Ladies and gentlemen, thank you for coming to the first set of results for RELX PLC and RELX NV, also for the first consolidated set of results for the Group. 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 EUR dividend increase of 17%. 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 1st 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. Nick will show just how comparable the share prices are now, particularly for the USD 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. It facilitates aligning our boards. To this effect, we announced earlier this week that Marike van Lier Lels will be joining the RELX PLC and Group plc boards with immediate effect, giving our parent companies identical boards for the first time. Marike has been a member of the NV board for five years and has normally attended the 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. Thank you. Erik and Nick will now take you through the results in more detail. Erik.
Thank you, Anthony. Good morning, 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 revenue and 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. 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.
As you can see on the right, our underlying operating profit growth rates range from just below to just above mid-single digits. 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. Print pharma promotion revenue declines 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, federal government trends improved further. Healthcare, now a GBP 100 million business, is progressing well with like-for-like organic growth rate in double digits. Major data services maintained strong growth, the remaining other magazines and services were stable. Going forward, the fundamental growth drivers remain strong, 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 Lexis platform in Australia off to a good start. Underlying profit growth remained 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 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, marginally ahead of prior year. China achieved good growth overall, continued to see differentiated growth rates by industry sector. Revenues in Brazil reflected the general slowdown in the economy.
Most other markets continued to grow strongly. We launched 20 new events and completed some small 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 four 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 development, and to drive an evolution of our business profile and improve the quality of our earnings, meaning even more predictable revenues, a higher growth profile over time, and improving returns. Organic 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. We're now primarily focused on driving the next, and perhaps even more exciting transition from electronic reference to electronic decision tools. 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 continued 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 GBP 69 million. 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 is 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. We only disposed of some minor assets for GBP 6 million 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 third priority is to continue to grow our dividends and to grow them predictably, broadly in line with earnings growth. Our fourth priority is to maintain our leverage in a range similar to where it has been over the past five years. Our fifth 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&A. Thank you.
Thank you, Erik. Good morning, everyone. Let me start by running you through the income statement. As Erik said, underlying revenue growth was 3% in the first half. Acquisitions added 2% to revenue, but disposals reduced it by 2%, so the net effect of portfolio changes was neutral. Revenues reported in sterling were just under GBP 3 billion, up 4%, reflecting the relative strength of the dollar in the first half, partially offset by euro weakness. The impact on euro-reported numbers was significantly greater as the euro weakened against both sterling and the dollar. Euro-denominated financials are available in the appendix. Adjusted operating profit in sterling was up 6% at GBP 909 million, 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 GBP 638 million, up 6%, with currency movements 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. It can, of course, 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 GBP 0.301, up 8%, or EUR 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 you need to adjust for the bonus share issue to compare the euro figure to what we previously reported for RELX NV. 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 are declaring interim dividends that will give 6% growth for the sterling dividend and 17% growth for the euro dividend. Cover remains solid at two times on an aggregate basis. As you know, our dividend equalization takes account of the 10% tax credit available to some shareholders in the U.K., as shown on the slide.
Of course, two weeks ago, the Chancellor announced that dividend tax credits will be abolished with effect from the 6th of 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 two shares. Turning to the business areas, you can see how all four contributed to underlying revenue growth, with the Reed Business Information being particularly strong. The net effect of acquisitions and disposals had a small negative effect in Reed Business Information, but that is lost in the roundings at the group level. Underlying growth in Reed Exhibitions is shown excluding the effects of cycling and timing.
In the first half, this was a 6% drag on Reed Exhibitions reported revenues, but as Erik 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. Reed 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 on Reed Exhibitions 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 areas contributed to underlying growth. STM, Reed Business Information and Legal all had underlying profit growth ahead of underlying revenue growth, with STM benefiting from slightly favorable phasing.
Portfolio changes had 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% 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 improvement, aided by portfolio changes but negatively impacted by currency effects. Reported margins in STM were actually down 0.4%, 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 Erik 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 remain 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 impact 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, 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 they averaged 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 were broadly in line with the prior year, while cash taxes rose to be in line with the accounting charge, as was the case in full year 2014. Overall, free cash flow for the first half was GBP 506 million. Here's how we used that free cash flow. As you can see, M&A activity was modest, both in terms of acquisitions, where we spent GBP 69 million in 11 transactions, and disposals, which resulted in proceeds of just GBP 6 million from four transactions.
We completed GBP 300 million of this year's GBP 500 million share buyback program in the first half. Overall, net debt increased by GBP 320 million, 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 the 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 of July. We now have a simpler structure with a single company holding all the group's activities, owned by the two parent companies in proportion to the percentage interest of their respective shareholders, 52.9% for the PLC, 47.1% for the NV. After the bonus share issue for RELX NV, the shares in the two parents now have one-to-one equivalence, 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 will 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 increases 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 one-to-one equivalence between the shares and their respective ADRs, comparison of the price is much more straightforward. For the U.K. 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 are directly comparable.
The combined market capitalization is also easier to calculate, simply adding together the capitalization of the two parent companies. With that, I will hand you back to Erik.
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, we implemented the simplification of our corporate structure. Going forward, the full-year outlook is unchanged. The key drivers within our business remain positive, 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. With that, I think we're ready to go to questions. Okay. Why don't we start over here? We'll go over here. Yeah.
Hi, good morning. It's Ruchi Malaiya 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'll be hard to put a specific number, maybe which businesses are further along in that shift. 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.
The transition from reference to decision tools, you said we are the farthest down that path in Risk division, right? It is probably no surprise to anybody that the Risk division, therefore, is our highest growth division, also that in the first half this year, that growth accelerated a little bit. 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. When they can see, measure, track, and see that the economic value from the decision is increasing, they want to use more of that solution, and therefore, our revenues go up.
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's 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 three other divisions. 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 the Exhibition business to collect and analyze data differently. 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. 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.
I'm afraid it's hard to give a number, I'm not sure in the near term you're going to come up with a clear number. You can see it in the business descriptions and hopefully over time, you can see it in the business success as well. The second question is with multiples. 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 it from profit basis, how they operate individually and separately versus how we operate them, we plug them onto a platform as a data set and an analytical tool added onto our platform. It's very different. Any type of profit multiple would be meaningless.
It could be almost anything relative to what we would do. I think the interesting thing is if you look overall at the acquisitions we have made, you look at the revenue multiples of those, that's at least one indicator. You can actually see over the businesses we've bought over the last few years, that the revenue multiples are pretty similar to the revenue multiples that we operate as a whole corporation today. If you look at our enterprise value today compared to our revenues, it's very similar to the average multiple of the assets we buy across businesses. Okay. We'll stay over here, Ms. Hall, a minute. Yeah. How about Tom first?
Thanks. It's Tom here from Citigroup. I had two questions, one general-
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, 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&A because I appreciate you may not want to add entire legs to your business, there must be stuff out there that is buyable and we have maybe a unique opportunity in terms of availability of financing in order to do that. Just questioning again, why so much focus on organic as opposed to larger scale M&A? 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 STM division?
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. 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, then we build them out the way I talked about in the transition to decision tools. 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 1 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&A multiples will go up or down. 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. 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 five years. We don't try to illustrate that at a half year because it's not really meaningful.
Every full year we show it, and you see the trajectory over the last few years. You can see that we can drive improving returns in this business because the return on internal organic development is very, 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, yeah, and in terms of usage. 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. We would be very happy if the usage growth continues to grow well above our revenue growth, right?
That means we're adding more value to the customers. 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 we see that usage in itself is a reflection of the value of the overall solution set, but it's not a direct link. 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.
For them, it is the total spend that's interesting, and therefore, the total value and the total spend. 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, in Risk, where you actually have a specific use of our tools for a decision point for one new insurance customer, for underwriting one new insurance policy or something. The important thing for the customer is that they know the cost per transaction, the cost per new insurance policy. Then when they have higher volumes or lower volumes, our volume will go up and down with it, and therefore, our revenue base. 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. Yeah, over here.
Thanks. It's Matthew from Nomura. 3 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 had slowed last year. What was the growth in paid articles in H1? This is for traditional journals, not including author pays. The second question is on print. You showed on one of the slides, it's gone from 18% down to 14%. Was that basically H1 on H1, or was it full year 2014 at 18% and then 14%, and then why the big drop? Last question is on the Risk side. You mentioned magazines and other services stable. Is that a change, or it basically says remain 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?
Obviously, you've got pharma going down, and you've got print books and medical going down. 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. First, you said that number of subscription articles, that what you're talking about, right? Subscription articles, they're paid, but paid subscription ones. Subscription articles 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 one year to prior year, that's an anomaly when you took pub dates. Sometimes the pub dates fall a certain time of month or a certain time of week, and you have the year-end cut off or can be different days of the week. Therefore, you can see some different, and issues can come out a little early or a little late. Sometimes when you count an article, it may vary a little bit in a six or 12-month period.
The interesting thing is to take over two to three years, is the overall rolling growth rate increasing or falling, and it's basically completely consistent for the last six months, the last two years, five years, 10 years, at almost exactly at the 4% on average. There are some little time-shifting anomalies on what counts as a pub date just around it. 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. Second question, print versus electronic. I think you were referring to the chart that had the many years history up here. Yeah. What we have on that chart specifically is many years of full year history, and then we just put the latest time period. This time, the latest time period happens to be the first half.
That's why there is such a more dramatic drop than you would normally see. We are slightly more print-heavy in the second half than in the first half, usually. 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. Okay. The last piece, you said in Reed Business Information that the other magazines and services were stable. Those are business areas, and within those small properties, you have some electronic services and some print. You add those business units up, they're stable, meaning they're just above flat, basically, as you said. Within those, virtually all of them, you have declining print at the same kind of rates you see everywhere else and growth in electronic.
You have the same kind of format shift happening in almost every asset. 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 is 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 a percentage point of acceleration of growth in revenues. Since the average contract length is three years, I thought that the underlying growth in new sales at that time was one and a half percent. In turn, I would have expected a further acceleration of revenue growth by another half a percentage point at the beginning of 2015, while you are reporting now revenue growth in line with last year for electronic journals in STM. Is my reasoning flawed, or have you experienced any type of change in the pattern of growth that justify this stabilization of the rates, please?
No, your recollection of it is consistent with my recollection of last year, which is that the electronic subscription growth of subscription journals last year accelerated by about half a percentage point. This year, as we said this morning, the like-for-like revenue growth stayed at the growth rate, stayed at the higher levels that were reached last year, but it did not pick up beyond that. You could look at it many different ways. You are asking it as, why didn't it continue to accelerate? It is important that the overall subscription growth rate is a combination of the growth rates that you had in the subscription base, and as you know, broadly speaking, a quarter of the business has an annual renewal cycle, and three-quarters of the business has multi-year subscription bases, but on average, it is three years long, right?
You have some that is annual, a quarter is annual, and then a quarter, a quarter, a quarter, basically every year. It is not exact numbers, but it is a rough illustration. 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 environments. The combination of that is what drives it. In certain years, you have a slightly higher acceleration of the renewals depending on which geographies come in and out. Next year, you might have. It might not step up to the same level. It is a combination of all those things. It is not just the new sales, and it is not a complete triennial rollover.
There are more factors that play into it than that are both geographic and institution-dependent and new sales dependent, right? The good news is that last year, the underlying subscription did step up half a percentage point in growth rate. We continued to grow in that subscription base at the higher growth rate from last year.
The underlying subscription rate last year, the acceleration was driven by yearly contracts, was it? Or by monthly?
Well, it's always a mix of these, right? There are many things. Every year you have different geographic, different customer sets, right? Different currencies and new sales, they all add up to a very large global business. It's not one thing, it's the overall blend of it. Every year you have some customers that continue to 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. 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 embedded in 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 three years and say, "Oof, we're not going to grow at the same rate we did before. We're going to grow, but not at the same rate." You can see that there's a mix of that. 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 will.
Thank you, Erik.
Yeah.
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 Reed Business Information, but you stopped at half of it. Could you please share with us the other half of the Reed Business Information division? You said one-quarter was business services, one-third was insurance. What's the rest? 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.
Things 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? I'll get back to the other questions.
Yes. CapEx in the first half was slightly ahead of what it was in a year before. Legal's the biggest part of that, and in particular, new Lexis, where we're still rolling out now internationally, and Erik mentioned Australia. That's where most of it's going. It is mostly into product development.
In STM, any new products investments, big products investments in STM?
I mean, it's going into ScienceDirect mainly, but also into things like Scopus and Embase. There is some new product development there as well.
Thank you.
Let's see here. You said the first question you asked was medical books, right? 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 basically at this point, the ones that have the most transactional revenue profile within the STM division. Because some are subscription-based, some have moved to electronic subscriptions and electronic content base. 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? We actually have slightly larger months in July, August, September than we do in the spring, 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 the third quarter. I don't have a specific outlook. What I can tell you is year-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. In this year, we're sort of in line with last year.
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 medical education, that these are continuing to migrate from print to electronic. Some of the print book declines is a direct format migration into electronic, of course. 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.
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. 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, broadly speaking, beyond the quarter of transition at this point, but not quite at the halfway point. What exactly that will do in any one quarter or any one year, it's not easy to predict.
You said the transition from print-to-electronic books was 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. There's some lumpiness and cyclicality in it. 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. You build out the content sets, they 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. You actually move to a 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 the margins are probably, over time, slightly positively impacted as well, but it's not a dramatic step.
Lastly, in this business, do you see any risk of content commoditization with open education resources and alternatives to the traditional textbooks?
Yeah, we are very small in the education business here, as you know. It's a very small portion of our overall business. What we do in the education segment is very specialized. It's very specialized, and it's driven for very specific certification, very specific professional skills in medical and health industries. We are probably not the leading indicator of this or the most affected. 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, Erik.
Thank you. I didn't answer your, at least I don't think I answered your middle question on risk. I was going to get to that. You said, "What's left?" 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. Broadly speaking, a quarter of it is what we call our old business services. Broadly speaking, again, sort of roughly 10% is the government and healthcare group of the whole risk and business information.
Again, broadly speaking, the remaining third or so comes from mostly assets based on the old Reed Business Information that are now blended in, of which two-thirds are really data services now, Accuity, ICIS, and so on, and a little bit left are the hybrid businesses now that are still transitioning, and we sometimes call them leading brands and sometimes other magazines and services in there, broadly speaking. Yeah. Okay. You want to go back there? Here, this way?
Hi, it's Nick Dempsey from Barclays. Got two more questions, please. First one, just if your acquisition spend in the second half is in the same kind of ballpark as we've seen in the first half, can we expect a notably higher buyback spend next year? The second question, over at Thomson Reuters, I think they did 3% organic in Legal in the first quarter. We haven't heard of the first half yet. Are your sales guys seeing any signs of improvement that could lead you to expect some improvement off that 1%, or is the gap just to do with mix?
Okay. Well, how about I'll let Nick answer the first one here, and I'll get back to you on the second one.
I think on the buyback, you'll have to wait and see, and we'll see what happens in the second half. As Erik said, I don't think you can take what happened in the first half on M&A spend to mean anything. It just happened to be the pattern of how things fell. We'll see what the M&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.
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 hundred million GBP. We lowered the buybacks this year by GBP 100. We can absorb a fair amount of fluctuation, sort of volatility in net acquisition disposal spend at these levels and not change our buyback levels directly. It's linked to it, but probably in the direction of the fluctuation of the spend, but muted. Your second question here was, Legal, any signs of improvement? Well, as you probably know, and as we can see, the general U.S. business environment has been fairly solid over the last six months, and I don't see any current signs that that's changing materially now.
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 general economic environment in the places where we operate might be slightly higher. Over time, that should then come through to the legal industry, 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. If you look at their indicators that they have, they've been pretty stable over the last few years now. In the first quarter, 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. The question is: do they actually hold, and does that then continue over the subsequent quarters? Is it a real trend, or is it just continuing fluctuations around a low growth environment? 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. 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 Reuters that you mentioned, I don't really know what's inside their growth rates and the timing of them and so on.
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? 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? A bit more color on China, because I think you had a new show at the new venue as well, or a show at the new venue.
Okay. You said Risk growth. Yeah, our Risk growth rates are, as I mentioned before, they're based on, across all the different segments in Risk, mostly based on transactional volumes. There's some subscription base, but there's sort of a transactional volume component of them. Which means that to predict month-on-month, it's a little bit harder than the ones who are fully subscription based. Looking forward, we don't know exactly what will happen over the next few months, of course. 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? This was a real straightforward across the board 7 there. That does not mean that that's exactly the growth rate it'll be going forward.
It has varied a little bit up and down in the past as well, and it can vary a little bit up and down. I would look at a 7 more as a sign of the strength of the overall division and its inherent growth capability. 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. 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.
If you compare that to what it was a few years ago when it was growing strongly in double digits and then has slowed down. Now we basically had a flattish first half in Brazil. Because those markets are so volatile, again, forward-looking examples on Exhibitions is very hard to do because they're industry specific and then you're 3 to 6 months out. I don't know what the second half will look like. In the first half, it's flattish. You then asked in China. Sorry, what was the question on China again? Same question.
The new venue.
Oh, sorry. I forgot. Yes, exactly. In China, on average, overall, if you add up our Chinese growth rates right now in the businesses we operate there, they're still seeing what I consider good growth. Decent growth. It's again, down from the average overall growth rates we had two, three years ago. It's 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 are 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. 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. It's going well, but I just think for us, with 500 exhibitions spread over the world 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. 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? Just wondering, to what extent can you really shift Lexis from being a legal research platform to something which is much more of a decision-making and software system? Can you do that organically, or do you need to make acquisitions in order to hasten that shift?
Okay. Yeah, the way we look at it is that the transition to more sophisticated decision tools is about making the legal decisions. Trying to value a lawsuit. Trying to value a litigation case. Trying to value different legal 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 we can handle that organically with small additional plug-ins of different content sets or analytical tools or small software plug-ins here and there. 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 ERP systems or software sales to law firms, for example. You can put them in buckets or you can say they blend a bit in the legal industry. I think it's a slightly different question.
We see our primary focus to add value to the legal decisions and to do that through organic development. That's the way we think of it. 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 sort of software systems, ERP, business management systems, or outsourcing services. That's not where we're heading. We are heading in an organic transformation towards decision tools.
Thanks. Could I just follow up with Thomson Reuters have been growing very well with their acquisition of Practical Law Company, and I know that Lexis has its own version of it that you've been expanding. Could you just talk a little bit about how successful you've been in replicating with a similar service?
Yeah, we see it as, and again, I think the difference here is, one, we're on organic development versus acquisition, not about 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. We go after that type of content set and that type 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, as opposed to acquiring them. We continue to do that.
We, of course, have then gone out and probably run ahead of the industry in different geographies from the U.K.-based Practical Law Company that was sold to Thomson, and with a U.K. base and some things in the U.S., we've gone after it. We were early in other markets because of the organic development there, and we're continuing to develop in the geographies that you're mentioning, too. That's the way I see it. Let's go over here.
Thank you, Erik. I have a question on the Exhibitions division, please. When I started looking at Reed Elsevier 15 years ago or so, you had around 500 exhibitions at Reed Ex. 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 Reed Elsevier consistently, except in 2009 or 2010. 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? Why still stick with 500 events and not double the size? You're still fairly small in terms of global market share, albeit the leader, few percentage points.
Why haven't you doubled the size of the portfolio, and why wouldn't you double it in the next 10 years?
Yeah. 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. 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. It's certainly been, I know it has been less volatile than the industry 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, 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 in high growth geographies. At the same time, industrial shifts occur. Industries shrink in certain regions, and certain topics are less interesting. What happens is we then fold them 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. Therefore, the total count does not increase by the number of launches, because every year, we combine or sort of merge, cancel some shows out of the portfolio to keep it fresh.
That's part of how it is we're achieving this organic growth rate over time. 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, that we would increase the number of shows slightly, but not at the same rate that we're launching. There's a fair amount of re-merging or recombination rate every year.
And for-
It should go up, but the way I look at it is that we're trying to capture revenue streams in the industry. You know, we have roughly 5% of the total exhibition industry revenues. We are probably still the number one in the industry by a fairly large margin. 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. We consider the strategy we pursued in exhibitions so far, in terms of portfolio approach, to be the blueprint for the future as well.
Except that what we're doing now with the exhibition business 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. We're still, on a portfolio basis, going to continue to do what we've done before. It's just that it'll be driven off of central technology platforms and more sophisticated in terms of data and analytics.
Thank you.
Yeah. Okay, well, thank you. I think that's the end of our Q&A session. Thank you very much for coming, and I look forward to seeing you again soon.