RELX PLC (NYSE:RELX) Q4 2023 Earnings Call Transcript
RELX PLC (NYSE:RELX) Q4 2023 Earnings Call Transcript February 15, 2024
RELX PLC isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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 2023, and we make further operational and strategic progress. Underlying revenue growth was 8%. Underlying adjusted operating profit growth was 13%. Adjusted earnings per share growth was 11% at constant currency, and we are proposing an 8% increase in the pound sterling full year dividend. All four business areas performed well in 2023. And on this chart, you can also see the relative sizes of the business segment within each business area. In Risk, strong fundamentals continue to drive underlying revenue growth of 8% with underlying adjusted operating profit growth of 9%.
In Business Services, which represents around 45% divisional revenue, growth continued to be driven by financial crime compliance and digital fraud and identity solutions, and we saw a strengthening in new sales in the second half. In Insurance, which represents just under 40% of divisional revenue, strong growth was driven by further expansion of solution sets across markets supported by positive market factors. Specialized industry data services, which represents just over 10% of divisional revenue, saw strong growth led by the Commodity Intelligence and Aviation segment. Going forward, we expect continued strong underlying revenue growth with underlying adjusted operating profit growth, slightly exceeding underlying revenue growth. In STM, further development of analytics continues to drive the ongoing shift in business mix towards higher growth segments.
Underlying revenue growth was 4% and underlying adjusted operating profit growth was also 4% with a slight increase in adjusted operating margin. In databases, tools and electronic reference and corporate primary research, which together represents around 45% of divisional revenue, strong growth was driven by further development of higher value-add analytics and decision tools. Primary Research, Academic and Government segments, which also represents around 45% of divisional revenue, continued to be driven by strong growth in article submissions with pay to publish open access articles growing particularly strong. Going forward, we expect continued good underlying revenue growth, with underlying adjusted operating profit growth slightly exceeding online revenue growth.
In Legal, we saw a further improvement in underlying revenue growth to 6%, up from 5% 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 continue to see strong growth in Law Firm and Corporate Markets, which account for over 60% of divisional revenue. Lexis+, our integrated analytics offering, has continued to see strong uptick and usage growth across customer segments. Lexis+ AI, our new platform, leveraging generative AI functionality, was launched commercially in October. The initial customer reaction has been very positive and the rollout has started well. Going forward, we expect continued strong underlying revenue growth with underlying adjusted operating profit growth exceeding underlying revenue growth.
Exhibitions delivered strong revenue growth and an improvement in profitability. Underlying revenue growth was 30%, driven by a significant increase in face-to-face activity with average like-for-like event revenue across the portfolio ahead of pre-pandemic levels for the full year. The improvement in profitability reflects both the higher activity levels and the structurally lower cost base with the adjusted operating margin also above pre-pandemic levels for the full year. Going forward, we expect strong underlying revenue growth with a further improvement in adjusted operating margin. Our strategic direction is unchanged. We leverage deep customer understanding to combine leading content and data sets with powerful technologies in global platforms to build increasingly sophisticated information-based analytics and decision tools that deliver enhanced value to professional and business customers across market segments.
We have been able to develop and deploy these tools across the company by embracing artificial intelligence technologies for well over a decade. We are confident that our ability to leverage AI and other technologies as they evolve will continue to be an important driver of customer value and growth in our business for many years to come. Our growth objectives are: for Risk, to sustain strong long-term growth in the current range; for both STM and Legal, to continue on the improving growth trajectory; and for Exhibitions, to continue on the improved long-term growth profile. When combined with our strategy of driving continuous process innovation to manage cost growth below revenue growth, resulted 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 will be back afterwards for a quick wrap-up and our usual Q&A.
Nicholas 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 8% with underlying adjusted operating profit growth well ahead of that at 13%. As a result, the adjusted operating margin improved to 33.1%. Improved operating results flowed through to adjusted earnings per share, which increased 11% at constant currency despite higher interest rates. Returns continue to improve with ROIC up 1.5 percentage points to 14%. Cash conversion was strong at 98%, contributing to a slight reduction in leverage to 2.0x at the lower end of our typical range. Given our overall performance, we have been able to increase the proposed full year dividend by 8% to 58.8p per share.
Acquisition spend in the year is relatively modest at GBP 130 million, and we deployed GBP 800 million on share buybacks. Looking at revenue, you can see the continued strong growth in Risk, while STM maintained its improved growth rate and Legal with a pickup in its growth. These strong growth, together with the sustained recovery of Exhibitions took underlying revenue growth for the group as a whole to 8%. Electronic revenue, representing 83% of the total, grew GBP 0.07 underlying with the strong growth in face-to-face activity, more than offsetting the print decline, given the overall rate of 8%. It was a 1 percentage point drag on overall growth from the effects of biannual events cycling out in Exhibitions while currency movements were broadly neutral to the group level, resulting in reported revenue growth in sterling was 7%.
Risk and Legal delivered strong underlying growth in adjusted operating profit, both slightly ahead of revenue growth while STM underlying profit growth was in line with revenue growth. Exhibitions profit saw very strong growth, reflecting the increase in activity levels against a structurally lower cost base. Overall, group adjusted operating profit was up 13% underlying, up 12% in total of constant currency and up 13% in sterling to over GBP 3 billion. Margins were up slightly in Risk and STM and up a little more in Legal as we continue to focus on keeping cost growth below revenue growth across the group. Exhibitions margins are now above the levels achieved pre-pandemic. Combined, these movements saw group margins increased to 33.1%, an improvement of 1.7 percentage points.
Here's the group adjusted income statement showing the underlying growth of 8% in revenue and 13% in operating profit. The interest expense increased with the effect of interest rate and gross debt up to 4.6%, reflecting higher rates for dollars and for euros. The interest expense includes a charge of GBP 26 million for the early redemption of a high coupon bond. Without that, the effective interest rate would have been 4.2%. The tax charge was GBP 553 million with an effective tax rate of 20.4%. The tax rate benefited from nonrecurring tax credits, which resulted in an effective rate below our normal ongoing rate. Net profit was close to GBP 2.2 billion, up 9% at constant currency and up 10% in sterling. All that gave us adjusted earnings per share of 114p, up 11% at constant currency and up 12% in sterling.
Here, you can see how the high earnings flow to cash flow with EBITDA now over GBP 3.5 billion. CapEx was GBP 477 million equating to 5% of revenue, leaving us with adjusted cash flow conversion of 98%, similar to typical levels pre-pandemic. Cash interest paid was GBP 294 million, the increase reflecting higher interest rates. Cash tax paid of GBP 619 million was higher than the income statement charge, which benefited from the nonrecurring tax credits, which were noncash. Total free cash flow was just under GBP 2 billion. Here's how we deployed that free cash flow. We completed 6 small acquisitions during the year for a total consideration of GBP 130 million, the largest of which was Human API, a health care data platform that joins the life insurance segment within Risk.
Total dividend payments in the year were close to GBP 1.1 billion, and we deployed GBP 800 million on the share buyback. Overall, with an acquisition, dividends and share buybacks broadly utilized the full GBP 2 billion of free cash flow. Year-end net debt decreased slightly as a result of currency translation effects. Our priorities for use of cash are unchanged, although it remains our #1 priority, and we continue to invest in the business with CapEx consistently around 5% of revenues. We augment that [indiscernible] with the level of visions, with the level of spend typically being the most significant variable in our uses of cash, depending on the opportunities that arise. Average acquisition spend over both the last 5 and 10 years has been around GBP 400 million with 2023, a below average year.
We pay out around half of our adjusted earnings in dividends and have been able to increase the dividend every year for well over a decade. Leverage has typically been in the 2.0x to 2.5x range, strong cash generation, improving EBITDA and modest acquisition spend in the year mean leverage was at the lower end range at the end of 2023 at 2.0x net debt to EBITDA. We continue to return our surplus capital through the share buyback with GBP 1 billion of spend announced today for 2024, of which GBP 150 million has already been deployed. 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.
We also performed well on those metrics where we can be compared to others. This is a selection of our key CR data showing that 2023 was another year of solid progress. And our commitment to corporate responsibility continues to be recognized by external reporting agencies. We rated AAA with MSCI for an eighth consecutive year and ranked second in our sector globally with Sustainalytics in the top 1% of companies overall. With that, I will hand you back to Erik.
Erik Engstrom: Thank you, Nick. Just to summarize what we have covered this morning. In 2023, we delivered strong financial results and we made further operational and strategic progress. The improving long-term growth trajectory is being driven by the ongoing shift in our business mix towards higher growth analytics and decision tools. Going forward, we continue to see positive momentum across the group and we expect another year of strong underlying growth in revenue and adjusted operating profit as well as 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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