Reed-Elsevier shares surge on 16% increase

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The Independent Online
Higher-than-expected earnings and good progress on reducing debt during 1994 helped push shares in Reed International and its merger partner Elsevier higher in London and Amsterdam.

Elsevier's rise was the more spectacular as investors made up the ground lost in recent months. The shares had been marked down in Holland following the departure of Peter Davis, chairman, and concern about the company's acquisition of the Lexis-Nexis electronic publishing business late last year.

In the event, the Anglo-Dutch print and electronic publishing giant - known since the merger as Reed Elsevier, even though both companies continue to trade separately - announced yesterday that pre-tax profits in 1994 climbed 16 per cent to £620m, higher than most analysts' forecasts, on turnover up 9 per cent to £3.04bn. The figures were helped by a better- than-expected performance at Lexis-Nexis. "Both revenue and profits were higher than we had anticipated at Lexis-Nexis," John Mellon, group executive, said. He stressed that the subsidiary was still in a transitional phase, with a new management only recently put in place. But in the month of December alone, the new subsidiary contributed £37m in turnover and £9m of operating profits.

The purchase had increased debt and the company placed high priority on paying it down.

Louise Barton, of Henderson, Crosthwaite, said that the year-end debt was "much lower than expected, even when currency gains are stripped out". Mr Mellon said all the debt associated with Lexis-Nexis would be paid off in two to three years.

Intent on keeping its high corporate bond rating, the company is unlikely to make large new acquisitions until then. Analysts expect small purchases in the range of £50m-£100m.

With the growth-by-acquisition road blocked, analysts have been concerned about the company's ability to grow organically. Last year's results put much of that concern to rest, as profits derived from ongoing businesses were up a solid 12 per cent.

All four operating areas reported higher operating profits in 1994, led by the business segment, where revenues shot up 40 per cent, thanks to the exhibitions unit and savings achieved through the merger of Reed's two airline data centres, OAG and ABC International.

Science and medical publishing results were mixed, however. Sales in the scientific publishing unit were up 16 per cent, in line with growing demand for electronically-provided information. But moves by governments and health insurers in Reed Elsevier's main markets to cut health care costs squeezed medical advertising lineage at the company's main titles.

Business magazines had a good year in the US and the UK, despite increases in paper costs. The consumer publishing area was particularly strong in the UK, where both IPC magazines and Reed Regional Newspapers posted strong gains in operating profits.

Company executives downplayed the effect that rising paper costs, perhaps as much as 20 per cent higher in 1995, would have on earnings, pointing out that paper represented only 6.5 per cent of total operating costs.

Longer term, Reed executives claim they are very happy to remain "content providers", repackaging and selling on copyrighted material through whatever media are available. Electronic publishing will be a favoured market.

City forecasts for the current year are for £690m to £700m in turnover, and profits per share of about 49.5p.