Earnings: Reed Elsevier Sharpens The Axe; $220 Million Extra Annuals Savings Targeted


image Reed Elsevier (NYSE: RUK) has promised to aggressively cut back and restructure its businesses by an extra $220 million a year as it recovers from a tumultuous year that saw the failed auction of its Reed Business Information B2B division and doubts over its ability to pay off massive debts. Outgoing CEO Sir Crispin Davies says the company was “disappointed” not to sell RBI last year and blamed the “macro-economic environment and poor credit market conditions” on forcing the price down too far — but he described the division as a good business with a “record of success in developing online services” and repeated the company’s desire to sell it in the medium term “when conditions are more favourable”.

In its preliminary full-year 2008 results today, the company reported revenues seven percent higher year on year at £5.33 billion with adjusted operating profit 12 percent higher at £901 million, a one percent drop. Both those figures would have been higher but for the falling value of the pound. Reed reported six percent revenue growth each for science publisher Elsevier, LexisNexis and Reed Exhibitions — but again the black sheep was RBI which is suffering badly on the print advertising side. More after the jump…

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RBI: Organic revenue at RBI was down one percent for 2008 and seven percent in Q408, with that trend expected to continue this year. On the up side, while print and recruitment ad revenue is being battered, RBI’s online revenue grew 12 percent in 2008 and now accounts for a third of its earnings. The company plans to grow that proportion to 50 percent as the part of a “comprehensive and detailed” cost-savings plan that will “accelerate plans to migrate from print to online”. Illustrating the speed of decline at RBI, its Q308 revenue was flat.

Debt: Reed had planned to pay of the financing of its £2.1 billion Choicepoint acquisition with the proceeds from an RBI sale. But no sale happened leaving it to wait until January to tap into the bond markets — the company this week announced it had done just that and successfully negotiated a $2 billion credit facility with 19 banks, available from 2010, to replace its current $2.5 billion arrangement. Reed did manage one successful sell-off in 2008: it sold Harcourt Education for £2 billion.

Cost-cutting: The $290 million cost-cutting plan announced in February last year — which is now on track to deliver $200 million (£140 million) a year in savings by 2011 — has been stepped by $60 million (£42.1 million) a year and will now include RBI, which is expected to contribute an extra $160 million (£112 milllion) annually up to 2011. Davis is keen to stress the RBI cuts “are not going to do anything that makes its difficult to sell in future” and mainly affect “back office functions”. While the online part fo the business will be considered, Davis says the company is “looking at the print side with an even sharper knife than that.” 35 RBI job cuts have already been anounced.

Outlook: Davis predicts that 2009 will be a “more difficult year” than 2008, but that its core businesses will remain resilient — LexiNexis and Elsevier currently generate 80 percent of revenues and are enjoying “growing demand for online solutions”. RBI and the exhibitions business will however show “significant profit decline”.

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