Equities
Professional publishers
A selective approach
Sami Kassab
Andrea Beneventi
Adrien de Saint Hilaire
Direct Tel.: +44 (0) 20 7039 9448
Mobile Tel + 44 779 55 28 365
Sami.kassab@exanebnpparibas.com
October 2009
Media team
Equities
2
Sami Kassab
Team Head
+44 207 039 9448
sami.kassab@exanebnpparibas.com
Charles Bedouelle
Ad agencies, conglomerates, broadcasting
+33 207 039 9482
charles.bedouelle@exanebnpparibas.com
Andrea Beneventi
Publishing
+44 207 039 9509
andrea.beneventi@exanebnpparibas.com
Adrien de Saint Hilaire
Publishing
+44 207 039 9499
adrien.de_saint_hilaire@exanebnpparibas.com
Equities
What has changed in our sub-sector view
following H109 results?
3
Change in segment outlook post H109 results
Industry segment
University textbooks
Percentage of revenue exposure
Pearson
Reed Elsevier
Wolters Kluwer Thomson Reuters
27%
2%
9%
2%
Informa
7%
UBM
0%
FY09e trends
+6% to +10%
FY10e trends
+4% to +6%
Chg. to our forecasts post H109 results
Revised up
Science, Technical & Medical
0%
29%
13%
8%
23%
25%
+2% to +3%
0% to -2%
Unchanged
0%
0% to 2%
1% to 3%
Revised down
0%
+4% to 6%
+4% to 6%
Unchanged
Legal
0%
24%
32%
26%
13%
of which Subscriptions
0%
17%
29%
23%
13%
of which Transactions (incl. copy sales, advertising)
0%
7%
3%
3%
0%
Tax, Accounting & Regulatory
0%
18%
37%
7%
1%
of which Tax & Accounting
0%
2%
23%
7%
1%
Financial Information
10%
0%
5%
57%
9%
0%
-2% to +3%
0% to +3%
Revised up
Trade Book
21%
0%
0%
0%
0%
0%
-5% to -2%
-2% to +1%
Unchanged
School textbooks & services
36%
0%
0%
0%
0%
0%
-10% to -15%
+3% to +5%
Revised down for FY09 and up for FY10
Events and Exhibitions
0%
11%
0%
0%
45%
39%
-10% to -15%
0% to +3%
Revised down
6%
6%
100%
16%
12%
100%
4%
4%
100%
0%
0%
100%
2%
2%
100%
36%
18%
100%
-10% to -15%
-20% to -30%
0% to -5%
-2% to -5%
Revised down
Unchanged
B2B Information
of which print magazines
TOTAL
Equities
Industry analysis
Late cyclical pressure on scientific information
Go long Tax, short US Legal
Cost efficiency programs to accelerate
Equities
Late-cyclical pressure on scientific, technical
and medical (STM)
5

Chg. in US research libraries
materials spending
Consensus expects ongoing growth in US
research libraries materials budgets
30%

We disagree
25%
20%
15%

Library budgets under strong pressure due to:



decline in state budgets and
universities endowments
Total endowments to US universities down 2530% in FY2009
20
03
19
98
19
88
19
93
19
83
19
73
19
78
19
68
19
63
Large universities have seen several years of
decline in recent past
(20%)
19
53
19
58

(15%)
19
48
Consensus expects growth in 2009 and 2010
(10%)
19
38
19
43

0%
(5%)
19
33
-10% in the Great Depression and WWII
5%
19
23
19
28

10%
19
18
Library content spending has declined in the
past
19
13

Average journal expenditure change
Period of recession
Source: Gerould, ARL, Exane BNP Paribas estimates
Years with decline in library
materials budgets
University
Years where library materials spending declined
California, Berkeley
1965,1969, 1972,1995,1996,2003,2004,2005
UCLA
1965, 1967, 1971,1972, 1988, 1991,1997, 2003, 2005
Columbia University
1966,1967,1971,1972, 1977
Duke University
1968,1969,1974,1976,1985,1991, 2004
Georgetown
1967, 1970, 1976,1998,2002
Harvard
1985, 2005
Illinois,Urbana
1968,1969,1972, 1976,1978,1983, 1987
John Hopkins
1969
Princeton
1969,1972,1977, 1989,1997,2000
Toronto
1970,1971, 1974, 1975, 1977,1985
Source: nabuco.org, Exane BNP Paribas estimates
Equities
More negative view on academic library market
in 2010
6

We have conducted a proprietary survey with the
support of Yale University to find that

Over 80% of academic libraries expect decline in content
spending in next 18 months

Yale and Harvard at -10% and -15% in FY10

Books and databases appear more at risk compared to
journals
Expected decline in library materials budget
for FY10 among 50 US libraries
More than 5%
Worse than -10%
Between 0% and 5%
Between -5% and 10%
Between -5% and 0%


Our contacts with ARL and ICOLC (library associations)
show academic library budgets under unprecedented
pressure

‘it may not be uncommon for consortia budgets to decline
by double digits year over year’

‘cuts will be prolonged’

‘Most member libraries are preparing cancellations of
ongoing commitments for 2010’
We exepect US library materials spending to fall by 4%
in the US and 2% globally.

Consensus expectations of 3% revenue growth for Elsevier,
Wiley, Informa is too high, in our view
Main area of expected cuts
Others
10%
Books & Monographs
34%
Journal collections
34%
Bibliographic
databases
22%
Source: Exane BNP Paribas estimates
Equities
Cutting our forecasts for STM information
publishers for 2010
7


Reed & Informa are most exposed to libraries

Reed Elsevier’s STM revenues are likely to
decline in FY10. Consensus expects growth

Informa has been less agressive on pushing for
multi-year contracts and is more expensive
Exane is below consenus expectations for
2010 underlying revenue growth

Short term catalysts: bad news from renewal
cycle from August to October 2009

Long term: growth of Open Access is still an
issue
Publisher’s exposure to STM, 2009e
60%
50%
40%
30%
20%
10%
0%
Wiley
70
60
50
40
30
20
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09
Funder mandates
Institutional and departmental mandates
Source: Exane BNP Paribas estimates
Wolters
Kluwer
Thomson
Reuters
Pearson
% of group Adj. EBIT
STM revenue growth forecasts for FY2010
5%
4%
3%
2%
1%
0%
(1%)
(2%)
(3%)
(4%)
80
Informa
% of group revenue exposure
Number of Open Access Mandates worldwide
90
Reed Elsevier
3%
3%
2%
2%
0%
-1%
-2%
-3%
Reed Elsevier
Inform a
Consensus
Source: Exane BNP Paribas estimates
Thomson Reuters
Science
W olters Kluwer
Health
Exane
What publisher is most at risk?
Equities
8

Average STM subscription length
Average of contract length varies across publishers

Informa’s average subscription length of less than 2 years

Reed Elsevier above 3 years with less renewals in 2010
than in 2009 than in 2008
4.0
3.5
3.0
2.5
2.0
1.5

Size of product portfolio as a driver of market shares
1.0
0.5
We expect publishers with large product mix to take market
shares away from smaller publishers

Increased bundling

Elsevier aggressively bundling primary and
secondary content?
0.0
Reed Elsevier
Springer
Wiley
90.0
Price per citation and price per article analysis shows
wide discrepancy between publishers


80.0
Informa
Informa
70.0
Within commercial publishers, Elsevier offers an attractive
price per citation mix
Informa’s mix is least attractive
Thomson
Reuters Science
STM journal prices per citation and article (USD)
100.0

Wolters Kluwer
Health
Price per
citation

60.0
Springer
10.0
15.0
20.0
Indsutry Average
Wolters Kluwer
MIT Press
CUP
OUP
John Wiley
Reed Elsevier
50.0
40.025.0
Price per article
30.0
35.0
40.0
30.0
20.0
10.0
0.0
Source: journalprices.com, Exane estimates
Equities
Deteriorating revenue trends in exhibitions and
B2B magazines
9

Exhibitions are sensitive to economic conditions

Deteriorating trends since beginning of the year
2009

When do you believe that the global exhibition
industry’s economic recovery will begin?
100%
90%
80%
50
47
40
51
60%
Our tracking of 60 exhibitions shows general
decline in exhibitors, visitors and net square space
50%
40%
63
55
43
20%
Recent survey of 180 trade show organisers
suggest over 50% expect industry recovery by
2010

56
70%
30%

35
41
10%
0%
3
2
1
10
2
Americas
Asia & Pacific
Europe
Middle East
and Africa
World
In 2009
Tentative signs of improvement in H209
In 2010
After 2010
Exhibitor’s percentage change at Reed
Exhibitions in 2009 vs. 2008

Deteriorating trends in B2B Magazines in the
US, UK and Continental Europe

Revenue growth unlikely to return in 2010
Nb. of shows
tracked
Total number of
exhibitors 2008
Total number of
exhibitors 2009
Growth
January
February
13
18
8,338
6,376
8,097
6,263
-3%
-2%
March
17
5,145
4,553
-12%
April
14
8,064
7,793
-3%
May
11
9,677
6,792
-30%
June
July
August
YTD
10
7
1
91
8,747
2,781
164
49,292
7,848
2,799
167
44,312
-10%
1%
2%
-10%
Source: UFI, Exane BNP Paribas estimates
Equities
Growing pressure in US legal information
market
10

Cuts in US Corporate and Academic
law library budgets
US Law firms KPI kept deteriorating in Q209

Hildebrandt PMI score at 44

Legal jobs in the US down 2.5% in July, -2% ytd
Worse than -10%
don't know
Between 0% and 3%

US legal information budget under pressure

70% of law librarians have experienced budget cuts

Cuts in duplicated materials likely

Overhead expenses (incl. Legal information budgets)
down 5% in Q209
Between -7% and 10%
Between -3% and 6%
Change in US law firms KPI
10%
8%

Traditional marketing expenditures under pressure

Reed Elsevier’s Martindale Hubbell revenues down 29%
but Thomson Reuters Findlaw.com revenues are up
6%
4%
2%
0%

LexisNexis suffers from business news segment.
Thomson Reuters exited the segment last year
Q2 08
Q2 09
(2%)
(4%)
(6%)
(8%)
(10%)
Demand for legal services
Overhead expenses
Source: Hildebrandt, LLB, Exane
Westlaw vs. LexisNexis
Equities
11

Nb of law firm responses to ‘if you had to
choose one legal research platform…’
Westlaw vs. LexisNexis

Stanford Law School survey suggests preference for
Westlaw
300
250


Intention to cancel duplicate subscriptions has
increased


West is more exposed than LexisNexis to countercyclical trends in law schools
American Lawyer survey of September 2009 suggests
31% (vs. 15% in 2008) intended to cancel duplicate
subscriptions
Increasing investments to compress margins at
LexisNexis and Westlaw

Westlaw to roll out a new front-end interface

Forces LexisNexis to increase investments as well
(dedicated sales force at MH, front interface)
200
150
100
50
0
Westlaw
LexisNexis
Source: Stanford Law School 2008, Exane BNP Paribas estimates
Are cancellations of duplicate
subscriptions likely?
35%
30%
25%
20%
15%
10%
5%
0%
2008
2009
Do you intend to cancel duplicate subscriptions to Westlaw and LexisNexis (N=86)
Source: LLB April 2009, American Lawyer Sepy. 09, Exane estimates
Equities
Wolters Kluwer to strike back on US tax &
accounting
12

Wolters Kluwer is the most exposed player
on the regulatory information

Tax, accounting, compliance activity is likely to
increase in the US and Europe
Tax & accounting contributions to group
revenues, 2009e
25%
20%
15%
10%

Thomson Reuters has outpaced Wolters
Kluwer over the past years but...


0%
Wolters Kluw er
Due to higher investments in a better online
product
...Wolters Kluwer has launched a new tax
research platform, Intelliconnect

5%
Potential market shares gains not factored in
Thomson Reuters
Reed Elsevier
Tax & accounting underlying
revenue growth
12%
10%
8%
6%
4%
2%
0%
2004
2005
2006
2007
Thomson Reuters Tax & Accounting
Source: Exane BNP Paribas estimates
2008
2009
2010
2011
Wolters Kluwer Tax, Accounting, Legal
Equities
Education: solid fundamentals in Higher Ed. –
strong pressure in US School
13

University textbooks: one of the best media
segments



Enrolment growth sustained by rise in
applications to universities and to the GMAT
Price increase in college textbooks still ongoing
School textbooks: state budgets under
pressure
Applications growth in sample of US universities to
2009-10 academic year
16%
14%
14%
12%
10%
9%
8%
6%
Brighter picture for 2010

Rebound in new textbook adoptions

Texas rather than California is the key state in
2009

ARRA funds available

Pent-up demand from postponements
7%
6%
5%
4%
2%
0%
Cornell

14%
12%
Harvard
Princeton
Columbia
Dartmouth
Yale
Average
Sample
States textbook budgets are under pressure
Source: Universities, Exane BNP Paribas estimates
Equities
Financial Information: speck of gold amid the
ashes
14

Number of layoffs in banking and broking
Market data terminals under pressure


IDC affected by acceleration of decline in hedge
fund creations
Resilience of terminal business (Reuters 3000 Xtra
at Thomson Reuters in Q4 08)
120,000
100,000
80,000
60,000
40,000
20,000
We expect through of the cancellation cycle to be
reached in H1 09
Potential
0
Q1 08
Americas
for growth in 2009

Regulatory and technological changes

Acceleration of buy vs. build for banking IT systems
in large financial firms

Picking up of the mortgage activity

Roll out of a new Thomson Reuters terminal in H2
09
Q2 08
Q3 08
Europe
Q4 08
Q1 09
Q2 09
Asia
Yoy variation of mortgage
applications in the US
150%
130%
110%
90%
70%
50%
30%
10%
(10%)
(30%)
(50%)
Ja
n
0
Fe 8
b
0
M 8
ar
0
Ap 8
r0
M 8
ay
0
Ju 8
n
08
Ju
l0
Au 8
g
0
Se 8
p
0
O 8
ct
0
N 8
ov
0
D 8
ec
0
Ja 8
n
0
Fe 9
b
0
M 9
ar
0
Ap 9
r0
M 9
ay
0
Ju 9
n
09
Ju
l0
9

Source: Mortgage bankers association, Bloomberg, Exane BNP Paribas estimates
Equities
Major cost savings opportunities ahead for the
industry
15

Breakdown of offshorable editorial costs
Off-shoring: a major trend for professional
publishers


Other
17%
Supply Chain
Management
2%
50% of the editorial work of professional publishers
offers potential for offshoring
Core Editorial
(non
offshorable)
48%
DB Structuring
7%
Conversion
6%
Indexing, typesetting, abstracting, hyper text
linking, file conversions are « offshorable » process
Technical
Editorial
20%

Number of employees offshore
Related on-shored costs accounts for c. 5% of
professional publishers’ divisional revenues
20%

Cost savings of 50 to 70% on onshore costs
15%
10%
5%
0%
Reed Elsevier
Thomson Reuters
2007
Source: Exane BNP Paribas estimates
Woltres Kluwer
2010e
Equities
Major cost savings opportunities ahead for the
industry
16

Monthly storage cost of one gigabyte
We expect further IT rationalisation



as back office integration of IT and publishing
systems has often been poor
LexisNexis could save up to GBP15m (40bps)
of adjusted operating margins if it were to
move storage to a cloud architecture
Benefits from the consolidation of dispersed
data centres
2.5
2.0
1.5
1.0
0.5
0.0
In a data centre of 1,000 servers

Number of current data centres and
consolidation plans
Limited execution risk

current management have been able to overdeliver on prior cost-savings plan
In a cloud data centre of 50,000 servers
160
140
120
100
80
60
40
20
0
Thomson
Reutres
Wolters Kluwer
2007
Source: UC Berkeley, Exane BNP Paribas estimates
2008-2009
Reed Elsevier
Who will benefit more from cost saving?
Equities
17

Cumulative cost efficiency benefits
Wolters Kluwer and Thomson
Reuters are to post the strongest
operating margin improvements over
2009-11

16%
14%
12%
10%
8%
6%
4%
2%
0%
Benefits from cost efficiency
programmes with control on top-line
pressure
Thomson Reuters
Reed Elsevier
% of opex 2008

Informa to suffer the most among
peer group


Lack of a wide-reaching cost
efficiency plan
Top-line pressure on its cyclical PI
and Events business with slowdown
on Academic and Scientific revenue
growth
Wolters Kluwer
% of revenues
Change in group operating margins 20082011e (bps)
300
200
100
0
(100)
(200)
(300)
(400)
Informa Group
Pearson Group
Reed Elsevier
Group
Source: Exane BNP Paribas estimates
Thomson
Reuters Group
Wolters Kluwer
Group
Equities
Investment cases
Equities
United Business Media
Hidden Jewels
Outperform, TP GBp650
Sami Kassab
Direct Tel.: +44 (0) 20 7039 9448
Mobile Tel + 44 779 55 28 365
Sami.kassab@exanebnpparibas.com
Andrea Beneventi
Direct Tel: +44 (0) 20 7039 9509
andrea.beneventi@exanebnpparibas.com
Equities
Investment case: Hidden Jewels
Outperform
20
1
UBM’s change of status is overlooked: asset mix shifting from
structurally declining media into structurally strong events, press
releases and databases (80% of total revenues)
2
Cyclical exposure (80% of the mix) is not fully priced in as
consensus seem to overestimate the late cyclicality of the
business
3
UBM is now trading on historic and relative lows on 8.3x
EBITA09e, 14% below professional publishers despite a 12%
FCF yield, 8% EPS CAGR between 2009e and 2012e and 6%
dividend yield
 UBM’s cyclical upside and improved asset mix still forgotten by the market
Equities
Asset mix has improved into growing events,
press releases and databases
In the last few years, UBM has aggressively sold out from
structurally weak areas of:
21


Newspapers (The Express, sold in 2000)

Free-to-air TV (Channel Five, sold in 2005)
UBM revenue mix over time (% of total)
100%
90%
15
17
18
17
18
19
19
28
24
20
18
17
27
26
26
80%

B2B magazines (from 46% of total revenues in 2005
to 20% in 2009)
… and reallocated capital into the structurally growing
businesses of:

70%
60%
36
46
50%
30%
25
25
40%
18
15
20%
10%
24
29
30
33
35
37
37
2006
2007
2008
2009e
2010e
2011e
0%

Events c. 35% of group revenues, 50% of EBIT

Professional databases (medical, trade, semicon)

Online verticals
With
only 1.2x net debt/EBITDA, UBM should be able to
capitalise on a revival of M&A activity

China Optoelectronic Expo (Aug-09)

Iasist clinical monitoring, Spain, EUR6m (Jul-09)
Management
has a good track record on acquisitions and
is incentivised on relative share price performance
2005
Events
Data, Services and Online
Print
B2B Distribution, Monitoring and Targeting
Revenues by region, 2009e
A sia/P acific
16%
United
Kingdo m
19%
Euro pe and
M iddle East
17%
A mericas
48%
Sources: UBM, Exane BNP Paribas estimates
Cyclical improvement in Events and Databases
not yet priced in
Equities
22
We
believe consensus overestimates the late
cyclicality of several key revenue streams
When do you believe that the global exhibition
industry’s economic recovery will begin?
100%
90%
80%
35
41
56
70%
50
47
40
51
60%
Consensus
expects flat to declining Events
revenues in FY10. We disagree due to:
50%
40%
30%
63
55
43
20%

Geographic mix of Events revenues
10%
0%

Tracking of Asian events show strong
performance in H209
3
2
1
10
2
Americas
Asia & Pacific
Europe
Middle East
and Africa
World
In 2009

Recently published survey by trade body
suggests industry participants expect
recovery in 2010
In 2010
After 2010
Geographical split of UBM Events’ revenues ’09e
UK
15%
Asia/Pacific
34%
Stronger
exposure to cyclical improvement in
Data & Services business in FY10 (online
advertising, customised research work)
EMEA
27%
Americas
24%
Sources: UFI, Exane BNP Paribas estimates
Equities
Press releases: gaining market share, better
product mix, geared to the US recovery
23

UBM’s is regaining market share


UBM volumes trends suggest PR Newswire is
gaining market share on BusinessWire
Exit of smaller players with poorer competitive
positioning (M2 Presswire) likely to benefit UBM
Est. chg. in press releases volumes 2009
January
February
M arch
A pril
M ay
June
July
A ugust
0%
(2%)
(4%)
(6%)
(8%)
(10%)

Improving the revenue mix
(12%)
(14%)

Proprietary tracking shows multimedia releases
volumes (video, photo) doubled vs.2008
(16%)
(18%)
(20%)

Cyclical upside: historically high correlation with
US GDP. We forecast a return to 2% growth in
2010 versus -10% in 2009
P R Newswire
B usinessWire
US GDP vs. PR Newswire growth
15%
10.6%

Thomson Reuters buys Hugin on a 45% premium
on our PR Newswire valuation, underlying the
attractiveness of the news wiring business
To tal market
10%
8.8%
6.8%
5%
3.6%
2.5%
1.8%
1.1%
3.1%
2.7%
6.9%
0.4%
0%
(2.3%)
(1.0%)
(3.4%)
(5%)
(2.6%)
(10%)
(15%)
(20%)
1999
2.0%
2.0%
2.1%
(9.5%)
(13.8%)
2000
2001
USA GDP growth
2002
2003
2004
2005
2006
2007
2008
PR Newswire organic revenue growth
Sources: UBM, Factiva, IMF,Exane BNP Paribas estimates
Valuation versus history: 25% below the index
despite structural improvement, cyclical exposure
Equities
24
The
stock trades at a discount to the market in terms of Forward PE despite the improvement in the
asset mix…

…and
Our
Which suggests an improved growth profile from an average 1% organic revenue growth over last 10
years to a 2-3% expected for 2010-11
despite the cyclical upside.
valuation implies a P/E 2011 of 10.5x at target.
UBM 12m forward consensus P/E relative to FTSE 250
35.0
30.0
100%
Late '90s: a TV, magazines
company diversifying into
digital properties, press
releases…
Today: late-cyclical fears are
overdone given the strong asset
mix. 25% discount to index is
unjustified
25.0
80%
60%
40%
20%
20.0
0%
(20%)
15.0
(40%)
(60%)
10.0
5.0
Sep-97
..lifted by the .com
expectations…
Sep-98
Sep-99
Sep-00
Sep-01
…w hich benefited earlier than the
index from the recovery…
Sep-02
UBM 12m fw d P/E (LHS)
Sep-03
Sep-04
…then converged due to
w eakness in B2B magazines.
Sep-05
Sep-06
UBM vs. FTSE250 GBP (RHS)
Sep-07
Sep-08
(80%)
(100%)
Sep-09
FactSet, Exane BNP Paribas estimates
Key catalysts ahead
Equities
25
Negative catalysts
Short term
Positive catalysts
Swine flu outbreak (our bear case implies 10%
of events cancelled and -3.5% group revenue,
vs.-1.3% in 2003 due to SARS)
Weaker than expected advertising trends
Long term
Further volume decline in the press releases
market
Higher investment requirements
Strong growth in exhibitors/visitors from
September tradeshows
Up tick in monthly press release volumes
Delivery on “mid teens” magazine margin
Emerging market sustaining growth in Events
Attractively valued acquisitions or share
buybacks
Bull-bear case analysis, fair value per share and upside
Swine flu
pandemic (10%of
tradeshows
cancelled in 2010)
Further -5%
decline in
advertising
-5% press
release
volumes in
2010
Base
case
15% op.
margins on
magazines by
2011
+5% Events
revenues in
2010
+5% press
release
volumes in
2010
474p
590p
636p
650p
693p
723p
759p
3% Upside
29% Upside
39% Upside
40% Upside
50% upside
56% upside
64% upside
UNITED BUSINESS MEDIA (Outperform)
Publishing | Media (Neutral) - United Kingdom
Equities
26
Price at 22 Sep. 09: 466p
Stockmarket ratios
P/E
P / CF
FCF yield
P / BVPS
Net yield
EV / Sales
EV / Restated EBITDA
EV / Restated EBIT
EV / OpFCF
Per share data (p)
EPS restated
EPS (IBES)
CFPS
BVPS
Net dividend
Accounts (GBPm)
Sales
EBITDA
EBIT
Net attributable profit restated
Operating free cash flow
Cash flow, group share
Adjusted net debt
Shareholders' funds, group share
Ratios
Restated EBITDA margin
Restated EBIT margin
Net margin
ROCE incl gross goodwill
ROE
Dec. 08
9.5x
7.3x
12.2%
2.78x
4.5%
1.71x
8.1x
8.7x
8.5x
Dec. 08
55.79
56.97
72.52
190.10
23.80
Dec. 08
887
186
174
137
177
179
261
464
Dec. 08
21.0%
19.6%
14.6%
18.6%
29.6%
TP: 650p
Dec. 09e
8.7x
8.3x
10.4%
2.27x
5.3%
1.68x
8.3x
9.1x
10.7x
Dec. 09e
53.85
50.17
56.18
205.67
24.70
Dec. 09e
896
182
166
132
140
138
216
500
Dec. 09e
20.3%
18.5%
13.3%
17.5%
26.5%
Dec. 10e
8.4x
7.2x
12.2%
2.04x
5.6%
1.60x
7.6x
8.4x
8.6x
Dec. 10e
55.37
47.75
65.22
228.89
26.24
Dec. 10e
885
188
169
136
165
160
134
557
Dec. 10e
21.2%
19.1%
13.5%
17.1%
24.4%
Upside: +39.4%
Dec. 11e
7.5x
6.4x
13.9%
1.81x
6.0%
1.45x
6.4x
7.1x
7.1x
Dec. 11e
62.46
51.73
72.57
258.35
28.08
Dec. 11e
913
205
186
154
185
178
33
629
Dec. 11e
22.4%
20.4%
15.0%
18.8%
24.4%
Dec. 12e
6.9x
6.0x
14.9%
1.60x
6.4%
1.31x
5.6x
6.2x
6.3x
Dec. 12e
67.81
50.10
78.05
291.43
30.04
Dec. 12e
927
215
196
167
193
192
(74)
709
Dec. 12e
23.2%
21.2%
16.2%
19.7%
23.5%
Analyst: Andrea Beneventi (+44) 207 039 9509 - andrea.beneventi@exanebnpparibas.com
EV (GBPm): 1,502
Enterprise value (GBPm)
Market cap (*)
+ Adjusted net debt
+ Other liab. and comm.
+ Revalued minority interests
- Revalued investments
= Enterprise value
Market cap (GBPm): 1,135
Dec. 09e
1,135
216
96
56
0
1,502
%EV
76%
14%
6%
4%
0%
Free float (GBPm): 1,135 (100%)
Historical price
608
42%
28%
532
14%
456
0%
Financial structure*
Gearing 09
42%
Debt/Mkt cap 09
19%
Debt/EBITDA 09
1.2x
* for FY ending Dec. 09e
Risk
Risk rating
1.41
Beta *
0.83
1y HV
45.6
* vs DJ STOXX50
CAGR
Sales
EBITDA
EBIT
Net att. profit restated
Operating free cash flow
Cash flow, group share
EPS restated
CFPS
2005/2009 2009/2012
0.0%
1.2%
(0.6%)
5.8%
1.3%
5.8%
(5.2%)
8.0%
(21.7%)
11.4%
(21.0%)
11.6%
10.8%
8.0%
(7.7%)
11.6%
380
(14%)
304
09/08
(28%)
12/08
Price (lhs)
03/09
06/09
Price rel DJ STOXX50 (rhs)
Performance
Absolute
Rel. sector
Rel. DJ STOXX50
1w
(4%)
(5%)
(5%)
1m
2%
(4%)
(1%)
12m range
High
Low
Price
549
369
%ch.
(15%)
26%
3m
17%
(1%)
1%
6m
7%
(12%)
(23%)
12m
(11%)
(3%)
2%
Tickers
Reuters
Bloomberg
YTD
(4%)
(14%)
(19%)
UBM.L
UBM LN
INFORMA AT A GLANCE
Equities
16 April – Now: Underperform
11 September 2008 – 16 April 2009: Neutral
June 2007 – September 2008: Outperform
27
Pro Forma revenue breakdown per division 2009e
Academic and
Scientific Division
31%
Commercial
Division
37%
Pro Forma Adj. profit per division 2009e
Commercial
Division
33%
Academic and
Scientif ic Division
38%
Prof essional
Division
29%
Professional
Division
32%
Breakdown of turnover by revenue stream
Geographic Revenue Breakdown in 2008
Performance
Improvement
18%
RoW
19%
UK
15%
Publishing
47%
Events
35%
Source: Company, Exane BNP Paribas
Continental
Europe
29%
North America
37%
Informa: Late cyclical pressure in STM
Equities
28

Recent share price rallye driven by relief on balance
sheet pressure
Average STM subscription length
4.0
3.5

But we now have a more cautious view on Scientific
information



Library budgets pressure to put pressure on subscription
renewals and one-off purchases from August 2009
Informa less aggressive than peers in pushing multi-year
contracts
Informa’s STM articles are more expensive than peers
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Late-cyclicality of Events not fully priced in



Springer
Wiley
100.0
We are now assuming no final dividend for FY09 in order to avoid
a covenant breach in FY10 vs. consensus of around 10-12p per
share
90.0
80.0


Informa currently trades on EV/EBIT09 of 8x, in line with peers
despite higher cyclicality and balance sheet risk
Key negative catalysts: earnings downgrades on FY10 forecasts
Key risk: higher-than-expected cost savings to protect balance
sheet
Thomson
Reuters Science
Informa
Informa
70.0
Catalysts and risks

Wolters Kluwer
Health
STM journal prices per citation and article (USD)
Balance sheet shows dividend pressure


Exhibitors’ space for H109 has been booked before the
worsening of the downturn
Proprietary tracking suggests worsening trends in the Events
business
Reed Elsevier
Price per
citation

60.0
Springer
10.0
15.0
20.0
Indsutry Average
Wolters Kluwer
MIT Press
CUP
OUP
John Wiley
Reed Elsevier
50.0
40.025.0
Price per article
30.0
35.0
40.0
30.0
20.0
10.0
0.0
Source: journalprices.com, Exane estimates
Most cyclical exposure within peers
Equities
29

Events business likely to suffer in 2009




45% of group revenues are late cyclical
Small conferences at risk
Growth in Dubai only likely to mitigate decline
in European and financial events
Sponsorship revenues to large events under
growing pressure
Percentage of cyclically exposed revenues
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%


PI organic revenue decline likely to accelerate
in FY09
Management taking aggressive cost control
measures



Capex cut by 50%
Reduction in variable costs
GBP35m cost savings plan (c.2.6% of revs.)
Pearson
Wolters
Kluw er
Reed
Elsevier
Thomson
Reuters
Informa
Events revenue breakdown
Other
5%
Exhibitors
19%
Sponsorship
15%
Source: Company, Exane BNP Paribas
Delegate Fees
61%
INFORMA (Underperform)
Publishing | Media (Neutral) - United Kingdom
Equities
30
Price at 21 Sep. 09: 319p
Stockmarket ratios
P/E
P / CF
FCF yield
P / BVPS
Net yield
EV / Sales
EV / Restated EBITDA
EV / Restated EBIT
EV / OpFCF
Per share data (p)
EPS restated
EPS (IBES)
CFPS
BVPS
Net dividend
Accounts (GBPm)
Sales
EBITDA
EBIT
Net attributable profit restated
Operating free cash flow
Cash flow, group share
Adjusted net debt
Shareholders' funds, group share
Ratios
Restated EBITDA margin
Restated EBIT margin
Net margin
ROCE incl gross goodwill
ROE
Dec. 08
8.3x
7.3x
14.8%
1.34x
3.5%
2.18x
8.8x
9.1x
8.7x
Dec. 08
34.64
33.94
39.72
216.57
10.00
Dec. 08
1,278
317
306
171
319
197
1,342
1,072
Dec. 08
24.8%
23.9%
3.8%
5.2%
16.0%
TP: 240p
Dec. 09e
10.6x
9.6x
8.9%
1.47x
3.3%
2.26x
9.3x
9.7x
10.6x
Dec. 09e
30.11
32.24
33.33
217.73
10.60
Dec. 09e
1,278
311
299
168
273
187
972
1,296
Dec. 09e
24.3%
23.4%
2.0%
3.6%
13.0%
Dec. 10e
11.8x
10.7x
7.6%
1.49x
3.1%
2.29x
10.2x
10.7x
11.7x
Dec. 10e
27.00
30.34
29.72
213.86
10.00
Dec. 10e
1,221
274
261
161
239
177
887
1,274
Dec. 10e
22.4%
21.4%
3.1%
4.8%
12.6%
Upside: (24.8%)
Dec. 11e
11.5x
10.5x
7.3%
1.52x
3.3%
2.18x
9.9x
10.3x
11.7x
Dec. 11e
27.77
33.38
30.55
210.64
10.40
Dec. 11e
1,251
276
263
166
232
182
808
1,255
Dec. 11e
22.1%
21.1%
3.5%
5.3%
13.2%
Dec. 12e
10.8x
9.9x
7.8%
1.53x
3.5%
2.04x
9.2x
9.7x
11.0x
Dec. 12e
29.49
34.72
32.33
208.68
11.04
Dec. 12e
1,292
286
273
176
239
193
724
1,244
Dec. 12e
22.1%
21.1%
4.2%
6.3%
14.1%
Analyst: Sami Kassab (+44) 207 039 9448 - sami.kassab@exanebnpparibas.com
EV (GBPm): 2,885
Enterprise value (GBPm)
Market cap (*)
+ Adjusted net debt
+ Other liab. and comm.
+ Revalued minority interests
- Revalued investments
= Enterprise value
Market cap (GBPm): 1,901
Dec. 09e
1,901
972
10
2
0
2,885
%EV
66%
34%
0%
0%
0%
Free float (GBPm): 1,901 (100%)
Historical price
428
42%
21%
321
0%
214
(21%)
Financial structure*
Gearing 09
75%
Debt/Mkt cap 09
51%
Debt/EBITDA 09
3.1x
* for FY ending Dec. 09e
Risk
Risk rating
1.32
Beta *
0.95
1y HV
65.0
* vs DJ STOXX50
CAGR
Sales
EBITDA
EBIT
Net att. profit restated
Operating free cash flow
Cash flow, group share
EPS restated
CFPS
2004/2009 2009/2013
16.3%
1.1%
17.8%
(1.2%)
18.6%
(1.4%)
16.8%
1.5%
19.6%
(2.4%)
14.3%
1.3%
12.5%
(0.1%)
10.1%
(0.3%)
107
(42%)
0
09/08
(63%)
12/08
Price (lhs)
03/09
06/09
Price rel DJ STOXX50 (rhs)
Performance
Absolute
Rel. sector
Rel. DJ STOXX50
1w
1%
(0%)
(0%)
1m
16%
9%
12%
12m range
High
Low
Price
335
121
%ch.
(5%)
164%
3m
54%
31%
34%
6m
51%
25%
8%
12m
13%
24%
29%
Tickers
Reuters
Bloomberg
YTD
58%
41%
33%
INF.L
INF LN
PEARSON AT A GLANCE
28 July 2009 – Present: Outperform
Equities
16 April 2009 – 27 July 2009: Neutral
11 March 2008 – 16 April 2009: Outperform
Feb. 2005 – 11 March 2008: Neutral
31
Geographic breakdown of revenues
Rest o f Wo rld
3%
A sia P acific
6%
Operating cost breakdown (as % of revs.)
IT costs
2%
United Kingdo m
12%
Co ntinental Euro pe
11%
A&P and
marketing
5%
Property costs
7%
Depreciation of
property, plant
and equipment
2%
Other costs
3%
Staff cost
37%
Distribution
costs
7%
Amortisation of
Prepublication
expenses
7%
No rth A merica
68%
Source: Company, Exane BNP Paribas
Royalties
expensed
10%
Paper, printing,
binding,
production
20%
A solid asset mix within Media companies
Equities
32

A solid asset mix
Publishers’s exposure by client type, 2008
100
No major structural challenges
90

Little exposure to advertising revenues
70

Good pricing power
50

A solid balance sheet
30

21
80
60
72
91
40
31
18
14
7
0
Pearson
With a favourable exposure to
defensive client types

Strongest exposure to student market
through textbooks



Non-discretionary spending
Little exposure to corporate budgets
Exposure to politically sensitive school
funding segment
33
35
20
10

56
58
34
Reed Elsevier
Consumer markets
Students
7
10
11
Thomson
Reuters
Wolters Kluw er
Informa
Institutional markets
Corporate markets
Divisional breakdown of adj. op. profit 2008e
International
School and
ELT
7%
International
Testing
2%
Professional
4% FT Publishing
8%
International
Higher Ed.
6%
IDC
16%
US
Assessment
and other
10%
Penguin
13%
US School
14%
Source: Exane BNP Paribas estimates
US Higher
Education
20%
Further consensus upgrades likely
Equities
33
Despite
strong share price reaction on Q209
results, we see further 25% upside


We are 9% ahead of consensus
We see improving operating trends in areas of
weaknesses




Rebound in new US school textbook adoption
market in 2010 confirmed by contact with Texas
Education Agency
Impact of Obama stimulus plan revised upwards for
2010
Penguin to benefit from restocking activity in H2092010
While areas of strength are powering ahead of
expectations



Market share gains greater than anticipated
Higher Education too remain very strong in H2092010
International Education to remain strong as
underpinned by discussion with privately-held
competitors of Pearson
Exane vs. consensus EPS10e
63.0
62.0
61.0
60.0
59.0
58.0
57.0
56.0
55.0
54.0
Exane
Consensus
Source: FactSet, Exane BNP Paribas estimates
Market share gains in US School
38%
37%
36%
35%
34%
33%
32%
31%
30%
29%
28%
FY08
Source: Exane BNP Paribas estimates
H109
Economic recovery not yet priced in
Equities
34
Blue sky scenario vs. base case
Unlike other media stocks, Pearson share price is
not pricing in any economic recovery

14%
12%
10%
8%
Blue
sky scenario suggests 13% upside to DCF

with a recovery in FT advertising revenues and
book retail sales in 2010 and improvement in
state budgets in 2011
6%
4%
2%
0%
DCF value
Stock
continues to trade on historic lows in terms
of forward PE despite:
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
Source: Exane BNP Paribas estimates
Nov 08
Nov 07
Nov 06
Nov 05
Nov 04
Nov 03
Nov 02
Nov 01
Nov 00
Nov 99
Nov 98
Nov 97
0.0
Nov 96

45.0 Exane BNP Paribas estimates
Source:
Nov 95

Evidence of lower cyclicality than in 2000
Evidence of innovation and competition
leadership
Likely improvement in growth fundamentals
Pearson one-year forward PE
Nov 94

EP S10e
Equities
Sustainable competitive advantage drives
market share gains
35


32.2%
Pearson has been consistently gaining
market shares in:





PSON market share in US Higher Ed.
Market share gains in Education
32.0%
31.8%
US higher education,
UK school and higher ed,
US testing
Global professional certification
31.6%
31.4%
31.2%
31.0%
And at the FT group and Penguin
30.8%



FT and The Economist show growth in
print circulation in 2008
Increase in number of Penguin
bestsellers
Three drivers of sustainable competitive
advantage
2005
2006
2007
2008e
Penetration rate of digital textbooks among publishers
60%
54%
50%
44%
40%
30%
32%
30%



Technology lead in Education
Strong balance sheet vs. over-leveraged
competitors
Access to quality content
17%
20%
10%
10%
0%
Pearson
Cengage
Learning
McGraw -Hill John Wiley &
Sons
Georg von
Holtzbrinck
Jones &
Bartlett
Source: Exane BNP Paribas estimates * Number digital textbooks published divided
by total number of textbooks on US Higher Ed. Market
Equities
Attractive exposure to counter cyclical trends in
Higher Education
36



Applications for academic year starting
September 2009 is up 8% in the UK, the
biggest rise in 8 years
Pricing power remains


Own analysis of applications to 2009/10
academic year show strong growth
US PPI shows college textbook prices up
9% yoy in March. Stable trends
Expect consensus of +3% to revise up to
our +5% in FY09
(5.0%)
(10.0%)
Enrollment in degree granting institutions growth rate
USGDP Real Growth Rate
University
Growth in applications 2009 vs. 2008
Brown
21.3%
Stanford
20.0%
Duke
17.0%
M.I.T
17.0%
Tulane
16.5%
U. of Virginia
16.0%
Yale
14.0%
Dartmouth College
13.9%
Rice
13.0%
Columbia
12.0%
Carnegie Mellon
12.0%
Princeton
8.7%
U. of Chicago
7.0%
Harvard
6.3%
Cornell
4.7%
Northwestern
1.5%
UCLA
1.0%
NYU
0.5%
UC Berkeley
0.4%
U. of Pennsylvania
0.1%
TOTAL
8.5%
Source: NCES, Exane BNP Paribas estimates
2005
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
0.0%
1966
Growth in the number of applicants for
freshman year
5.0%
1963
University enrolment increase when the job
market tightens
1960

10.0%
1957
c30% of group operating profit
15.0%
1954

US real GDP vs. University
enrolment growth
1951

Higher Education shows historical countercyclical trends
1948

Good exposure to International Education
assets
Equities
37
Secular
revs.)

University education enrolment rates
1991-Now
growth of emerging markets (12% of
90
Rise in secondary and university education
enrolment rates
Rise
in English language learning due to
globalisation
80
70
60
50
Now
1991
40



By 2018, there will be more English speakers
in China than anywhere else in the world
Pearson tapping into USD1.9bn Chinese
market for English language service. Now #2.
Move into the global English language
certification (TOEFL) market
bid for UK SAT contract (c.
GBP28m annual revenues)
30
20
10
0
Turkey
USA
Poland
Egypt
South Africa
Pearson International Education revenues
Successful
EMEA
6%
Other
4%
LatAm
9%
UK
37%
2009
underlying revenue growth raised from
6% to 7%
India
Africa
10%
Asia
15%
Europe
19%
Source: OECD, company, Exane BNP Paribas estimates
US School to improve in 2010
Equities
38




Change in state textbook budgets
US School textbook account for an est. 14% of group
EBIT (vs. 20% in 2002)
Most states show major budget gaps for FY09/10
But Pearson is gaining market share in US school
A more positive view of 2010 driven by:

Rebound in new textbook adoptions from USD500 to
USD900m



c.+13% impact offset by assumptions of 10% decline
in open territories
Texas rather than California is the key adoption
state in 2010
ARRA funds available (positive impact on Pearson
School software unit)
900
Texas instructional materials & IS budget
800
700
600

Pent-up demand from 2008-2009 postponements
500
400

Pearson New adoption participation rate to increase
from 89% to 94%
300
200
100

We forecast Pearson North American School to
grow 6% (vs. -4% in 2009e)
0
Sep 2008 to Aug 2009
Sep 2009 to Aug 2010
Educator Quality, Information Systems and Certifications
Sep 2010 to Aug 2011
Technology/Instructional Materials
New adoption calendar 2009-2011e
Equities
Discipline (Core subjects only)
Mathematics
2009
Idaho (K-5)
Kentucky (K-5)
North Carolina K-5
South Carolina (K-5)
Oregon (K-5)
South Carolina (6-8)
Idaho (6-12)
Kentucky (6-12)
Oregon (6-8)
Est. Enrollment
119,397
295,874
661,028
311,724
249,118
164,702
139,801
340,773
128,725
TOTAL Mathematics
Reading
2,411,142
California (K-5)
Georgia (K-5)
California (6-8)
Georgia (6-8)
New Mexico (9-12)
TOTAL Reading
Literature (6-12)
Florida
New Mexico (9-12)
Georgia (6-8)
South Carolina (9-12)
TOTAL Literature
Science
South Carolina (9-12)
Tennessee (K-5)
Tennessee (6-12)
TOTAL Science
Social Studies
2010
Florida K-5
Indiana 1-8
Oklahoma (K-5)
West Virginia (K-5)
Florida (6-12)
North Carolina (6-12)
South Carolina (9-12)
Indiana (9-12)
Oklahoma (6-12)
Oregon (9-12)
West Virginia (6-12)
2,836,163
736,294
1,470,732
370,519
97,206
5,510,914
Texas (1-5)
New mexico (K-5)
New Mexico (6-8)
Texas (Elective 6-8)
1,413,764
97,206
370,519
203,514
2,085,003
Georgia (9-12)
New Mexico (6-8)
Texas
453,015
76,051
2,255,752
Mississippi
Oregon
Mississippi
Oregon
2,784,818
229,976
249,118
250,711
300,910
West Virginia (6-12)
Virginia (K-5)
1,030,715
148,763
537,322
203,514
494,448
434,933
1,132,895
474,185
554,471
Indiana (1-6)
Indiana (6-12)
TOTAL Social Studies
Foreign Languages (6-12 only)
TOTAL Foreign Languages
* we estimate that core subjects cover over 85% of total industry revenues
Total number of pupils in Core subjects
pct change
246,895
97,206
316,514
127,580
250,711
1,038,906
13,207,516
1,711,551
147,431
76,051
998,697
2011
Tennessee (K-5)
Virginia (K-5)
Alabama (K-5)
South Carolina (9-12)
Tennessee (6-12)
Virginia (6-12)
Alabama (6-12)
Oklahoma (K-5)
South Carolina (K-5)
Arkansas (k-5)
Mississippi (K-5)
Arkansas (6-8)
Mississippi (6-8)
2,933,730
1,028,656
Arkansas
New Mexico (9-12)
Oklahoma
West Virginia (7-12)
Mississippi
Est. Enrollment
1,214,020
638,447
281,005
122,960
1,413,764
745,561
203,514
554,471
316,514
172,185
148,763
5,811,204
Mississippi
Arkansas
Florida (9-12)
Indiana (9-12)
Louisiana (9-12)
South Carolina (9-12)
North Carolina (9-12)
Arkansas (K-5)
Oklahoma (K-5)
Texas (Eng/Span 2-6)
South Carolina (K-5)
South Carolina (K-5)
Alabama (K-5)
Georgia (K-5)
New Mexico (K-5)
Idaho (K-5)
Mississippi (K-5)
West Virginia (K-5)
Alabama (6-12)
Georgia (6-12)
New Mexico (6-12)
South Carolina (9-12)
Mississippi (6-12)
Idaho (6-12)
West Virginia (6-12)
686,085
Georgia
North carolina
Tennessee
New Mexico (6-8)
Idaho
823,534
745,561
494,448
76,051
139,801
2,279,395
15,525,947
18%
Kentucky
Oregon
Est. Enrollment
434,933
537,322
345,645
203,514
494,448
657,272
391,625
3,064,759
281,005
426,948
216,193
229,976
108,658
118,519
1,381,299
250,711
246,895
497,606
1,413,764
554,471
326,355
203,514
745,561
216,193
281,005
1,676,327
54,307
54,307
5,525,804
345,645
736,294
147,431
119,397
229,976
122,960
391,625
823,534
173,257
203,514
250,711
139,801
148,763
3,832,908
340,773
300,910
641,683
14,944,059
-4%
39
Equities
Impact from the new US administration: more in
2010 than in 2009
40
c.$98 billion Obama Stimulus Plan for US Education
Direct exposure for Pearson
$650 million to modernize classrooms,
including computer, science labs and teacher
technology training.
$250 million to design and develop data
systems to analyze individual student data
and to provide teachers effective tools.
$100 million to improve instruction in
science, math and engineering. Pearson
Exposure: Professional development
Indirect exposure for Pearson
$15.6 bn to increase grant threshold from by
$500 from $4,850 to $5,350, sustaining
enrollment growth
$10 bn in Title I Fund, that can be partly
used to purchase of textbooks
$65bn stabilization fund to reduce local
school districts spending cuts (incl. IDEA)
Source: www.nacsl.org, www.ed.gov, Exane BNP Paribas estimates
Trade book publishing to benefit from restocking
Equities
41

Penguin accounts for 13% of group EBIT
US Household spending on books 1930-2005
25%
20%
15%
(5%)
(10%)

US book retail market likely to be down 2-4%
Structural decline of trade reference
publishing (dictionnaries, travel guides)


We estimate it accounts between 10 and 15%
of Penguin revenues
Long term favourable margin impact from the
migration to ebooks
62
59
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
19
19
19

56
(15%)
50

0%
19

Borders mentions restocking
Penguin CEO talks about restocking
Destocking started in Q408
5%
53

10%
19
Destocking activity has hurt the US market in
H1 but
19

Kindle vs. print book publishing profitability
Units
Basic assumption for print run
Free copies
Gross sales
Return rate (%)
Returns
Never Shipped (inventory obsolescence)
Sell through
Print, Paper, Distribution cost per copy (USD)
Royalty rate (in pct of retail price) (%)
USD
Suggested Retail Price (USD)
Retail bookstore revenues (USD) per book
Retail bookstore discount (%)
Publishers revenues
Cost breakdown:
Paper, Printing, Distribution
Editorial costs (art, design, editorial)
Marketing costs
Author royalties
Inventory write off
G&A
EBIT
EBIT margin (%)
Kindle Book EBIT vs. Print Book EBIT (%)
Print Book
Kindle Book
500,000
5,000
495,000
35
173,250
7,425
314,325
2
10.0
500,000
5,000
495,000
0
0
0
495,000
0
12.5
20
9,900,000
45
3,284,696
10
4,950,000
57
2,022,075
1,000,000
10,000
400,000
628,650
361,350
492,704
391,992
12
0
50,000
600,000
618,750
0
303,311.25
450,013.75
22
15
Source: Exane BNP Paribas estimates
FT Group improving the mix
Equities
42
FT publishing is diversifying away
pressure points

Disposals of non global brands

Investment in ft.com drives a trebling of
visitors while print circulation declined 10%

Exploiting pricing power and geographic
opportunities to offset an expected 25%
decline in FT advertising revenues in FY09
Trends in the number of UMV at ft.com
Millions

12
10
8
6
4
2
0
Jan 05
Sep 05
Jan 06
Mar 06
Mar 07
Sep 07
Mar 08
Mar 09
Change in global FT print circulation

IDC: cutting top line guidance
4%


Independent asset valuation services have
seen surge in demand
But pression on renewals and new sales
activity led management to cut underlying
revenue growth guidance for FY09 (profit
guidance unchanged)
2%
0%
(2%)
(4%)
(6%)
(8%)
(10%)
Jan 08
Mar 08
May 08
Jul 08
Sep 08
Source: ABC, Exane BNP Paribas estimates
Nov 08
Jan 09
Mar 09
May 09
PEARSON (Outperform)
Publishing | Media (Neutral) - United Kingdom
Equities
43
Price at 21 Sep. 09: 760p
Stockmarket ratios
P/E
P / CF
FCF yield
P / BVPS
Net yield
EV / Sales
EV / Restated EBITDA
EV / Restated EBIT
EV / OpFCF
Per share data (p)
EPS restated
EPS (IBES)
CFPS
BVPS
Net dividend
Accounts (GBPm)
Sales
EBITDA
EBIT
Net attributable profit restated
Operating free cash flow
Cash flow, group share
Adjusted net debt
Shareholders' funds, group share
Ratios
Restated EBITDA margin
Restated EBIT margin
Net margin
ROCE incl gross goodwill
ROE
Dec. 07
17.2x
11.6x
4.8%
1.75x
3.9%
1.73x
11.2x
12.5x
15.4x
Dec. 07
46.66
68.99
458.19
31.60
Dec. 07
4,218
652
584
372
473
551
1,024
3,695
Dec. 07
15.4%
13.8%
7.7%
5.6%
10.1%
TP: 850p
Dec. 08
11.2x
5.0x
10.7%
1.13x
5.3%
1.49x
8.8x
9.7x
9.5x
Dec. 08
57.66
57.70
127.87
570.78
33.80
Dec. 08
4,811
817
737
460
752
1,020
1,460
4,603
Dec. 08
17.0%
15.3%
8.6%
8.6%
10.0%
Dec. 09e
12.9x
7.1x
8.1%
1.29x
4.8%
1.47x
9.1x
10.4x
11.5x
Dec. 09e
58.68
57.23
106.60
589.42
36.50
Dec. 09e
5,444
881
768
468
696
850
1,327
4,753
Dec. 09e
16.2%
14.1%
7.8%
8.7%
9.8%
Upside: +11.9%
Dec. 10e
12.2x
6.8x
7.8%
1.26x
5.2%
1.40x
8.6x
9.6x
11.1x
Dec. 10e
62.38
57.80
110.92
604.92
39.42
Dec. 10e
5,546
901
808
498
700
885
1,141
4,878
Dec. 10e
16.2%
14.6%
8.1%
8.6%
10.2%
Dec. 11e
11.3x
6.7x
7.8%
1.21x
5.6%
1.32x
8.0x
8.9x
10.5x
Dec. 11e
67.30
61.88
113.61
626.20
42.58
Dec. 11e
5,766
951
854
537
724
906
979
5,050
Dec. 11e
16.5%
14.8%
8.5%
8.7%
10.6%
Analyst: Sami Kassab (+44) 207 039 9448 - sami.kassab@exanebnpparibas.com
EV (GBPm): 7,977
Enterprise value (GBPm)
Market cap (*)
+ Adjusted net debt
+ Other liab. and comm.
+ Revalued minority interests
- Revalued investments
= Enterprise value
Market cap (GBPm): 6,125
Dec. 09e
6,125
1,327
233
521
229
7,977
%EV
77%
17%
3%
7%
3%
Free float (GBPm): 6,125 (100%)
Historical price
854
100%
75%
732
50%
610
25%
Financial structure*
Gearing 09
26%
Debt/Mkt cap 09
22%
Debt/EBITDA 09
1.5x
* for FY ending Dec. 09e
Risk
Risk rating
0.89
Beta *
0.70
1y HV
34.4
* vs DJ STOXX50
CAGR
Sales
EBITDA
EBIT
Net att. profit restated
Operating free cash flow
Cash flow, group share
EPS restated
CFPS
1996/2009 2009/2011
6.3%
2.9%
7.2%
3.9%
7.8%
5.5%
4.3%
7.1%
5.3%
2.0%
8.3%
3.2%
2.6%
7.1%
6.6%
3.2%
488
0%
366
09/08
(25%)
12/08
Price (lhs)
Performance
Absolute
Rel. sector
Rel. DJ STOXX50
12m range
High
Low
03/09
06/09
Price rel DJ STOXX50 (rhs)
1w
2%
1%
1%
1m
4%
(2%)
1%
Price
764
520
%ch.
(1%)
46%
3m
26%
7%
10%
6m
14%
(6%)
(18%)
12m
25%
37%
43%
Tickers
Reuters
Bloomberg
YTD
24%
11%
4%
PSON.L
PSON LN
REED ELSEVIER AT A GLANCE
11 September 2008 – Now: Underperform
11 March 2008 –September 2008: Neutral
Oct. 2004 – March 2008 : Underperform
Equities
44
Pro Forma revenue breakdown per division 2009e
B2B magazines
16%
Science,
Technology &
Medical
30%
Exhibitions
10%
Pro Forma Adj. profit per division 2008e
B2B
magazines
6%
Exhibitions
11%
Science,
Technology &
Medical
40%
Risk solutions
18%
Risk solutions
17%
Legal &
Regulatory
27%
Geographic revenue breakdown 2008
Rest of Europe
12%
North America
56%
UK
14%
Source: Company, Exane BNP Paribas
Operating cost as % of revs.
Amor.of
capitalised IT
spending
Operating
2%
lease rentals
3%
Rest of World
8%
The Netherlands
10%
Legal &
Regulatory
25%
Staff cost
43%
Depreciation
2%
Prepub costs
and other cost
of sales
50%
Dead money for a while
Equities
45



Bearish outlook from new CEO leads to capital increase

Surprise move given CDS of 35bps, but removes refinancing risks

LexisNexis top line and margin guidance has been revised down

Exhibition and RBI below expectations
Stock likely to remain dead money until

Communication of new investment budget (Autumn 2009)

Clarification of 2010 trends (subscription renewals trends in Q3 and Q409)

Positive catalyst from disposal of RBI US titles
We close shorts but prefer Pearson or Wolters Kluwer

Pearson is gaining market shares while LexisNexis is under pressure

Wolters Kluwer also benefits from cost efficiency gains, reaffirmed outlook and is less
expensive
LexisNexis: into a new investment phase?
Equities
46

A difficult market environment



Further deterioration of law firms environment in Q109
LexisNexis faces increased competitive pressure

Thomson Reuters is gaining share on Lexis Nexis

Librarian preferences for Thomson West are at a
record high


Westlaw, reported below-expectation Q1 09 organic
revenue growth (+2%), guided on further slowdown
Structural pressure in directories and news
aggregation business
Peer Monitor Index vs. legal information
organic revenue growth
9%
8%
7%
6%
5%
4%
3%
2%
1%
H1 06

We believe cost effeciency programme likely to be
reinvested in the product mix
We have cut our op. margins by 70bps and stand
below consensus
H2 06
H1 07
LexisNexis USA org. rev. growth
H2 07
H1 08
H2 08
Q1
TRIL Legal org. rev. growth
PMI (rhs)
Source: Hildebrandt, Exane BNP Paribas estimates
Exane BNP Paribas vs. consensus legal
margins expectations
Cost saving opportunities to be largely reinvested

70.0
65.0
60.0
55.0
50.0
45.0
40.0
35.0
31%
30%
29%
28%
27%
26%
25%
24%
2009E
Exane BNP Paribas
Source: Exane BNP Paribas estimates
2010E
2011E
Consensus
Equities
Scientific publishing likely to decline due to late
cyclical pressure
47
80
70
60
50
40
30
20
10
08
08
07
09
Q
1
Q
3
Q
1
07
Source: Roarmap, Exane BNP Paribas estimates
Q
3
06
Q
1
Q
3
05
05
04
06
Q
1
Q
3
Q
1
04
0
Q
3

90
03

Journal price increase
5%
1%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-10%
Nb. Of open access mandates
Q
1

Price increases have driven 80% + of historic top
line growth of STM publishing revenues
2010 pricing pressure likely to persist due to long
term nature of scientific journal subscriptions
Growth in open access mandates adds to long term
pricing pressure. New bill introduced to US
congress could accelerate the shift
Proprietary contacts with managers of scientific
publishers suggests lower price increases than
before.
03

2010 pricing power unlikely to return
Q
3
Past
Q
1

02

Publisher
Springer
Taylor and Francis (1-2-3 offer)
AMA (including JAMA)
American Mathematical Society
American Physiologial Society
American Society of Microbiology
Annals of Internal Medecine
ASM Journals
Brill
Duke University Press
IOP
National Academy of Sciences - PNAS
OECD Publishing
Oxford University Press
Rockfeller U. Press
SPIE
02

2009 to benefit from late cyclicality but 2010
revenues likely to decline due to library budget
pressure
Small competitors have announced flat to declining
prices for 2010
Springer has announced 5% price increases for
2010
Consensus still likely to come down (+3% vs. -1%)
Q
3

2010 price increases to journal
subscriptions
top line at risk
Q
1
2010
Equities
RBI and Reed Exhibitions under cyclical
pressure
48

Deterioration in Reed Exhibitions went through
difficult months of May and June





Nb. of shows
tracked
Total number of
exhibitors 2008
Total number of
exhibitors 2009
Growth
Trends have deteriorated with a double digit decline
in exhibitors in May & June
January
February
13
18
8,338
6,376
8,097
6,263
-3%
-2%
March
17
5,145
4,553
-12%
Consensus is too optimistic (-16% vs. -10% for
FY09)
April
14
8,064
7,793
-3%
May
11
9,677
6,792
-30%
June
July
August
YTD
10
7
1
91
8,747
2,781
164
49,292
7,848
2,799
167
44,312
-10%
1%
2%
-10%
Ongoing weakness to persist at RBI


Only broker on the street to have a monthly tracking
of exhibitor and visitor numbers to Reed Exhibitions
Y-o-y decline in nb. of exhibitors at Reed
Exhibitions
More negative view of RBI online (job classified
advertising)
Cautious view from CEO
Additional disposal and closure of print titles likely
Number of classified ads on totaljobs.com
180
160
140
120

High operating leverage likely to put pressure on
margins
100
80
60
40
20
0
February 2008
Source: Exane BNP Paribas estimates
June 2009
REED ELSEVIER PLC (Underperform)
Publishing | Media (Neutral) - United Kingdom
Equities
49
Price at 21 Sep. 09: 481p
Stockmarket ratios
P/E
P / CF
FCF yield
P / BVPS
Net yield
EV / Sales
EV / Restated EBITDA
EV / Restated EBIT
EV / OpFCF
Per share data (p)
EPS restated
EPS (IBES)
CFPS
BVPS
Net dividend
Accounts (GBPm)
Sales
EBITDA
EBIT
Net attributable profit restated
Operating free cash flow
Cash flow, group share
Adjusted net debt
Shareholders' funds, group share
Ratios
Restated EBITDA margin
Restated EBIT margin
Net margin
ROCE incl gross goodwill
ROE
Dec. 07
17.6x
10.8x
10.4%
5.14x
2.9%
2.76x
11.4x
13.4x
7.8x
Dec. 07
35.54
57.80
121.83
18.17
Dec. 07
5,331
1,287
1,100
452
1,893
735
662
1,568
Dec. 07
24.2%
20.6%
16.8%
27.8%
28.8%
TP: 440p
Dec. 08
13.3x
9.3x
7.6%
12.57x
3.2%
3.32x
11.8x
13.2x
14.4x
Dec. 08
44.06
42.67
63.17
46.59
18.90
Dec. 08
5,334
1,507
1,340
486
1,234
697
5,767
504
Dec. 08
28.3%
25.1%
8.7%
16.1%
96.4%
Dec. 09e
11.4x
8.7x
7.6%
5.18x
4.0%
2.37x
8.4x
9.4x
10.9x
Dec. 09e
42.32
45.13
55.50
92.80
19.29
Dec. 09e
6,045
1,712
1,519
485
1,315
636
4,308
1,111
Dec. 09e
28.3%
25.1%
6.9%
16.3%
43.7%
Upside: (8.5%)
Dec. 10e
11.4x
8.0x
10.5%
4.78x
4.0%
2.29x
8.0x
9.2x
9.1x
Dec. 10e
42.25
42.16
59.91
100.72
19.47
Dec. 10e
6,040
1,719
1,499
513
1,525
727
3,779
1,209
Dec. 10e
28.5%
24.8%
11.1%
19.8%
42.4%
Dec. 11e
10.8x
7.7x
11.2%
4.32x
4.3%
2.16x
7.5x
8.5x
8.3x
Dec. 11e
44.74
46.33
62.23
111.46
20.45
Dec. 11e
6,134
1,769
1,552
545
1,585
758
3,189
1,342
Dec. 11e
28.8%
25.3%
12.1%
22.1%
40.6%
Analyst: Sami Kassab (+44) 207 039 9448 - sami.kassab@exanebnpparibas.com
EV (GBPm): 14,332
Enterprise value (GBPm)
Market cap (*)
+ Adjusted net debt
+ Other liab. and comm.
+ Revalued minority interests
- Revalued investments
= Enterprise value
Market cap (GBPm): 5,496
Dec. 09e
5,496
4,308
462
4,201
135
14,332
%EV
38%
30%
3%
29%
1%
Free float (GBPm): 5,496 (100%)
Historical price
664
48%
32%
581
16%
498
0%
Financial structure*
Gearing 09
203%
Debt/Mkt cap 09
78%
Debt/EBITDA 09
2.5x
* for FY ending Dec. 09e
Risk
Risk rating
1.16
Beta *
0.78
1y HV
42.0
* vs DJ STOXX50
CAGR
Sales
EBITDA
EBIT
Net att. profit restated
Operating free cash flow
Cash flow, group share
EPS restated
CFPS
1999/2009 2009/2011
2.6%
0.7%
(0.1%)
1.7%
3.4%
1.1%
(11.2%)
6.0%
4.4%
9.8%
4.1%
9.2%
(9.7%)
2.8%
7.5%
5.9%
415
(16%)
332
09/08
(32%)
12/08
Price (lhs)
03/09
06/09
Price rel DJ STOXX50 (rhs)
Performance
Absolute
Rel. sector
Rel. DJ STOXX50
1w
1%
(1%)
(0%)
1m
11%
5%
8%
12m range
High
Low
Price
603
420
%ch.
(20%)
15%
Calendar
12 Nov. 09
3m
5%
(11%)
(9%)
Q3 2009 Results
6m
(0%)
(18%)
(28%)
12m
(17%)
(9%)
(5%)
Tickers
Reuters
Bloomberg
YTD
(1%)
(11%)
(17%)
REL.L
REL LN
THOMSON REUTERS AT A GLANCE
Equities
24 October 2008 – Now: Neutral
11 September 2008 – 24 October 2008: Outperform
11 March 2008 – September 2008: Underperform
June 2007 – March 2008: Outperform
50
Thomson-Reuters pro forma
revenue breakdown 2009e
Healthcare
4%
Tax & Acct.
5%
Scientific
5%
Thomson-Reuters pro forma adj.
EBIT breakdown 2009e
Healthcare
4%
legal
27%
Tax & Acct.
7%
Financial
43%
Financial
59%
Breakdown of 2008 revenues by currency
Other
13%
EUR
15%
GBP
10%
Source: Company, Exane BNP Paribas
USD
62%
Scientific
6%
legal
40%
Markets division: Past the worst?
Equities
51
Headcount-related revenues are driven by number of
terminals




Q209 organic revenue growth in TR Markets
Past the peak in banking layoffs and hedge fund
destruction?
2010 to benefit from rollout of new products
Resilience of flagship market data terminals
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Number of Reuters 3000 Xtra accesses
88
100
112
124
125
Number or Reuters Dealing accesses
18
18
18
18
18
Number of layoffs in banking
120,000

Pockets of growth remain




Regulatory and technological changes drive revenue growth
in Enterprise division (c. 20% of TRM)
IDC guides for +5% organic revenue growth in 2009
2% price increases for FY09
Acceleration of buy vs. build within large financial firms (risk
solutions, client reporting, process automation)
100,000
80,000
60,000
40,000
20,000
0
Q1 08

Areas of risks as well


10% of TRM revs are volume-based (mostly in FX trading)
ICAP reports declining trading volumes in Q109
Americas
Q2 08
Q3 08
Q4 08
Europe
Q1 09
Q2 09
Asia
Yoy change in FX trading volumes
A more positive view of TRM with forecasts revised up
and ahead of consensus

Source: ICAP, HFR, Bloomberg, Exane BNP Paribas
TR Professional deserves a valuation premium
to Reed Elsevier and Wolters Kluwer
Equities
52

TRIL vs. WKL tax organic revenue growth
TRIL better positioned than REL in Legal



Less than transactional revenues
Less exposure to small law firms and
directories
Exposure to counter-cyclical law textbooks
12%
10%
8%
6%
But likely to suffer strong pricing pressure from
large law firms

4%
2%

TRIL better positioned than WKL in Tax


0%
2004
Due to better online platform and strong
investments
But WKL launches new platform in March 09
2005
2006
Thomson Reuters Tax & Accounting
2007
2008
2009
2010
Wolters Kluwer Tax, Accounting, Legal
Percentage of revenue from small law firms
35%
TRIL better than REL in Scientific and
Healthcare as not exposed to open access risk

30%
30%
25%
20%
15%
TR Professional deserves 1-pt higher EV/EBIT
multiple than REL or WKL

2011
15%
10%
5%
0%
Thomson Reuters
Reed Elsevier
Source: Company data, Exane BNP Paribas estimates
Best cost savings play within European Media
Equities
53
Sources of integration cost savings
TRIL offers the largest scope for cost savings within
publishers and European Media at 10% of revenues



Ratio nalize
o verlapping
co rpo rate functio ns
30%
Integration of Reuters
Efficiency gains in offshoring and IT
Eliminate redundant
co ntent sets
15%
Co nso lidate
o verlapping sales
and suppo rt
20%
Rationalizing overlapping corporate functions is the
main driver of integration cost savings

Harmo nize and
simplify pro duct
develo pment
20%
Several projects not included in raised USD1.4bn cost
savings



Migration from two platform to one common platform
post 2011e
Further reduction in the number of datacentres
But valuation is now full. Remain Neutral. Support
from Woodbridge buyback (now owns 20% of TRIL PLC)


PLC to be delisted by end of Q3
Eliminate duplicative
techno lo gy
15%
Cost savings opportunities amongst
publishers
16%
14%
12%
10%
8%
6%
4%
2%
0%
Thomson Reuters
Reed Elsevier
% of opex 2008
Source: Company data, Exane BNP Paribas estimates
Wolters Kluwer
% of revenues
WOLTERS KLUWER AT A GLANCE
16-April 2009- Now: Outperform
17 June 2008 – 16 April 2009: Neutral
Oct. 2003 – June 2008: Outperform
Equities
54
Pro Forma revenue breakdown per division 2008
Corporate &
Financial
Services
14%
Tax, Accounting
& Legal
25%
Legal, Tax &
Regulatory
Europe
40%
Health
21%
Geographic Revenue Breakdown
Asie Pacific
3%
Pro Forma Adj. profit per division 2008
Corporate &
Financial
Services
19%
Tax, Accounting
& Legal
28%
Health
15%
Legal, Tax &
Regulatory
Europe
38%
Revenue breakdown by formats 2008
Softw are
20%
Print
36%
Europe
45%
North America
52%
Services
15%
Online
29%
Source: Company, Exane BNP Paribas
Bad news in CFS seems priced in
Equities
55

Valuation now factors in pressure on the
top line

Current share price reflects group’s wearker
revenues in 2008

Tentative signs of improvement in early
2009 will impact price
CFS: past the trough

Plummetting lending activity in the US in
2008 stalled top-line growth

3% revenue decline expected in 2009 on
the back of US Federal Reserve actions


Pick up of mortgage applications since
January
Positive outlook for refinancing
Yoy changes in US mortgage applications
150%
130%
110%
90%
70%
50%
30%
10%
(10%)
(30%)
(50%)
Ja
n
0
Fe 8
b
0
M 8
ar
0
Ap 8
r0
M 8
ay
0
Ju 8
n
08
Ju
l0
Au 8
g
0
Se 8
p
0
O 8
ct
0
N 8
ov
0
D 8
ec
0
Ja 8
n
0
Fe 9
b
0
M 9
ar
0
Ap 9
r0
M 9
ay
0
Ju 9
n
09
Ju
l0
9

Mortgage origination forecasts for 2009-11e
60%
50%
40%
30%

Risk: acceleration of community banks
consolidation
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
Q4 11e
Q3 11e
Q2 11e
Q1 11e
Q4 10e
Q3 10e
Q2 10e
Q1 10e
Q4 09e
Q3 09e
Q2 09e
Q1 09e
Q4 08
Q3 08
Q2 08
Q1 08
Q4 07
Q3 07
Q2 07
Q1 07
Q4 06
Q3 06
Q2 06
Q1 06
Q4 05
Q3 05
Q2 05
Q1 05
Source: Mortgage Bankers Association, Exane BNP Paribas estimates
And Health issues appear under control
Equities
56

Inventory to sale ratio of Health book
wholesellers
Issue 1: book destocking under control

Increase in sales to inventory ratio (from 1 to
3x)
1.2
1.0




Growth in revenues of professional publishing
books in the US in January 2009
0.8
0.6
Growth in enrolment to US medical colleges
and in recruitment of nurses in Feb. 09.
Issue 2: Positive impact of contract gains
(BMS, FDA) vs. losses (Pfizer)
Issue 3: consolidation of client base and rise
of generics remain an issue
0.4
0.2
0.0
2007
2009
Source: Wolters Kluwer
Enrolment growth into US medical colleges
2.5%

But also impacts Elsevier, UBM, Publicis
2.0%

Lack of international network an issue vs. IMS
1.5%
1.0%
0.5%
0.0%
2000
2001
2002
2003
2004
Source: AAMC, Exane BNP Paribas estimates
2005
2006
2007
2008
Best exposure to Tax & Regulation information
Equities
57

Expect increase in tax, accounting and regulatory
activity in 2009-2011

Obama pledge to reform US tax code

Move from US GAAP to IFRS

More stringent banking compliance rule
Exposure to Tax & Accounting information
(pct of group revs. 2009e)
25%
20%
15%

US tax a better place to be than US legal
10%


Tax & Accounting client base is already
consolidated (vs. acceleration in consolidation of US
law firm market)

Tax & Accounting firms see revenue growth in H208
vs. 6% fall in demand for legal services in Q4

Q1 growth in US tax information market likely, vs.
decline in US legal according to CEO of BNA.
Potential to improve market shares with launch of
new platform (Intelliconnect)
5%
0%
Wo lters Kluwer
Tho mso n Reuters
Reed Elsevier
Weight of top 6 firms in US accounting and
legal services market
90%
80%
70%
60%
50%

We expect underlying revenue growth in FY0911e
40%
30%
20%
10%
0%
Tax & A cco unting
Legal
Source: AAMC, WebCPA, Exane BNP Paribas estimates
Cost efficiency plan not priced in
Equities
58

Market seems not to have priced in
Springboard cost savings plan
Guidance vs. Actual cost savings achievement
180
160

Springboard is to deliver EUR120m of
run-rate cost savings by 2011:




Offshoring of an additional 1000 FTE
Reducing IT costs by 8–12%
Increasing the sourcing programme from
40% of group spending with suppliers to 75%
Re-engineering content manufacturing
processes
140
120
100
Guidance
Actual
80
60
40
20
0
Wolters Kluwer 2004-2007
cost savings (EURm)
Thomson Plus (USDm)
Reuters Core Plus2006-2007
(GBPm)
Est. Springboard cost savings (EURm)
140

Management has a track record of
exceeding cost savings guidance



Raised guidance twice in 2004 and 2005
Already raised Springboard cost savings
guidance in Q308
Execution risk appears low
120
100
80
60
40
20
0
2008
2009
Source: Exane BNP Paribas estimates
2010
2011
Equities
Acquisition track record: several successes one
marked failure
59

Acquisition track record
Questionable acquisition track record
Acquisitions including

Average 2008 acquisitions on 11x
EV/EBITA
2005

UpToDate considered expensive
2007
2008
Our view: many good acquisitions and
one marked failure


Provation, DeAgostini, ATX, Kleinrock
have proven good deals
NDC has proven a bad deal
EPS accretive
in Year 1
6
Yes
Year ROIC
exceeds
WACC
2
3
Yes
5
6
Yes
2
10
Yes
2
DeAgostini, Nolis, Osra, Eon, Best Case, Tripoint,
Entyre, Amerisearch, Boucher
NDC, Heymanns, ProVation, Sage, ATX, Kleinrock,
UTS Taxwise
MCFR, TeamMate, GEE, AppOne, Europea del
Derecho
MYOB, Addison, UpToDate, IntelliTax
2006

Revenue
CAGR (%)
WKL’s reported ROIC
9%
8%
7%
6%

Reported ROIC on an improving trend
5%
4%

Acquisition risk should not be an issue in
2009 as management has given priority
on deleveraging the balance sheet
3%
2%
1%
0%
2003
2004
2005
2006
Source: Company, Exane BNP Paribas estimates
2007
2008
WOLTERS KLUWER (Outperform)
Publishing | Media (Neutral) - Netherlands
Equities
60
Price at 21 Sep. 09: EUR14.7
Stockmarket ratios
P/E
P / CF
FCF yield
P / BVPS
Net yield
EV / Sales
EV / Restated EBITDA
EV / Restated EBIT
EV / OpFCF
Per share data (EUR)
EPS restated
EPS (IBES)
CFPS
BVPS
Net dividend
Accounts (EURm)
Sales
EBITDA
EBIT
Net attributable profit restated
Operating free cash flow
Cash flow, group share
Adjusted net debt
Shareholders' funds, group share
Ratios
Restated EBITDA margin
Restated EBIT margin
Net margin
ROCE incl gross goodwill
ROE
Dec. 07
16.0x
12.3x
6.1%
4.83x
2.9%
2.46x
11.2x
12.6x
13.9x
Dec. 07
1.38
1.80
4.58
0.64
Dec. 07
3,413
747
667
421
601
547
1,689
1,291
Dec. 07
21.9%
19.6%
9.7%
7.6%
32.6%
TP: EUR18
Dec. 08
11.0x
8.5x
8.2%
3.29x
4.0%
2.07x
9.2x
10.3x
12.3x
Dec. 08
1.47
1.49
1.90
4.93
0.65
Dec. 08
3,374
756
678
423
566
544
2,252
1,414
Dec. 08
22.4%
20.1%
9.3%
7.2%
29.9%
Dec. 09e
9.6x
8.5x
7.8%
2.78x
4.6%
1.80x
7.8x
8.7x
11.9x
Dec. 09e
1.53
1.50
1.73
5.28
0.68
Dec. 09e
3,491
812
722
448
530
508
2,056
1,529
Dec. 09e
23.3%
20.7%
7.8%
7.1%
29.3%
Upside: +22.8%
Dec. 10e
9.8x
7.6x
10.1%
2.54x
4.7%
1.76x
7.3x
8.4x
9.4x
Dec. 10e
1.50
1.52
1.92
5.76
0.69
Dec. 10e
3,439
827
723
449
639
576
1,757
1,684
Dec. 10e
24.1%
21.0%
8.5%
14.1%
26.6%
Dec. 11e
9.2x
6.8x
11.8%
2.30x
5.1%
1.61x
6.3x
7.5x
7.9x
Dec. 11e
1.59
1.66
2.15
6.37
0.75
Dec. 11e
3,542
903
763
487
725
658
1,380
1,881
Dec. 11e
25.5%
21.5%
9.5%
14.9%
25.9%
Analyst: Sami Kassab (+44) 207 039 9448 - sami.kassab@exanebnpparibas.com
EV (EURm): 6,299
Enterprise value (EURm)
Market cap (*)
+ Adjusted net debt
+ Other liab. and comm.
+ Revalued minority interests
- Revalued investments
= Enterprise value
Market cap (EURm): 4,246
Dec. 09e
4,246
2,056
90
34
127
6,299
%EV
67%
33%
1%
1%
2%
Free float (EURm): 4,246 (100%)
Historical price
16
36%
24%
14
12%
0%
12
Financial structure*
Gearing 09
132%
Debt/Mkt cap 09
48%
Debt/EBITDA 09
2.5x
* for FY ending Dec. 09e
Risk
Risk rating
1.19
Beta *
0.68
1y HV
37.3
* vs DJ STOXX50
CAGR
Sales
EBITDA
EBIT
Net att. profit restated
Operating free cash flow
Cash flow, group share
EPS restated
CFPS
1996/2009 2009/2011
4.5%
0.7%
3.6%
5.5%
4.0%
2.8%
5.7%
4.3%
(1.1%)
16.9%
(0.0%)
13.8%
4.1%
2.0%
(0.6%)
11.4%
(12%)
10
09/08
(24%)
12/08
03/09
06/09
Price rel DJ STOXX50 (rhs)
Price (lhs)
Performance
Absolute
Rel. sector
Rel. DJ STOXX50
12m range
High
Low
Calendar
24 Feb. 10
1w
4%
3%
3%
1m
5%
(1%)
2%
Price
16.3
11.5
%ch.
(10%)
28%
3m
19%
1%
4%
6m
33%
10%
(5%)
12m
(6%)
3%
7%
Tickers
Reuters
Bloomberg
FY 2009 Sales and Results
YTD
13%
1%
(5%)
WLSNc.AS
WKL NA
Disclaimer
Equities
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