Reed Elsevier’s strategy of doubling down on the data and events side of its business – at the expense of cutting loose some of its publishing assets that don’t fit into that plan – seems to be paying off, even if a 14 percent profit fall in the face of currency issues and the cyclical nature of the events business have masked that in its 2014 full-year results.
Though the big headline coming out of the announcement is the combination of the assets of its Dutch and English parent companies into one entity to be called RELX Group, the performance of its four main revenue strands (Science, Technical and Medical; Risk & Business Information; Legal; and Exhibitions) demonstrate where the majority of the content and analysis giant’s revenue is being made.
Underlying adjusted operating profits at Reed Elsevier grew 5 per cent to £1.74 billion in the year to December 2014, even as it saw a 14 per cent fall in net profit to £995 million.
That adjusted operating figure is a result of a total revenue for the year of £5,773 million, an underlying growth of 3 percent compared to 2013 when exhibition cycling (the affect of not having several key biannual events on its calendar during the year) is taken into account. Its CEO Erik Engstrom said:
“In 2014 we maintained good momentum across our key financial metrics of underlying revenue growth, underlying operating profit growth, adjusted earnings per share growth, and return on invested capital. We made further strategic and operational progress as we continued to transform our business, primarily through organic development.”
And while that momentum took a hit as a result of currency exchange issues, when asked whether the performance would have increased to four percent had the European situation been different, Engstrom said that Reed Elsevier’s presence in many different territories was a strength rather than a weakness. He emphasised that Europe only provided 20 percent of the revenue in 2014, with the rest largely made up in the US and Japan.
Science, Tech and Medical
The Science, Tech and Medical side of the business – providing subscriptions to over 1,600 science journals and data services – grew 3 percent in terms of underlying profit. While that’s the weakest section of the business as a result of the declining print and pharmaceutical promotional material model, it did perform well in terms of growing subscriptions to its data services and digital subscriptions by half a perfect, and forecasts similarly modest growth in 2015.
Risk and Business Information
The combined Risk & Business Information side of the business saw strong growth, particularly in the insurance segment which grew 7 percent driven by demand for the US auto underwriting business. That figure helped pull the overall performance of the section up to 6 percent, compensating for the slightly smaller 5 percent growth in the Business Information side of the business, where growth was largely driven by demand for identity authentication and fraud detection products.
This was the section of the business in which it was most apparent that Reed Elsevier is disposing of magazine and publishing asset that don’t fit with its longer-term data-based strategy, with the release stating:
“In 2014 we continued to support organic growth through the acquisition of data and analytics assets. We also exited assets that no longer fit our strategy, including the disposal of several magazines and the spin-off of certain construction industry assets.”
Legal services performed well – if only just meeting expectations due to “subdued” growth in Europe and the US – over the course of 2014, as a result of the launch of new platforms and services internationally. Revenue from this segment of the business was over three-quarters from digital sources, though that was partly as a result of overall decline in print revenue rather than a huge boom in digital.
Reed Elsevier’s expansive exhibition business was by far the powerhouse of its underlying revenue growth, proving that while data services are becoming increasingly central to its overall business strategy, one of the oldest revenue strands for B2B companies is still of paramount importance.
Its events in Europe – which constitute 20 percent of its events revenue – saw modest growth overall while events in the UK and
France achieved good growth on their own terms. China’s growth was moderate overall while revenues in Brazil were hit by wider problems in that country’s economy. Other markets – particularly the U.S. and Japan – were reported to have grown particularly strongly. As a result of the overall success of the events business in previous years, 2014 saw the launch of 36 new events “primarily in high growth geographies and sectors”.
But Reed Elsevier isn’t making bets purely on regions. As the release states, some events sectors are performing well regardless of where they’re located geographically. Instead the focus is on investing on creating events in lucrative verticals, which perform well anywhere.
So while Reed Elsevier’s overall profits were hit by the biannual nature of some of its most lucrative events and currency conversion issues, the fact it managed to continue its underlying revenue growth and restructure its Risk and Business Information section into one it seems as being more sustainable is further evidence of the group’s B2B success.
Image courtesy of Churkinms via Flickr, used under a Creative Commons license.