RELX PLC & RELX NV - Form 20-F Summary (Fiscal Year Ended Dec 31, 2016)
Business Context and Reporting Period
This filing is an Annual Report on Form 20-F for RELX PLC (England) and RELX NV (Netherlands), filed with the SEC on March 7, 2017, covering the fiscal year ended December 31, 2016. RELX is a global provider of information and analytics for professional and business customers, operating through four segments: Scientific, Technical & Medical (STM); Risk & Business Analytics; Legal; and Exhibitions. The Group is structured as two holding companies (RELX PLC and RELX NV) that jointly own RELX Group plc, which holds all operating businesses. Financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
Key Financial Metrics
| Metric (GBP Millions) | 2016 | 2015 | 2014 |
|---|---|---|---|
| Revenue | 6,895 | 5,971 | 5,773 |
| Operating Profit | 1,708 | 1,497 | 1,402 |
| Adjusted Operating Profit | 2,114 | 1,822 | 1,739 |
| Net Profit (Attributable to Parent) | 1,161 | 1,008 | 955 |
| Adjusted Net Profit (Attributable to Parent) | 1,488 | 1,275 | 1,190 |
| Cash from Operations | 2,236 | 1,882 | 1,851 |
| Net Borrowings | (4,700) | (3,782) | (3,550) |
| Adjusted EBITDA | 2,371 | 2,050 | 1,976 |
Margins: Reported operating margin was 24.8% (2015: 25.1%). Adjusted operating margin was 30.7% (2015: 30.5%).
Dividends: Total dividends paid in 2016 were 32.55p per RELX PLC share and €0.410 per RELX NV share. Proposed final dividends for 2016 are 25.70p (PLC) and €0.301 (NV).
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 15% to £6,895 million. Underlying revenue growth (constant currency, excluding acquisitions/disposals) was 4%. Currency effects contributed significantly to reported growth, adding £661 million.
- Profitability: Reported operating profit rose 14% to £1,708 million. Adjusted operating profit increased 16% to £2,114 million, driven by tight cost control and currency benefits.
- Segment Performance:
- STM: Revenue +12% (Underlying +2%). Strong growth in primary research and databases.
- Risk & Business Analytics: Revenue +19% (Underlying +9%). Driven by insurance and business services segments.
- Legal: Revenue +12% (Underlying +2%). Margin expansion due to efficiency gains.
- Exhibitions: Revenue +22% (Underlying +5%). Strong growth in US and Japan; Brazil remained weak.
- Debt: Net borrowings increased to £4,700 million (from £3,782 million). Excluding currency effects, the increase was £409 million, reflecting higher net borrowings and the weakening of sterling against the USD and Euro.
- Share Repurchases: The Group repurchased 29.2 million RELX PLC shares and 26.1 million RELX NV shares for a total consideration of £700 million in 2016.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management expects to maintain a cash flow conversion rate of 90% or higher and credit metrics consistent with a solid investment-grade rating. The Group intends to repurchase up to £600 million of shares in the remainder of 2017.
- Unusual Items:
- Tax Credit Abolition: The UK government abolished dividend tax credits effective April 6, 2016. Consequently, reported earnings per share for RELX PLC and RELX NV are now equalized in value.
- Disposals: A £40 million loss on disposals and other non-operating items was recorded, largely due to the sale of certain Risk & Business Analytics businesses and revaluation of investments.
- Risk Factors:
- Geopolitical/Economic: Impact of the UK's vote to leave the EU (Brexit) and global economic conditions.
- Currency: Significant exposure to USD and EUR fluctuations; the majority of borrowings are denominated in these currencies.
- Regulatory: Compliance with FTC Settlement Orders regarding data security and privacy; potential changes in open access publishing models for STM content.
- Operational: Cyber security risks, reliance on third-party data sources, and the ability to realize benefits from acquisitions.
Investor Verification Checklist
- Currency Impact: Verify the extent to which reported growth is driven by favorable exchange rates versus organic performance (Underlying growth was 4% vs. Reported 15%).
- Debt Levels: Confirm the sustainability of net borrowings at £4.7 billion and the impact of interest rate fluctuations on net finance costs.
- Amortization Charges: Review the £346 million charge for amortization of acquired intangible assets, which significantly reduces reported operating profit compared to adjusted figures.
- Share Buybacks: Assess the impact of £700 million in share repurchases on cash flow and future capital allocation.
- Iran Transactions: Note the disclosure of approximately £8.2 million in revenue from Iran-related activities and associated compliance risks.
- Dividend Policy: Confirm the alignment of dividend growth with adjusted earnings per share following the UK tax credit changes.