Final Results
Reed International PLC
Elsevier NV
21 February 2002
2/02 ISSUED ON BEHALF OF REED INTERNATIONAL P.L.C. AND ELSEVIER NV 21 FEBRUARY 2002
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED 31 DECEMBER 2001
REED ELSEVIER COMBINED BUSINESSES
2001 2000 2001 2000 Change at
£m £m €m €m constant
currencies
%
Reported figures
Turnover 4,560 3,768 7,342 6,180 +18%
Operating profit 391 210 630 344 +84%
Profit before taxation 275 192 442 315 +44%
Net borrowings 3,229 433 5,296 697
Adjusted figures
Operating profit 990 793 1,594 1,301 +22%
Operating margin 22% 21% 22% 21% +1pt
Profit before taxation 848 690 1,365 1,132 +20%
Operating cash flow 1,006 775 1,620 1,271 +26%
Operating cash flow conversion 102% 98% 102% 98%
Interest cover (times) 7 8 7 8
The Reed Elsevier combined businesses encompass the businesses of Reed Elsevier
plc and Elsevier Reed Finance BV, together with their two parent companies, Reed
International and Elsevier (the 'Reed Elsevier combined businesses').
Adjusted figures, which exclude the amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as additional
performance measures.
The percentage change at constant currencies refers to the movements at constant
exchange rates, using 2000 full year average rates.
PARENT COMPANIES
Reed International Elsevier
2001 2000 % 2001 2000 %
£m £m change €m €m change
Reported profit attributable 61 11 101 27
Adjusted profit attributable 330 270 +22% 503 419 +20%
Average exchange rate €:£ 1.61 1.64 1.61 1.64
Reported earnings per share 4.8p 1.0p €0.13 €0.04
Adjusted earnings per share 26.1p 23.3p +12% €0.64 €0.59 +8%
Dividend per share 10.5p 10.0p +5% €0.30 €0.28 +7%
The results of Reed International reflect its shareholders' 52.9% economic
interest in the Reed Elsevier combined businesses. The results of Elsevier
reflect its shareholders' 50% economic interest in the Reed Elsevier combined
businesses. The respective economic interests of the Reed International and
Elsevier shareholders take account of Reed International's interest in Elsevier.
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
We are pleased to report a strong financial result for 2001 and continued good
progress in the execution of Reed Elsevier's strategy. This is despite the very
challenging global economic environment, which has particularly affected
Business publishing, and demonstrates the strong fundamentals of our business:
leading brands and market positions, high quality and in-depth content,
international business spread, and financial strength.
Execution of our growth strategy over the last two years is now starting to
deliver, with growing revenue momentum, market share gains in most of our
businesses, and operating margins improving. The $4.5 billion acquisition of the
Harcourt businesses in July 2001 significantly expanded our Scientific & Medical
and Education activities and is a major step forward in our strategic and
financial progress.
The results for 2001 represent the achievement one year earlier than planned of
our stated financial goals of above market revenue growth and double digit
earnings growth at constant currencies for 2002 and beyond. The key contributing
factors have been the resilience and growing success of our Science & Medical,
Legal and Education businesses, the acquisition of the Harcourt businesses
and the outperformance of the Business division in depressed markets.
FINANCIAL RESULTS
In 2001, revenues were up 21% to £4,560 million/19% to €7,342 million with
adjusted pre-tax profits up 23% to £848million/21% to €1,365million. At constant
exchange rates revenues were up 18%, and adjusted pre-tax profits up 20%,
including the benefit of the December 2000 share placing proceeds. Adjusted
figures are stated before amortisation of goodwill and intangible assets and
exceptional items.
Underlying revenue and adjusted operating profit growth, excluding acquisitions,
disposals and currency translation, was 3% and 5% respectively. Excluding
declines in Business to Business, of 3% and 8%, underlying revenues were up 6%
and operating profits up 10%, a very satisfactory result. On a proforma calendar
year basis, the Harcourt businesses grew both revenues and operating profits by
8%.
Overall operating margins were 1% higher at 22%. Operating cashflow conversion
was strong with operating cash flow at £1,006 million/€1,620 million
representing 102% of adjusted operating profits.
The Science & Medical business had a good year with strong subscription revenues
and growing online sales, and a positive contribution from the Harcourt Science
& Medical businesses. Revenues and adjusted operating profits were up 44% and
34% respectively at constant exchange rates, or 8% and 13% before acquisitions
and disposals. The ScienceDirect online service now covers 66% of subscription
revenues, up from 45% a year ago, and online usage continues to grow strongly.
Subscriber attrition improved for the second consecutive year to only 4%. The
integration of the Harcourt businesses is well advanced.
The Legal business has seen a marked turnaround in performance, with an
acceleration in underlying revenue growth to 5% from 3% in 2000 and adjusted
operating profits up 9% compared with a decline of 19% in the previous year.
Total revenues and adjusted operating profits were up 7% and 9% respectively at
constant exchange rates. Particularly significant was the performance in US
legal markets where our investments in new and upgraded product, sales and
marketing are starting to transform our competitive position. Online sales were
up 10% which compares with 5% in 2000 and 1% in 1999 with demand particularly
strong in the small law firm market. Overall operating margins, up 0.4
percentage points to 20.1%, have started to improve as investment levels begin
to stabilise and revenue growth picks up. Outside the US, the legal businesses
continue to perform satisfactorily.
The Education business had an excellent year. The Harcourt businesses exceeded
our expectations with 12% growth in revenues and 10% growth in adjusted
operating profits on a proforma calendar year basis, on top of an outstanding
year in 2000. The K-12 (Kindtergarten - 12th grade) business outperformed the US
schools market for the third year in a row with revenue growth of 11% driven by
strong publishing programmes and won the highest market share of 2001 state
adoption revenues in both elementary and secondary schools. The Testing business
grew proforma revenues by 22% with significant incremental requirements on
existing state testing contracts. Our existing businesses also had another good
year with underlying revenues up 8% and adjusted operating profits up 10%, with
particularly strong performances in US supplemental and from UK schools.
The Business division by contrast had a difficult year with the progressive
weakening of global economic conditions exacerbated by the events of September
11 which particularly affected US markets. The impact on advertising revenues
was in part mitigated by a strong performance in Exhibitions where underlying
revenues and adjusted operating profits grew by 9% and 6% respectively, and by
the more resilient subscription/copy sales. Revenues and adjusted operating
profits were lower by 5% and 8% respectively at constant exchange rates, or 3%
and 8% before acquisitions and disposals. This represents a significant
outperformance of the Business to Business market. Our focus has been on
building market share, improving yields, and aggressively cutting costs. Each of
our major businesses in the US, UK and continental Europe was successful against
these objectives. We have also benefited from the quality and balance of our
portfolio, in sector and geographic spread, the mix of revenue streams, and the
market leading positions of our titles and exhibitions.
During the year we substantially completed our disposals programme initiated in
2000, with the sale of the travel publishing businesses, OAG Worldwide and
Cahners Travel Group, the Bowker bibliographic business, certain Elsevier
Business Information training businesses, and a number of non- core titles and
exhibitions. Earnings dilution of around 2% from these disposals, with a further
2% in 2002, is more than compensated by a more sharply focused business with
stronger growth potential in attractive, core sectors.
PROGRESS ON STRATEGY
Throughout 2001 we have continued to execute aggressively against our strategy
for growth that we laid out in February 2000. The hard work over the last two
years is beginning to pay off and the performance of the businesses in 2001 now
demonstrates the clear potential for the future. Our strategy and executional
milestones are now fully embedded throughout the business, focused around the
eight key foundations.
Focus on core businesses, to maximise immediate growth potential
We have focused rigorously on our core businesses and competencies. The
acquisition of the Harcourt businesses has given us the full breadth we sought
across Science & Medical and the scale we wanted in Education. We have also made
several smaller acquisitions to enhance the business and exited those businesses
that did not fit directly with our strategy. The structure of our business is
now right, with four strong divisions, focused on higher growth sectors in
attractive professional markets, each with the scale and the assets to succeed.
Our emphasis is now on organic development supplemented by selective
acquisitions.
Significantly upgrade management and organisation effectiveness
Our management structure - focused around the four divisions - is now well
embedded and making a real difference. Our decision making is quicker and more
market focused; there is greater accountability across the business; we are
upgrading our talent through external recruitment and internal promotion; our
total management team is becoming more diverse; we have introduced extensive
personal development and training programmes; we have launched a core values
programme across the business as part of our culture change programme.
Major upgrade of product, leveraging Internet technology, to deliver superior
services to customers
Our products have come a long way in the last two years as we have expanded our
value added content and exploited Internet technologies to deliver highly
functional and intuitive information services.
In Science & Medical, the ScienceDirect online service is an acknowledged leader
in the field of scientific research. In Legal, our information services for the
US legal, corporate and federal markets have been transformed by the relaunched
lexisnexis.com services. In Education, the success of our print publishing is
set to be taken further forward in interactive electronic learning and testing
programmes. In Business, we have focused on further improving the quality of our
leading titles and exhibitions whilst launching Internet services.
Electronic revenues, primarily Internet based, now account for 27% of revenues
and are a key driver of profit growth.
More effective marketing and sales programmes
Across the business, we have matched our renewed confidence in our products with
significant expansion and upgrade of our sales and marketing, firmly rooted in
understanding and meeting customer needs. We have continued to build our sales
teams in Science, Legal and now in Education in addition to the major increases
in 2000, and to raise their effectiveness through focus on leadership, training,
measurement and incentives. Major marketing programmes in Legal are establishing
LexisNexis as a truly global brand as well as targeting individual markets such
as law schools and small law firms. In Business to Business, sales and marketing
initiatives are key to our yield management and market share progress. All of
our marketing programmes have been extensively revamped based on detailed market
research, and our branding strategies repositioned to support our global
initiatives.
Significant increase in investment to drive revenue growth
Throughout the year we have maintained our commitment to investment in product,
sales and marketing. Overall investment for the year was around £260 million/
€420 million, close to the prior year level, before taking into account the
extra investment spend in the Harcourt businesses. Much of this investment, such
as expanded sales forces and launched products, is no longer managed or measured
on a project basis but is now embedded within the businesses. Increased spending
levels in the year in Science & Medical and Legal were offset by a reduction in
Business where Internet activities were scaled back to reflect the changes in
market opportunities. Investment in the Harcourt businesses acquired is now
being stepped up by $40 million as planned.
We plan to broadly maintain these on-going levels of investment and believe it
will continue to deliver real competitive advantage and above market growth.
Aggressive cost savings programmes
The cost savings programmes initiated in 2000 have delivered the full annual
savings target of £170million/€275 million in 2001, providing funds for the
investment programme. In addition, in response to the global economic downturn,
we have pushed cost reduction programmes further, particularly in the Business
division. These additional savings, of some £70 million/€110 million annualised,
significantly mitigated the impact of lower advertising revenues in 2001 and
will help protect margins in Business in 2002. We are also on track to achieve
the $70 million cost synergies targeted on the integration of Harcourt, with the
majority of this to be realised in 2002.
Expand geographically to build global capability and leading positions
The acquisition of Harcourt has significantly extended our global capabilities
and leading positions for both Science & Medical and Education. In Legal, the
LexisNexis brand is now being rolled out globally and global content and
technology initiatives implemented. A new management structure and leadership
appointments have been made to accelerate our regional and global strategies. In
Business, our prime focus in 2001 has been on market share gains and
collaboration across existing geographies whilst tightly managing the business
in the very difficult environment. We have also now integrated Miller Freeman
Europe, acquired in 2000 and giving us a strong and growing leading position in
the European Exhibitions sector.
Continue to target acquisitions/alliances to accelerate achievement of strategic
goals
Over the past two years we have significantly reshaped the portfolio around
strategically focused higher growth sectors through acquisitions and disposals.
We have spent £4.2 billion/€6.8 billion on acquisitions, including the £3.1
billion /€4.9 billion this last year on Harcourt, and have made £0.3 billion/
€0.5 billion of disposals of lower growth and non core businesses. Whilst our
focus is on maximising the growth potential in our existing core businesses
through organic development, with our strong balance sheet and cashflow
position, we will look for further bolt-on acquisitions that accelerate our
strategic development and meet our financial criteria.
PARENT COMPANIES, EARNINGS AND DIVIDENDS
For the parent companies, Reed International and Elsevier, the adjusted earnings
per share were up 12% at 26.1p and up 8% at €0.64 respectively. At constant
exchange rates this represents an increase of 10%. The reported earnings per
share, including exceptional items and amortisation of goodwill and intangible
assets, was for Reed International shareholders 4.8p (2000: 1.0p) and for
Elsevier shareholders €0.13 (2000: €0.04).
The proposed Reed International final dividend is up 7% at 7.4p per share, which
together with the interim dividend of 3.1p gives a total dividend of 10.5p, up
5% on the prior year. The Elsevier final dividend under the equalisation
arrangements is up 11% at €0.21 per share, which, together with the interim
dividend of €0.09, gives a total Elsevier dividend of €0.30, up 7%. The
difference in dividend growth rates between Reed International and Elsevier
reflects the impact of currency movements.
In 1999, we moved to a unitary management structure for the business and
harmonised the Boards of Reed International P.L.C, Elsevier NV and Reed Elsevier
plc. In recognition of the real benefits derived from this clear and cohesive
management structure and the equivalence of economic interests, we are proposing
to change the names of the two parent companies to Reed Elsevier PLC and Reed
Elsevier NV, and of the operating company to Reed Elsevier Group plc. These
proposals will be put to the Annual General Meetings in April.
OUTLOOK
We are encouraged by the continued good progress we are making against our
strategic and financial milestones and the growing success of the business. 2002
should again see us meeting our key financial targets of above market revenue
growth and double digit earnings per share growth at constant currencies,
despite the continuing difficult economic environment. This recognises the
further success of the Science & Medical, Legal and Education businesses and the
cost actions taken to mitigate revenue weakness in Business to Business. We will
also have the full year benefit of the Harcourt acquisition.
As set out in the Trading Update last December, the overall results for the
first half of 2002 are likely to be a little lower than last year due to
comparison against a strong first half in 2001 in the Business division. The
second half should deliver the expected growth for the year given a less
demanding comparison in the Business division and the second half weighting of
sales and profit in the Harcourt business.
In the last two years major effort has been put into reshaping the business and
organisation, and in addressing the fundamentals around product, sales and
marketing. We are now well placed to see the full impact of this work in the
year ahead, and we have great confidence in Reed Elsevier's future and further
success.
Morris Tabaksblat Crispin Davis
Chairman Chief Executive Officer
REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE
REVIEW OF OPERATIONS
2001 2000 2001 2000 % change
£m £m €m €m at
constant
currencies
Turnover
Science & Medical 1,024 693 1,649 1,137 44%
Legal 1,330 1,201 2,141 1,970 7%
Education 579 202 932 331 177%
Business 1,627 1,672 2,620 2,742 (5)%
Total 4,560 3,768 7,342 6,180 18%
Adjusted operating profit
Science & Medical 344 252 554 413 34%
Legal 267 237 430 389 9%
Education 132 40 212 66 218%
Business 247 264 398 433 (8)%
Total 990 793 1,594 1,301 22%
Unless otherwise indicated, all percentage movements in the following commentary
refer to constant currency rates, using 2000 full year average rates, and are
stated before the amortisation of goodwill and intangible assets and exceptional
items.
SCIENCE & MEDICAL
2001 2000 2001 2000 % change
£m £m €m €m at
constant
currencies
Turnover
Science & Technology 748 592 1,204 971 24%
Health Sciences 276 101 445 166 165%
1,024 693 1,649 1,137 44%
Adjusted operating profit 344 252 554 413 34%
Operating margin 33.6% 36.4% 33.6% 36.4% (2.8) pts
SCIENCE & MEDICAL
The Science & Medical business has had another very successful year. Elsevier
Science has extended its leading position, growing revenue well ahead of the
market and delivering double digit profit growth. The key indicators on
ScienceDirect usage, penetration and customer retention, all show good progress.
The Harcourt Science, Technical and Medical (STM) business acquired in July 2001
is contributing well and the business integration is well advanced.
Revenue and operating profits increased by 44% and 34% respectively at constant
exchange rates, including the part year contribution of the Harcourt STM
business. Excluding this and other acquisitions and disposals, revenue and
operating profit growth were 8% and 13% respectively. The good sales performance
was driven by stronger subscription renewals and growing sales of online
products.
Underlying operating margins improved by 2 percentage points reflecting the
strong revenue growth and increasing operating efficiency. Additional
investments in new product, sales and marketing were more than offset by cost
savings particularly in production following prior year rationalisation. The
overall margin, at 34%, decreased by 2.8 percentage points due to the inclusion
of the lower margin Harcourt STM business.
The ScienceDirect service saw its penetration of the subscriber base increase to
66% by value, up from 45% a year ago and 25% a year before that. Usage continues
to grow strongly with annual page views doubled over the year to 220 million.
New product development has focused on customised subject collections and
superior navigation tools. Good progress was made in a three year programme to
make all our historical scientific research archive available online on
ScienceDirect, with modules released in three Chemistry disciplines. Also well
received by customers has been the Scirus scientific web search engine, which
enables retrieval in a focused way of scientific material from over 70 million
pages available on the web.
The Harcourt STM business made a satisfactory contribution in the part year
under Reed Elsevier ownership. As previously reported, the business was affected
by the uncertainties of the extended regulatory review process prior to
acquisition and some momentum in the business was lost. On a proforma calendar
year basis, the Harcourt STM business saw revenue and operating profit growth of
3% and 5% respectively in 2001 over 2000. The strategies and management
organisation for the enlarged Elsevier Science business - within two divisions,
Science & Technology and Health Sciences - are now in place and substantial
progress has been made in the integration of the businesses. The majority of the
targeted annual cost savings of $40 million will be realised in 2002,
principally in production, technology and back office functions. This will fund
the investments being made in new online medical information products and in
sales and marketing.
The outlook for the Science & Medical business is good. Revenue growth momentum
in Science & Technology is strong and in Health Sciences is building. The
opportunities in the medical field for electronically delivered information and
solutions are growing and considerable. We have the investment plans in place to
capture this and the increases in investment will be funded from operational
efficiencies. Another good year can be expected in 2002.
LEGAL
2001 2000 2001 2000 % change
£m £m €m €m at
constant
currencies
Turnover
LexisNexis North America 1,041 947 1,676 1,553 6%
LexisNexis International 289 254 465 417 10%
1,330 1,201 2,141 1,970 7%
Adjusted operating profit 267 237 430 389 9%
Operating margin 20.1% 19.7% 20.1% 19.7% 0.4 pts
LEGAL
The Legal business has had a year of significant business turnaround. For the
first time in a number of years, we are showing encouraging growth in the US
and, with margins also now improving, there has been a positive initial
turnaround in the business. The acceleration in revenue growth represents a very
satisfactory payback from the step up in investment over the last two years in
product, sales and marketing.
Revenues and operating profits increased by 7% and 9% respectively at constant
exchange rates, or 5% and 9% excluding acquisitions. Operating margins improved
by 0.4 percentage points reflecting the stronger revenue growth and increased
operational efficiency, particularly in the US. LexisNexis North America saw
underlying revenue growth of 5%, which we estimate to be slightly ahead of
market growth, and compares with 2% in 2000. Operating profits were up 15%
compared with a 24% decline in 2000.
In US Legal Markets, online revenues grew strongly by 10% in part offset by
lower print and CD-ROM sales as business migrates online. This compares with
online revenue growth of 5% in 2000 and reflects the strong performance of the
new and upgraded products and the impact of the expanded sales force and better
marketing. In US Corporate and Federal markets, revenues increased by 5% with
the upgraded nexis.com service continuing to make good progress. Weakness in
second half transactional volumes driven by the economic downturn was more than
offset by strong demand in government and academic markets.
Usage of the LexisNexis online services continues to grow strongly with the
number of searches up 30% in the year. On average, LexisNexis handled over
400,000 searches each working day in 2001. Migration from the older proprietary
online system to the easier to use and more functional web products continues
with over 80% of all legal searches now web based. In addition to the growing
commercial preference reflected in our revenues, the success of our web products
has again been reaffirmed by the most recent independent market research in US
law schools.
The Martindale Hubbell legal directories business had another good year with
strong renewals and significant revenue growth from sales of lawyer home pages
to the small law market and listings on the lawyers.com website.
LexisNexis International businesses outside the US reported revenues and
operating profits up 10% and 3% respectively, or 5% and 2% excluding
acquisitions, with a solid sales performance coupled with further investment in
online services. Good sales growth in Europe and Asia Pacific was in part held
back by the weaker market conditions in Argentina. Online sales continued to
grow rapidly in the UK and significant new online product was launched in
France.
The outlook for the Legal business is good. Our products are doing well in their
markets and a continued high level of investment is building on this success.
Margins are expected to improve further as revenues grow and investment levels
stabilise.
EDUCATION
2001 2000 2001 2000 % change
at
£m £m €m €m constant
currencies
Turnover
Harcourt Education and Testing 376 605
Reed Educational & Professional Publishing 203 202 327 331 (1)%
579 202 932 331 177%
Adjusted operating profit 132 40 212 66 218%
Operating margin 22.8% 19.8% 22.8% 19.8% 3.0 pts
EDUCATION
The Education businesses have had a very good year. The Harcourt Education and
Testing businesses acquired in July 2001 have made an excellent contribution and
transformed the division into a leading publisher in the global English speaking
schools market. The Harcourt K-12 (Kindergarten - 12th grade) business again
outperformed the US schools market in 2001 and has exceeded our high
expectations. The Reed Educational & Professional Publishing business also had a
good year.
Revenues and operating profits increased substantially including the part year
contribution of the Harcourt businesses. Excluding this and other acquisitions,
revenues and operating profit growth for the Reed Educational & Professional
Publishing business was 8% and 10% respectively at constant exchange rates. On a
proforma calendar basis, the Harcourt Education and Testing businesses saw
revenues up 12% and operating profits up 10% in 2001 despite weaker performances
in Canada and Trade Books.
The Harcourt US K-12 business had another strong year in 2001 with proforma
revenue growth of 11%, significantly ahead of the market and on top of a very
successful year in 2000. It won the highest overall market share in 2001 state
adoption revenues in both the elementary and secondary schools markets.
Particular successes in the elementary market were achieved in California maths
and science, Florida social studies and Texas language arts. In the secondary
market, the literature and language arts programmes, Elements of Literature and
Elements of Language, were very successful, as was the science programme,
particularly in California. Strong performances were also achieved in open
states with the reading, science and maths programmes.
Significant progress has also been made in the development of our e-learning
strategy for the US market, focused around electronically delivered curriculum
content, teacher professional development and classroom based testing. To
accelerate the creation of our e-content, in October 2001 we entered into a
co-development alliance with Riverdeep Inc, a leading electronic curriculum
content developer. In September we acquired Classroom Connect, the leading
online professional development company for the schools market. For e-testing,
we are building on Harcourt's substantial test creation expertise.
The Harcourt Testing businesses saw proforma revenue growth of 22% in 2001 with
good growth boosted by significant one off incremental requirements on existing
state testing contracts. The business moved into new and expanded facilities in
the year, and scoring capacity is being added to position it well to capture the
opportunities in the rapidly growing testing market.
The Reed Educational & Professional Publishing business saw underlying revenue
and operating profit growth of 8% and 10% respectively, with particularly strong
performances from the Rigby US supplemental business and in UK secondary schools
driven by strong publishing to meet changes in the curriculum. The global
library business also performed well, particularly in the US. Rigby is now being
integrated with the Harcourt Steck-Vaughn supplemental business to form one
unified US supplemental unit.
Reported revenues for Reed Educational & Professional Publishing were 1% down,
after reflecting the transfer of the Butterworth-Heinemann academic book
publishing activities to Science & Medical where the technical publishing
programme has greater fit.
The outlook for the Education business is good. The US schools education market
is not expected in 2002 to repeat its most recent growth, largely as a result of
the phasing of the state adoption cycle. We have however strong programmes for
2002 and fully expect to have a satisfactory year of growth outperforming a
somewhat dull market. The integration of the US supplemental businesses and cost
savings programmes across the Harcourt Education supply chain and infrastructure
are expected to fund over $20 million of additional investment in e-learning
strategies.
BUSINESS
2001 2000 2001 2000 % change
£m £m €m €m at
constant
currencies
Turnover
Cahners Business Information 593 665 955 1,090 (15)%
Reed Business Information 260 270 419 443 (4)%
Elsevier Business Information 263 278 423 456 (7)%
Reed Exhibition Companies 446 358 718 587 23%
Other 65 101 105 166
1,627 1,672 2,620 2,742 (5)%
Adjusted operating profit 247 264 398 433 (8)%
Operating margin 15.2% 15.8% 15.2% 15.8% (0.6) pts
BUSINESS
The Business division has had a very difficult year with the progressive
weakening of global economic conditions exacerbated by the events of September
11 which particularly affected US markets. Whilst aggressive actions have been
taken to reduce costs, the focus has also been on improving yields and building
market share through strengthening sales and marketing activities and improving
product quality. The division significantly outperformed the Business to
Business market reflecting this share growth, the sector and geographic spread
of the business, and the market leading positions of our titles and exhibitions.
Revenues and operating profits were down 5% and 8% respectively on the prior
year at constant exchange rates, or 3% and 8% excluding acquisitions and
disposals. The revenue decline was driven by falls in advertising particularly
in the US partly offset by good growth in the Exhibitions business. Cost actions
were taken across the division with substantial additional headcount reductions
over and above the restructurings in 2000. Internet spend has been scaled back
reflecting the market circumstances. Total savings, on top of directly variable
costs, amounted to approximately £45m/€72m in the year. Operating margins at 15%
were only slightly lower than in the prior year reflecting the cost savings
made, with some margin dilution from portfolio changes.
In the US, Cahners Business Information saw underlying revenues 13% lower,
impacted by the slowdown in the US economy and the hiatus caused by the
September 11 events, with ad pages in Manufacturing, Electronics and TV/
Telecommunications most affected. Market share gains were however made in many
sectors reflecting the investments made in product, sales and marketing and the
greater resilience of our market leading titles in a downturn. Underlying
operating margins were held, due to the cost actions taken, despite the revenue
drop.
In the UK, Reed Business Information underlying revenues were 3% lower. Good
growth was seen in Property, Social Services and Science titles and in online
services, mitigating to some extent the revenue decline in IT and other
advertising markets. Overall market share was increased significantly.
Underlying operating profits were 10% lower reflecting a combination of reduced
revenues and increased funding for successfully growing online services, in
particular totaljobs.com.
In Continental Europe, Elsevier Business Information saw underlying revenues up
4% driven by growth in subscriptions/circulation particularly in Regulatory,
Human Resources and Healthcare, whilst advertising was generally weaker in the
second half of the year reflecting the economic slowdown. Underlying operating
profits were 16% lower as investment was made in upgrading product, new online
initiatives and sales and marketing, as well as additional costs associated with
systems changes.
Reed Exhibition Companies performed strongly despite the tough economic
environment. Revenues and operating profits grew by 9% and 6% respectively
excluding acquisitions and disposals. This was driven by strong performances in
annual shows, particularly in Europe at the international Midem shows and in
Asia Pacific, and some benefit from the phasing of non annual shows. Revenues in
the US were particularly impacted by the cancellation of a number of shows
immediately following September 11, although the profit impact was mitigated by
insurance recoveries. The Miller Freeman Europe shows, acquired in July 2000 and
not included in the underlying growth figures, had an excellent year.
During the year a significant number of disposals were made of non core titles,
shows and businesses. These included the travel publishing businesses, OAG
Worldwide and Cahners Travel Group, the Bowker bibliographic business, Cahners'
automotive and metals titles, RBI's retail and hobby electronics titles, EBI's
consumer encyclopaedia and certain training businesses, and minor exhibitions.
This substantially completes the disposal programme started in 2000 and, with
the acquisitions also made, represents a major reshaping of the Business
division. We have exited sectors which were non core, lower growth or where we
did not have leading positions, to focus on sectors with more sustainable growth
and quality.
The outlook for the Business division in 2002 is clearly challenging given the
progressive slowdown in the global economic environment in 2001 and
uncertainties as to the timing and speed of a recovery. Whilst global
advertising markets have been particularly affected by the slowdown, circulation
revenues and the exhibitions business are proving more resilient. Revenues may
be a little lower in 2002, with the first half suffering particularly in
comparison against a strong first half in 2001, however margins have largely
been protected by the aggressive cost actions already taken. The outlook for the
longer term is positive as economic conditions improve with a more sharply
focused business around attractive, higher growth sectors.
REED ELSEVIER COMBINED BUSINESSES
Profit & Loss
The reported profit before tax for the Reed Elsevier combined businesses,
including exceptional items and the FRS10 amortisation of goodwill and
intangible assets, was £275m/€442m, which compares with a reported profit of
£192m/€315m in 2000. The increase reflects higher underlying operating profits,
partly offset by lower gains on disposals and by acquisitions after taking into
account financing, goodwill and intangible asset amortisation, and exceptional
integration and related costs. The reported attributable profit of £126m/€202m
compares with £33m/€54m in 2000.
Turnover increased by 21% expressed in sterling to £4,560m, and by 19% expressed
in euros to €7,342m, including the contribution from the Harcourt businesses
acquired in July 2001. Underlying revenue growth, excluding the impact of
acquisitions and disposals and currency translation effects, was 3%, or 6%
before taking into account the decline in Business division revenues driven by
the global economic downturn. The Harcourt businesses saw revenue growth of 8%
on a proforma calendar year basis.
Adjusted operating profits, excluding exceptional items and the amortisation of
goodwill and intangible assets, were up 25% expressed in sterling at £990m, and
up 23% expressed in euros at €1,594m, including the part year contribution of
Harcourt. Underlying operating profit growth was 5%, or 10% excluding the
Business division. Additionally the Harcourt businesses saw proforma operating
profit growth of 8%. Operating margins improved by 0.7 percentage points to
21.7% reflecting the pick up in revenue growth across most businesses, coupled
with the levelling off of investment spend and the cost savings programmes.
Acquisitions and disposals were broadly neutral to the overall margin.
The amortisation charge for intangible assets and goodwill amounted to £501m/
€806m, up £33m/€38m, principally reflecting the mid year acquisition of the
Harcourt businesses. The goodwill and intangible assets of these businesses are
being amortised over periods up to 40 years. The useful lives of the goodwill
and intangible assets relating to previously acquired science and medical
publishing businesses have been reassessed and extended to conform with those of
the Harcourt assets with which they are being integrated. This has had the
effect of reducing the annual amortisation charge by £20m/€32m.
Exceptional items showed a pre-tax charge of £72m/€117m, comprising £63m/€102m
of Harcourt and other acquisition integration and related costs, and £35m/€56m
in respect of restructuring actions taken particularly in the Business division
in response to the global economic downturn, less £26m/€41m gain on sale of
businesses. After a tax credit of £81m/€130m arising on restructuring and
disposals, exceptional items showed a post-tax gain of £9m/€13m. This compares
with a net post-tax charge on exceptional items in 2000 of £10m/€16m.
Net interest expense, at £142m/€229m, was £39m/€60m higher than in the previous
year principally due to the financing of the Harcourt acquisition, less the
benefit of the share placing in December 2000. Net interest cover was 7 times.
Adjusted profit before tax at £848m/€1,365m was up 23% expressed in sterling,
21% expressed in euros, or 20% at constant exchange rates. Approximately 9% of
this growth at constant rates arises from the financial benefits of the share
proceeds received in December 2000 ahead of the Harcourt acquisition and 8% from
the contribution post financing of the Harcourt acquisition. Dilution from
disposals was 2% with a further 2% expected in 2002.
The effective tax rate on adjusted earnings was slightly higher at 26.3% (2000
25.9%). The adjusted profit attributable to shareholders of £624m/€1,005m
compared to £511m/€838m in 2000, 20% higher at constant exchange rates.
Cash flows, acquisitions, disposals and debt
Reed Elsevier generates significant cash flows as its principal businesses do
not require major fixed or working capital investments. Capital expenditure
principally relates to computer equipment and investment in systems
infrastructure to support electronic publishing activities.
Total capital expenditure in the year amounted to £178m/€287m, up £34m/€51m from
the prior year level reflecting greater spending on IT systems and the inclusion
of the Harcourt businesses. Depreciation in the year was £132m/€213m. Working
capital requirements are negative overall, due to the substantial proportion of
revenues received through subscription and similar advanced receipts.
Adjusted operating cash flow, before exceptional items, was £1,006m/€1,620m
representing a conversion rate of operating profit into cash flow of 102%, up 4
percentage points on 2000.The conversion rate is flattered by the seasonality of
the Harcourt operating cash flows which favour the second half. Excluding that
effect, the conversion rate was approximately 85% reflecting higher capital
spend in 2001 and movements in working capital.
Free cash flow - after interest, taxation and dividends but before acquisition
spend and exceptional receipts and payments - was £459m/€738m compared to £334m/
€548m in 2000. Net exceptional cash inflows of £140m/€225m include £96m/€154m
proceeds from sale of businesses and £141m/€227m of reduced tax payments less
exceptional acquisition related costs and restructuring.
In 2001, acquisitions were made for a total consideration of £3,242m/€5,219m, of
which the Harcourt STM and Education and Testing businesses amounted to £3,065m/
€4,934m, including debt on completion of £1,040m/€1,674m. An amount of £3,097m/
€4,986m was capitalised as goodwill and intangible assets. The 2001 acquisitions
contributed £149m/€240m to adjusted operating profit in the year and added £286m
/€460m to operating cash flow.
Net borrowings at 31 December 2001 were £3,229m/€5,296m, an increase of £2,796m/
€4,599m on the prior year end, which principally reflects the spend on
acquisitions, less free cash flow.
Gross borrowings at 31 December 2001 amounted to £3,664m/€6,009m, denominated
mostly in US dollars, and were partly offset by cash balances totalling £435m/
€713m invested in short term deposits and marketable securities. Approximately
93% of cash balances were held in sterling, euros and US dollars. A total of
78% of Reed Elsevier's gross borrowings were at fixed rates, including £1,528m/
€2,506m of floating rate debt fixed through the use of interest rate swaps. At
31 December 2001, the fixed rate debt had a weighted average interest coupon of
6.8% and an average remaining life of 10.5 years. The net interest expense also
reflects the interest yield differentials between short term investments and
long term fixed rate borrowings.
ACQUISITION OF HARCOURT
On 12 July 2001, Reed Elsevier acquired the entire share capital of Harcourt
General, Inc for US$4.45 billion (£3.2 billion/€5.2 billion) following a
successful tender offer of US$59 per share of common stock or share equivalent.
Certain businesses - the Harcourt Higher Education business and the Corporate &
Professional Services businesses other than educational and clinical testing -
were immediately on-sold to The Thomson Corporation for US$2.06 billion, on
which taxes of approximately US$0.5 billion were payable over 12 months.
Harcourt General debt on completion was approximately US$1.5 billion.
Reed Elsevier retained Harcourt's Scientific, Technical and Medical (STM)
business and its K-12 (Kindergarten - 12th grade) Schools Education and Testing
businesses for an implied total value of approximately US$4.5 billion, including
the assumption of certain corporate liabilities and looking through seasonal
cashflow variations.
The acquisition was financed initially from the US$1.8 billion of cash proceeds
of the joint international share offering in December 2000, the assumption of
US$0.9 billion of Harcourt General public debt, and from short term commercial
paper borrowings. In July 2001, US$1.5 billion of short term borrowings were
refinanced through a multi-currency multi-tranche global bond offering, under
which were issued US$550 million 5 year notes, €500 million 7 year notes swapped
to US dollars, and US$550 million 10 year notes. Taking into account the funding
mix and interest rate hedging undertaken on signing of the definitive purchase
agreement, the average annual funding cost is approximately 7.2% for the
incremental debt.
The Harcourt businesses acquired have seasonality in sales, profits and
cashflows, most particularly in the K-12 Schools business and to a lesser extent
in Health Sciences, which favours the second half of the year. On a calendar
basis, in 2001, approximately 55% of sales, 65% of operating profits and all of
the operating cash flow arose in the July to December period.
The benefits of this second half phasing to Reed Elsevier's reported 2001
figures was less marked than this since July is by far the most significant
month for sales and profit and the Harcourt businesses are accounted for from 12
July.
A review of the goodwill and intangible assets of the Harcourt businesses
indicated that an expected useful life of up to 40 years would be appropriate
for these assets. Accordingly, the maximum estimated useful life under Reed
Elsevier's accounting policy of amortising goodwill and intangible assets has
been increased from 20 years to 40 years.
PARENT COMPANIES
Profit and loss account
Adjusted earnings per share for Reed International were 26.1p, up 12% on the
previous year, and for Elsevier were €0.64, an increase of 8%. The difference in
percentage change is entirely attributable to the impact of currency movements
on the translation of reported results. At constant rates of exchange, the
adjusted earnings per share of both companies would have shown an increase of
10% over the previous year.
After their share of the exceptional items and the charge in respect of goodwill
and intangible assets amortisation, the reported earnings per share of Reed
International after tax credit equalisation and Elsevier were 4.8p and €0.13,
compared to 1.0p and €0.04 respectively in 2000.
Dividends
Dividends to Reed International and Elsevier shareholders are equalised at the
gross level, including the benefit of the UK attributable tax credit of 10%
received by certain Reed International shareholders. The exchange rate used for
each dividend calculation - as defined in the Reed Elsevier merger agreement -
is the spot euro/sterling exchange rate, averaged over a period of five business
days commencing with the tenth business day before the announcement of the
proposed dividend.
The Board of Reed International has proposed a final dividend of 7.4p, giving a
total dividend of 10.5p for the year, up 5% on 2000. The Boards of Elsevier, in
accordance with the dividend equalisation arrangements, have proposed a final
dividend of €0.21. This results in a total dividend of €0.30 for the year, 7%
higher than in 2000. The difference in percentage growth is attributable to
currency movements.
Dividend cover for Reed International, using adjusted earnings, was 2.5 times.
For Elsevier, the adjusted dividend cover was 2.1 times. Measured for the
combined businesses, dividend cover was 2.3 times compared with 2.1 times in
2000.
A presentation on the results will be webcast live on the reedelsevier.com
website at 9.30 am (London)/10.30 am (Amsterdam) today.
FORWARD-LOOKING STATEMENTS
These Preliminary Statements contain forward-looking statements within the
meaning of Section 27A of the Securities Act 1933, as amended, and Section 21E
of the Securities Exchange Act 1934, as amended. These statements are subject to
a number of risks and uncertainties and actual results and events could differ
materially from those currently being anticipated as reflected in such forward-
looking statements. The terms 'expect', 'should be', 'will be', and similar
expressions identify forward-looking statements. Factors which may cause future
outcomes to differ from those foreseen in forward-looking statements include,
but are not limited to, general economic conditions and business conditions in
Reed Elsevier's markets, customers' acceptance of its products and services, the
actions of competitors, changes in law and legal interpretation affecting Reed
Elsevier's intellectual property rights, and the impact of technological change.
COMBINED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2001
Note 2001 2000 2001 2000
£m £m €m €m
Turnover
Including share of turnover of joint ventures 4,627 3,836 7,449 6,291
Less: share of turnover of joint ventures (67) (68) (107) (111)
3 4,560 3,768 7,342 6,180
Continuing operations before acquisitions 3,902 3,768 6,283 6,180
Acquisitions 658 - 1,059 -
Cost of sales (1,611) (1,332) (2,594) (2,185)
Gross profit 2,949 2,436 4,748 3,995
Operating expenses (2,570) (2,239) (4,138) (3,672)
Before amortisation and exceptional items (1,974) (1,659) (3,178) (2,721)
Amortisation of goodwill and intangible assets (498) (465) (802) (762)
Exceptional items 4 (98) (115) (158) (189)
Operating profit (before joint ventures) 379 197 610 323
Continuing operations before acquisitions 331 197 533 323
Acquisitions 48 - 77 -
Share of operating profit of joint ventures 12 13 20 21
Operating profit including joint ventures 391 210 630 344
Non operating exceptional items
Net profit on sale of businesses 4 26 85 41 140
Profit on ordinary activities before interest 417 295 671 484
Net interest expense (142) (103) (229) (169)
Profit on ordinary activities before taxation 275 192 442 315
Tax on profit on ordinary activities (148) (159) (238) (261)
Profit on ordinary activities after taxation 127 33 204 54
Minority interests (1) - (2) -
Profit attributable to parent companies' 126 33 202 54
shareholders
Equity dividends paid and proposed (269) (245) (432) (402)
Retained loss taken to combined reserves (143) (212) (230) (348)
ADJUSTED FIGURES
Note 2001 2000 2001 2000
£m £m €m €m
Adjusted operating profit 5 990 793 1,594 1,301
Adjusted profit before tax 5 848 690 1,365 1,132
Adjusted profit attributable to parent companies' 5 624 511 1,005 838
shareholders
Adjusted figures, which exclude the amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as additional
performance measures.
COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2001
Note 2001 2000 2001 2000
£m £m €m €m
Net cash inflow from operating activities before 6 1,163 907 1,873 1,487
exceptional items
Payments relating to exceptional items charged to 6 (97) (94) (156) (154)
operating profit
Net cash inflow from operating activities 1,066 813 1,717 1,333
Dividends received from joint ventures 12 6 19 10
Interest and similar income received 113 20 181 33
Interest and similar charges paid (227) (124) (365) (204)
Returns on investments and servicing of finance (114) (104) (184) (171)
Taxation before exceptional items (178) (141) (287) (231)
Exceptional items 141 31 227 51
Taxation (37) (110) (60) (180)
Purchase of tangible fixed assets (175) (141) (282) (231)
Purchase of fixed asset investments (59) (53) (95) (87)
Proceeds from sale of tangible fixed assets 6 3 10 5
Capital expenditure and financial investment (228) (191) (367) (313)
Acquisitions (2,236) (861) (3,599) (1,412)
Exceptional net proceeds from sale of businesses 96 153 154 251
Acquisitions and disposals (2,140) (708) (3,445) (1,161)
Equity dividends paid to shareholders of the parent (255) (196) (411) (321)
companies
Cash outflow before changes in short term (1,696) (490) (2,731) (803)
investments and financing
Decrease/(increase) in short term investments 1,169 (1,137) 1,882 (1,865)
Financing 537 1,634 865 2,679
Increase in cash 10 7 16 11
Short term investments include deposits of under one year if the maturity or
notice period exceeds 24 hours, commercial paper investments and interest
bearing securities that can be realised without significant loss at short
notice.
ADJUSTED FIGURES
Note 2001 2000 2001 2000
£m £m €m €m
Adjusted operating cash flow 5 1,006 775 1,620 1,271
Adjusted operating cash flow conversion 102% 98% 102% 98%
Reed Elsevier businesses focus on adjusted operating cash flow as the key cash
flow measure. Adjusted operating cash flow is measured after dividends from
joint ventures, tangible fixed asset spend and proceeds from the sale of
tangible fixed assets but before exceptional payments and proceeds. Adjusted
operating cash flow conversion expresses adjusted operating cash flow as a
percentage of adjusted operating profit.
Combined BALANCE SHEET
AS AT 31 DECEMBER 2001
2001 2000 2001 2000
£m £m €m €m
Fixed assets
Goodwill and intangible assets 6,723 4,127 11,026 6,644
Tangible assets 489 416 802 670
Investments 241 153 395 247
7,453 4,696 12,223 7,561
Current assets
Inventories and pre-publication costs 488 114 801 184
Debtors - amounts falling due within one year 999 860 1,638 1,385
Debtors - amounts falling due after more than one year 463 206 759 331
Cash and short term investments 435 1,594 713 2,566
2,385 2,774 3,911 4,466
Creditors: amounts falling due within one year (4,134) (3,379) (6,780) (5,441)
Net current liabilities (1,749) (605) (2,869) (975)
Total assets less current liabilities 5,704 4,091 9,354 6,586
Creditors: amounts falling due after more than one year (2,502) (873) (4,103) (1,406)
Provisions for liabilities and charges (280) (170) (459) (273)
Minority interests (5) (7) (8) (11)
Net assets 2,917 3,041 4,784 4,896
Capital and reserves
Combined share capitals 184 185 302 298
Combined share premium accounts 1,629 1,621 2,672 2,610
Combined reserves 1,104 1,235 1,810 1,988
Combined shareholders' funds 2,917 3,041 4,784 4,896
Net borrowings 3,229 433 5,296 697
Approved by the Boards of Reed International P.L.C. and Elsevier NV, 20 February
2002.
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2001
2001 2000 2001 2000
£m £m €m €m
Profit attributable to parent companies' shareholders 126 33 202 54
Exchange translation differences (3) 113 83 150
Total recognised gains and losses for the year 123 146 285 204
COMBINED SHAREHOLDERS' FUNDS RECONCILIATION
FOR THE YEAR ENDED 31 DECEMBER 2001
2001 2000 2001 2000
£m £m €m €m
Profit attributable to parent companies' shareholders 126 33 202 54
Equity dividends paid and proposed (269) (245) (432) (402)
Issue of ordinary shares, net of expenses 22 1,285 35 2,107
Exchange translation differences (3) 113 83 150
Net (decrease)/increase in combined shareholders' funds (124) 1,186 (112) 1,909
Combined shareholders' funds at 1 January 3,041 1,855 4,896 2,987
Combined shareholders' funds at 31 December 2,917 3,041 4,784 4,896
COMBINED FINANCIAL INFORMATION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1 Basis of preparation
The Reed Elsevier combined financial information encompasses the businesses of
Reed Elsevier plc and Elsevier Reed Finance BV and their respective
subsidiaries, joint ventures and associates, together with the parent companies,
Reed International and Elsevier. The combined financial information has been
abridged from the audited combined financial statements for the year ended 31
December 2001. Financial information is presented in both sterling and euros.
2 Exchange rates
Profit & loss Balance sheet
2001 2000 2001 2000
Euros to sterling 1.61 1.64 1.64 1.61
US dollars to sterling 1.44 1.51 1.45 1.49
Euros to US dollars 1.12 1.09 1.13 1.08
3 Segment analysis
Turnover Adjusted operating Turnover Adjusted operating
profit profit
2001 2000 2001 2000 2001 2000 2001 2000
£m £m £m £m €m €m €m €m
Geographical origin
North America 2,695 2,098 482 335 4,339 3,441 776 549
United Kingdom 795 734 207 191 1,280 1,204 333 313
The Netherlands 416 399 163 136 670 654 262 223
Rest of Europe 445 356 108 102 716 584 174 167
Rest of World 209 181 30 29 337 297 49 49
Total 4,560 3,768 990 793 7,342 6,180 1,594 1,301
2001 2000 2001 2000
£m £m €m €m
Geographical market
North America 2,765 2,152 4,452 3,529
United Kingdom 557 521 897 855
The Netherlands 224 234 361 384
Rest of Europe 587 478 945 784
Rest of World 427 383 687 628
Total 4,560 3,768 7,342 6,180
4 Exceptional items
2001 2000 2001 2000
£m £m €m €m
Reorganisation costs (35) (77) (56) (126)
Acquisition related costs (63) (38) (102) (63)
Charged to operating profit (98) (115) (158) (189)
Net profit on sale of businesses 26 85 41 140
Exceptional charge before tax (72) (30) (117) (49)
Net tax credit 81 20 130 33
Total exceptional credit/(charge) 9 (10) 13 (16)
5 Adjusted figures
Adjusted profit and cash flow figures are used by the Reed Elsevier businesses
as additional performance measures. These exclude the amortisation of goodwill
and intangible assets, exceptional items and related tax effects, and are
derived as follows:
2001 2000 2001 2000
£m £m €m €m
Operating profit including joint ventures 391 210 630 344
Adjustments:
Amortisation of goodwill and intangible assets 501 468 806 768
Exceptional items 98 115 158 189
Adjusted operating profit 990 793 1,594 1,301
Profit before tax 275 192 442 315
Adjustments:
Amortisation of goodwill and intangible assets 501 468 806 768
Exceptional items 72 30 117 49
Adjusted profit before tax 848 690 1,365 1,132
Profit attributable to parent companies' shareholders 126 33 202 54
Adjustments:
Amortisation of goodwill and intangible assets 507 468 816 768
Exceptional items (9) 10 (13) 16
Adjusted profit attributable to parent companies' shareholders 624 511 1,005 838
Net cash inflow from operating activities 1,066 813 1,717 1,333
Dividends received from joint ventures 12 6 19 10
Purchase of tangible fixed assets (175) (141) (282) (231)
Proceeds from sale of tangible fixed assets 6 3 10 5
Payments in relation to exceptional items charged to operating profit 97 94 156 154
Adjusted operating cash flow 1,006 775 1,620 1,271
6 Reconciliation of net cash inflow from operating activities
2001 2000 2001 2000
£m £m €m €m
Operating profit (before joint ventures) 379 197 610 323
Exceptional charges to operating profit 98 115 158 189
Operating profit before exceptional items 477 312 768 512
Amortisation of goodwill and intangible assets 498 465 802 762
Depreciation 132 118 213 194
Net SSAP24 pension credit - (1) - (2)
Total non cash items 630 582 1,015 954
Increase in inventories and pre-publication costs (48) (3) (77) (5)
Decrease/(increase) in debtors 156 (110) 251 (181)
(Decrease)/increase in creditors (52) 126 (84) 207
Movement in working capital 56 13 90 21
Net cash inflow from operating activities before exceptional items 1,163 907 1,873 1,487
Payments relating to exceptional items charged to operating profit (97) (94) (156) (154)
Net cash inflow from operating activities 1,066 813 1,717 1,333
7 Reconciliation of net borrowings
2001 2000 2001 2000
£m £m €m €m
Net borrowings at 1 January (433) (1,066) (697) (1,717)
Increase in cash 10 7 16 11
(Decrease)/increase in short term investments (1,169) 1,137 (1,882) 1,865
Increase in borrowings (526) (347) (847) (569)
Change in net borrowings resulting from cash flows (1,685) 797 (2,713) 1,307
Borrowings in acquired business (1,042) (48) (1,677) (79)
Inception of finance leases (3) (3) (5) (5)
Exchange translation differences (66) (113) (204) (203)
Net borrowings at 31 December (3,229) (433) (5,296) (697)
8 Harcourt acquisition
On 12 July 2001, Reed Elsevier plc acquired, through a USsubsidiary, Reed
Elsevier Inc., the whole of the common stock and Series A cumulative convertible
stock of Harcourt General, Inc for US$4.45 billion. On 13 July 2001, Reed
Elsevier Inc. sold the Harcourt Higher Education business and the Corporate &
Professional Services businesses (other than educational and clinical testing)
to The Thomson Corporation (Thomson) for US$2.06 billion before estimated tax
payable of US$0.5 billion. Following the on-sale, Reed Elsevier Inc. has
acquired Harcourt's Science, Technical &Medical business and its Schools
Education and Testing businesses.
A summary of the estimated fair value of the consideration paid for Harcourt
General, Inc and the assets and liabilities acquired is set out below.
Notes Book value Fair value Fair Book value Fair value Fair
on value on adjustments value
acquisition adjustments acquisition
£m £m £m €m €m €m
Goodwill and intangible (i) 518 2,391 2,909 834 3,849 4,683
fixed assets
Tangible fixed assets and 124 - 124 200 - 200
investments
Businesses on-sold to (ii) 523 536 1,059 842 863 1,705
Thomson
Net current assets (iii) 391 (56) 335 629 (90) 539
Borrowings (iv) (1,005) (35) (1,040) (1,618) (56) (1,674)
Current and deferred tax (v) 18 (33) (15) 29 (53) (24)
Other net liabilities (vi) (269) (19) (288) (433) (31) (464)
Net assets acquired 300 2,784 3,084 483 4,482 4,965
Consideration (vii) 3,084 4,965
(i) The fair value of goodwill and intangible assets reflects the excess of the consideration paid over the fair
value of the net tangible assets acquired.
(ii) The businesses on-sold to Thomson are stated at the estimated net realisable proceeds after taxes payable and
separation and other expenses.
(iii) The fair value adjustment to net current assets relates to a conforming of accounting practices across the
businesses, principally with respect to the level of internal labour deferred in pre-publication costs.
(iv) The Harcourt General, Inc publicly traded debt has been restated at market based value on acquisition.
(v) The fair value adjustment for current and deferred tax balances relates to the recognition of deferred tax
assets at amounts considered recoverable short term.
(vi) Other net liabilities on acquisition include £103m/€166m in respect of change of control arrangements and
transaction costs incurred by Harcourt General, Inc and £124m/€200m in respect of General Cinema lease
obligations and other non operating liabilities assumed.
(vii) Consideration is stated after £26m/€42m of capitalised acquisition costs.
The fair values included above represent estimates following a preliminary
valuation exercise. Final values will be incorporated into the 2002 financial
statements.
Proforma turnover and adjusted operating profit for the Harcourt STM and
Education and Testing businesses for the two years ended 31 December 2001, which
have been prepared on the basis of Reed Elsevier's accounting policies and as if
the acquisition of Harcourt had taken place on 1 January 2000, are set out
below.
2001 2000 2001 2000
£m £m €m €m
Turnover
STM 481 451 774 740
Education and Testing 769 656 1,238 1,076
1,250 1,107 2,012 1,816
Adjusted operating profit
STM 107 103 172 169
Education and Testing 153 129 246 212
260 232 418 381
In the period from 13 July 2001 to 31 December 2001, the acquired Harcourt
businesses contributed £618m/€995m to turnover (Science & Medical £242m/€390m;
Education and Testing £376m/€605m) and £144m/€232m to adjusted operating profit
(Science & Medical £56m/€90m; Education and Testing £88m/€142m).
REED INTERNATIONAL P.L.C.
SUMMARY FINANCIAL INFORMATION
Basis of preparation
The results for the year ended 31 December 2001 reflect the 52.9% economic
interest of Reed International's shareholders in the Reed Elsevier combined
businesses, after taking account of results arising in Reed International and
its subsidiary undertakings. These interests have been accounted for on an
equity basis. Adjusted figures, which exclude the amortisation of goodwill and
intangible assets, exceptional items and related tax effects, are presented as
additional performance measures.
Summary consolidated profit and loss account
FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000
£m £m
Share of combined turnover 2,412 1,994
Share of combined adjusted profit before tax 449 365
Share of amortisation (265) (248)
Share of exceptional items before tax (38) (15)
Elsevier's share of UK tax credit on distributed earnings (6) (6)
Profit on ordinary activities before taxation 140 96
Tax on profit on ordinary activities (79) (85)
Profit attributable to ordinary shareholders 61 11
Equity dividends paid and proposed (132) (123)
Retained loss taken to reserves (71) (112)
Basic earnings per share 4.8p 1.0p
Diluted earnings per share 4.8p 1.0p
Adjusted earnings per share 26.1p 23.3p
Adjusted earnings per share is based upon the Reed International shareholders'
52.9% share of the adjusted profit attributable of the Reed Elsevier combined
businesses. Tax on profit on ordinary activities includes £76m (2000 £83m) in
respect of joint ventures.
Dividends
The directors of Reed International have proposed a final dividend of 7.4p per
ordinary share (2000 6.9p) which, when added to the interim dividend already
paid of 3.1p per ordinary share (2000 3.1p), amounts to a total 2001 dividend of
10.5p per ordinary share (2000 10.0p), an increase of 5%. The Reed International
final dividend will be paid on 13 May 2002, with an ex-dividend and record date
of 10 April 2002 and 12 April 2002, respectively. Dividends paid to Reed
International and Elsevier shareholders are equalised at the gross level
inclusive of the UK tax credit received by certain Reed International
shareholders. The equalisation adjustment equalises the benefit of the tax
credit between the two sets of shareholders in accordance with the equalisation
agreement.
Summary consolidated cash flow statement
FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000
£m £m
Net cash outflow from operating activities (3) (1)
Dividends received from Reed Elsevier plc 127 97
Equity dividends paid (126) (98)
Decrease/(increase) in short term investments 431 (431)
Investment in joint venture (406) -
Financing (including issue of ordinary shares £10m (2000 £709m)) (33) 430
Other cash flows 10 3
Change in net cash - -
On 12 April 2001, Reed Holding BV, a wholly owned subsidiary of Reed
International, subscribed for 629,298 R-shares in Elsevier at a cost of £59m, so
as to maintain Reed International's 5.8% indirect equity interest in Elsevier.
On 11 July 2001, Reed International took up its rights in a rights issue by
Elsevier Reed Finance BV and subscribed for 32 R-shares in the company at a cost
of £347m.
Summary consolidated balance sheet
AS AT 31 DECEMBER 2001 2001 2000
£m £m
Fixed asset investment in joint ventures 1,128 801
Net current assets 451 844
Creditors:amounts falling due after more than one year (36) (36)
Net assets 1,543 1,609
Net current assets includes short term investments of £nil (2000 £431m) and
amounts owed by Reed Elsevier plc group of £555m (2000 £512m).
The financial information set out above has been abridged from the company's
statuory accounts for the year ended 31 December 2001, which have been audited
by Deloitte & Touche, and will be filed with the UK Registrar of Companies
following the Annual General Meeting. The audit report was unqualified and did
not contain statements under S237(2) or (3) Companies Act 1985.
ELSEVIER NV
SUMMARY FINANCIAL INFORMATION
Basis of preparation
The results for the year ended 31 December 2001 reflect the 50% economic
interest of Elsevier's shareholders in the Reed Elsevier combined businesses,
which is accounted for on an equity basis. Adjusted figures, which exclude the
amortisation of goodwill and intangible assets, exceptional items and related
tax effects, are presented as additional performance measures.
Summary profit and loss account
FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000
€m €m
Share of combined turnover 3,671 3,091
Share of combined adjusted profit before tax 683 566
Share of amortisation (403) (384)
Share of exceptional items before tax (59) (25)
Taxation (120) (130)
Profit attributable to shareholders 101 27
Allocation of profit
Equity dividends paid and proposed 221 200
Transfer from reserves (120) (173)
Profit attributable to shareholders 101 27
Basic earnings per share €0.13 €0.04
Diluted earnings per share €0.13 €0.03
Adjusted earnings per share €0.64 €0.59
Adjusted earnings per share is based upon the Elsevier shareholders' 50% share
of the adjusted profit attributable of the Reed Elsevier combined businesses.
Dividends
The directors of Elsevier have proposed a final dividend of €0.21 per ordinary
share (2000 €0.19) which, when added to the interim dividend already paid of
€0.09 per ordinary share (2000 €0.09), amounts to a total 2001 dividend of €0.30
per ordinary share (2000 €0.28), an increase of 7%. The Elsevier final dividend
will be paid on 13 May 2002, with an ex-dividend date of 12 April 2002.
Dividends paid to Reed International and Elsevier shareholders are equalised at
the gross level inclusive of the UK tax credit received by certain Reed
International shareholders.
Summary cash flow statement
FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000
€m €m
Net cash outflow from operating activities (3) (2)
Dividends received from joint ventures 100 623
Equity dividends paid (204) (160)
Decrease/(increase) in short term investments 946 (952)
Investment in joint venture (916) (533)
Financing (including issue of ordinary shares €92m (2000 €956m)) (2) 1,016
Other cash flows 79 8
Change in net cash - -
On 12 April 2001, Elsevier issued 629,298 R-shares to Reed Holding BV, a wholly
owned subsidiary of Reed International, for €91.3m before capital taxes, so as
to maintain Reed International's 5.8% indirect equity interest in Elsevier. On
11 July 2001, Elsevier took up its rights in a rights issue by Elsevier Reed
Finance BV and subscribed for 51 E-shares in the company at a cost of €916m.
Summary balance sheet
AS AT 31 DECEMBER 2001 2001 2000
€m €m
Fixed asset investment in joint ventures 2,506 1,674
Net current (liabilities)/assets (50) 822
Creditors:amounts falling due after more than one year (5) (6)
Provisions (59) (42)
Net assets 2,392 2,448
Net current assets includes short term investments of €25m (2000 €971m).
The financial information in respect of the year ended 31 December 2001 has been
extracted from the statutory accounts of Elsevier which have been audited by
Deloitte & Touche.
ADDITIONAL INFORMATION
FOR US INVESTORS
REED ELSEVIER SUMMARY COMBINED FINANCIAL INFORMATION UNDER US GAAP
SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN UK AND DUTCH GAAP AND US GAAP
Basis of preparation
The combined financial statements for Reed Elsevier are prepared in accordance
with UK and Dutch GAAP, which differ in certain significant respects from US
GAAP. The principal differences relate to the US GAAP requirements in respect of
the capitalisation and amortisation of goodwill and other intangible assets,
pensions and deferred taxes. A more complete explanation of accounting policies
used by the combined businesses and the differences between UK and Dutch GAAP
and US GAAP will be set out in the 2001 Reed Elsevier Annual Report and Reed
Elsevier Annual Report on Form 20-F.
Net income
FOR THE YEAR ENDED 31 DECEMBER 2001 2001 2000 2001 2000
£m £m €m €m
Net income under UK and Dutch GAAP 126 33 202 54
US GAAP adjustments:
Amortisation of goodwill and other intangible assets (74) (78) (119) (128)
Deferred taxation (43) 85 (69) 139
Pensions 46 22 74 36
Stock based compensation (15) _ (24) _
Derivative instruments (56) - (90) -
Other items (4) (2) (6) (3)
Net (loss)/ income under US GAAP (20) 60 (32) 98
Combined shareholders' funds
AS AT 31 DECEMBER 2001 2001 2000 2001 2000
£m £m €m €m
Combined shareholders' funds under UK and Dutch GAAP 2,917 3,041 4,784 4,896
US GAAP adjustments:
Goodwill and other intangible assets 1,151 604 1,888 973
Deferred taxation (860) (203) (1,410) (327)
Pensions 132 86 216 138
Derivative instruments (79) - (130) -
Unrealistic gains on available for sale investments 36 1 59 2
Equity dividends not declared in the period 190 177 312 285
Other items (20) 1 (33) 1
Combined shareholders' funds under US GAAP 3,467 3,707 5,686 5,968
Both Reed International ('RUK', CUSIP No. 758212872) and Elsevier ('ENL', CUSIP
No. 290259100) have American Depositary Shares (ADSs) listed on the New York
Stock Exchange (Depositary: Citibank NA). An ADS in Elsevier represents two
ordinary shares in Elsevier, while a Reed International ADS represents four
ordinary shares in Reed International. Final dividends on Reed International and
Elsevier ADSs will be paid on 20 May 2002.
This information is provided by RNS
The company news service from the London Stock Exchange
Latest directors dealings
- 13 hours ago Taylor Maritime Investments Limited NPV
- 14 hours ago NCC Group
- 14 hours ago Hammerson
- 15 hours ago Oxford Nanopore Technologies
- 15 hours ago Rotork