OREANDA-NEWS. Fitch Ratings has affirmed London- and Netherlands-based media groups RELX PLC's and RELX NV's (together, RELX) Long-term Issuer Default Ratings (IDR) and senior unsecured rating at 'BBB+'. The Outlook is Stable. A full list of rating actions is available below.

RELX has a high quality, balanced portfolio of businesses that are competitively well positioned and geographically diversified. The businesses are strongly entrenched within their market sub-segments with a significant proportion generating stable and visible cash flows. Fitch expects RELX's funds from operations (FFO) adjusted net leverage will gradually increase to 3.0x by 2018 from 2.5x at end-2015 as a result of increases in cash taxes, investments in M&A and ongoing share buyback programmes. The increase is, however, well within RELX's current 'BBB+' rating, where the company is strongly positioned.

KEY RATING DRIVERS
Stable and Visible Cash Generation
RELX has a strong portfolio of businesses spanning journal publishing, risk and business analytics, legal applications & exhibitions. The portfolio is geographically well diversified with 52% of revenues based on subscription services and 46% based on transactional services.

The recurring nature of the subscriptions revenues, which are primarily generated from its Scientific, Technical and Medical and Legal divisions underpin RELX's credit profile. The services provided by these divisions are well-established and entrenched within the workflow of the customers they service and support the company's competitive position while generating healthy and visible cashflow streams. RELX has one of the strongest pre-dividend free cash flow (FCF) margins in the sector at 19%. We expect this to remain stable, allowing revenue and profit growth to translate into FCF growth.

Growth Tailwinds to Continue
RELX has grown underlying revenues by 3% and underlying adjusted operating profit by 5%-6% per annum over the last five years. Fitch expects that RELX will on average continue to grow revenue at similar rates over the next three years while managing modest increases in margin. The main drivers to this will be a combination of business model transition, customer value-based product development, expansion into growth markets and efficiency improvements.

Transition to Decision Tools
RELX has reduced its dependence on advertising and print revenues, which now account for 2% and 15% of total group revenues respectively. The process of reformatting print reference into electronic reference is largely complete with revenues from electronic formats in 2015 accounting for 70% of total, up from 22% in 2000. The transition to electronic reference reduces the risk to future cash flows while providing opportunity to leverage technology for new products and applications.

The company's current focus is to take advantage of its electronic reference material by building analytic and decision tools that increase the value of its customer propositions. While the penetration of electronic decision tools is high within the Risk and Business Analytics division, Fitch believes the opportunity for growing this aspect of the business within other divisions is strong.

Disciplined Financial Policy
RELX has a disciplined target to manage leverage at around 2.1x-2.5x net debt to EBITDA (adjusted for pension and leases). Potential increases in cash taxes, ongoing M&A and share buybacks will see the company's FFO adjusted net leverage gradually increase to 3.0x by 2018 from 2.5x in 2015. Management's focus is on organic development, acquisitions to support portfolio reshaping and a shareholder remuneration policy with share buybacks employed to help the company maintain its leverage target on a sustained basis.

Business Risks Remain Remote
RELX's rating encompasses two key business risks. Firstly, open access publishing, which creates an alternative platform to subscription-based pricing for journal publishing. Secondly, rapid developments in technology and new business models necessitate the need for significant on-going organic and / or M&A investments. Fitch views that the associated risks are well-managed by the company and that changes in new business models and technology are also points of opportunity for the company.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenues to grow by 2% to 3% per annum over the next three years
- Adjusted operating margins and FCF margins remaining broadly stable at 30% and 9% respectively.
- Cash tax payments to progressively increase by 25% to 30% over the next three years from GBP343m in 2015.
- Fitch expects RELX to maintain its M&A programme of GBP300m-GBP350m per year.
- Existing shareholder remuneration policy to continue with dividends growing at approximately 5% per annum and around GBP1.8bn of share buybacks between 2016 and 2018.
- No disruptive impact on or change to the Scientific, Technical & Medical journals unit from the evolution of open access subscription models.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- A more conservative stance towards financial leverage and shareholder remuneration.
- Expectations that FFO adjusted net leverage would trend to below 2.5x on sustained basis.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO adjusted net leverage exceeding 3.25x over a sustained period.
- A marked deterioration in RELX's operating environment.

LIQUIDITY AND DEBT STRUCTURE
RELX has a strong liquidity position with cash and equivalents of GBP122m at end-2015. The company has undrawn committed bank facilities of USD2bn expiring in July 2020, which are used to backstop GBP218m of commercial paper, and short term loans. Fitch expects RELX to remain FCF-positive under most downturn scenarios modelled by the agency.

FULL LIST OF RATING ACTIONS
RELX PLC and RELX NV:
Long-term IDR: affirmed 'BBB+'; Outlook Stable
Short-term IDR: affirmed at 'F2'

RELX Finance BV:
Senior unsecured notes: affirmed 'BBB+'
Senior unsecured notes issued by Aquarius + Investments PLC and ELM BV: affirmed 'BBB+'
Commercial paper: affirmed at 'F2'

RELX Capital Inc.:
Senior unsecured notes: affirmed to 'BBB+'

RELX Inc.
Senior unsecured notes: affirmed 'BBB+'
Commercial paper: affirmed at 'F2'

RELX Intellectual Properties SA
Commercial paper: affirmed at 'F2'

RELX (Investments) plc.
Senior unsecured notes: affirmed 'BBB+'
Commercial paper: affirmed at 'F2'

Elsevier Finance SA
Senior unsecured notes: affirmed 'BBB+'
Commercial paper: affirmed at 'F2'