Earnings Call: H1 2015

Jul 23, 2015

So ladies and gentlemen, thank you for coming to the first set of results for RELX PLC and RELX NV and also for the 1st consolidated set of results for the group. And for those of you on the webcast, thank you for listening in. Financially, I hope you'll agree this is another good set of results with an 8% constant currency increase in earnings per share, a sterling dividend increase of 6% and a euro dividend increase of 17%. And it's very pleasing that once again all business areas have contributed both to underlying sales and adjusted operating profit growth. The simplification program that we announced in February was implemented by July 1 as planned. For me, the increased transparency to shareholders of having equal economic interests per share reflected right through to adjusted earnings per share is a big step forward in transparency. And Nick will show just how comparable the share prices are now, particularly for the dollar ADRs, where there isn't even any exchange rate effect that you have to calculate. The simplification also allows us to produce consolidated accounts for the first time and it facilitates aligning our boards. To this effect, we announced earlier this week that Marika Van Leer Lelz will be joining the RELX PLC and Group PLC Boards with immediate effect PLC Boards with immediate effect, giving our parent companies identical boards for the first time. Marika has been a member of the NV Board for 5 years and has normally attended PLC and Group PLC meetings. While neither this nor the production of consolidated accounts per se are of great substance. With our earlier moves this year, they represent a really major simplification of the group. So thank you. Eric and Nick will now take you through the results in more detail. Eric? Well, thank you, everybody. Thank you for taking the time and for being here today. As you've seen from our press release this morning, our positive financial performance continued in the first half with underlying profit growth across all four business areas. We had further strategic and operational progress as we continue to transform our business primarily through organic development. And we implemented a simplification of our corporate structure and our share listings with a couple of additional steps completed in July. You can see here that our positive financial performance continued with underlying revenue growth of 3%, underlying operating profit growth of 5% and earnings per share growth at constant currencies of 8%, all very consistent with our recent trajectory. 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 range from just below to just 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 subscription revenue growth remaining at the level achieved in the prior year. Double digit growth in usage and article submissions to subscription journals continued and we launched 40 new journals in the first half both subscriber pays and author pays open access titles. We saw continued good growth in databases and tools and in electronic reference across segments. Print books which represent just under 15% of revenues saw revenue declines continuing in line with full year 2014. But print pharma promotion revenue moderated. First half underlying profit growth of 5% reflects slightly favorable phasing and is driving margin expansion before currency effects. The reported margin was slightly lower reflecting adverse effects of exchange rate movements in the period. 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 Information revenue growth accelerated to 7% with strong growth across all major segments. Underlying operating profit growth matched underlying revenue growth. Insurance, which represents just over a third of the division's revenues achieved continued strong growth driven by demand in U. S. Auto, good take up of new products 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 Government segment continued to see strong growth and federal government trends improved further. Healthcare now 100,000,000 business is progressing well with like for like organic growth rate in double digits. Major Data Services maintained strong growth and the remaining other magazines 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 underlying revenue trends unchanged. Continued growth in online revenues which now account for over 80% of the division was largely offset by further print declines. U. S. And European markets remained stable but subdued while other markets saw good growth. Rollout adoption and usage of the new platform and products continued to progress well with the commercial launch of the new Lexus platform in Australia off to a good start. Underlying profit growth remains strong. First half margin improvement reflects organic process improvements including slightly favorable phasing partly offset by small portfolio effects. Going forward trends in our major customer markets are unchanged limiting the scope for underlying revenue growth. We expect underlying profit growth to remain strong for the full year with further improvement in profitability over the medium term albeit at a modest rate in 2015 following the sharp margin increase in 20 15 following the sharp margin increase in 2014. Exhibitions achieved strong underlying revenue growth of 6%, although slightly below the full year 2014 growth rate. In the U. S. Growth was strong across our events albeit marginally below prior year. Japan continued to grow strongly at a similar level to prior year. Growth in Europe remained modest but marginally ahead of prior year. China achieved good growth overall but continued to see differentiated growth rates by industry sector. Revenues in Brazil reflected a general slowdown in the economy. Most other acquisitions primarily in high growth sectors and geographies. Going forward, we expect underlying revenue growth trends to continue for the full year, albeit slightly below the high levels achieved in recent years. We expect cycling out effects to reduce the reported 2015 revenue growth rate by around 4 percentage points. Our strategic direction is unchanged. It is still to evolve into a company that delivers improved outcomes to professional customers across industries to get there primarily through organic more predictable revenues, a higher growth profile over time and improving returns. Development is still our number one priority with electronic and face to face at 86% of revenues the print to electronic migration is largely complete. Face to face is continuing to grow well and we're now primarily focused on driving the next and perhaps even more exciting transition from electronic reference to electronic decision tools. And we do this by adding broader data sets, embedding more sophisticated analytics and leveraging more powerful technology. Our second priority is the selective reshaping of our portfolio. In the first half, we continue to focus our acquisitions on targeted data sets and analytics and assets in high growth markets that support our organic growth strategies. We completed 11 small transactions for a total consideration of £69,000,000 And the fact that this rate of spend is slightly lower than the average over the past few years is not a reflection of a change in strategy or a change in approach, but it's perhaps just a natural result of the unusually high activity level in 2014. As expected, the disposals of non strategic assets are continuing to tail off and we only disposed to some minor assets for £6,000,000 in the first half. With a strong balance sheet and a highly cash generative business we continue to see the strategic priority order for using our cash as before. After the first two priorities that I just covered, our 3rd priority is to continue to grow our dividends and to grow them predictably broadly in line with earnings growth. Our 4th priority is to maintain our leverage in a range similar to where it has been over the past 5 years. And our 5th priority is to use any remaining cash to buy back shares. I will now hand over to Nick who will talk you through our financial results in more detail. And I'll be back afterwards for a quick wrap up and our usual Q and A. Thank you. Thank you, Eric. Good morning, everyone. Let me start by running you through the income statement. As Eric said, underlying revenue growth was 3% in the first half. Acquisitions added 2% of revenue, but disposals reduced it by 2%, so the net effect of portfolio changes was neutral. Revenues reported in sterling were just under £3,000,000,000 up 4%, reflecting the relative strength the dollar in the first half, partially offset by euro weakness. Impact on euro reported numbers were significantly greater as the euro weakened in the appendix. Adjusted operating profit in sterling was up 6% at $909,000,000 reflecting the underlying growth of 5%. The margin increased by 50 basis points to 30.7%. Net interest expense was slightly higher, reflecting higher average borrowings and currency translation effects, partially offset by a lower average interest rate, which was 3.8% in the first half. The tax rate on adjusted profit declined slightly to 23.3%, leaving adjusted net profit in sterling of £638,000,000 up 6% with currency movers netting out at this level as the weaker euro offset the stronger dollar. Following the completion of the simplification steps and the transition to consolidated accounts from 2015, we now have just one adjusted earnings per share figure, and that figure is easier to calculate. Mechanical still be expressed in sterling or euros. You can see the math on the screen. Taking the adjusted net profit in either currency, simply divide by the total average shares in the period, giving EPS of 30.1p up 8% or €0.41 up 21%. Currency effects netted out for the sterling figure with the 8% growth being in line with constant currency EPS growth. The euro reported figure benefited significantly from that currency's weakness, hence the growth rate in euros being 13% ahead of the sterling and constant currency growth. Remember that need to adjust for the bonus share issue to compare the euro figure to what we previously reported for RELX N. V. Dividends are equalized at current FX rates of course, but they also reflect the sharp fall in the euro over the past 12 months. We're declaring interim dividends that will give 6% growth for the sterling dividend and 17% growth for the euro dividend. Cover remains solid at 2 times on an aggregate basis. As you know, our dividend equalization takes account of the 10% tax credit available to some shareholders in the UK as shown on the slide. Of course, 2 weeks ago, the Chancellor announced that dividend tax credits will be abolished with effect on the 6th April 2016. As a result, future dividends will be the same value for each PLC and NV share with no gross up, removing the one remaining difference between the economics of the 2 shares. Turning to the business areas, you can see how all four contributed to underlying revenue growth with the risk in Business Information being particularly strong. The net effect of acquisitions and disposals had a small negative effect in in the effects of cycling and timing. In the first half, this is a 6% drag on Exhibitions reported revenues, but as Eric said, we expect the effect to be less marked for the full year at around 4%. In all four business areas, Sterling reported revenues were impacted by currency. Risk and Business Information and Legal, which have the highest proportion of U. S. Revenues benefited the most from translation into Sterling, while currency was actually a drag revenue given its significant European presence. The effect of currency on STM revenues was broadly neutral, with euro weakness offsetting dollar strength. Turning to adjusted operating profit, again all four contributed to underlying growth. STM, Risk and Business Information and Legal all had underlying profit growth ahead of underlying revenue growth, with STM benefiting from slightly favorable phasing. Portfolio changes have a net neutral impact overall, while currency movements helped the sterling figures with 5% constant currency growth translating to 6% growth when converted to sterling. With our hedging looking to moderate currency impacts on sterling and euro reported profits, STM's post hedging profits did have a significant exposure to the weakening euro, hence the 5 percent differential between sterling and constant currency profit for STM. As a result of the revenue and adjusted operating profit growth, we delivered a 50 basis point improvement in the operating margin to 30.7%, reflecting underlying margin 4% with the euro exposure post hedging that I just described more than offsetting an underlying improvement. For risk and business information, while underlying adjusted operating profit grew in line with revenues, the disposal of lower margin magazine and data assets resulted in an increase in the reported margin. As Eric mentioned, the legal margins benefited from slightly favorable phasing of costs, partly offset by small portfolio effects and by currency translation. Exhibitions also increased margins, albeit they remained seasonal with the first half shows having higher margins than those in the second. I've talked about currency movements a fair bit as we've gone through. We have a very international business of course with just over half of revenues coming from North America and close to 20% from Continental Europe. The remaining comes from the U. K. And the rest of the world, including Japan, China, Australia and Brazil. Our currency mix reflects this geographic spread, albeit we look to smooth the impacts of FX movements through hedging in STM, moving a greater proportion of the near term profits into euros and sterling. The dollar averaged 10% stronger against sterling in the first half compared with the prior period, whereas the euro was 10% weaker. As I said earlier, these effects netted out for the sterling reported EPS, but they boosted euro reported EPS growth by 13%. For the second half, a similar average currency exchange rates will produce a similar effect on EPS, albeit right now the dollar is not quite as strong and the euro is a little weaker than the average in the first half. Turning to cash flow, you can see that adjusted operating cash flow conversion was 85%, a little lower than the 89% achieved in the first half of last year, reflecting some phasing in terms of CapEx and working capital movements. We expect cash conversion to exceed 90% for the full year. Cash interest payments are broadly in line with the prior year, while cash taxes rose to be in line with the accounting charge as was the case in the full year 2014. Overall, free cash flow for the first half was £506,000,000 Here's how we use that free cash flow. As you can see, M and A activity was modest both in terms of acquisitions where we spent $69,000,000 in 11 transactions and disposals which resulted in proceeds of £6,000,000 from 4 transactions. We completed £300,000,000 of this year's £500,000,000 share buyback program in the first half. Overall net debt increased by £320,000,000 reflecting the payment of the larger final dividend in May and the first half bias to the buyback program. Nevertheless, leverage remains comfortable at 1.9 times EBITDA or 2.5 times when you adjust for pensions and leases. Finally from me, a recap on the corporate structure simplification, which was implemented on the 1st July. Percentage interest of their respective shareholders, 52.9% the percentage interest of their respective shareholders, 52.9 percent for the PLC, 47.1% for the NV. And after the bonus share issue for RELX NV, the shares in the 2 parents now have 1 to 1 equivalents and there is now one overall combined share count. In addition to the corporate structure simplification, as the Chairman mentioned, we have also adopted consolidated accounts from this year and aligned the membership of the parent company boards. You have noticed that the switch to consolidated accounts has not impacted any of the key figures that we report. There is actually one small technical change that slightly increase as the statutory EPS for RELX NV for 2015 only, but there is no impact on adjusted EPS or any other figure. These changes have improved the transparency in the share prices with 1 to 1 equivalents between the shares and the respective ADRs, comparison of the price is much more straightforward. For the UK and Dutch shares, you can assess the price differential simply by converting from euros to sterling or vice versa. For the ADRs, both already in dollars, the prices aren't directly comparable. The combined market capitalization is also easier to calculate simply adding together the capitalization of the 2 parent companies. And with that, I will hand you back to Eric. Thank you, Nick. Just to summarize what we have covered this morning. Our positive financial performance continued in the first half. We made further strategic and operational progress and we implemented the simplification of our corporate positive 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 2015. And with that, I think we're ready to go to questions. Okay. Why don't we start over here? We'll go over over here. Hi, good morning. It's Ruchi Malaya from Bank of America Merrill Lynch. Just picking up on the point about the shift in reference towards decision tools. Is there any way you can help us quantify how far you are along in terms of that shift? I know that will be hard to put a specific number maybe which businesses are further along in that shift. And then also sort of related, what types of multiples do you tend to pay for these sort of small fill in acquisitions of data sets and analytics that help you on that journey? Thanks. So the transition to reference to from reference to decision tools, you said we are the farthest down that path in risk division, right? And it is probably no surprise to anybody that the Risk division therefore is our highest growth division and also that in the first half of this year that growth accelerated a little bit. And of course why is that? Well it's because that when you can you add a lot more value to a customer's decision making when you can do what we're doing here which is to add broader data sets, more sophisticated analytics and leverage more powerful technology to help them make that decision. And when they can see, measure, track and see that the economic value from the decision decision is increasing, they want to use more of that solution and therefore our revenues go up. So therefore you can see in a pattern between our divisions that risk is the furthest down that path and you also know that from the description of the business. What was more interesting is probably that we see this as an organic transformation that's happening across all divisions. We're doing this across all platforms in all divisions. We have already started to leverage our HPCC technology as the platform, the lightweight platform that can do this at low cost and the analytical algorithm thinking that we have used in the risk division. We already started to apply that in the 3 other divisions and we have things up and running and operating right now that are leveraging that and heading in that direction in the legal business and in our science and research businesses. And we started to do some work on this even in exhibition business to collect and analyze data differently. So how you quantify it is slightly harder than to describe are we selling this product in electronic form or in print form the old version when you transition from one format to the other because this is not an either or proposition. It is a gradual organic transformation where you continue to add more data sets, continue to improve the analytics and then embed them more and more in the decision making. So I'm afraid it's hard to give a number and I'm not sure in the near term we're going to come up with a clear number, but you can see it in the business descriptions and hopefully over time success as well. The second question is with multiples pay. I mean these are very small businesses that we buy. Most of the time I would describe them as data sets or assets with analytical tools. And it's very hard for me to say what is the multiple. If you look at from a profit basis, how they operate individually and separately versus how we operate and we plug them onto a platform as a data set and an analytical tool added onto our platform is very different. So any type of profit multiple would be meaningless. It could be almost anything relative to what we would do. But I think the interesting thing is if you look overall at the acquisitions we have made and you look at the revenue multiples of those, that's at least one indicator. And you can actually see over the businesses we bought over the last few years that the revenue multiples are pretty similar to revenue multiples that we operate as a whole corporation today. If you look at our enterprise value today compared to our revenues, it's probably it's very similar to the average multiple of the assets we buy across businesses. So we'll stay on here and then come over with that. So I'll talk Tom first. Thanks. It's Tom here from Citigroup. I have two questions. 1 general and then one a bit more specific. The general one is to do with the focus on organic development. I do recognize that this may be just sort of irrational exuberance, but it does feel like we're in a period of extremely low interest rates you have access to finance. I'm just wondering why you aren't being more aggressive on the M and A because I appreciate you may not want to add entire legs to your business, but there must be stuff out there that is viable and we have maybe a unique opportunity in terms of availability of financing in order to do that. So just questioning again why so much focus on organic as opposed to larger scale M and A? And then the second question on STM. You talk about continued double digit growth in usage and submissions and obviously the launch profile. Do you think at some point we'll start to see your open access titles force a greater alignment between usage and revenue in the STN division? Okay. Okay. The first question here organic. The way we look at it is we think that in the long run you have the best value creation for your customers first if you leverage the areas where you're really strong and you build around those. And I think that's our approach to our organic transformation. We take the areas where we know a lot about our customer groups and we have very valuable historical data sets. And then we build them out the way I talked about in the transition to decision tools. And we believe that that's the highest value creation for the customer. You build from your core base. We also believe that from an ownership perspective, from a shareholder value perspective that to do that over time to continue to use organic development, organic transformation as your number one driver will ultimately also create the highest shareholder returns and the best increase in shareholder value. Clearly at different points in time financing costs will go up or down, M and A multiples will go up or down. But we see that our primary purpose here is to increase the value of the asset base we're starting with and to do so organically. And you can see in our return on invested capital that we show after every full year, you can see that our return on invested capital in this business has continued to increase over the last 5 years. And we don't try to illustrate that at a half year because it's not really meaningful. But every full year we show it and you see the trajectory of last few years you can see that we can drive improving returns in this business because the return on internal organic development is very high. The second question on STM, we have continued to see very high growth rates, very strong growth both in terms of submissions to us and in terms of usage. And we believe that if we can continue to increase the value of our content, the utility of our content, what you can do with our content, we should be able to see continued strong growth in usage. What exactly the number will be in the future is probably not the most important thing, but the fact that it's strong growth. And we would be very happy if the usage growth continues to grow well above our revenue growth, right? Because that means we're adding more value to the customers. Now the question you specifically asked is, do I believe that there will be a more direct link between usage and revenues? I'm not sure that will be the case because that we see that usage in itself is a reflection of the value of the overall solution set, but it's not a direct link. I mean, in this business, we do not try to price per transaction. We try to give basically an offer in terms of usage where you can use the platform, the content sets, the analytical tools and use all of their value without having to worry that it has an incremental cost. The customer set in this industry also depend on a predictable spend level over a period of time. And for them, it is a total spend that's interesting and therefore the total value and the total spend. So without the direct correlation to usage transaction volume. That's very different from what we have, for example, over in a very commercial industry segment So in risk where you actually have a specific use of our tools for a decision point for 1 new insurance customer for underwriting 1 new insurance policy or something. And the important thing for the customers is that they know the cost per transaction, the cost per new insurance policy. And then when they have higher volumes and lower volumes, our volume will go up and down with it and therefore our revenue base. So different customer sets here have different priorities, but our objective is to get increased value to all of them and then have the pricing reflect that. So yes. Thanks. This is Matthew from Nomura. Three questions please. The first one is on your STM Day. I think you showed that the growth rate in paid articles was very strong in the prior year and it slowed last year. What was the growth in paid articles in H1, so not including this sort of traditional journal, so not including author pays? The second question is on print. You showed on one of the slides it's gone from 2018 down to 14%. Was that basically H1 on H1? Or was it full year 2014% at 18% and then 2014% and then why the big drop? And last question is on the risk side. You mentioned magazines and other services stable. Is that a change? Or it basically says remains stable. So I'm guessing it's not a change. Basically, does that mean that all the print stuff within the old RBI business is basically flat? So obviously you've got pharma going down and you've got print books and medical going down. But are you basically saying that being stable means flat for magazines and other stuff in risk? Okay. Let me cover these here. Let me make sure you said first you said that number of subscription articles, is that what you're talking about, right? So subscription articles supposed to they're paid, but once once the so subscription article has continued to grow over the last several years at almost exactly the same like for like growth rate year on year on year. What you're referring to when you compare 1 year to prior year, right? That's an anomaly when you took a PUB date. So that sometimes the PUB date for a certain time a month or a certain time a week and you have the year end cut off or can be different days of the week. So therefore you can see some different and issues can come out a little earlier or a little late. So sometimes when you count an article, it may vary a little bit in a 6 or 12 month period. But the interesting thing is to take over 2 to 3 years is the overall role in growth rate increasing or falling and it's basically completely consistent for the last 6 months, the last 2 years, 5 years, 10 years. It almost exactly at the 4% on average, right? But there are some little time shifting anomalies on what counts at the pub date just around it. But I wouldn't read anything in that. I would look at the averages and it's basically 4% organic growth of articles published, basically 10% growth in articles submitted, right? 2nd question print versus electronic. I think you were referring to the chart that had the many years history up here. Yes. What we have on that chart specifically is many years of full year history and then we just put the latest time period and this time the latest time period happens to be the first half, right? So that's why there is such a more dramatic drop than you would normally see. And we are slightly more print heavy in the second half than in the first half usually, right? So I would expect that like every prior year that the full year print proportion might be marginally higher than the first half print proportion. We saw that last year. The last piece you said in Risk and Business Information that the other magazines and services were stable. Electronic services and some print. So you add those business units up there, stable meaning they're just above flat basically as you said. But within those you have virtually all of them, you have declining print at the same kind of rates you see everywhere else and growth in electronics. So you have the same kind of format shift happening in almost every asset. But you look at them as a bundle there, the total of that print and electronic shift is just above flat, which is consistent with the past the last couple of years. Okay. Let's go over here. Thank you. Thank you. Good morning, gentlemen. It's Andrea Beneventi from Kepler Cheuvreux. One question, if I may, on STM and in particular on organic growth revenue growth for electronic journals. You reported last year at the end of the first half, 0.5 percentage point of acceleration of growth in revenues. Since the average contract length is 3 years, I thought that the underlying growth in new sales at that time was 1.5%. And in turn, I would have expected a further acceleration of revenue growth by another 0.5 percentage point at the beginning of 2015, while you are reporting now revenue growth in line with last year for electronic journals in STM. So is my reasoning flawed? Or have you experienced any type of change in the pattern of growth that justify this stabilization of the rights please? Yes. No, your recollection of it is consistent with my recollection of last year, which is that the sort of the electronic subscription growth of subscription journals last year accelerated by about 0.5 percentage points. And this year as we said this morning the like for like revenue growth could stay that the growth rate stayed at the higher levels that we reached last year, but it did not pick up beyond that. And you could look at it in many different ways. You're asking it as why didn't it continue to accelerate. And it's important that the overall subscription growth rate is a combination of the growth rates that you have in the subscription base. And as you know broadly speaking a quarter of the business has an annual renewal cycle and threefour of the business has multi year subscription but on average is 3 years long, right? And then so you have some that's annual, a quarter's annual and then a quarter, quarter, quarter basically every year. It's not exact numbers, but it's a rough illustration. And then every year you also have new sales coming in. You sell new solution sets to different or new sort of combinations of journals you upsell and you sell to new environment. The combination of that is what drives it. So in certain years you have a slightly higher acceleration of the renewals depending on which geographies come in and out and next year you might have a very then it might not step up to the same level. So it's a combination of all those things. It's not just a new sales and it's not a complete triennial rollover. So there are more factors that play into it than that. They're both geographic and institution dependent. Institution dependent and new sales dependent, right? So but the good news is that last year the underlying subscription did step up 0.5 percentage point right in growth rate and we continue to grow in that subscription base at the higher growth rate from last year. So the underlying subscription rate last year, the acceleration was driven by yearly contracts was it or by month? Well, it's always a mix of these, right? There are many things that every year you have different geography, different customer sets, right, different currencies and new sales and they all add up to a very large global business. So it's not one thing, it's the overall blend of it. And every year you have some customers that can do the step up and renew at higher rates. You also have every year some new institutions and new sales patterns, but also you have some every year, some geography or some institutions that are not doing so well. And you can look at the macroeconomic environment and you can predict sort of which areas if they renew this year will probably have a slower growth rate that they have better than the old one, right? I mean there's some emerging markets, some natural resource dependent locations and so on that this year would look at their next 3 years and say, we're not going to grow at the same rate we did before. We're going to grow but not at the same rate. And you can see that there's a mix of that. So every year there's a different mix and every year there's an outcome, but it blends overall to a large extent just like the macroeconomic pattern. Thank you. Good morning, everyone. It's Sami at Exane. A few questions, please. Can you first start with discussing the outlook for the Medical Books business for Q3 and for the longer term in particular? Secondly, you kindly started to give us the breakdown of risk and business information, but you stopped at half of it. Could you please share with us the other half of the risk and business information division? You said 1 quarter was business services, 1 third was insurance. What's the rest? And lastly, in the press release, you mentioned new products and infrastructure investments going in particular into the Legal and STM divisions. Can you elaborate on what type of infrastructure investments you're referring to for these two divisions please? Okay. Well I think in terms of CapEx. Yeah. I think I'm going to have Nick talk through the CapEx side. Maybe we just start there. Nick, why don't you just start with that part and get back to the other question? Yes. So CapEx in the first half was slightly ahead of what it was in the year before. Legal is the biggest part of that and in particular new Lexus where we're still rolling out now internationally. And Eric mentioned Australia. So that's where STM, any new products, investments, big products investments in STM? And in SGM, any new products investments, big products investments in SGM? Yes. I mean it's going into things it's going into Science Directs mainly, but also into things like Scopus and Evise. So there is some new product development there as well. Thank you. Okay. So let's see here. You said the first question you asked was medical books, right? Do you mean and I'm assuming that you mean any books in the healthcare space, right? Well, you asked both outlook for Q3 and long term. Well, this is one of our I shouldn't say one, all our print books are because some are subscription based, some have moved to electronic subscriptions and electronic content base, but there's still a fair amount of print books left and they tend to be transactional and they tend to grow month on month, right? And we actually have slightly larger months in July, August, September, right, than we do in the spring, right, which is not unusual either as an industry pattern. Even though it's a small piece of our business, it does actually have a little bit of an impact on our growth rates as you know. What exactly will happen in Q3? I don't know because it is very month to month. And you might remember that last year we had some volatility on the month to month in to date in the first half, so far this year, the print book declines are very much in line with full year last year by the time you average out the volatility we had last year. The full year last year compared to the prior year was marginally better last year, but in this year it was sort of in line with last year. But there was also a fair amount of volatility last year, so I can't comment on the quarter on quarter going forward. You asked long term. Long term, I expect that all our print books and it's very similar when you look in the different subject areas whether it's science, technology or medicine or sort of medical education that into electronic, of course, right? And many of these transitions are happening with a marginally positive revenue trajectory while they're transitioning, but with a fair amount of lumpiness and volatility while it is happening, not the kind of predictability when you migrate a subscription contract from print to electronic with a contractual term. This is transactionally based. So in the long run, I expect the print to electronic transition to continue and I expect that it will follow similar adoption curves to our other businesses. And the most reference oriented books whether that's in science or medicine are already past the 50% mark of electronic. The more education oriented content sets are probably, yes, broad speaking beyond the sort of beyond the quarter of transition at this point, but not quite at the halfway point, right? So what exactly that will do in any one quarter or any one year, it's not easy to predict. You said the transition Or more meaningfully positive for margins? Well, I'm saying it's marginally positive for revenues. Is it marginally positive for margins as well? Or more meaningfully positive for margins? Well, I'm saying it's marginally positive on revenue on average, right? But there's some lumpiness and cyclicality in it. And I would argue that again when we have had format transitions, we've seen many of these in the past across our whole businesses. And even though you intuitively think that you migrate from print to electronic, you should have a completely different margin structure. It is not so obvious because when you move to an electronic platform, you increase the value so much, right? And you build out the content sets, you build out the analytical tools we talked about, you broaden the utility and the expectation for it to be accurate and current is much higher. So you actually move to slightly different version of a business proposition and it's not necessarily a big difference in margin. What we have seen across the company is that any risk of content commoditization with open education resources and alternatives to the traditional textbooks? Yes. I mean we are very small in the education business here as you know. It's a very, very small portion of our overall business. And what we do in the education segment is very specialized. It's very, very specialized and it's driven for very specific certification, very specific professional skills in medical and health industry. So we're probably not the leading indicator of this or the most affected, right? And we're not an expert. We're not experts on that segment. There are other people who are more deeply exposed to this or engaged in it. I will ask them tomorrow. Thank you very much. Yes. Thank you. I didn't answer your at least I don't think I answered your middle question on risk, right? I was going to get to that. You said what's left, right? So broadly speaking, again, this is not accounting. It's a little bit like our estimates before on subscription base. Broadly speaking, a third is insurance, right? Broadly speaking, a quarter of it is what we call our old business services, right. Broadly speaking, again, sort of roughly 10% is sort of the government and health care group, right, of that of the whole risk and business information. And again, broadly speaking, the remaining third or so comes from mostly assets based on the old Read business information that are now blended in of which sort of 2 thirds are really data services now Acuity, ISYS and so on and a little bit left are sort of the hybrid businesses now that are still transitioning and we sometimes call major we call them leading brands and sometimes other magazines and services in there broadly speaking. It's Nick Dempsey from Barclays. I've got 2 more questions please. First one, just if your acquisition spend in the second half is in the same ballpark as we've seen in the first half, can we expect a notably higher buyback spend next year? And second question, over at Thomson Reuters, Reuters, I think they did 3% organic in legal in the Q1. We haven't heard of the first half yet. Are your sales guys seeing any signs of improvement that could expect lead you to expect some improvement of that 1%? Or is the gap just to do with mix? Okay. Well, how about I'll let Mick answer the first one here and I'll get back to you on the second. Yes. I mean, I think on the buyback you'll have to wait and see and we'll see what happens in the second half. As Eric said, I don't think you could take what happened in the first half on M and A spend to mean anything. It just happened to be the pattern of how things fell. So we'll see what the M and A spend is, how everything else pans out, where the leverage is at the end of the year and then we'll make the judgments in early next year as to what that means for buybacks next year. I mean the only thing I want to add to that is you saw that what happened last year that the net spend on acquisition and disposal changed by a few $100,000,000 right? And we lowered the buybacks this year by $100,000,000 right? So we can absorb a fair amount of fluctuations or volatility in sort of net acquisition disposal spend at these levels and not change our buyback levels directly. So it's linked to it, but probably in the direction of the fluctuation of the spend, but muted. So your second question here was legal any signs of improvement. Well as you probably know and as we can see the general sort of U. S. Business environment has been fairly solid over the next over the last sort of 6 months. And I don't see any current signs that's changing materially now. And legal markets in the U. S. As well as legal markets in Europe continue to be stable, but fairly subdued. On the other hand, there are signs, of course, that the sort of general economic environment in the places where we operate might be slightly higher. And over time that should then come through to the legal industry and therefore come through to the people who sell and service the legal industry. If you look at the industry data that is available, there are a lot of different studies on the legal industry, lots of different third party research firms. And if you look at their indicators that they have, they've been pretty stable over the last few years now. And in the Q1, there was not much of a difference compared to a year ago. I wouldn't be surprised if there are some pickups that people see in the near term or medium term. But the question is do they actually hold and does that then continue over the subsequent quarters? And is it a real trend or is it just continuing fluctuations around a low growth environment? So in the near term, I don't know. In the long term, we're still convinced that this industry will return to growth, maybe not the same kind of growth it had in the middle of the last decade at the peak of the cycle. But we do believe that this industry will return to growth and that we would not be surprised to see it over time. But we're not a leading indicator. The comparison to Thomson that you mentioned, I don't really know what's inside their growth rates and their the timing of them and so on. So I can't really comment on that. Over in the back. Morning. Hi. It's Paddy from Goldman Sachs. I've got a couple of questions really. Firstly on risk, you had a pretty good organic growth rate in the first half. Do you think that's sustainable in the second half? Or is there any sort of phase anything we should be aware of in the first half? And the second question is just for a little bit more color on the exhibition side. What sort of growth rates or declines are you talking about in LatAm Brazil? And a bit more color on China, because I think you had a new show at the new venue as well or show at the new venue? Okay. You said risk growth. Yes, our risk growth rates are as we as I said mentioned before, they're based on across all the different segments predict sort of month predict sort of month on month is a little bit harder than the ones who are fully subscription based. So looking forward, we don't know exactly what will happen over the next few months, of course. But let me put it this way, you asked, in the first half, there was no phasing, there was nothing unusual, there was no timing related, there was no you know what I'm saying? So this was a real straightforward across the board 7 there. That does not mean that that's exactly the growth rate it will be going forward, right? It has varied a little bit up and down in the past as well and it can vary a little bit up and down. But I would look at the 7 more as a sign of the strength of the overall division and its sort of inherent growth capability. But there's nothing funny in the number. There's no timing or phasing in it. Your second question was exhibitions. You asked specifically on growth rates and you mentioned Brazil as an example. If we look at Brazil Latin America as a whole, you can see that the Brazilian economy has clearly slowed down. And if you look at our growth rates in Brazil our like for like first half organic growth rates in Brazil, it's broadly stable let's put it that way, right? But if you compare that to what it was a few years ago when it was growing strongly in double digits and then had slowed down. So now we basically had a flattish first half in Brazil. And because that those markets also volatile again forward looking examples on exhibitions is very hard to do because they're industry specific and then you're sort of 3 to 6 months out. I don't know what the second half will look up. But in the first half it's sort of flattish. You then asked in China sorry what was the question on China again the same question? Yes. Yes. Sorry I forgot. Yes, exactly. So in China, on average overall if you add up sort of our Chinese growth rates right now in the businesses we operate there, they're still seeing what I consider good growth, right? It's a decent growth. It's again down from the average overall growth rates we had 2, 3 years ago, right? It's ago, right? It slowed down, but it's good growth. However, it's very industry specific and different from Brazil where you basically feel like the whole economy has just slowed down its overall growth rate. In China, there's sort of industry specific differences. Some segments are growing very rapidly because they do actually support the industry and parts of the economy that continue growing and other segments have slowed down significantly because of reprioritization and regional differences, right? So it's a very segment by segment growth rate difference, but overall still good growth. You asked about the new venue. Well, of course, the new venue in Shanghai, we think is a very good thing. It's a good opportunity for everybody involved and it's a good opportunity for us and we have some partnerships there that we're very happy with and look forward to doing more with. So it's going well. But I just think for us with 500 exhibitions spread over the I just think for us with 500 exhibitions spread over the world sort of evenly or globally, any one specific change or any one specific venue is not going to move the needle on the overall results in any way that you can notice. Okay. So let's come back over here. Good morning. It's Chris Collett from Deutsche Bank. I've just got a question on Legal and the shift towards a more focus on decision tools. Within LexisNexis though, you're somewhat underweight aren't you on practice management software and legal process outsourcing or corporate legal services. So just wondering to what extent can you really shift Lexus from being a legal research platform to something which is much more of a decision making and software system? And can you do that organically? Or do you need to make acquisitions in order to hasten that shift? Okay. Yes. The way we look at it is that the transition to more sophisticated decision tools is about making the legal decisions, right? Trying to value a loss or trying to value a litigation case, trying to value different legal sort of issues and make decisions on them either for a law firm and for a corporation. That's where we want to be. And we do think can handle that organically with small additional sort of plug ins or different content sets or analytical tools or small software plug ins here and there, right? We think that's a slightly different question from are you also going to scale up and operate big in legal process outsourcing or be in sort of ERP systems or software sales to law firms for example, right? And you can draw you can put them in buckets or you can say they blend a bit in the legal industry. But I think it's a slightly different question. We see our primary focus adding value to the legal decisions and to do that through organic development, right? That's the way we think of it. And clearly that will involve here and there some small plug in acquisitions just like we have everywhere else in our businesses. We will continue to do that in legal, but not materially different. We do not see this as separate segments and we're going to now go and acquire our way into building up a presence in a separate segment that's sort of software systems, ERP, business management systems or outsourcing services, right? That's not where we're heading. We're heading in organic transformation towards decision tools. Thanks. Can I just follow-up with Thomson Reuters have been growing very well with their acquisition of Practical Law Company and I know that Lexus has its own version of it that you've been expanding? Could you just talk a little bit about how you've been how successful you've been in replicating with a similar service? Yes. I mean we see it as and again I think the difference here is 1, we're on organic development versus acquisition not about sort of conceptual thinking around that migration different from maybe the previous question where you say some of those service segments are different and separate. This we believe is an integral part of how it is you work and make decisions and so on over time. And we go after that type of content set and that type of sort of support tool in the way we do everything else, which is organic development, building on the strengths we have, building on the content sets we have, the expertise we have and the platforms we have, right, as opposed to acquiring them. And we continue to do that. We, of course, have then gone and probably run ahead of the industry in different geographies from the U. K.-based practical law company that was sold to Thomson with a U. K.-based and some things in the U. S. And we've gone after it. We were early in other markets and because of the organic development there and we're continuing to develop in the geographies that you're mentioning too. So that's the way I see it. So let's go over here. Thank you, Eric. I have a question on the Exhibitions division please. When I started looking at RIDEAU SAVIER 15 years ago, so you had around 500 exhibitions at RIDEAUX. 15 years later, you've been launching every year 20, 30, 40 shows and you still have 500 events in your portfolio suggesting you've closed as many as you've launched. The growth rate of that division has been amongst the best performing assets within Riedel so we are consistently accepting 2,009 or 10. Can you help me understand why you have not expanded the size of the portfolio and why wouldn't you do it in the coming years? So why still stick with 500 events and not double the size? You're still fairly small in terms of global market share, albeit a leader, a few percentage points. So why not why haven't you doubled the size of the portfolio? And why wouldn't you double it in the next 10 years? Yes. No, I mean if you look at the overall division, if you look at the overall revenue base and the revenue growth rate, you're absolutely right. The revenue growth rate of this business has been above the corporate average. And for those of you who cover that industry, I'm sure most of you would say that it's also been on average above the industry growth rate. And it's certainly been I know it has been less volatile than the industry, right, because of the way we're spread out, the broad based portfolio we have as well as the way we run the platform. The number of exhibitions in it is something that we believe that you need to continuously launch and refresh your portfolio. This is a dynamic industry and dynamic business. And you can't just sit on some old set of large shows and then keep growing them or then over time milking them. You have to continue to launch and spin off and so on, especially in high growth industries, in high growth segments and high growth geographies. At the same time, industrial shifts occur. Industries shrink in certain regions and certain topics are less interesting. And then what happens is we then fold them in back into a bigger show or we combine them with something else or we make it an adjacency to another show, which means it's the same show. So therefore, the total count does not increase by the number of launches, because every year we recombine or sort of merge, cancel some shows, right, out of the portfolio to keep it fresh. And that's part of how it is we're achieving this organic growth rate over time. So if you say how many shows do I expect us to have in the future? I would expect over the next decade, if you still sit here, we would continue to increase that we would increase the number of shows slightly, but not at the same rate that we're launching, right, because there's a fair amount of remerging or recombination rate every year. So it should go up. But the way I look at it is that we're trying to capture revenue streams in the industry. I mean, as you know, we have roughly 5% of the total exhibition industry revenues, right? And we are probably still the number 1 in the industry by fairly large margin. So we believe that there's plenty of space to continue to expand organically and through small acquisition because 75% of this industry is in very small operators. So we consider the strategy we pursued in exhibitions so far in terms of portfolio approach to be the sort of the blueprint for the future as well, except that what we're doing now with the exhibition business is to standardize and globalize our technology platform to start to collect significantly more data, adding significantly more analytical tools into that business and turning it more into an industry support service around an exhibition where we know more and we can help them conduct business and transact based on all the knowledge we have and the knowledge we can help them with, which means that over time you're going to say that sounds like the kind of business that we want to take a leadership in globally and it links to the skill sets, the assets we have in the rest of the company. But we're still on a portfolio basis going to continue to do what we've done before. It's just that it will be driven off of central technology platforms and more sophisticated in terms of data and analytics. Thank you. Okay. Well, thank you. I think that's the end of our Q and A session. Thank you very much for coming and look forward to seeing you again soon.