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Reed Elsevier is to place more than 100m new shares "immediately" in an effort to raise money and reduce its £5bn net debt, after reporting that its first half profits have fallen by almost 30%. The announcement has sent Reed's share price down more than 10% in trading today (30th July) to a new 52-week low.
Reed was thought to be among the more resilient media group's facing the recession, but new chief executive Ian Smith warned that the "downturn in macro-economic conditions over the last year has been severe and unprecedented" and added that the group's "current level of debt is too high".
Reed is to place 109,198,190 new ordinary shares in Reed Elsevier plc, representing 9.9% of its share capital on the market immediately in what it described as an "accelerated bookbuild". A further 9% is being placed on the Dutch stock exchange, where Reed is part-quoted. The amount to be raised has not yet been fixed though reports suggest it could be as much as £1bn, and Reed said that the proceeds would be used to reduce its net debt, including paying down the remaining debt facility arising from the acquisition of ChoicePoint, which it completed in September 2008.
Reed's debts rose after it made series of acquisitions under previous chief Sir Crispin Davis, including last year's $4.1bn purchase of Choicepoint, which provides services to the insurance industry. Reed planned to sell its trade magazine arm Reed Business Information (RBI) but abandoned the move in December, leaving it with net debt of $8.4bn (£5bn). Anthony Habgood, Reed's chairman, added: "Last year's acquisition of ChoicePoint and the terminated sale of RBI have given us more debt than is prudent in current economic conditions. The equity raising announced today will address our stretched credit metrics and position the balance sheet to support the business through its continuing evolution."
In the six months to end-June 2009 Reed's revenue rose 25% to £3.06bn, though its reported operating profits fell 29% to £316m, compared with £448m a year earlier. Reed said underlying revenues were 7% lower with the declines concentrated in advertising and promotion markets, including pharma promotion, law firm directory listings and business to business markets.
Divisionally, Reed's best performing unit was it law business Lexis Nexis where sales grew 58%, and profits grew 70%. Its STM division Elsevier recorded sales growth of 22%, and profits growth of 29%. However Reed Exhibitions reported sales down 6% and profits down 7%, while Reed Business Information saw sales drop 4% and profits dive 37%.
Smith added: "Our markets have good attractive long term growth prospects. We have strong positions in these markets, and technology is enabling us to introduce new products and services to help customers increase their effectiveness and make them more successful. I am convinced that there is a bigger prize for our customers, employees and our shareholders by accelerating investment and stepping up our organic growth development. Despite the global recession, I believe that now is the right time to develop more aggressive market and product strategies to capture the market opportunities and increase competitive differentiation."