RELX PLC (NYSE:RELX) Q4 2022 Earnings Call Transcript

RELX PLC (NYSE:RELX) Q4 2022 Earnings Call Transcript February 16, 2023

Erik Engstrom: Good morning, everybody. Thank you for taking the time to join us today. As you may have seen from our press release this morning, we delivered strong financial results in 2022. We made further operational and strategic progress, and we also performed well on our corporate responsibility priorities. Underlying revenue growth was 9%. Underlying adjusted operating profit growth was 15%. Adjusted earnings per share growth was 10% at constant currencies, and we’re proposing an increase in the pound sterling full-year dividend of 10%. All four business areas grew well, with underlying adjusted operating profit growth in-line with or ahead of underlying revenue growth. So, let’s look at the results for each business area.

In Risk, strong fundamentals continue to drive underlying revenue growth. Underlying revenue growth was 8%, up from 7% in the first nine months of the year, with underlying adjusted operating profit growth broadly in-line with underlying revenue growth. Business services, which represents around 45% of divisional revenue, continued to deliver strong revenue growth in financial crime and compliance and fraud and identity. And we have recently strengthened our customer proposition with small acquisitions in compliance and behavioral biometrics. In Insurance, representing just under 40% of divisional revenue, the positive momentum that started in the first half strengthened through the remainder of the year supported by further improvement in key market factors such as shopping activity.

Specialized industry data services, which represents just over 10% of divisional revenue, saw strong growth overall, with commodity intelligence growing particularly strongly and other segments, including aviation, returning to historical growth rates. Government, representing just over 5% of divisional revenue, continued to grow strongly. Going forward, we expect strong underlying revenue growth in line with historical trends, with underlying adjusted operating profit growth broadly matching underlying revenue growth. In STM, further development of analytics continue to drive an improvement in underlying revenue growth to 4%, up from 3% last year, reflecting the ongoing shift in business mix towards higher growth analytics and a reducing print track.

Underlying adjusted operating profit growth was slightly ahead of revenue growth at 5%. In databases, tools and electronic reference, and corporate primary research, which together represent around 45% of divisional revenue, continued strong growth across research, clinical and commercial markets, was driven by further content development and enhanced analytics and decision tools. In primary research, academic and government segments, which also represent around 45% of divisional revenue, growth was driven by a higher volume of articles both submitted and published, with pay-to-publish open access growing particularly strongly. So far this year, renewal completion and new sales are going well. Going forward, we expect underlying revenue growth to remain above historical trends, with underlying adjusted operating profit growth slightly exceeding underlying revenue growth.

In Legal, we saw a further improvement in underlying revenue growth to 5%, up from 3% last year, driven by the continued shift in business mix towards higher-growth legal analytics. Underlying adjusted operating profit growth was ahead of revenue growth at 8%. We continued to see strong growth in our law firm and corporate markets, which now account for over 60% of revenue. Lexis+, our integrated analytics offering, has continued to see very strong uptake and usage growth across customer segments as we continue to extend our data sets and roll out enhanced analytics functionality. Renewals remained strong, and new sales continue to see positive momentum. Going forward, we expect underlying revenue growth to remain above historical trends, with underlying adjusted operating profit growth continuing to exceed underlying revenue growth.

In Exhibitions, we saw strong revenue growth and a recovery in profitability. Underlying revenue growth was 64%, driven by the reopening of exhibition venues across most geographies and with an improvement in profitability, reflecting the increased activity levels and a lower cost structure. We continue to manage our event schedule flexibly, and we’re making further progress with digital tools that supplement our physical events. Going forward, we expect a year of strong underlying revenue growth. The operating results will continue to benefit from the structurally lower cost base, with margins expected to be close to pre-pandemic levels. Our strategic direction remains unchanged. We focus on the organic development of increasingly sophisticated information-based analytics and decision tools that deliver enhanced value to our professional and business customers across market segments.

Our growth objectives are, for Risk, to sustain strong growth in the current range for a long time to come; for both, STM and Legal, to continue on the improving growth trajectory; and for Exhibitions, to capture the growth opportunities from venue reopening and data-driven digital tools. Across all market segments, the improving long-term growth trajectory is being driven by the ongoing shift in our business mix towards higher growth, analytics and decision tools. And when combined with our strategy of driving continuous process innovation to manage cost growth below revenue growth, the result is continued strong earnings growth with improving returns. I will now hand over to Nick Luff, our CFO, who will talk you through our results in more detail.

I’ll be back afterwards for a quick wrap-up and our usual Q&A.

Nick Luff: Thank you, Erik. Good morning, everyone. Let me start by providing more detail on the group financials. As Erik said, underlying revenue growth was 9%, the underlying adjusted operating profit growth well ahead of that of 15%. As a result, the adjusted operating margin improved by almost 1 percentage point to 31.4%. The improved operating result flowed through to adjusted earnings per share, which increased 10% at constant currency, despite a higher interest and tax rates. Returns continued to improve despite the higher tax rate, with ROIC up another 60 basis points, now at 12.5%. Cash conversion was strong at 101%, contributing to a further reduction in leverage to 2.1x, down from 2.4x at the end of 2021. Given the strong overall performance, we have been able to increase the proposed full-year dividend by 10% to.

Meeting Room, Colleagues, Business

Meeting Room, Colleagues, Business

Photo by Christina @ on Unsplash

Looking at revenue, you can see the continued strong growth in Risk and the improved growth rates in STM and Legal. Those improved growth rates, together with the continued recovery in Exhibitions, took underlying revenue growth for the group as a whole up to 9%. Including Exhibitions by annual events, total growth at constant currency was 11%. And of course, with 60% of our revenue is generated in North America, there was a significant benefit from the stronger dollar, with sterling revenue up 18% overall. Risk delivered strong underlying growth in adjusted operating profit, in line with revenue growth. STM and Legal both delivered underlying profit growth ahead of revenue growth. Portfolio effects were a slight drag on profit growth in each of these business areas, but all of them benefited significantly from currency movements.

Exhibitions’ profit recovered, reaching about half of 2019’s level as activity increased, and we benefited from the lower cost structure. Combined with the strong performance of the three largest business areas, that drove strong group operating profit numbers up 15% underlying, up 14% in total at constant currency and up 21% in sterling to nearly £2.7 billion. Margins were slightly up in Risk, with favorable currency impact more than offsetting dilution from acquisitions. In STM, margins were stable, with underlying improvements sufficient to offset unfavorable currency movements and dilution from acquisitions. Legal’s margins grew further by 40 basis points as we continue to keep cost growth below revenue growth. Those movements, together with the recovery in profit from Exhibitions, added almost a 4-point to group margins, taking them to 31.4%.

Here’s the group adjusted income statement, showing the underlying growth of 9% in revenue and 15% in operating profit. The interest expense increased with the effect of interest rate on gross debt up to 2.9% from 2.0%. That left profit before tax up 13% at constant currencies and up 20% in sterling. The tax charge was 530 million, with an effective tax rate of 21.3%. You’ll remember the prior year benefited from non-recurring tax credits, which resulted in an effective rate below our normal ongoing rate. Net profit was just under £2 billion, up 10% at constant currency and up 16% in sterling. All that gave us adjusted earnings per share of , up 10% on constant currency and up 17% in sterling. Here, you can see how the earnings flowed through to cash flow, with EBITDA now close to £3.2 billion.

CapEx was 436 million, equating to 5% of revenue, leaving us with adjusted cash flow still above adjusted operating profit, and hence, cash conversion just over 100%. Cash interest paid was 165 million, increase reflecting the higher interest rates. Cash tax paid of 495 million was slightly lower than the income statement charge, reflecting timing of tax payments. Total free cash flow was up by 18% to just under £2 billion. Here’s how we deployed that free cash flow. We completed nine acquisitions during the year for a total consideration of 443 million. Most notable were BehavioSec, a leader in behavioral biometrics; Flyreel, the self-inspection out-of-home insurance, both in Risk; and Interfolio, a provider of faculty information systems in STM.

Total dividend payments in the year were 983 million, and we resumed our share buyback program in 2022, deploying 500 million. Overall, the spend on acquisitions, dividends and share buybacks broadly utilized the full 2 billion of free cash flow. Year-end net debt increased as a result of currency translation impacts. Leverage benefited from the improvement in operating profit, which flowed through to EBITDA. Including pensions, the ratio of net debt-to-EBITDA calculated in U.S. dollars fell to 2.1x, down from 2.4x at the end of 2021. Our priorities for use of cash are unchanged. Organic development remains our Number 1 priority, and we continue to invest consistently in the business, with CapEx around 5% of revenues. We augment that organic development with selective acquisitions, with the level of spend typically being the most significant variable in our uses of cash.

Average acquisition spend over the last five years has been around £600 million, with 2022 a little below that average. Our dividend policy is, over the longer-term, to grow dividends broadly in-line with adjusted earnings per share while targeting cover of at least 2x. Since it fell below 2x in 2020, we have steadily restored cover, while still increasing the dividend. In 2022, we are revising full-year dividend growth of 10%, with cover up to 1.9x. Historically, leverage has generally been in the 2.1x to 2.5x range. Strong cash generation and improving EBITDA has seen leverage return to the lower end of that range, now at 2.1x. Given that we expect our surplus capital again in 2023, we are continuing our share buyback program, with £800 million to be deployed this year, of which £150 million has already been spent.

Alongside our financial performance, we continue to make progress on our corporate responsibility objectives. Anchored by the purpose of the company, we focus primarily on our unique contributions using our products and skills to benefit society in ways only we can. Of course, we also performed well on those metrics where we can be compared to others. The selection of the key CR data is shown here. I particularly draw your attention to our carbon emissions where we are now net zero across Scopes 1 and 2 and for an increasing number of categories within Scope 3. We’re now using a much more accurate methodology for measuring flight emissions developed by our own Cirium aviation business. And our commitment to corporate responsibility continues to be recognized by external reporting agencies.

We were at AAA with MSCI for a seventh consecutive year, achieved the top ranking among media companies globally with Sustainalytics and maintained our fourth position in the Responsibility100 Index. With that, I will hand you back to Erik.

Erik Engstrom: Thank you, Nick. Just to summarize what we’ve covered this morning. In 2022, we delivered strong financial results. We made further operational and strategic progress, and we also performed well on our corporate responsibility priorities. The improving long-term growth trajectory is being driven by the ongoing shift in our business mix towards higher-growth analytics and decision tools, and we remain focused on managing our cost growth below revenue growth. Going forward, momentum remains strong across the group, and we expect underlying growth rates in revenue and adjusted operating profit to remain above historical trends, driving another year of strong growth in adjusted earnings per share on a constant currency basis. And with that, I think we’re ready to go to questions.

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