Thomson Corp. and Reed Elsevier, the parent companies of large professional and educational publishers, reported similar results in 2003 as both conglomerates managed to increase profits despite a weak sales performance.
Total revenue at Thomson rose 2%, to $7.61 billion, while revenue at Reed fell 2%, to £4.92 billion ($8.77 billion) due in part to currency fluctuations. (At constant exchange rates, revenue rose 1%). Adjusted earnings from continuing operations at Thomson increased 11%, to $705 million, and adjusted pre-tax profits at Reed rose 9%, to £1.01 billion ($1.8 billion).
At Thomson, sales at Thomson Learning increased 1%, to $2.05 billion, and adjusted operating profit rose 12%, to $337 million. Sales in TL's higher education group rose 3% in the year, but sales were off in the library reference and IT testing markets. Ron Schlosser, president of TL, said the increase in college sales was due to strong frontlist sales and higher international sales. Sales outside of North America represented 20% of Thomson Learning's revenue in 2003. Sales of backlist titles were soft, as the used book market cut into sales, Schlosser said. Schlosser acknowledged that "price sensitivity" remains an issue for college students, noting that the availability of used texts could hurt sales of older textbooks.
Weakness in the library group—comprising mainly Gale—was attributed to tight state budgets, which led to a 10% decline in print sales that was partially offset by a 7% increase in sales of digital products. Schlosser said Thomson is moving aggressively to make more of its library reference materials available online, and he expects the trend of declines in print sales and the increase of digital sales to continue.
Thomson is also moving more of its college products to electronic platforms. Thomson Corp. CEO Dick Harrington said that while the education market is usually slow to adopt technology, he believes that the market is prepared for more rapid change. In 2003, 27% of TL's sales were generated from electronic products, a percentage that is expected to increase as more college print offerings make the transition to electronic formats.
The move to more electronic publishing was a major theme of remarks from Thomson executives in a conference call to analysts. Electronic publishing accounted for 55% of Thomson's sales last year, down from 56% in 2002. The decline was attributed to a 5% drop in revenue at Thomson Financial, which generates 91% of its sales from electronic products. Electronic publishing accounted for 57% of Thomson's legal and regulatory group's sales last year; total revenue in the group rose 6%, to $3.14 billion. Total revenue at the scientific and health-care segment rose 10% in 2003, to $760 million, with electronic products accounting for 62% of sales.
Thomson executives also told analysts that subscription services accounted for 64% of total sales last year, while books and other media generated 34% of revenue. Advertising represented 2% of sales.
The importance of electronic publishing was also a highlight of year-end comments from executives at Reed. Growth in Reed's Elsevier group was driven by new electronic products, while online sales in the LexisNexis group also increased. Reed will continue to increase its investment in online products to meet the "burgeoning demand" of its customers for Web-based products.
Harcourt Sales Down
Sales at Reed's Harcourt subsidiary fell 9.5% last year, to £898 million ($1.6 billion), with sales in the U.S. off 12%, to £745 million ($1.33 billion). Reed said the decline was caused by currency fluctuations, the sale of some noncore assets, the loss of a California testing contract and a weak adoption cycle. While Harcourt's elhi basal products held their own in the weak market, sales in the supplementary segment were down. With operating profit falling only 5%, to £174 million ($310 million), Harcourt's operating margin increased to 19.4% from 18.4% in 2002. To help keep costs down, Harcourt eliminated approximately 420 positions last year.
With another weak adoption year in 2004 and continuing state budget pressures, sales for the entire elhi market are expected to fall this year, before rebounding in 2005. Reed said it expected Harcourt's sales next year to be about even with 2003.
In Reed's other businesses, sales at Elsevier rose 6.6%, to £1.38 billion, with sales from the group's science and technology segment up 5.7%, to £789 million, and sales from the health sciences unit up 7.8%, to £592 million. At Lexis, total revenue fell 2.3%, to £1.32 billion, with sales in North America off 6%, to £992 million. In the U.S., online sales rose 7%, while print and CD sales were marginally lower.
Total revenue at the Reed Business Information group (which includes PW and BEA) fell 4% last year, to £1.33 billion. Reed said it is not budgeting for any "real upturn" in RBI's markets in 2004.
In addition to trumpeting the importance of electronic publishing, both Thomson and Reed said they will pursue strategic acquisitions this year. Thomson noted that in 2003 it spent $211 million on acquisitions, including $50 million to add companies to Thomson Learning. TL's biggest purchase in 2003 was the Canadian textbook publisher Gage.