RELX PLC (REL) Earnings Call Transcript

Good morning, everybody. As you will have seen from our press release this morning, RELX delivered underlying revenue growth of 8% in the first 9 months of 2023, in line with the first half. Electronic revenues, which represent over 80% of the total underlying growth, was 7%. The continued recovery in face-to-face revenues more than offset print declines given the overall 8%. Our improving long-term growth trajectory continues to be driven by the ongoing shift in business mix towards higher growth analytics and decision tools that deliver enhanced value to our customers across market segments. Full year outlook remains unchanged both at the group level and for each of the 4 business areas. We continue to expect underlying growth rates in revenue and in adjusted operating profit remain above historical trends, driving another year of strong growth in adjusted earnings per share on a constant currency basis. Turning to the performance of each business area. In Risk, underlying revenue growth was 8%, in line with the first half. Growth continues to be driven by our deeply embedded analytics and decision tools across segments, with recent acquisitions in compliance and behavioral biometrics and in home and life insurance performing well. In Business Services, which represents around 45% of revenue, growth continues to be driven by Financial Crime Compliance and digital Fraud & Identity solutions, and Insurance representing nearly 40% of revenue. Growth reflected continued new sales momentum and positive market factors. Specialized Industry Data Services, representing just over 10% of revenue, continued to deliver strong growth. In STM, underlying revenue growth was 4%, in line with the first half. Growth continues to be driven by the evolution of the business mix, with the high-growth segments representing an increasing proportion of divisional revenue. Growth in Databases, Tools & Electronic Reference, which represents nearly 40% of divisional revenue, was driven by content development and the evolution of higher value-add analytics and decision tools. Primary Research growth was driven by article submissions with pay-to-publish open access articles continuing to grow particularly well. In Legal, underlying revenue growth was 6%, up from 5% in full year 2022 and in line with the first half of this year. The improvement in growth has been driven by the continuing shift in business mix towards higher growth legal analytics. Lexis+, our integrated platform leveraging extractive AI functionality continues to see increasing customer adoption and usage. Feedback from customers participating in the testing phase of Lexis+ AI, our new platform, leveraging generative AI functionality, has been very positive, and we are seeing high level of interest across legal markets. In Exhibitions, underlying revenue growth was 32%. Average like-for-like event revenues across the portfolio continues to run ahead of pre-pandemic levels, with increased usage of a growing range of digital tools. With that, we are ready for questions.

[Operator Instructions] We take now our first question from George Webb from Morgan Stanley.

I'll kick off with 3 questions, please. Firstly, around Lexis+ AI, can you give us some kind of key areas of user feedback so far that you've perhaps been going back and revising and improving the product with and the latest on the kind of launch time line there? Secondly, on the Insurance segment of the Risk business in the latest LexisNexis report, the new policies are still growing strongly. Q2 saw a slight dip year-over-year by June around shopping trends. What have you seen in Q3 so far? And can you talk about perhaps the sustainability of those drivers? And then lastly, on the Exhibitions business, you're talking of the first half around average like-for-like event revenue being ahead of pre-pandemic levels by the end of the period, and that's still true at the 9-month stage. Can you give us a feel for how much ahead you're running on that metric? Is it 1%, 2% or something more material?

Yes. I'll take each of those. Yes. I mean Lexis+ AI, for those who are less familiar, that was our new platform leveraging generative AI functionality. We previewed that with customers back in May. We have been in development since then, testing it with hundreds of customers, applying thousands of queries across a range of different customers, so law firms, corporate legal departments, court users. Feedbacks are very positive. It's an iterative process, of course, as we take that feedback on what works particularly well and where we can make things even better. But that's been a very positive process. We've got high levels of interest from our legal customers, and the commercial launch is coming soon. We will announce that directly to each customer group when it's available to them. Your second question was on Insurance and the volumes. I think that the first point I make, of course, in Risk is that the key drivers of growth are actually the development of new data sets and applying new analytics to that data and to existing data, rolling out those products to new customers. And there is some variation in the growth rate. As you've seen in recent years, it's typically been in the 7% to 9% range as the base revenue varies, and that is because we do have some revenues that relate to the volumes going through the platforms. In Insurance, in particular, the volumes are particularly strong during the first half of this year. They remain strong, particularly for switching and new policies. The growth rates have eased a little, particularly on shopping as the comparatives have got tougher, but the overall dynamics and volumes are still very good. And of course, the other big part of the division business, services, I think we mentioned the volume growth picking up towards the end of Q2 at the half year results. And that has continued through Q3. And then Exhibitions and how we're doing growth pre-pandemic, yes -- no, we have been running ahead -- we sort of crossed that threshold during the first half. That has continued through the third quarter, albeit the third quarter is seasonally not quite as big for the Exhibitions business. It does vary from event to event. But I think on average for the full year, we -- even though we were behind at the beginning and now we're ahead, on a like-for-like basis, it should be pretty much in line with -- across the full year, in line with 2019 on a like-for-like basis.

We'll take now our next question from Lisa Yang from Goldman Sachs.

On Lexis+ AI, I was just wondering, obviously, you haven't launched it commercially, so not going to talk about pricing. But could you maybe share a bit more color on the feedback you're getting from customers on the trial? For instance, have they been able to measure the improvement in productivity? Have you seen a significant growth in usage? Or any just a bit more of KPIs you could share? And is it also possible to give us an update on the AI development you're undertaking across the other divisions? I think you spoke about [ scope with ] AI but also where you're on the testing there and the other products you can sort of talk about. The second question, still on Legal. Obviously, there's been a number of other LLMs like Harvey AI and Casetext. Also wondering the feedback you're getting from the customers in terms of how your product compares versus your competitors. And what do you think is the strong moat of Lexis+ AI competition? And the last question is on Exhibitions. Obviously, China has been quite soft on the macro side. I was just wondering how the JVs there are performing and in general, how the rebooking rate's looking versus last year.

Yes. I mean the Lexis+ AI development, there's not a huge amount more I can say other than we have been getting some very positive feedback from customers. They like what it can do and seeing good value and efficiencies, I'm not sure we've reached the point of being able to measure that for every customer, but it's the -- what they're seeing from it is -- and the reaction we're getting is very positive. The interest from the wider market is very positive. We will be launching it soon as I said, and then no doubt that we'll keep developing from there. That's progressing well. As far as GenAI across the group, elsewhere, it was the most -- most rather than for the Legal business given the nature of what we do and what our clients do. It's perhaps of less relevance in the Risk business and then STM somewhere in between. We have got initiatives around generative AI, both for internal application where we can make ourselves more efficient using it but also, perhaps more importantly, around the products. As you say, we are -- we've already announced the [ scope with ] AI using generative AI in the STM product there. We have a number of other initiatives underway across different products, and we will be using it to -- generative AI, we will be using it to enhance our existing products, develop new products as we've been doing with other new technologies as they emerge. And so watch this space on that. As far as you asked the last question about the GenAI products in Legal and our competitive position and so on, look, I think we've got the authoritative content for -- in legal, applying that to -- applying the generative AI to those -- to that content, being able to use the best model, the best large language model for each application, controlling the quality of the output by integrating it with our authoritative underlying content and with our proprietary search technology is absolutely key. We are using a multi-model approach, applying whichever model is better in learning, which is the best large language model to use for different use cases. So I think we feel we're as well placed as anybody to bring value from applying generative AI technology in the legal market. And your third question was on exhibitions in China. Obviously, China is a single-digit percentage of the revenue in Exhibitions, but it's reopened and recovering strongly. Revenues in China already above 2019 levels. But you see that as part of the overall mix in the business.

We take now our next question from Sami Kassab from BNP Paribas.

I have 3 questions as well, please, Nick. The first one is on pricing with Lexis+ AI, to the extent that you can discuss that. Case Counsel is the main competitor here. Do you intend to price Lexis+ the range of CoCounsel or above or below this other product? Secondly, I assume that your salespeople are busy trying to renew contracts to your products and services as we go into 2024. Can you comment on the price inflation you expect to put through in these discussions and how that compares to 2023? Will it be at the same level? Or will it be below or above what you put through in '23? And lastly, with regards to RX, do you think you can exceed GBP 300 million of operating profit this year at RX?

Sami, thanks for those. Lexis+ AI and the pricing of it, so it will -- as we said when we previewed the product back in May, it will be offered as a premium tier to the Lexis+ platform. The price, however, will vary depending on exactly what services a particular customer is taking, which specific content has been configured for that different customer type, different locations. I'm thinking that's as much as I can say. We'll obviously talk to the individual customers, individual customer groups about what our pricing is when we launch commercially. Your second question about price inflation more generally, I mean, it's -- strategically, we actually are always looking to provide more value to customers. So we are not typically looking to put through inflationary-type price increases. Of course, the volumes and value we're adding is going up all the time. So we're looking for -- to drive increased spend against that increased value that we provide. But the key to driving the revenue growth in all of our businesses is actually about developing new content, new data sets, applying new analytics, developing new tools and rolling those out to customers. It's not about the price of the existing offering. And your last question on exhibitions. I think you can, probably from what we said, make some reasonable estimates on the revenue base for 2023. As we said at the half year, we are expecting margins this year to be above pre-pandemic levels. So if you apply that, you'll get numbers reasonably close to what you're suggesting, Sami. And I think the key point there with Exhibitions is that we've come out of the pandemic having restructured the business, having focused it on the best performing events and believe we now have a higher value-add business that is higher growth and higher margin.

And if I may, I have a quick follow-on on RX. A few years ago, there was discussion on keeping or selling the asset. You had suggested that you wanted to normalize the business post-COVID, and we are almost there and that you are trying to digitalize and add value through technology. Can you update us on the latest for that as to whether RX is a long-term asset you want to keep, please?

Well, there continues to be a big opportunity in exhibitions for -- as we complete the recovery and now focus increasingly on the digital and data opportunity. As I said, we do believe the business is going to be high value add, higher growth, higher margin than it was pre-pandemic. And our focus is entirely on delivering and demonstrating that.

We'll take now our next question from Nick Dempsey from Barclays.