a growth rate as this business gets bigger in this range for a very long time to come.
If it is exactly one percentage point higher or lower, it's not actually what we would spend most of our time focusing on, as long as we keep this in this range. If you say predicting will we have a difficult comp in the second half because the growth rate was one percentage point higher last year. Yes, by one percentage point, but we're not that precise. Right? If you see what I'm saying. Especially not when we look at the outlook for starting six months from now and ending 10 months from now. Right? It's pretty far out from a transactional business.
Yeah.
Yeah.
Thank you. It's Tom here from Citigroup. I had a couple of questions. The first one is on the change of administration in the U.S., and I suppose two parts to it. In general, in the past, you've talked about a sort of mega trend, if I can put it that way, for your legal business of more laws, more regulations, more complex tax codes and all that sort of thing driving increased need for your business. If we have the reverse with the current administration, i.e., fewer laws, fewer regulations, will that be a headwind for the legal business over the next at least four years?
I suppose the second part to that is if we do have a reduction in the corporate tax rate in the U.S., I know there's a difference between federal and state taxes, but if there is a reduction, is there a direct benefit for RELX? That was the first set of questions. The second one is on uses of cash. I know the order hasn't changed. You've been very clear about that over time, but it does feel like you are trying to de-emphasize the buyback. It's maybe slightly lighter than perhaps people might have thought. I'm just wondering whether we should expect dividend to take more of the heavy lifting in terms of the cash return over time. Are you building this up for more significant acquisition spend over time? Thank you.
Okay. I'm going to let Nick handle tax and dividend buybacks, right? I'll start with the first question. In the U.S., the way we think of our legal business is we've been in this now for decades, as you know. There have been long term trends, and there's been a certain amount of There's a certain cycle to the legal industry as well. We believe that in the long run, the legal industry is driven by increased regulation and legislation as sort of the long term trend everywhere. That takes place everywhere in the world because the world gets more complex, and there are more different specific things to regulate. That's happened for decades, and we think that will continue to happen for decades. The second thing is, of course, volume of litigation.
That tends to go up and down a little bit with the economic cycle and asset values and so on, but also the long-term trend is up. The third factor is overall commercial activity. Commercial activity generates legal activity, legal transaction, not just big M&A deals, which of course are very visible, but they're a small portion of the overall commercial activity in a country. It's all the local company-to-company, customer-to-customer transactions that require legal involvement. If you look at that, in the long run, we believe that legal is a long-term global growth industry, not just the U.S., because of legislation, regulation, because of litigation in the U.S. in particular, and because of commercial growth in the long run. There is a cyclicality.
There's a bit of a cyclicality to the litigation volume in the U.S., and there's a bit of cyclicality to the commercial transaction volume. It tends to lag. We tend to lag because first the transaction happens, then they need more legal support, then the law firms work harder, then they staff up, then they come to us when we renew our three-year agreement. 80% of legal is a subscription business, the highest across all our segments, as you probably know. It's a very subscription-driven business. Do I think that there will be any specific changes in the near term that could impact us? We have not tried to make any such forecast because we focus on two things in legal. Number one, the near-term value add to our customers, right?
How do we actually make sure that the legal services offerings we have are more analytical and become more valuable decision support tools? The second thing, to operate the business in a way that we gradually migrate off legacy infrastructure and keep our cost growth low. Those are the two things we focus on in legal, in the knowledge that in the long run, the global legal industry is a growth industry, and we don't spend that much time trying to predict political changes or impacts on near-term regulatory flows.
The tax question. Clearly, tax policy tends to be quite complex and interactive. What is taxable? What's deductible? What the tax rate is in any jurisdiction all tend to interact, and you rarely would see a change in one of those without seeing a change in some of the others. How any change in tax in one country would affect a company, you need to know exactly what the detail of that change in policy is overall. I don't think it's wise for us to speculate about one particular aspect of tax policy and how changing that could affect us, because I think it would depend on the overall picture you get. I think on your second question on use of cash, dividends versus buyback, there has been no change. Our acquisition policy hasn't changed.
We continue to look for bolt-on acquisitions that can enhance and accelerate our organic growth. Clearly, the amount we spend in any one year will vary because the opportunities will vary. You've seen that, but we have been averaging GBP 300 million, perhaps $500 million, as I said in the presentation, is perhaps how you should think about the average historically, but nothing's changed in our approach. You will see variations in that. Nothing's changed on the dividend policy. We continue to regard dividends as an important part of our returns to shareholders. We look to grow them consistently over time, managing currency fluctuations as we do so. Of course, you've seen that this year, because of the drop in sterling, you do see quite a significant differential in the growth rates between the two dividends.
The dividend cover, we're looking to maintain around two times in the medium term in managing those currency fluctuations as we do it. Nothing's changed there. On the buyback, clearly, we've been averaging around GBP 600 million over the last few years. Yes, 2016 was a little higher than that after a relatively low M&A year in 2015. We have been averaging around GBP 600 million. Of course, if you look at that through a currency lens, we are mainly a dollar revenue-generating, cash flow-generating business. GBP 600 million isn't as much as it used to be. In fact, if you look at it in dollar terms, it's not changed. The GBP 700 million we've announced for this year is not that different to that average that we've been paying out in the last few years.
Okay. Over there.
Thanks. It's Chris Gillett from Deutsche. I just had two questions. One was just on the contribution from acquisitions. I think it said it was effectively zero net impact. I wonder, could you just confirm, is that the case? If that is the case, should we think of the or if it isn't, could you give us the GBP contribution? Should we think of the acquisition spend as effectively being a form of CapEx, since it's really more about buying data sets and capabilities and content rather than discrete businesses? Second, just within STM, could you just give us a quick view in the different regions of the world of what's happening to academic collections budgets?
Okay. Well, let me start with the second one. You said global academic budgets, research and so on. What we're seeing, there are some very, very small geographic variations here and there compared to a year ago, broadly speaking, it's very much like a year ago. I don't think there's anything to highlight there. It's very much the same. I'm going to let Nick go through the others, I just want to make one comment on it, on the concept of are we buying businesses or are we buying things that replace CapEx? I would say that over the last several handful of years, we've probably bought two, three, four very small segments that I would look at as replacing an internal build alternative, right? Less than a handful of things have been replacing internal builds.
Most of what we're doing is buying an existing small revenue stream with a data set in a market. We take over that data set and the revenue stream of it, we embed it into what we do and broaden it, and then we continue to operate it. Some of them are true businesses, like small standalone exhibition clusters that we buy that way, and some of them are also true businesses in a new country, where we enter and get a local database, a business that operates fully in that country. Most of the time, they are revenue streams with an asset, and we take the asset into our platform, and we take the revenue stream in. I would look at it as a purchase of a business, other than a small subset. There are a few.
There are a few examples of where we literally bought a capability for a few million USD because we think it's a really good service to our customers, a couple of those in the scientific research market. If you actually take some really high value add, small tool that exists out there, and we acquire it, right, for a small amount of money, but plug it into our platforms, it's all of a sudden available to 10 million global researchers on our main platform. We think that adds significant value to them, and therefore, of course, in the long run, helps us more than the amount of money we spend, and you could argue that the alternative could have been to spend those few million building it. There are a few of those, but it's very small. I'm just going to go.
What we said was that the overall combined effect of acquisitions, disposals, and exhibition cycling on revenue was net neutral and on profit was net neutral. I think, put it in context, we are spending GBP 300 million, about 1% of our market capital, on acquisition, you wouldn't expect there would be a dramatic effect on the overall group numbers in one year. Acquisitions were a small positive in revenue growth. They were a very small positive in profit growth. As Erik described, the sort of businesses we're buying are quite early stage and, in the first year, they typically wouldn't be making a huge contribution, and they're not that big in overall monetary terms relative to the size of the group. It is positive, but small.
Okay, back to Patrick.
Patrick Wellington, Morgan Stanley. It's just a quick one on the Martindale-Hubbell drag effect on the legal margin. If you didn't have that, how much would the legal margin have risen in basis points terms? When is that drag effect going to finish, and we're going to see the jump in the legal margin to match the doubling of the growth rate that we've had this year?
You can do the math on the revenue and the profit growth. Clearly, just the underlying numbers on that would drive over 1% growth in the expansion of the margin, but the Martindale-Hubbell, and other disposals, not just Martindale-Hubbell, and other portfolio changes drag that back to the 20 basis points that you see. As I said, we have got another couple of years of that drag effect. Clearly, on the other side, what you're seeing, the positive is partly from the new Lexis rollout. Yes, we've got a few more years of that. The two of them are sort of coinciding, so I'm not sure I'd be building in some big jump at some point in the future.
Clearly. Sorry. Clearly, it's contributing at a high margin, the Martindale-Hubbell stuff, although it's-
Because it's a joint venture, and therefore we don't book any of the revenue, we just put the profit. It does have a distorting effect on the margin.
I suppose I'm trying to get a feel for the underlying margin of legal if you took Martindale-Hubbell out. Your starting point would be lower, your jump would be greater, if you like.
These are all in the sort of one percentage territory that we're talking about, that's the sort of scale of movements you're getting here. It's not completely distorting the margin, it has been, I think we said to you a couple of years ago, when we moved it into the joint venture, you did see a step up in margin when we did that because of the different way it was accounted. As it winds down, you're seeing that unwind a bit.
If you look at the history of the legal business, going back to 1998, it has been between 20%-30%. In more recent years, it's been 15%-20%. Do you have a feel for what, if you like, the natural margin of the legal business, ex Martindale-Hubbell, might be?
One of the philosophies of the company is never to set margin targets, never to put out some objective. Our objective is to keep cost growth below revenue growth and to see that come through into margins over time. We're something that we don't want to put a target out there and therefore make it out of ceiling.
Okay. Well, I think I just want to say thank you for taking the time to be here today and for listening, and I look forward to.