Earnings Call: H2 2015

Feb 25, 2016

So good morning, everyone, and thanks for coming in. And for those of you on our webcast, thank you for joining us. We continued to execute well on our financial and strategic priorities in 2015, as a result of which, as you will have already seen, produced another consistent set of positive results and once again increased our dividends. In addition, during the year, we simplified our corporate structure, increased our transparency to shareholders and changed our corporate name. These changes were also executed well and we are now and we have now produced consolidated annual accounts for the first time. With the change in the U. K. Tax law with respect to dividend credits, our 2015 final dividends and for the future, there will no longer be any difference in the dividend per share of the 2 parent companies. So the total economic interests represented by 1 share in PLC will be absolutely identical to those at 1 share of NV and to one of either of the ADRs. And together all these changes are a big step in my view towards making our group more understandable to stakeholders. As a result of the corporate simplification, you will also be aware that we moved during the second half to having identical board structures with Marika Van Leer Lelst joining the boards of both PLC and Group PLC in the summer. She'd been on the NV Board for over 5 years. As we further announced this morning, we're continuing to refresh our boards given the pending retirement of Lisa Hook and Robert Paulette at our upcoming AGMs in April after 10 9 years respectively. We will naturally be thanking them for their service in due course, but in the meantime, I am pleased that we could announce that Carol Mills and Robert MacLeod will be joining us in April, subject of course to shareholder approval. Carol is a U. S. Technologist with a long executive career and a great deal of U. S. Board experience in technology 100 company in specialty chemicals and a global leader in sustainable technologies. He is also a long standing non executive director of Agreco. We also announced that Wilfard Hauser will replace Liza as our Senior Independent Director in April. Thank you. And now I'll let Eric and Nick take you through the results for the year. Eric? Well, thank you, Anthony. Well, good morning, everybody. Thank you for coming and for taking the time to be here today. As you've seen from our press release this morning, our positive financial performance continued throughout 2015 with underlying revenue and profit growth across all four business areas and we made further strategic and operational progress. The organic development of increasingly sophisticated analytics and decision tools remains our number one priority. Our positive financial performance continued with underlying revenue growth of 3%, underlying operating profit growth of 5% and earnings per share at constant currencies of 8 percent. And as you can see, our performance trajectory has been very consistent over the past 5 years. All four areas all four business areas again delivered underlying revenue growth as well as underlying operating profit growth. And as you can see on the right, our underlying operating profit growth rates again range from a bit below to a bit above mid single digits. So 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 to subscription journals. We launched 73 new journals during the year, both subscriber pace and author pace open access titles. We saw continued good growth in databases and tools and in Electronic Reference across segments. Print Books, which represents slightly under 15% of revenues, saw declines continuing in line with full year 2014, but Print Pharma promotion revenues stabilized during the year. Underlying profit growth was again slightly ahead of underlying revenue growth, driving margin expansion before currency effects. The reported margin was slightly lower for the full year, reflecting the adverse effects of exchange rate movements. 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 accelerated to 7% with strong growth across all key Underlying operating profit growth matched underlying revenue growth. Insurance, which represents just over onethree of the division's revenues, achieved continued strong growth, driven by demand in U. S. Auto, good take up of new products and services and expansion in adjacent verticals. Business Services, which represents about a quarter of the division's revenues, saw strong growth in Identity and Fraud Solutions. The State and Local and federal government segments grew strongly and healthcare is progressing well. Major Data Services maintained strong growth and the remaining other brands and services were stable. Going forward, the fundamental growth drivers remain strong and we expect underlying revenue and operating profit growth trends to continue. Legal grew 1% with key trends unchanged. Continued growth in online revenues was again largely offset by further print declines. U. S. And European markets remained stable but subdued, while other markets continued to see good growth. Rollout, adoption and usage of the new platform and new applications continued to progress well, both in the U. S. And in international markets. Underlying profit growth was strong. The margin improvements reflect organic process improvements and the ongoing decommissioning of systems, partly offset by portfolio and currency 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 strong underlying revenue growth of 5 percent, albeit slightly below 2014. Underlying profit growth was 2%, slightly ahead of revenue growth after cycling effects. In the U. S, growth was strong across our events, but slightly below prior year. And growth in Europe was moderate, marginally ahead of prior year. Japan continued to go strongly at a similar level to prior year. China achieved good growth overall, but continue to see differentiated growth rates by industry sector. Revenues in Brazil reflected the general weakness in the economy and most other markets continue to grow strongly. We launched 44 new events and completed 10 small acquisitions, primarily in high growth sectors and geographies. Going forward, we expect the 2015 underlying revenue growth trends to continue, and we expect cycling in effects to increase the reported 2016 revenue growth rate by around 3 percentage Our strategic direction is unchanged. It is still to evolve into a company that delivers improved outcomes to professional and business customers across industries and to get there primarily through organic development. With our number one priority being On this slide, you can see our 2015 revenue breakdown by format, geography and type as well as our like for like revenue growth rates over the past 12 to 18 months. Electronic and face to face are now 85% of our revenues. Our electronic revenues continue to grow in the mid single digits. Our face to face revenue growth rates have moderated slightly to the mid single digits. And our print revenues are still declining in the mid single digits or slightly higher and with some lumpiness. By geography, North America represents just over half our revenues and its growth rates has been stable at around 3%. Growth rates in Europe have seen a gradual but consistent improvement over the last couple of years, now up to between 2% 3%. And the rest of the world, which is roughly half emerging markets or developing markets, if you want to call them that, has seen a gradual slowdown from growing just above mid single digits as a whole a couple of years ago to just below mid single digits now. By type, both subscription and transactional revenues are growing around 3% and advertising revenues are now almost negligible. Our second priority is the selective reshaping of our portfolio. In 2015, we continue to focus our acquisitions on small targeted data sets and analytics and assets in high growth markets that support our organic growth strategies and our natural additions to our existing businesses. We completed 19 small transactions for a total consideration of £171,000,000 slightly lower than the average over the past few years. We also completed the disposal of a number of small nonstrategic assets for £73,000,000 With a strong balance sheet and an inherently cash generative business, the strategic priority order for using our cash is unchanged, as you can see on this slide. I've just covered our top two priorities, organic development and portfolio reshaping. And I will now hand over to Nick Luff, our CFO, who will talk you through our 2015 financial results, our balance sheet and our other cash priorities in more detail. And I'll be back afterwards for a quick wrap up and our usual Q and A. Thank you, Eric. Good morning, everybody. Let me start by repeating the financial highlights. In 2015, we continue to generate underlying revenue growth of 3%. And coupled with tight cost control, that enabled us to deliver 5% growth in underlying operating profit or 6% of the profit before tax level. And growth in earnings per share at constant currencies is slightly ahead of that at 8%, reflecting the impact of the share buyback program. Cash conversion remained strong at 94%. Return on invested capital rose on a constant currency basis, but on a reported basis fell back slightly due to currency effects to 12.7%. Leverage remains within the range we have seen in recent years at 2.2x EBITDA adjusted for pensions and leases. The equalized full year dividends were up 14% from the PLC and Sterling and up 5% for the NV in euros. That's an average of 10% growth. 2015 buybacks totaled £500,000,000 excluding what we spent for the employee share awards. As the Chairman touched on, this time last year we announced a major simplification of our corporate structure with the various steps all implemented on or before the 1st July. That has left us with a much simpler structure with a single operating entity owned by the 2 parent companies in proportion to the economic interests of their respective shareholders. This has allowed us to prepare conventional consolidated accounts and with the ADRs and shares now all in a 1 to 1 ratio, our reporting has been simplified considerably. In addition, during 2015, the UK Chancellor announced the abolition of dividend tax credits for individuals, We know that dividends will now be equalized without the need for tax adjustment. Looking at the income statement in sterling, the 3% underlying revenue growth is then impacted by M and A activity and exhibition cycling, which together took 1% off growth to deliver 2% at constant currencies. Against sterling, the dollar averaged 8% stronger in 2015 compared with 2014, whereas the euro was 10% weaker. The net of that was to increase sterling reported revenue by 1%, leaving the overall change at 3%, in line with the underlying growth. Adjusted operating profit reported in sterling rose to £1,800,000,000 up 5%, in line with the underlying growth as M and A had little net impact and currency movements also netted out. The margin increased to 30.5%. Average interest rates continued to fall, offsetting higher debt levels, partly due to currency effects, leaving interest up only slightly. The tax rate on adjusted profit came down a little to 23.2%, leaving adjusted net profit of just under £1,300,000,000 and adjusted earnings per share at 60.5p. Looking at the income statement presented in euros, the year on year weakness of the euro against other major currencies resulted in strong growth at reported rates. Adjusted earnings per share as you can see grew by 20%. For the remainder of the commentary, I will discuss the results in sterling. Copies of the euro denominated results are presented in the appendix in the pack you've got. Following the adoption of consolidated accounts, we will in the future focus on the sterling figures with euro numbers provided in summary form. When the Board's consider the equalized dividends in sterling and euros, they take into account earnings growth, the impact of year over year currency movements and overall dividend cover. In the table shown here, I'm working from the PLC to the NV, but obviously we consider the growth rates on both dividends. I mentioned earlier the abolition of tax credits in the UK. You can see here how that has simplified our dividend equalization. When we paid the interim dividend in August, Utech tax credits still existed. So to get from the PLC dividend to the NB dividend, you have to take the declared PLC figure of 7.4p per share, gross it up for the tax credit and then convert to euros to get the €11.5 for the NV. The 2015 final dividend will be paid in May without a tax credit applying. So then you'll just take the declared PLC dividend of 22.3p and convert it straight to the €0.28.8 for the NV. That will be the case for all future dividends. For the full year then that gives us dividends of 29.7p for the PLC, growth of 14% and €0.403 for the NV, growth of 5%. The lower growth rate for the NV reflects the removal of the tax credit and a strengthening of the euro from last year's determination date to this. The dividends are twice covered by adjusted earnings per share. Turning to the business areas as Eric described, you can see how all four areas contributed to the underlying revenue growth with the risk in business analytics being particularly strong. As I mentioned earlier, M and A had limited net impact on revenues. Cycling reduced exhibitions revenue growth by 5 percentage points. Currencies had different effects on each of the businesses with a higher proportion of U. S. Revenues, risk and business analytics and legal both benefited from the stronger dollar when reported in sterling. In STM and Exhibitions however, where U. S. Revenues are a smaller proportion of the total, the benefit of the stronger dollar was more than offset by the weakness of other currencies, particularly the euro. Underlying profit growth was ahead of revenue growth for the group as a whole. The growth was driven by a strong performance from risk and business analytics and from legal, both with profit growth of 7%, which for legal was well ahead of revenue growth. SGM also had profit growth above revenue growth. It being a cycling out year meant that exhibitions profit growth was a little behind its underlying revenue growth. Currency movements held back sterling reported profit for STM and Exhibitions, but benefited risk and business analytics with the overall net effect being neutral. The Group continued to make progress in widening margins adding 40 basis points to reach 30.5 percent overall. As Eric explained, STM's margin was slightly down despite underlying profit growth being ahead of underlying revenue growth as currency movements had a negative impact. The drop of 50 basis points is broadly in line with the effect we saw show you in the first half. Risk and Business Analytics margin benefited from currency movements as well as underlying efficiencies. Legal's margin reached 19% despite the limited revenue growth reflecting tight cost management. Exhibitions margin was higher in part due to the mix of shows being more favorable to margins in a cycling out year. 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 subscription revenues, 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 and the euro than its average level in 2015. If that sustained the currency impact on adjusted EPS growth relative to constant currencies will be positive in sterling terms, but negative in euros. There were no significant changes in the balance sheet other than a drop in net pension obligations as we move the Dutch scheme into a new defined contribution arrangement and a lower accounting deficit from the UK scheme. A significant proportion of our goodwill and intangible assets are held in U. S. Dollars. As a result, currency movements impact invested capital in a slightly different way to how they impact profits. In particular, a stronger dollar as we had in 2015 pushes up invested capital by more than it pushes up profits. As you can see from the slide, at constant currency return on invested capital would have increased from 12.8% to 13.4%. But that negative currency impact held the reported return down to 12.7%. Turning to cash flow, CapEx increased to 307,000,000 equivalent to 5% of revenue. Legal CapEx remained at 10% of revenue as we began to roll out the new Lexus platform internationally. As expected CapEx in STM having been low in 2014 picked up to a more normal 4% of revenue. Cash flow conversion remained strong at 94%. Cash interest and cash tax was similar to the prior year and over time cash taxes paid are expected to be similar to the adjusted tax charge and you can see that was the case for 2015. Here's how we use that free cash flow. You see disposal proceeds are broadly the same as in 2014, but acquisition spend was lower at £171,000,000 Share buybacks of £500,000,000 were £100,000,000 less than the previous year. With the majority of our debt in U. S. Dollars, currency translation had the effect of increasing debt in sterling terms, leaving net debt at €3,800,000,000 with leverage at 1.8 times or 2.2 times when you adjust for pensions and leases. Let me put some numbers to what Eric presented earlier about our priorities for uses of CAS. Our first priority is to invest to support organic growth, one component of which is CapEx. As I said earlier, CapEx was 5% of revenues in 2015, in line with the average of the last few years. 2nd, we look for value enhancing acquisitions, which support our organic growth strategy. At £171,000,000 2015 was a relatively low year for M and A spend, but our average is around £300,000,000 Being opportunity dependent, it will inevitably vary from year to year. Next, we look to provide a reliable growing dividend, managing currency fluctuations as we do so. At current levels, the dividends is using up around half of our free cash flow. We aim to maintain leverage measured on a conservative basis adjusted for pensions and leases in or around the 2.1x to 2.5x range we've been in, in recent years. Of course with growing a 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 around £2,000,000,000 over the last 4 years, retiring about 10% of the combined total shares in issue. For 2016, we are planning to allocate a further £700,000,000 to buybacks with £100,000,000 of that having already been deployed. And with that, I will hand you back to Eric. Well, thank you, Nick. So just to summarize what we've covered this morning. During 2015, our positive financial performance continued. We made further strategic and operational progress and we simplified our corporate structure. Going forward, trends in the early part of 2016 are consistent with 2015 across our business 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 2016. And with that, I think we're ready to go to questions. So why don't we start up front here. Yes, I want to start over here. Go around. Thank you very much. Matthew Walker from Nomura. Two questions, please. Where are we with decision tools as a percentage of revenue in STM and legal? And also, I think the other question on legal, again, is why not invest more in the legal solutions market to improve the growth rates like at Thompson etcetera? Thank you. Okay. Yes, first question, decision tools. I mean, some of you probably attended our technology seminar that we had in late last year. We talked about transition from electronic reference to electronic decision tools in detail. And I think as you might have heard there just a couple of months ago is that we're gone very far down this path in the Risk and Business Analytics division. And in Legal and in STM, we're in the very early stages and we've built some tools out that are both more analytical tools on our core platforms, meaning the big Lexus Advance and the big science direct platforms. And we've also started to spin off a few specific decision support tool type services that are priced separately and sold separately. And I think we talked about some of those and demoed some of those. But the answer is we're in a very early stages, but we're pursuing it on both sides, both in the core platform and in separate stand alone tools. On the second question, you said why aren't we doing more legal solutions? Well, I can't quite comment on what other people are doing, but the way we look at it is the following that there are several segments that are adjacent to our core service that we own today and operate today that are slightly higher growth segments. And you could argue that one strategy for us would be to buy into those segments at high market multiples and therefore get the blended growth rate to go up because we now own faster growing segments. We think of it slightly differently and that is that, that does not change the value equation much to the customer. That does not add much value to the customer and I'm not sure it adds significant value to our shareholders as owners of those because we buy them at market prices. We think that the real value increase for our customers as well as from our shareholders come from taking the assets that we own today, the real content assets that we have and the global platforms that we have today and organically develop those into more sophisticated analytical decision tools that add more value to the customer. We're creating a value that they don't have today. Therefore, they see more value, they can demonstrably improve their economics and they want more of it, we get higher organic growth over time. And if we do that organically from a shareholder perspective, we leverage the assets we already have and we're creating something that has higher return on invested capital from a shareholder perspective. So we believe that our strategy should continue to be the organic transformation into more sophisticated analytical decision tools for many value equation reasons, both for customers and for shareholders. Okay, next. Yes, let's go ahead. Yes, it's Nick Dempsey from Barclays. I've got two questions, please. So first one at STM. So you're seeing print book declines not get worse, but that's getting smaller in the mix. Pharma is now stable and software must be getting bigger in the mix. But you haven't yet climbed off the 2%, which you would expect from a mix effect from all of that. In fact, I reckon you're getting slightly worse within your 2%. So is journals slowing within STM? And second question, just on exhibitions. You talked about margins getting a positive benefit from the mix of biennials, etcetera, in 2015. Does that mean that margins could go down in 2016 as the flip of that happens? Let me just make sure I understood the second question. Can you say that again? Inside the 2%, which which you don't give us a decimal place, I'm wondering if STM has gone from over 2.0 to under 2.0? That was the first question, right? Sorry, the second question. Yes. So I think Nick was telling us about how there was a margin effect in exhibitions, why they went up in 'fifteen, which was related to the mix of the shows in terms of biennials versus annuals. I'm wondering if that flips the other way so that we get a negative impact on margin in 2016 and we have to worry about margins going down. Yes, okay. Okay. So let me take the first one. You're saying in STM, is the growth rate getting worse within the 2%? The answer is no. And you say that print books continued at a similar rate. And you said that print pharma stabilizing. It's absolutely true, but the point is that print pharma is less than 5% of the total. And if you look at all the other growth rates in terms of databases and tools and so on, STM has seen a little bit of what we saw overall for the whole company that U. S. Continues to grow well, Europe has improved a little bit, but the rest of the world in some markets have actually slowed slightly marginally and that's across different types of print and different databases and tools, different things. So you take a little bit of a decimal point off there on a couple of those things that will offset the fact that something that's less than 5% improve it a little bit, right? So you're talking about very small numbers, that's why. On the exhibitions, there's no reason to worry about the margins in 16, no. But what we sometimes have is in the cycling in shows, in the cycling in shows in odd years, we have cycling in shows in both years. We have about 100 cycling shows. We have lots cycling in odd years, lots cycling in even years. They're not always the same shows and they keep shifting. But so therefore, it's not a like for like. But sometimes in the odd years, the cycling in shows might have slightly they're lower, they're smaller, but they might have slightly higher contribution margin. And then in the even years, you have slightly more cycling in, but each one has slightly lower margins. But then on the other hand, you spread your overhead differently, which is that you add it all up, it actually is not that different year on year in margins in Exhibitions. And our history would show that, that the margin progression in Exhibitions has been small, but very steady and very stable. So I wouldn't worry about it in any one year. And just to sort of numbers around that, acquisitions margin was up 0.9% from 'fifteen against 'fourteen, but about half of that was currency. So the other half is a combination of underlying efficiencies and that cycling effect that we're just talking about. I can't say what currency is going to do in 2016, but we can do enough inefficiencies to offset. You can see the numbers are not big. It's just we're talking about relatively small movements. Yes. And you're talking about decimal points when you talk about exhibition margins and you can see the history. Yes. Let's go that way. Thank you. I'm Sami Kassab at Exane. I have three questions, please. First, can you comment on the impact you're seeing from the macroeconomic environment in emerging markets, especially focusing on Elsevier and in particular in the context of sharp currency swings? Are you seeing an impact in Brazil, Russia, Saudi Arabia in contract renewals or pricing terms there? And whether we should think of 2016 suffering from that? Secondly, you seem to have increased reorganization costs. If indeed, then where did you put more reorganization restructuring charges than last year? And lastly, we are seeing a steady 3% organic revenue growth number for many years now. You're working on improving the mix. So it's a perennial question, when will we or when would you expect to see organic revenue ticking up, please? Okay. I'm going to ask Nick to explain a little more on the when you talk about the reorganization cost, the middle question, but let me go through these just headline answers to each one here. In the macroeconomic environment, in STM, yes, we have talked in the past as you're very familiar with the fact that STM does get a little bit impacted by the general economic environment and the macroeconomic trends over time. But it tends to be muted and delayed and go slowly. And yes, built into our last year results and probably continuing a bit is a little bit of a slowdown in some pockets of emerging markets that are natural resource dependent. But again, as I told you, that's offset by the slight stabilization and slight increase in the growth rates in developed market, including in Europe. So that's why when you add up all of STM, we're in a very similar place today to where we were 6 months ago or 12 months ago in terms of what has happened. And that's why the growth rate has not worsened. It has not worsened as we've gone through this year, even though of course there are some countries that have had a tough time. I mean, I think it's important to point out that if you look at the true natural resource dependent countries, some of the ones that you mentioned, you add them all up, they're in the low single digits percent of Elsevier's revenue. If you then add up the countries also that are somehow benefiting from those countries' economies related supplying economies that are more developed and more industrial, you may come up more towards the mid to high single digit percent of Elsevier's revenues. So you're not talking about a very large share. The third question first here, You talked about the 3% and the mix. And that actually is a related topic, which is that yes, if you can see our mix having a significant positive impact on how we are serving most of our customers in the U. S. And in Europe, if you sort of macroeconomic neutral, we can see that progress coming through some of the things you already mentioned. But if you then add to that the fact that 20% of our revenues are in rest of world, meaning outside North America, outside Europe and the growth rate there overall, as I showed in my pie chart, over the last couple of years has dropped from being above mid single digits to below mid single digits. That's the offsetting factor, which is a macroeconomic cycle here and trend that offsets the improvements that you're talking about. Okay, on the reorganization costs, well, the way we think of these in general is that we pace ourselves. We see it. As you know, we don't do ongoing exceptionals or restructuring costs. That's not how we think of the business. We think that's part of transforming the business to always keep managing the cost structure, managing our processes, move people between geographies and so on. That's what we do all the time. And that means every year, there are some costs of doing that. Sometimes when we do those things, we actually have one off costs as we improve our cost structure. And sometimes when we improve our cost structure, they are one off accounting credits that come related to the changes improvements in our operations. And we try to pace ourselves so that in years when we have a little more coming through that actually might have a one off accounting credit, that's when we accelerate a little bit our efforts in the areas that have one off accounting costs. So that when we run the company and so on, we try to match those in timing a little bit even though we constantly pursue both. Now specifically on what happened in 'fifteen, maybe you want to So in 'fifteen, I think you're referring to something that we did have that Dutch pension transfer, which has taken €800,000,000 of liabilities away from our balance sheet, which has been a very positive thing to do. And it's helped us to manage our costs from that scheme. That did produce an accounting credit. But as Eric described, we also have in any one year, we've got some one off debits as well as credits. And we are pacing ourselves in terms of reorganization such that we don't have to take these big exceptional charges. And that just enabled us to bring forward a few things that we would have done in the course of time. And that will help us reduce the cost base and make us more efficient into 2016 and beyond. You don't communicate where these measures have taken place? I mean, they're across the business. We're in all parts of the business at all times, we are looking to improve efficiency. I mean, we see this as a never ending process, relentless pursuit of process innovation to drive efficiencies across the whole company all the time. And we see that as a core skill of the company actually. And to be able to drive this all the time throughout the company in all areas, which means that we every single year probably have 100 initiatives going on at any given point in time. And we might pace them and phase them slightly so that it fits within our organizational capacity. And also then we might tighten them specifically so that we sometimes match up the one time costs with one time price. Thank you. Okay. Let's go over here then. It's Tim Whittaker from Liberum. Just three questions. First of all, just check on the increase in the share buyback program, million. Euros just gives us a little bit of an explanation as to why is it just the case as you said, you've grown EBITDA basis, is there anything else should read into that, particularly on the amount of acquisitions that you may do this year? The second thing is just in terms of Elsevier, There's been some trade press reporting about the growth of privacy sites with regards to academic journals. I wonder if you had some thoughts on that and sort of what measures you're taking there. The third question is more sort of a wider strategic question is you are more focused on North America and Europe, but is there anything that you're seeing in terms of what's going on in the emerging markets, the rest of the world, etcetera, that is maybe sort of changing your thinking on the longer term strategic direction of the group. For example, the acquisitions moving forward perhaps should be more weighted towards the established markets and that your share of the emerging markets is about right and you wouldn't necessarily want to expand it? Let me ask Nick to cover the first one and then I'll come back to you. On the buyback, I mean, as you know, we've been averaging around £600,000,000 in the buyback over the last few years. If you look and think of that use of cash that we talked through, actually the biggest variable from year to year is actually the M and A spend. And we're very consistent generation of cash. The internal CapEx is typically the same. The dividend, of course, is growing steadily. So what we tend to do is set the buyback, obviously, looking at the current position of the Group, but also by reference to what the previous year's M and A spend has been. So in 2014, we had particularly high M and A spend. So we just trimmed the buyback for 2015. In 2015 itself, the M and A spend came down and you shouldn't read anything into that. It's just a question of timing and when these things happen to fall. But that's just given us the scope to increase the buyback a little above the average for 2016. Okay. Piracy, but you about Elsevier, but also across all our business, of course, because we are we leverage intellectual property, whether that is content, data sets, algorithms, software, whatever it is. Of course, the intellectual property that we create has value. And we will always try to make sure that it's used properly. And I think we have very flexible and generous ways to use our content and our tools. And if somebody is not complying with that, of course, we will remind them and probably work with sometimes with industry associations that have similar problems to try to resolve those situations. And that has been the case for a very long time now, even since we've started to post some of our content online, which is now over 20 years ago. So I think that's our approach to it. You said geographically, we see emerging markets, if you want to define them that way, as markets that have higher long term economic growth rates, meaning that they will be larger economies in 25 years than they are today. It might not be a straight line and it might not always be easy to handle the sort of economic cycles in there. But we believe that in the long run, there'll be larger economies and because those many of those countries are increasing the professional industries that we serve, therefore that means that they will be larger customer markets for our industry in the future. We look at those as markets where we need to position ourselves properly and strategically for the long run, no matter what happens to the short term economic cycles. So when you have lower growth rates, maybe we will grow less in some of those markets over the next few years. But strategically, since that's what you're asking over time, do we think they're more or less important? The strategic importance over the next decade or 2 has not changed, but you might adjust your near term expected growth rates in revenues from them. Okay, that's it. Thank you. It's Chris Gillette from Deutsche. Just got a few questions on legal. First, can you just tell us where you are in the client adoption of Lexus Advance? And related to that, have you seen any change in your Lexus retention rates? And thirdly, on the sort of buy versus build discussion with legal, your competitor who bought PLC is now integrating those sorts of capabilities into Westlaw. You've gone down the build path. I wonder if you could say where you are in the rollout of those types of capabilities and do you feel that you're getting there quickly enough? Yes. So first on Lexus Advance rollout, I think we stopped giving you regular update on the exact rollout sort of number of customers that activated once we passed the 80% mark. And I think we're quite a bit past that now in terms of number of U. S. Customers that have signed up and launched Lexus Advance. Of course, that's the people who have started to use it. So we're nearing 100% of people who have started to use it. But then, of course, it's about shifting the usage levels over and we didn't want to shift usage levels over immediately in all practice areas and for all firms until we had all the tools up and running. So as we're finishing off launching and rolling out the different modules and the different tools, we then want to have the usage growth follow. And the usage growth has been very steady and it continues to grow very well in the U. S. But for competitive reasons, we're not going to give you precise percentages or break them down by segment. When you talk about retention rates, we think that if you look at the U. S. Legal market is primarily what you're talking about with Lexus Advance at this point. If you look at the market growth rates, the retention rates, the revenue growth for the providers into that market over the last now even 5 to 10 years and you look at what people have provided, what new services and new platforms have been rolled out in a different way from the 2 largest competitors, right, and in different sequence, you'd be it's very hard to find any material impact in that whole sequence on what I think is the regular natural patterns for the law firms and other legal service providers. So I think that this is an industry where we have strengths that we keep building on and adjusting and then building on top and it's slightly different from what other people are doing. And therefore, over time, I have not seen material differences either from us over time or between us and others from what we can see over time. The second question was buy versus build. Yes, again, I think that's an appropriate way to ask the question, which is that we think that we have a lot of very strong assets that we continue to build out organically and over time make them more sophisticated, higher value add in particular by adding more data set and analytics as well as what you're referring to practical guidance tools. And we think that if you build them organically and you integrate them with the other data sets analytical tools and predictive tools we're building, then over time they will be more valuable and you'll create higher value in the process. But it takes longer of course compared to just buying something at external transaction price. So we think we're making good progress and just like with our other tools, we're in this for the long run and we think we're making good progress and we will continue to integrate them and ultimately end up with a very integrated set of solutions there. In the markets where we have started to do that, we're progressing very well. Bruce Dugard from Hermes. Your results seem in line with expectation and looking back over the last 5 years, there's a very steady pattern. What do you see as the key risks to the business and forward results over the next say 5 years? Well, if you look at it overall, what we are focusing 100% on our time on the transformation of the business itself and the service that we provide to our customers, right? That's what we are focusing our time on. That's working very well. We're very pleased with how the business profile has changed over the last 5 years or whatever time period you want to look at. So if you look over the last 5 years, you can see the business profile has changed materially and we think that the value we add to our customer has changed significantly. We have a very different business profile now from what we did then. And we've seen very steady continued good progress on profitability and on returns on invested capital and so on over that time period. Going forward, we plan to continue to go down that path, meaning continued evolution of our business profile, if you look at the proportions that we have in different segments and also continue to increase in value that we deliver to our customers and continue to do that with high returns for shareholders. That's what we're trying to do. If you say what are the risks to that? The strategic risk is the primary strategic risk is, of course, that there is something we are not quite getting fully right when we are adding value to the customer. And that's where the whole thing starts. Are we adding value in our solution sets to our customers and are we adding increasing value? Well, in the places where we continued where we have done the drive towards analytics for the longest time period where we've come the furthest down that path, it's working very well. And you can see that in risk where we did it first, you can see it in the business analytics side of risk, which we have done much, much later, but we've done it very successfully segment by segment and the growth rates are very similar to those in risk business. Therefore, we believe that we can continue to do it. But the biggest risk that we can't continue to do that as well. But that's what we're trying to do. That's a risk on not getting upside. If you look at the near term results, you'd say the other biggest risk you could argue is that we are focused on our customers. So there is something happening to macro economic environment which is a part we don't control, macroeconomic political environments and so on that we don't control and we're not going to try to control or try to predict. I'm not spending much time on that because our value add to customers is a separate initiative, so to speak. So we don't know what's going to happen with the macroeconomic environment. Hi, it's Tom here from Citigroup. I had three questions, if possible. First one, back when we were all very excited about economic growth, I think you made the point that your business, because of the portfolio changes, would be literally the last company to see any benefit from those that recovery. Now obviously, we're in a different environment and that sort of delay is obviously going to stand you in good stead. But can you just recap on what bits would see signs of economic pressure first, just so we have a sense of what we should be watching out for? The second question was on risk. Back at the Investor Day, you broke out the 7% and sort of split out what was the underlying growth and then the contribution from new products. Can you just recap again on what that is for the full year? And is there any visibility on what the sort of split between new products and underlying growth will be in 2016? And then the very final question is on the dividend. It looks like you've skewed up the PLC dividend, which is very welcome, in order to make sure that the NV dividend doesn't go down. I'm just wondering whether you're explicitly committing to making sure that those dividends never go down as part of your dividend policy? Okay. Well, I'm going to ask Nick to follow-up on the dividend question. But let me take the first two. Yes, in terms of economic cyclicality, we are probably now a significantly less cyclical business to general economic cycle than we were a few years ago, 5 years ago and 10 years ago. I mean, if you take it even longer perspective, it was a time here when I first met with somebody from the company, a quarter of the whole company was advertising. Now it's under 2%. And of course, when you also have, when I say more economically sensitive businesses like we have in the magazine business and so on, they can fall much faster. They go week on week. As you see now, we have a significantly higher level of long term subscription businesses, which have longer visibility and longer contracts. And the transactional business that we hold today is to a large extent the business looks like risk, meaning it's businesses where you have locked in a multiyear contract, but pricing is transactional in near term. And you know just like your customers know that every time they use your product for a transaction, it's beneficial to them. So you're not only in businesses where the transaction is a cost. You're also in businesses where the transaction is a demonstrable benefit every time you use one. You make more money when you use our tool than when you don't on that specific transaction. And if you look at it historically, not saying this will happen again, but historically, there has not been much cyclicality with the economic cycle. There hasn't been much correlation with the economic cycle in some of our insurance related risk businesses, for example. Why that is? We have theories, but we can't tell you why it is. But in the last economic downturn, the transaction volume in insurance did not fall as the economic cycle fell, for example. So if you say, where are we likely to see most? Well, I would argue that even though it's with some delay now, the exhibition business by industry and by geography will follow the cycle of the industry that they serve in the geography that they operate. But because we have over 500 exhibitions that operate in over 30 countries, You look at that overall, I think you're likely to see that our exhibition business is less cyclical than it used to be and probably one of, if not the least cyclical exhibition businesses that exist in that industry. So, but that's the one you'd see it first. You won't see it week on week, but you could with advertising bookings. You'll see it year on year because of exhibition cycle. The second question, you said risks. Well, you commented on new products for the year. I mean, we have shown that chart several times in the past when we have our meetings on how it is we drive growth in risk. As you might also recall though, the definition of a new product here when you talk about products that are installed in a customer system and then roll out, new products is something we define for several years. It typically takes up to 5 years to fully roll out a completely new installed sophisticated decision tool inside the insurance pricing engine of an insurance company. I mean it sometimes can go faster, but it could sometimes take several years. So when we define new products, I actually internally use the word recently launched products. And therefore, that percentage is not going to change much from 1 year to the next. It moves slowly. And as you saw there, a very large amount of what we did last year was related to recently released products or service sets. And that number is not going to change materially in any 12 month period. It won't. It will change over time. If you're more innovative, it will build over a few years. But the numbers of last year should be very similar to number this year. Dividend? So I mean on the dividend, Tom, as you know, we are primarily focused on the average between the NV and the PLC. And then when it comes down to the individual ones for each company, then you've obviously got the euro sterling exchange rate moving around, which we just have to balance that. As you rightly point out, this year, we've just got this added complication of the 10% tax credit going away for the sterling dividend. But as you can see from the numbers, we've been able to accommodate that. I mean, looking forward, it's not impossible, I guess, to have just some huge swing in the euro sterling exchange rate that might make it difficult. But that aside, if we continue to grow as we've been growing, I don't think the issue of any one of them have go down would ever become an issue. The way we tend to think about the dividend is that the average of the 2 dividend increases is the one that in local currency. That's the average of the 2 is what we tend to compare to our earnings per share growth at constant currency. And we also try to look at it for sort of earnings per share growth at average between the two. So if you look at that and you compare where we have had our earnings per share constant over the last couple of years and where we now this average comes this year, it's pretty much in the same range is what we're trying to do. Morning. It's Patrick Wellington, Morgan Stanley. Three questions. Can you just run us through the economic sensitivity in risk outside the insurance business, so areas like government and business services and what are the drivers there? That's the first one. Secondly, the Lexus miracle, we always knew it's good business, but it's 7% in its profits terms. How long can that carry on? I mean you're almost back to sort of old style nexus nexus margin. So how long can this process of 1% on the top line and 7% of the EBITDA continue? And thirdly, I think one of the phrases people use about the group as a whole about the group organic revenue growth is when rather than if you move to 4%. Are we still on when rather than if? Okay. Well, first, economic sensitivity. We don't spend that much time trying to figure out how to manage the economic cycle or to predict it or to define what might happen because we believe that the primary strategy that we try to pursue is to add increasing value to the customer to a transaction or to use of our service regardless of the economic cycle. And as you said, and as I mentioned before, we've gotten pretty far down that path in insurance where we know that we add value to the transaction regardless of economic cycle. And in many other parts of risk, we do that as well. Having said that, in some segments though, you can't grow into a segment if that segment is shrinking material as a whole industry, right? If the industry itself goes through. But now you're talking about economic cycle and sensitivities and you asked about government, for example, which I'm not sure is directly an economic cycle, maybe more political cycle. And U. S. Government funding historically over the last few years have been partly, of course, related to economic cycle, but also partly related to political decision and political processes in terms of how the government budget has been set and approved and so on. So we don't try to predict that. But we believe that some of those segments for us will be slightly more correlated to cycles in those target markets than for example, the insurance business. But we don't think they are directly driven and correlated the way advertising would be almost week on week or our pre employment screening business we had before that was directly related to the number of new hires in the U. S, for example. Those were directly correlated to economic factors and you're asking about drivers. We could explain those in some of our old businesses. Right now, I think it's not quite so direct or so straightforward. The second question, LexisNexis legal. Yes, at this point, as you might have seen, the market environment and all the legal industry analysts are saying that the legal industry in the U. S. Continues to be just about flat. And I think many international markets, European markets are fairly similar to that. Of course, there are different variations by segment and by legal segment and so on in each country. For example, last year was higher transaction levels in the U. S. On M and A and Real Estate, but it seems to be a little lower towards the end of the year on litigation and so on. So it adds up to just about flat. We believe that we can continue for a few more years at least to drive a underlying operating profit growth that is above the underlying revenue growth even if the underlying revenue growth continues to stay low. And that is, of course, number 1, because of our continued ongoing relentless pursuit of efficiencies across all businesses, but also in legal because we are working on the gradual elimination of duplicate systems. And we're talking about hundreds of systems that are taken offline and the related costs organizationally around those. That should more slightly more than offset the increased depreciation from our new systems coming through. So exactly what the percentage is on the organic profit growth, we don't know and specifically not in any one year, But we do believe that we should continue to be able to tweak up the margin a little bit every year. Of course, there will then also be portfolio impacts on that and currency impact and so on, which we don't try to predict in advance. But the organic like for like underlying profit growth that you talked about, can we keep it higher than organic revenue growth? The answer is, we think we can do that for several more years. Last question, whenif on the overall organic revenue growth rate for the company. I mean, this gets back a bit to where we started before, which is that we believe that we have done many things to the business profile of the company and the service we provide, the customers we serve that actually have made it inherently a better business by now, a higher quality business, a higher return business, higher value add to our customers' business. But at the same time, the other half probably of the impact on our business, what's happening in the general economy and in our customer markets. And when you take the kind of slowdown that you have seen across the rest of world and back to my 20% of our businesses in rest of world and our overall growth rates in those markets have reduced a bit over the last couple of years. We don't think that has anything to do with our business profile or specifically our tools or business evolution in a market. We think that's a general economic growth rate slowdown in those markets. That's probably affecting us the same as others or probably slightly less if you compare to some cyclical industries. The fact that our growth rate is just down to a little bit below mid single digits in those markets. So again, I don't want to predict when, but I think that it's very clear where our profile is going over time and therefore what I think will happen to our fundamental value equation over time, meaning that we're going to have even more predictable revenues over time. We will have a higher growth profile and we will continue to have improving returns on invested capital in the business. Okay. Well, thank you very much for taking the time and look forward to seeing you again soon.