Final Results
Reed Elsevier PLC
20 February 2003
REED ELSEVIER COMBINED BUSINESSES
Change at
constant
2002 2001 2002 2001 currencies
£m £m €m €m %
Reported figures
Turnover 5,020 4,560 7,982 7,342 13%
Operating profit 507 391 806 630 29%
Profit before taxation 289 275 460 442 2%
Net borrowings 2,732 3,229 4,180 5,296
Adjusted figures
Operating profit 1,133 990 1,801 1,594 17%
Profit before taxation 927 848 1,474 1,365 11%
Operating cash flow 1,010 1,006 1,606 1,620 2%
Operating margin 23% 22% 23% 22%
Operating cash flow conversion 89% 102% 89% 102%
Interest cover (times) 5.5 7.0 5.5 7.0
The Reed Elsevier combined businesses encompass the businesses of Reed Elsevier
Group plc and Elsevier Reed Finance BV, together with their two parent
companies, Reed Elsevier PLC and Reed Elsevier NV (the 'Reed Elsevier combined
businesses').
The financial highlights presented refer to 'adjusted' profit and cash flow
figures. These figures are used by the Reed Elsevier businesses as additional
performance measures and are stated before the amortisation of goodwill and
intangible assets, exceptional items and related tax effects. A reconciliation
between the reported and adjusted figures is provided in Note 5 to the
Preliminary Statement.
The percentage change at constant currencies refers to the movements at constant
exchange rates, using 2001 full year average rates.
PARENT COMPANIES
Reed Elsevier PLC Reed Elsevier NV
Change at
constant
2002 2001 Change 2002 2001 Change currencies
£m £m % €m €m % %
Reported profit 89 61 144 101
attributable
Adjusted profit 361 330 9% 542 503 8% 11%
attributable
Average exchange rate €:£ 1.59 1.61 1.59 1.61
Reported earnings per share 7.0p 4.8p €0.18 €0.13
Adjusted earnings per share 28.5p 26.1p 9% €0.69 €0.64 8% 11%
Dividend per share 11.2p 10.5p 7% €0.30 €0.30 -
The results of Reed Elsevier PLC reflect its shareholders' 52.9% economic
interest in the Reed Elsevier combined businesses. The results of Reed Elsevier
NV reflect its shareholders' 50% economic interest in the Reed Elsevier combined
businesses. The respective economic interests of the Reed Elsevier PLC and Reed
Elsevier NV shareholders take account of Reed Elsevier PLC's 5.8% interest in
Reed Elsevier NV.
We are pleased to report a further year of strong financial performance and
strategic progress in 2002. Reed Elsevier has achieved the targets we
established three years ago when we laid out our strategy for growth despite a
very different and more challenging global economic environment: organic revenue
growth is ahead of the market in each of our four divisions; adjusted earnings
per share saw double digit growth at constant currencies; and a good conversion
of earnings into cash has been delivered. The Harcourt Science & Medical and
Education businesses acquired in 2001 have strongly contributed in their first
full year within Reed Elsevier.
Reed Elsevier's performance this year demonstrates the strong fundamentals of
our business: leading brands and market positions; high quality and in-depth
content; international business spread; and financial strength. The performance
in 2002 also underscores the turnaround in the business over the last three
years as we have aggressively executed against our strategy, and gives us much
confidence for the future. Continuing investment in new products and
innovation, and in sales and marketing initiatives, is driving momentum across
our businesses, together with a constant focus on operational efficiency and
cash generation. The organisation is now much stronger, with a sound structure
in place and much greater depth of proven management talent.
FINANCIAL RESULTS
In 2002, revenues were up 10% to £5,020 million/9% to €7,982 million, including
a full year contribution from the Harcourt acquired businesses. At constant
exchange rates, revenues were up 13%.
Adjusted pre-tax profits were 9% higher at £927 million/8% at €1,474 million,
representing an 11% increase at constant exchange rates. The incremental
contribution from the Harcourt acquisition offset the dilutive impact of other
acquisitions and disposals. Adjusted figures are stated before amortisation of
goodwill and intangible assets and exceptional items.
Underlying revenue and adjusted operating profit growth, including the Harcourt
acquired businesses on a proforma basis, were 1% and 8% respectively, or 4% and
9% excluding the Business division which has been the most affected by the
global economic slowdown. Overall operating margins at 22.6% were 0.9
percentage points higher. Tight cost control and Harcourt integration benefits
more than offset the effect of lower margin acquired businesses.
Adjusted operating cashflow at £1,010 million/€1,606 million represents a strong
89% conversion of adjusted operating profits into cash.
The Science & Medical business, now branded Elsevier, had a good year with
strong subscription renewals and growing online sales, as well as a very
successful medical book publishing programme. Revenues and adjusted operating
profits were up 29% and 26% respectively at constant exchange rates, with
underlying growth of 6% and 11% including the Harcourt STM businesses on a
proforma basis.
In the Science & Technology business, subscription renewals are strong,
migration to electronic only contracts is accelerating, and sales of new
information services, including backfiles and subject collections, are going
well. The Harcourt journal content has been migrated to the ScienceDirect
service, which now covers 72% of the subscription base by value. In Health
Sciences, there has been a major turnaround in the Harcourt business, moving
from 3% proforma revenue growth in 2001 to 6% in 2002, and outperforming the
market. The business has been reinvigorated under a new management team, with
much greater focus on new product investment, sales and marketing. Good growth
in book sales came from a strong publishing programme and increased demand from
the expanding healthcare professions. Electronic revenues are also growing well
with new subscribers and new online services.
Across both Elsevier businesses, usage of online services is growing strongly
and helping offset the pressures on institutional budgets, through delivering
greater customer productivity and value. The integration of the Harcourt
businesses is now mostly complete and much of the resulting cost savings is
being reinvested in further growth initiatives.
The Legal business, now branded LexisNexis, performed well, with continued
momentum in the turnaround of the business seen in the prior year. Revenues and
adjusted operating profits were up 5% and 10% respectively at constant exchange
rates, or 4% and 11%, excluding acquisitions and disposals; a very satisfactory
performance in markets that have been affected by the economic slowdown.
LexisNexis continues, we believe, to outperform the US legal markets with
revenue growth of 4%, driven by good growth in online usage and building
customer preference. Online revenues were 8% ahead with particularly strong
growth in sales to the small law firm market. In corporate and federal markets,
continued strong growth in risk solutions is more than compensating for weakness
in corporate business information, to deliver 5% revenue growth. The LexisNexis
International businesses performed satisfactorily, other than in Latin America
where conditions remain particularly difficult. Operating margins improved by
1.2 percentage points to 21.3% as we continue to focus on building the margin
across the Legal business, especially in the US, whilst releasing funds for
further investment.
The Education business, now branded Harcourt Education, has performed well
against a schools market that was weaker than in the prior year. Revenues and
adjusted operating profits were up 78% and 45% respectively at constant exchange
rates, or underlying 2% and 4% including the Harcourt US education business
acquired in 2001 on a proforma basis. The US schools market was an estimated 5%
lower in 2002 with a weak adoption cycle compounded by more cautious spending by
US states, with budgets under pressure and deferral of spend in anticipation of
increased federal funding. Harcourt offset this market decline through a
significant outperformance, gaining the leading share of the new state adoption
revenues available and performing well in backlist sales and in open territories
to deliver revenues marginally ahead of the prior year. The Testing business
acquired with Harcourt had another good year with good growth from state testing
contracts and new publishing, delivering revenues 8% ahead of a particularly
strong 2001. Integration and rationalisation of the Harcourt businesses is
yielding higher than expected savings enabling additional investment in the
business, particularly in electronic learning, whilst improving margins.
Outside the US, growth in the Harcourt Education International business was held
back by a much lower UK primary schools market against a prior year of
significant curriculum change.
The Business division, now branded Reed Business, saw another year of
significant outperformance in a very difficult market. Through a continued
focus on building market share, managing yields and aggressive action to reduce
costs, underlying revenue decline was limited to 6% and profits were increased
by 2%. The sector and geographic spread of the business, its market leading
positions and the mix of subscription sales also helped to mitigate the decline
in advertising markets. Reported revenues and adjusted operating profits were
14% and 4% lower respectively at constant exchange rates reflecting the disposal
of the travel publishing and other non-core businesses in 2001. The Exhibitions
business, although affected by late cycle pressures in its markets, delivered
underlying revenues only 1% lower and flat adjusted operating profits, a very
satisfactory performance in difficult markets reflecting the strength of its
shows and tight cost management.
Disposals and acquisitions, other than Harcourt, reduced adjusted pre-tax
profits against the prior year by 3%, principally due to the lost contribution
from the travel publishing businesses and the investment we are making in
electronic development at the Courtlink and Classroom Connect acquisitions.
This dilution is offset by a full year versus part year contribution after
financing of the acquired Harcourt businesses.
Amortisation of goodwill and intangible assets at £527 million/€838 million was
£26 million/€32 million higher than in the prior year reflecting the 2001 and
2002 portfolio changes less some currency translation effects. Exceptional
pre-tax charges of £111 million/€176 million relate to acquisition integration
and other restructuring, in which we have seen over 1,500 positions eliminated,
and disposals. After tax, and including prior year tax credits, exceptional
items showed a net gain of £11 million/€18 million.
The reported profit before tax, including the amortisation of goodwill and
intangible assets and exceptional items, was £289 million/€460 million, which
compares with £275 million /€442 million in the prior year. The reported
attributable profit of £181 million/€288 million increased against a reported
attributable profit of £126 million/€202 million in the prior year.
PROGRESS ON STRATEGY
It is now three years since we laid out our investment-led strategy for growth.
Over this period we have seen a transformation of Reed Elsevier, in its
strategic positioning, its financial performance, and in its prospects. This
has been delivered by relentless execution against the milestones we laid out in
our strategy for growth:
• The business has been reshaped and refocused: four core businesses in
attractive long term growth markets; leading global positions in each;
strong subscription revenues and reduced advertising exposures; and strong
cashflow dynamics.
• Organisational effectiveness has been upgraded: clear responsibilities and
accountability; strong management teams; continuous building of depth of
talent; a range of initiatives on training and development, values and
culture, and internal communication.
• A dramatic step up in product, sales and marketing, and related
investment: global leader in online scientific information; online legal
information services transformed; significant and persistent share gains in
schools education and business to business, and new electronic services;
internet revenues now over £1 billion/€1.6 billion, beating the original
target set three years ago; annual investment spend approaching
£300 million/€480 million, compared to £80 million/€120 million in 1999,
and increasing.
• The cost base has been restructured: over £350 million/€550 million of
annual costs savings realised; continuous focus on improving operational
efficiency; a leaner, faster moving, higher quality organisation.
• Global capabilities are being built: in medical publishing and schools
education through the acquisition of Harcourt; development of global
online platforms in Science and Legal; content and service acquisitions in
the US, Europe and Latin America.
Our strategy is working and has stood the test of a most challenging economic
environment. Our goal of above market revenue growth focuses each of our
businesses on innovation, to drive product superiority and incremental revenue
growth. Our continuing investment and focus on organisational effectiveness
reinforce this.
In Science & Medical: we expand our content and online functionalities; upsell
to our existing customers and widen our distribution to new customers; add new
services and redeploy content in new geographies; drive usage and add customer
value.
In Legal: we expand our content and online functionalities; customise solutions
for individual markets; establish our global online platform; add to our content
globally through editorial investment and selective acquisitions; add new
information services and tools; drive usage and add customer value.
In Education: we develop market leading textbook programmes and expand our
curriculum range; develop electronic learning resources; grow our testing
business through organisational development and investment in new classroom
based resources and online services; expand geographically where financial
returns are attractive; expand our online professional development services.
In Business: we upgrade and develop our titles, exhibitions and services to
expand the market and win share; manage yields; expand online services around
proven business models; add further subscription services; expand geographically
leveraging our brands, content and skills.
Our goal of double digit adjusted earnings growth at constant currencies demands
this focus on revenue growth as well as a continuous improvement in operational
efficiency.
PARENT COMPANY EARNINGS AND DIVIDENDS
For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, the adjusted
earnings per share were up 9% at 28.5p and up 8% at €0.69 respectively. At
constant exchange rates this represents an increase of 11%. The reported
earnings per share, including the amortisation of goodwill and intangible assets
and exceptional items, was for Reed Elsevier PLC shareholders 7.0p (2001: 4.8p)
and for Reed Elsevier NV shareholders €0.18 (2001: €0.13).
The proposed Reed Elsevier PLC final dividend is 8.0p per share which, together
with the interim dividend of 3.2p, gives a total dividend of 11.2p, up 7% on the
prior year. The Reed Elsevier NV dividend under the equalisation arrangements
is €0.21 per share which, together with the interim dividend of €0.09, gives a
total Reed Elsevier NV dividend unchanged at €0.30. The difference in dividend
growth rates reflects the impact of currency movements since the prior year
dividend declaration dates.
OUTLOOK
Whilst 2003 can be expected to be another challenging year, our businesses are
strongly placed and showing good momentum. We have demonstrated over the last
two years that we can deliver good growth in revenues, margin, profit and cash
generation despite a tough economic environment, and it is our expectation to
deliver again in 2003.
The continuing investment into the business positions us well to grow our
revenues ahead of the market. The Science & Medical business is benefiting from
growing online take-up and new services, and will see the continued turnaround
in Health Sciences. The Legal business should see another year of strong
competitive performance. The Education business is expected to see continuing
state budget pressures but some benefit from the additional federal funding and
more state adoption revenues available. In Business markets, no upturn is
assumed, although Reed Business is well positioned should markets recover. The
restructuring actions taken in 2002 and continuous tight cost management should
enable us to again improve operating margins whilst releasing funds for further
investment.
We remain committed to deliver on our targets of above market revenue growth and
double digit adjusted earnings per share growth at constant currencies for 2003.
Inevitably, some caution would be necessary if there were to be a marked further
deterioration in the economic environment. If current exchange rates prevail,
there will be an adverse translation impact on reported earnings particularly
when expressed in euros.
We are very encouraged by the transformation of Reed Elsevier in the last three
years. We have a strong business, a clear strategy, a well motivated and
experienced management team, and a relentless commitment to execute against our
objectives. We see significant opportunities for growth and a pipeline of
initiatives to deliver on them. We have great confidence in Reed Elsevier's
future success.
Morris Tabaksblat Crispin Davis
Chairman Chief Executive Officer
REVIEW OF OPERATIONS % change
2002 2001 2002 2001 at constant
£m £m €m €m currencies
Turnover
Science & Medical 1,295 1,024 2,059 1,649 29%
Legal 1,349 1,330 2,145 2,141 5%
Education 993 579 1,579 932 78%
Business 1,383 1,627 2,199 2,620 -14%
Total 5,020 4,560 7,982 7,342 13%
Adjusted operating profit
Science & Medical 429 344 682 554 26%
Legal 287 267 456 430 10%
Education 183 132 291 212 45%
Business 234 247 372 398 -4%
Total 1,133 990 1,801 1,594 17%
The Review of Operations refers to adjusted operating profit performance.
Adjusted profit figures are used by Reed Elsevier businesses as additional
performance measures and are stated before amortisation of goodwill and
intangible assets and exceptional items. Unless otherwise indicated, all
percentage movements in the following commentary refer to constant currency
rates, using 2001 full year average rates.
SCIENCE & MEDICAL
% change at
2002 2001 2002 2001 constant
£m £m €m €m currencies
Turnover
Elsevier
Science & Technology 746 664 1,186 1,069 14%
Health Sciences 549 360 873 580 57%
1,295 1,024 2,059 1,649 29%
Adjusted operating profit 429 344 682 554 26%
Operating margin 33.1% 33.6% 33.1% 33.6% -0.5pts
SCIENCE & MEDICAL
The Science & Medical business, now branded Elsevier, has had another very
successful year. Strong subscription renewals, growing online sales and a
successful medical book publishing programme have delivered revenue growth ahead
of the market. The successful integration of the Harcourt STM business and
tight cost control has delivered double digit underlying profit growth.
Revenue and adjusted operating profits increased by 29% and 26% respectively at
constant exchange rates, or, underlying, by 6% and 11% including the Harcourt
STM business on a proforma basis. Both the Science & Technology and Health
Sciences divisions saw underlying revenue growth of 6%.
In Science & Technology, this was driven by strong subscription renewals, both
for print journals and ScienceDirect, and growing online sales, including newly
introduced backfiles and subject collections. Migration to e-only contracts is
accelerating, which, whilst generating lower revenue than a combined print and
electronic sale, has a positive impact on operational efficiency and provides a
good platform for the sale of new electronic services.
In Health Sciences, underlying revenue growth was driven by a successful medical
book publishing programme, with strong new publishing and increased demand from
the expanding healthcare professions. The online service, MD Consult, saw good
growth with a 15% increase in subscribers and expanded content. The Excerpta
Medica sponsored communications business serving the pharmaceutical industry
also performed well.
The integration of the Harcourt STM businesses within Elsevier is now mostly
complete. Publishing operations have been unified, journal production
centralised and the Harcourt IDEAL online service migrated to ScienceDirect.
Journal distribution has been integrated and warehousing capacity is being
rationalised. Offices have been consolidated internationally. Book production
and distribution systems will be integrated over the coming year. The annual
cost savings target of US$40 million will be exceeded, with close to that amount
realised in 2002. More than half of this has been reinvested in new product
development.
Operating margins, at 33.1%, are 0.5 percentage points lower than in the prior
year, reflecting the inclusion of the lower margin Harcourt STM business for a
full year. The underlying margin improvement on a proforma basis was 1.5
percentage points, including in the Health Sciences business as action is taken
to improve the efficiency of the acquired business.
The Elsevier business is making good progress against its strategic priorities.
We continue to expand our content and make more of it available electronically.
During 2002, the number of articles available on the ScienceDirect web service
increased from 1.8 million to 3.3 million from new publishing, the progressive
loading of backfiles and migration from the IDEAL platform. Additional content
came from continued strong publishing in our journals and a very successful
medical publishing programme, as well as acquisitions. We acquired Hanley &
Belfus, a leading US publisher in the medical student market, and recently
established a strong position in Germany through the acquisition of the STM
businesses of Holtzbrinck, including Urban & Fischer, a leading medical
publisher.
ScienceDirect saw strong growth in the year, with the number of articles
downloaded up 70% to 86 million. The percentage of subscribers by value now
taking ScienceDirect is 72%, up 6 percentage points in the year with most major
customers now taking the service. The majority of those not taking
ScienceDirect are able to access web editions of journals as part of their core
subscriptions, but without the retrieval, linking and other functionalities of
ScienceDirect.
The outlook for the Science & Medical business is good. Although academic
institutional and corporate budgets are under pressure, Elsevier continues to
see strong subscription renewals and is driving increased demand through new
content and online services, adding value and productivity to existing customers
and widening distribution. Further margin improvement is expected from
increasing operational efficiency, particularly in the Health Sciences business.
LEGAL
% change
2002 2001 2002 2001 at constant
£m £m €m €m currencies
Turnover
LexisNexis
North America 1,056 1,041 1,679 1,676 6%
International 293 289 466 465 3%
1,349 1,330 2,145 2,141 5%
Adjusted operating profit 287 267 456 430 10%
Operating margin 21.3% 20.1% 21.3% 20.1% 1.2pts
LEGAL
The Legal business, now branded LexisNexis, has had a successful year,
outperforming the market and making good progress in improving margins.
Continued investment has been made in new online services and geographic
expansion.
Revenues and adjusted operating profits increased by 5% and 10% respectively at
constant exchange rates, or 4% and 11% excluding acquisitions and disposals.
LexisNexis North America saw underlying revenue growth of 4%, a very
satisfactory result given the pressure in some markets from the economic
slowdown, particularly in the corporate sector. Outside the US, International
sales growth was 3% held back by the difficult conditions in the corporate
sector and Latin America. Operating margins were up 1.2 percentage points to
21.3%, with good operational gearing and improving cost efficiency in part
offset by additional investment in new online services and development in
Courtlink, the fast growing electronic court access and filing company acquired
in 2001.
In US Legal markets, revenues grew by 4%. Online revenue growth was 8%, with
continued strong growth in online usage and increasing penetration of the small
law firm market. Print and CD sales were flat as the market moves online. The
legal directories business again performed well with strong renewals and
expanded web services. In US Corporate and Federal markets, revenues increased
by 5% with strong growth in risk solutions services more than compensating for
the impact of the economic slowdown on the corporate business information
market. Underlying operating profit growth at LexisNexis North America was 15%,
reflecting the good progress on cost efficiency.
The LexisNexis International businesses outside North America saw revenues and
adjusted operating profits up 3% and 4% respectively. Online sales grew
strongly in all major markets, partly offset by the migration from print and CD
product. Underlying sales growth of 3% was held back by weakness in demand from
corporate customers and in Latin America. Underlying operating profits grew
more slowly at 1% reflecting investment in new online services and expansion of
the business in Germany. In part this investment has been funded by
rationalisation of editorial and production processes within Europe during the
second half of the year.
LexisNexis is continuing to expand its content and online services as well as
pushing into new markets. In the US, we have progressively expanded our
coverage of annotated codes for individual states and are well advanced in
developing modern summaries of all federal and state cases. We continue to add
to the functionality of our online services, and are expanding the electronic
filing and court access services acquired with Courtlink. We also continue to
expand internationally through internal development and acquisition, and the
building of our global online delivery platform. The acquisition of Quicklaw
gave us the leading position in online legal information in Canada, and MBO
Verlag provides an important step up in developing our business in Germany. The
organisational structure, management and resources are in place to deliver on
our strategy and continue the growth momentum in the business.
The outlook for the LexisNexis business is good, despite the pressure of the
economic slowdown on legal markets. Product innovation and the gains in customer
productivity offered by our growing online services are stimulating continued
growth. The focus on increasing operational efficiency is expected to deliver
further margin improvement whilst investment levels are maintained.
EDUCATION
% change
2002 2001 2002 2001 at constant
£m £m €m €m currencies
Turnover
Harcourt Education
US Schools & Testing 846 440 1,345 708 100%
International 147 139 234 224 8%
993 579 1,579 932 78%
Adjusted operating profit 183 132 291 212 45%
Operating margin 18.4% 22.8% 18.4% 22.8% -4.4pts
EDUCATION
The Education business, now branded Harcourt Education, has performed well to
deliver underlying growth in a difficult schools market. The Harcourt US
Education and Testing businesses acquired in July 2001 have made a good
contribution and have been integrated with Reed Elsevier's other education
businesses to become a leading global business in the English speaking schools
market. The Harcourt US K-12 schools business again significantly outperformed
the market.
Revenues and adjusted operating profits increased substantially with a full year
contribution from the acquired Harcourt businesses. Underlying growth in
revenues and operating profits was 2% and 4% respectively at constant exchange
rates including the acquired Harcourt businesses on a proforma basis.
The Harcourt US K-12 schools business performed well against a market estimated
to be some 5% lower, delivering revenues marginally ahead of the prior year.
This market decline is a reflection of the weaker adoptions cycle in 2002
compounded by more cautious spending by US states, with budgets under pressure
and deferral of spend in anticipation of the increased funding allocated by the
federal government. Adjusted operating profits were up 4% before other
acquisitions driven by greater cost efficiency across the supply chain and
operating infrastructure, as well as from integration of the supplemental
businesses.
Operating margins were lower at 18.4% due to the effect of including the
acquired Harcourt businesses for a full year with their seasonally low first
half margin. Underlying margins on a proforma basis improved by 0.5 percentage
points despite the low revenue growth, due to the greater cost efficiency. The
integration savings are higher than initially targeted and have financed
additional investment in electronic learning.
Harcourt Education's significant outperformance of the US K-12 market has been
driven by strong new publishing against available adoption opportunities and
good growth in sales of the backlist and in open territories particularly in the
elementary schools market. We won the highest overall market share of 2002 state
adoption revenues despite the disappointment of not participating in California
elementary reading. The elementary school business was particularly successful
in Florida reading, California math, and in science and social studies across a
number of states. In secondary, the science and literature and language arts
programmes again performed well.
The Harcourt Testing businesses saw underlying revenues 8% ahead, driven by good
growth from new and existing state contracts and successful new educational and
clinical assessment publishing. Operating margins increased through significant
process improvements following relocation of the business to new facilities in
the prior year, and underlying operating profits were 25% higher.
The Harcourt Education International business saw flat revenues, before
acquisitions. Strong growth from successful new publishing in the UK secondary
schools market was offset by a weaker UK primary schools market, following a
strong prior year of significant curriculum change, and lower academic
publishing sales. The Global Library business grew well with an expanded sales
and marketing organisation. Underlying operating profits in the International
business were 10% lower, due to the flat sales and investment in new publishing
and sales and marketing.
Harcourt Education remains focused on delivering market leading textbook
programmes and we are continuing to invest in expanding our curriculum range and
in electronic learning resources. In Testing we have now launched a major new
edition of the Stanford Achievement Test series which combines the power of well
established norm referencing tests with the flexibility to adapt to individual
state criteria. Our online testing capabilities are developing well and
positioned for market growth.
In 2003, the US schools market is expected to see some recovery despite
continuing state budget pressures through the benefit of additional federal
funding and more state adoption revenues available. We have strong publishing
programmes across our businesses to address these opportunities. In Testing,
revenue growth will be held back by the non-renewal of the California state
testing contract but this will have only a limited impact on planned profit
growth. Our cost savings programmes and continuing integration benefits should
deliver further margin improvement whilst we continue to increase investment in
new publishing and electronic learning. The longer term growth opportunities in
Harcourt Education remain very attractive.
BUSINESS
% change
2002 2001 2002 2001 at constant
£m £m €m €m currencies
Turnover
Reed Business Information
US 438 593 696 955 -23%
UK 241 260 383 419 -7%
Continental Europe 256 263 407 423 -4%
Reed Exhibitions 425 446 676 718 -4%
Other 23 65 37 105
1,383 1,627 2,199 2,620 -14%
Adjusted operating profit 234 247 372 398 -4%
Operating margin 16.9% 15.2% 16.9% 15.2% 1.7pts
BUSINESS
The Business division, now branded Reed Business, had another year of
significant outperformance in a very difficult market, through building share,
managing yields, and action to further reduce costs. The sector and geographic
spread of the business, its market leading positions and revenue mix helped
mitigate the weakness in advertising markets.
Underlying revenues were 6% lower than in the prior year reflecting persistent
weak advertising markets worldwide, although the rate of decline year on year
slowed significantly in the second half. The US business was most affected,
whilst, in Europe, subscription revenues to an extent mitigated the advertising
decline. The Exhibitions business, although affected by late cycle pressures in
its markets, saw revenues only slightly lower than the prior year. Underlying
operating profits increased by 2% as a result of the cost actions taken across
the businesses. Reported revenues and adjusted operating profits at constant
exchange rates were down 14% and 4% respectively reflecting the sale of the
travel publishing businesses and other non-core businesses in 2001.
In the US, Reed Business Information saw revenues, excluding disposals, 12%
lower than the prior year. Magazine advertising markets in general remained
depressed, although the rate of decline slowed considerably across the year.
Improvement in some markets, most notably Entertainment, and growth in
Construction data subscription services was more than offset by declines in
Manufacturing, Electronics and Telecoms. Despite the revenue decline, underlying
operating profits have risen by 15% reflecting the significant action taken to
reduce costs, both as a response to the current market environment and as part
of a longer term drive to improve US margins.
In the UK, Reed Business Information revenues, excluding disposals, were 6%
lower with reductions in display and recruitment advertising, particularly in
the Technology and Air Transport sectors. The Agricultural titles recovered from
the low point last year during the foot and mouth crisis and the Social Services
sector performed strongly. Online revenues grew over 20% with the continuing
success of subscription services and online directories. Cost actions restricted
the decline in underlying profits to 4%, representing a small improvement in
operating margin.
In Continental Europe, Reed Business Information saw revenues, excluding
acquisitions and disposals, down 2%, whilst underlying operating profits were 6%
ahead. Strong market share gains and the resilience of subscription income
mitigated to a large extent the decline in advertising markets. Performance in
individual sectors was mixed, with the Hospitality, Regulatory and HR sectors in
the Netherlands performing particularly well, whereas there were significant
declines in Management titles and Training serving the SME market. The
operations in Belgium were closed with the pan European Electronics titles
relocated to France. Operating margins improved through continuing action to
reduce costs.
At Reed Exhibitions, underlying revenues were 1% lower, excluding acquisitions
and disposals, whereas operating profits were held to the level of the prior
year with some benefit from the cycling of non annual shows and through tight
cost management. Growth in Asia Pacific and in the majority of the North
American shows was offset by weakness in the US manufacturing sector and in
Europe particularly in the international shows. The resilience of the
Exhibitions business is a reflection of the market leading positions of our
shows and the sector and geographic spread of the business, and we continue to
launch new shows exploiting proven concepts across markets.
The outlook for Reed Business in 2003 remains uncertain, with a global economic
recovery elusive. A modest decline in underlying revenues might be expected,
absent any further marked deterioration in economic conditions, given the drift
in advertising markets and the net adverse impact this year of the cycling of
non-annual exhibitions. Some further improvement in margins, from tight cost
control and the actions taken in 2002, should help mitigate the effect on
profitability. The outlook in the longer term remains positive. As economic
conditions improve, the business should benefit significantly from the market
share gains achieved and gearing off a lower cost base.
FINANCIAL REVIEW
REED ELSEVIER COMBINED BUSINESSES
Profit & Loss
The reported profit before tax for the Reed Elsevier combined businesses, after
the amortisation of goodwill and intangible assets and exceptional items, was
£289m/€460m, which compares with a reported profit of £275m/€442m in 2001. The
increase reflects higher underlying operating profits, less the full year effect
of financing and goodwill and intangible asset amortisation of the Harcourt
businesses, acquired in July 2001, as well as dilution from other 2001
acquisitions and disposals. The reported attributable profit of £181m/€288m
increased against a reported attributable profit of £126m/€202m in 2001 and
includes exceptional prior year tax credits.
Turnover increased by 10% expressed in sterling to £5,020m, by 9% expressed in
euros to €7,982m, and by 13% at constant exchange rates. This included a £1,269m
/€2,018m full year contribution from the acquired Harcourt businesses.
Underlying revenue growth, including the Harcourt acquired businesses on a
proforma basis, was 1% at constant exchange rates, or 4% before taking into
account the decline in Business division revenues driven by the global economic
slowdown. The acquired Harcourt businesses saw proforma revenue growth of 4%
over 2001, with 6% in Science & Medical and 2% in Education, a strong
performance against the market.
Adjusted operating profits, excluding the amortisation of goodwill and
intangible assets and exceptional items, were up 14% expressed in sterling at
£1,133m, up 13% expressed in euros at €1,801m, and up 17% at constant exchange
rates. This included a £277m/€440m full year contribution from the acquired
Harcourt businesses. Underlying adjusted operating profit growth, including the
Harcourt acquired businesses on a proforma basis, was 8%, or 9% excluding the
Business division. The acquired Harcourt businesses saw proforma adjusted
operating profit growth of approximately 10%, with 14% in Science & Medical and
6% in Education.
Adjusted operating margins improved by 0.9 percentage points to 22.6%. Dilution
of the margin from the lower margin of the acquired businesses and the impact of
disposals was more than offset by an underlying improvement of 1.5 percentage
points reflecting the cost actions taken and the benefits of the Harcourt
integration.
The amortisation charge for intangible assets and goodwill amounted to £527m/
€838m, up £26m/€32m on the prior year, including a full year's amortisation of
the acquired Harcourt assets partly offset by currency translation effects. The
average remaining useful life of goodwill and intangible assets at 31 December
2002 was 25 years.
Exceptional items showed a pre-tax charge of £111m/€176m, comprising £57m/€90m
of Harcourt and other acquisition integration and related costs, £42m/€67m in
respect of restructuring actions taken principally in response to the global
economic slowdown, and a £12m/€19m net loss on disposal of businesses and fixed
asset investments. During 2002, over 1,500 positions have been eliminated
through restructuring, most particularly within the Business division.
Additionally, over 400 positions were eliminated in the year in the Harcourt
integration process. After a tax credit of £122m/€194m arising on the
exceptional costs and in respect of prior year disposals, exceptional items
showed a post-tax gain of £11m/€18m. This compares with a net post-tax
exceptional credit of £9m/€13m in 2001.
Net interest expense, at £206m/€327m, was £64m/€98m higher than in the prior
year, reflecting a full year's financing cost for the Harcourt acquisition, in
part offset by the benefit of the 2001 free cash flow, lower interest rates and
currency translation. Net interest cover on an adjusted basis was 5.5 times.
Adjusted profits before tax, before the amortisation of goodwill and intangible
assets and exceptional items, at £927m/€1,474m, were up 9% expressed in sterling
and up 8% expressed in euros. At constant exchange rates, adjusted profits
before tax were up 11%. The slightly lower growth at reported rates reflects
currency translation effects from the year on year US dollar weakness. Dilution
from acquisitions other than Harcourt and from disposals made in 2001 was 3%
reflecting the investment at Classroom Connect and Courtlink and the loss of
contribution from the travel publishing and other businesses sold. This was
offset by the effect of including a full twelve months of the acquired Harcourt
businesses.
The effective tax rate on adjusted earnings was unchanged at 26.3%. The
adjusted profit attributable to shareholders of £682m/€1,084m was up 9%
expressed in sterling, 8% expressed in euros, and 11% at constant exchange
rates.
Cash flows and debt
Adjusted operating cash flow, before exceptional items, was £1,010m/€1,606m
representing an 89% conversion rate of adjusted operating profits into cash.
This compares with a conversion rate in 2001 of 102% which was significantly
flattered by the seasonality of the acquired Harcourt businesses which strongly
favours the second half. Excluding the acquired Harcourt businesses, the
conversion rate was approximately 93%, up 8 percentage points on the prior year,
reflecting tight management of working capital and capital expenditure. Capital
expenditure in the year amounted to £179m/€285m and depreciation was £136m/
€216m, both similar to the prior year.
Free cash flow - after interest, taxation and dividends but before acquisition
spend and exceptional receipts and payments - was £378m/€601m, compared to £459m
/€738m in 2001 which benefited from the seasonal weighting of the Harcourt
cashflows to the post-acquisition period. Net exceptional cash inflows of £7m/
€11m include £106m/€169m proceeds from disposals of businesses and fixed asset
investments and £20m/€32m of reduced tax payments, less exceptional acquisition
related and restructuring payments of £119m/€190m.
In 2002, acquisitions were made for a total consideration of £99m/€157m,
including £9m/€14m deferred to future years and after taking account of net cash
acquired of £4m/€6m. An amount of £101m/€161m was capitalised as goodwill and
intangible assets. Deferred consideration paid in respect of prior year
acquisitions and payment of change of control and other non operating
liabilities assumed on the acquisition of Harcourt totalled £94m/€150m. The 2002
acquisitions contributed £5m/€8m to adjusted operating profit in the year and
added £3m/€5m to operating cash flow.
Net borrowings at 31 December 2002 were £2,732m/€4,180m, a decrease of £497m in
sterling and €1,116m in euros since 31 December 2001, reflecting the free cash
flow less acquisition spend, and favourable exchange translation effects from a
weaker US dollar.
Gross borrowings at 31 December 2002 amounted to £3,302m/€5,052m, denominated
mostly in US dollars, and were partly offset by cash balances totalling £570m/
€872m invested in short term deposits and marketable securities. A total of 74%
of Reed Elsevier's gross borrowings were at fixed rates, including £1,415m/
€2,165m of floating rate debt fixed through the use of interest rate
derivatives, and had a weighted average interest coupon of 6.4% and an average
remaining life of 7.4 years.
PARENT COMPANIES
Profit and loss account
Adjusted earnings per share, measured before the effect of amortisation of
goodwill and intangible assets and exceptional items, for Reed Elsevier PLC were
28.5p, up 9% on the previous year, and for Reed Elsevier NV were €0.69, 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 11% over the previous year.
After their share of the charge in respect of goodwill and intangible asset
amortisation and of the exceptional items, the reported earnings per share of
Reed Elsevier PLC after tax credit equalisation and Reed Elsevier NV were 7.0p
and €0.18 respectively, compared to 4.8p and €0.13 in 2001.
Dividends
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised
at the gross level, including the benefit of the UK attributable tax credit of
10% received by certain Reed Elsevier PLC 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 Elsevier PLC has proposed a final dividend of 8.0p, giving a
total dividend of 11.2p for the year, up 7% on 2001. The Boards of Reed Elsevier
NV, 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,
the same as in 2001. The difference in percentage growth is attributable to the
strengthening of the euro relative to sterling since the prior year dividend
declaration dates.
Dividend cover for Reed Elsevier PLC, using adjusted earnings before the
amortisation of goodwill and intangible assets, exceptional items and related
tax effects, was 2.5 times, and for Reed Elsevier NV was 2.3 times. Measured for
the combined businesses on a similar basis, dividend cover was 2.4 times
compared with 2.3 times in 2001.
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
This Preliminary Statement contains 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; exchange rate fluctuations; customers' acceptance of
its products and services; the actions of competitors; legislative, fiscal and
regulatory developments; changes in law and legal interpretation affecting Reed
Elsevier's intellectual property rights; and the impact of technological change.
Note 2002 2001 2002 2001
£m £m €m €m
Turnover
Including share of turnover of joint ventures 5,094 4,627 8,099 7,449
Less: share of turnover of joint ventures (74) (67) (117) (107)
3 5,020 4,560 7,982 7,342
Continuing operations before acquisitions 5,001 4,560 7,952 7,342
Acquisitions 19 - 30 -
Cost of sales (1,794) (1,611) (2,852) (2,594)
Gross profit 3,226 2,949 5,130 4,748
Operating expenses (2,736) (2,570) (4,351) (4,138)
Before amortisation and exceptional items (2,113) (1,974) (3,361) (3,178)
Amortisation of goodwill and intangible assets (524) (498) (833) (802)
Exceptional items 4 (99) (98) (157) (158)
Operating profit (before joint ventures) 490 379 779 610
Continuing operations before acquisitions 504 379 801 610
Acquisitions (14) - (22) -
Share of operating profit of joint ventures 17 12 27 20
Operating profit including joint ventures 507 391 806 630
Non operating exceptional items
Net (loss)/profit on disposal of businesses and fixed asset
investments 4 (12) 26 (19) 41
Profit on ordinary activities before interest 495 417 787 671
Net interest expense (206) (142) (327) (229)
Profit on ordinary activities before taxation 289 275 460 442
Tax on profit on ordinary activities (107) (148) (171) (238)
Profit on ordinary activities after taxation 182 127 289 204
Minority interests (1) (1) (1) (2)
Profit attributable to parent companies' shareholders 181 126 288 202
Equity dividends paid and proposed (282) (269) (448) (432)
Retained loss taken to combined reserves (101) (143) (160) (230)
ADJUSTED FIGURES
Note 2002 2001 2002 2001
£m £m €m €m
Adjusted operating profit 5 1,133 990 1,801 1,594
Adjusted profit before tax 5 927 848 1,474 1,365
Adjusted profit attributable to parent companies' shareholders 5 682 624 1,084 1,005
Adjusted figures, which exclude the amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as additional
performance measures.
Note 2002 2001 2002 2001
£m £m €m €m
Net cash inflow from operating activities before exceptional 6 1,154 1,163 1,835 1,873
items
Payments relating to exceptional items charged to operating 6 (119) (97) (190) (156)
profit
Net cash inflow from operating activities 1,035 1,066 1,645 1,717
Dividends received from joint ventures 13 12 21 19
Interest and similar income received 25 113 40 181
Interest and similar charges paid (230) (227) (366) (365)
Returns on investments and servicing of finance (205) (114) (326) (184)
Taxation before exceptional items (154) (178) (245) (287)
Exceptional items 20 141 32 227
Taxation (134) (37) (213) (60)
Purchase of tangible fixed assets (163) (175) (259) (282)
Purchase of fixed asset investments (9) (59) (14) (95)
Proceeds from sale of tangible fixed assets 6 6 9 10
Exceptional proceeds from disposal of fixed asset investments 118 - 188 -
Capital expenditure and financial investment (48) (228) (76) (367)
Acquisitions (184) (2,236) (293) (3,599)
Exceptional net (costs)/proceeds from disposal of businesses (12) 96 (19) 154
Acquisitions and disposals (196) (2,140) (312) (3,445)
Equity dividends paid to shareholders of the parent companies (273) (255) (434) (411)
Cash inflow/(outflow) before changes in short term 192 (1,696) 305 (2,731)
investments and financing
(Increase)/decrease in short term investments (55) 1,169 (88) 1,882
Financing (65) 537 (103) 865
Increase in cash 72 10 114 16
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 2002 2001 2002 2001
£m £m €m €m
Adjusted operating cash flow 5 1,010 1,006 1,606 1,620
Adjusted operating cash flow conversion 89% 102% 89% 102%
Reed Elsevier businesses focus on adjusted operating cash flow as a 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.
2002 2001 2002 2001
£m £m €m €m
Fixed assets
Goodwill and intangible assets 5,814 6,723 8,895 11,026
Tangible assets 484 489 741 802
Investments 140 241 214 395
6,438 7,453 9,850 12,223
Current assets
Inventories and pre-publication costs 500 488 765 801
Debtors - amounts falling due within one year 923 999 1,412 1,638
Debtors - amounts falling due after more than one year 321 463 491 759
Cash and short term investments 570 435 872 713
2,314 2,385 3,540 3,911
Creditors: amounts falling due within one year (3,629) (4,134) (5,552) (6,780)
Net current liabilities (1,315) (1,749) (2,012) (2,869)
Total assets less current liabilities 5,123 5,704 7,838 9,354
Creditors: amounts falling due after more than one year (2,270) (2,502) (3,473) (4,103)
Provisions for liabilities and charges (187) (280) (286) (459)
Minority interests (7) (5) (11) (8)
Net assets 2,659 2,917 4,068 4,784
Capital and reserves
Combined share capitals 187 184 286 302
Combined share premium accounts 1,708 1,629 2,613 2,672
Combined reserves 764 1,104 1,169 1,810
Combined shareholders' funds 2,659 2,917 4,068 4,784
Net borrowings 2,732 3,229 4,180 5,296
Approved by the Boards of Reed Elsevier PLC and Reed Elsevier NV, 19 February
2003.
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001 2002 2001
£m £m €m €m
Profit attributable to parent companies' shareholders 181 126 288 202
Exchange translation differences (187) (3) (604) 83
Total recognised gains and losses for the year (6) 123 (316) 285
COMBINED SHAREHOLDERS' FUNDS RECONCILIATION
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001 2002 2001
£m £m €m €m
Profit attributable to parent companies' shareholders 181 126 288 202
Equity dividends paid and proposed (282) (269) (448) (432)
Issue of ordinary shares, net of expenses 30 22 48 35
Exchange translation differences (187) (3) (604) 83
Net decrease in combined shareholders' funds (258) (124) (716) (112)
Combined shareholders' funds at 1 January 2,917 3,041 4,784 4,896
Combined shareholders' funds at 31 December 2,659 2,917 4,068 4,784
1 Basis of preparation
The Reed Elsevier combined financial information encompasses the businesses of
Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective
subsidiaries, joint ventures and associates, together with the parent companies,
Reed Elsevier PLC and Reed Elsevier NV. The combined financial information has
been abridged from the audited combined financial statements for the year ended
31 December 2002. Financial information is presented in both sterling and euros.
2 Exchange rates
In preparing the combined financial information, the following exchange rates
have been applied:
Profit & loss Balance sheet
2002 2001 2002 2001
Euro to sterling 1.59 1.61 1.53 1.64
US dollars to sterling 1.50 1.44 1.60 1.45
US dollars to euro 0.94 0.89 1.05 0.88
3 Segment analysis
Turnover
2002 2001 2002 2001
£m £m €m €m
Business segment
Science & Medical 1,295 1,024 2,059 1,649
Legal 1,349 1,330 2,145 2,141
Education 993 579 1,579 932
Business 1,383 1,627 2,199 2,620
Total 5,020 4,560 7,982 7,342
2002 2001 2002 2001
£m £m €m €m
Geographical origin
North America 3,158 2,695 5,021 4,339
United Kingdom 782 795 1,243 1,280
The Netherlands 419 416 666 670
Rest of Europe 456 445 725 716
Rest of world 205 209 327 337
Total 5,020 4,560 7,982 7,342
2002 2001 2002 2001
£m £m €m €m
Geographical market
North America 3,209 2,765 5,102 4,452
United Kingdom 551 557 876 897
The Netherlands 209 224 332 361
Rest of Europe 638 587 1,014 945
Rest of world 413 427 658 687
Total 5,020 4,560 7,982 7,342
3 Segment analysis (cont)
Operating profit (including amortisation and exceptional items)
2002 2001 2002 2001
£m £m €m €m
Business segment
Science & Medical 294 210 467 338
Legal 61 59 97 95
Education 102 95 162 153
Business 50 27 80 44
Total 507 391 806 630
2002 2001 2002 2001
£m £m €m €m
Geographical origin
North America 142 47 226 76
United Kingdom 129 154 205 248
The Netherlands 153 129 243 208
Rest of Europe 55 51 87 82
Rest of world 28 10 45 16
Total 507 391 806 630
Adjusted operating profit (excluding amortisation and exceptional items)
2002 2001 2002 2001
£m £m €m €m
Business segment
Science & Medical 429 344 682 554
Legal 287 267 456 430
Education 183 132 291 212
Business 234 247 372 398
Total 1,133 990 1,801 1,594
2002 2001 2002 2001
£m £m €m €m
Geographical origin
North America 616 482 979 776
United Kingdom 190 207 302 333
The Netherlands 169 163 269 262
Rest of Europe 119 108 189 174
Rest of world 39 30 62 49
Total 1,133 990 1,801 1,594
4 Exceptional items
2002 2001 2002 2001
£m £m €m €m
Reorganisation costs (i) (42) (35) (67) (56)
Acquisition related costs (ii) (57) (63) (90) (102)
Charged to operating profit (99) (98) (157) (158)
Net (loss)/profit on disposal of businesses and fixed asset (12) 26 (19) 41
investments (iii)
Exceptional charge before tax (111) (72) (176) (117)
Net tax credit (iv) 122 81 194 130
Total exceptional credit 11 9 18 13
(i) Reorganisation costs relate to employee severances, including the
elimination of over 1,500 positions in 2002, principally in the Business and
Legal segments.
(ii) Acquisition related costs include employee severance and property
rationalisation costs arising on the integration and rationalisation of Harcourt
and other recent acquisitions.
(iii) The net loss on disposal of businesses and fixed asset investments
relates to the sale and closure of businesses in the Business segment, partly
offset by a net gain on disposal of fixed asset investments, comprising a £21m/
€33m profit on sale of investments acquired on the acquisition of Harcourt
General, Inc, less a £17m/€27m loss on other fixed asset investments.
(iv) The net tax credit in 2002 arises principally in respect of prior year
disposals.
5 Adjusted figures
Adjusted profit and cash flow figures are used by the Reed Elsevier businesses
as additional performance measures. The adjusted figures are stated before the
amortisation of goodwill and intangible assets, exceptional items and related
tax effects, and are derived as follows:
2002 2001 2002 2001
£m £m €m €m
Operating profit including joint ventures 507 391 806 630
Adjustments:
Amortisation of goodwill and intangible assets 527 501 838 806
Exceptional items 99 98 157 158
Adjusted operating profit 1,133 990 1,801 1,594
Profit before tax 289 275 460 442
Adjustments:
Amortisation of goodwill and intangible assets 527 501 838 806
Exceptional items 111 72 176 117
Adjusted profit before tax 927 848 1,474 1,365
Profit attributable to parent companies' shareholders 181 126 288 202
Adjustments:
Amortisation of goodwill and intangible assets 512 507 814 816
Exceptional items (11) (9) (18) (13)
Adjusted profit attributable to parent companies' shareholders 682 624 1,084 1,005
Net cash inflow from operating activities 1,035 1,066 1,645 1,717
Dividends received from joint ventures 13 12 21 19
Purchase of tangible fixed assets (163) (175) (259) (282)
Proceeds from sale of tangible fixed assets 6 6 9 10
Payments in relation to exceptional items charged to operating 119 97 190 156
profit
Adjusted operating cash flow 1,010 1,006 1,606 1,620
6 Reconciliation of operating profit to net cash inflow from operating
activities
2002 2001 2002 2001
£m £m €m €m
Operating profit (before joint ventures) 490 379 779 610
Exceptional charges to operating profit 99 98 157 158
Operating profit before exceptional items 589 477 936 768
Amortisation of goodwill and intangible assets 524 498 833 802
Depreciation 136 132 216 213
Total non cash items 660 630 1,049 1,015
Increase in inventories and pre-publication costs (51) (48) (81) (77)
(Increase)/decrease in debtors (12) 156 (19) 251
Decrease in creditors (32) (52) (50) (84)
Movement in working capital (95) 56 (150) 90
Net cash inflow from operating activities before exceptional items 1,154 1,163 1,835 1,873
Payments relating to exceptional items charged to operating profit (119) (97) (190) (156)
Net cash inflow from operating activities 1,035 1,066 1,645 1,717
7 Reconciliation of net borrowings
2002 2001 2002 2001
£m £m €m €m
Net borrowings at 1 January (3,229) (433) (5,296) (697)
Increase in cash 72 10 114 16
Increase/(decrease) in short term investments 55 (1,169) 88 (1,882)
Decrease/(increase) in borrowings 95 (526) 151 (847)
Change in net borrowings resulting from cash flows 222 (1,685) 353 (2,713)
Borrowings in acquired business - (1,042) - (1,677)
Inception of finance leases (16) (3) (25) (5)
Exchange translation differences 291 (66) 788 (204)
Net borrowings at 31 December (2,732) (3,229) (4,180) (5,296)
8. Pension schemes
A new UK financial reporting standard, FRS17: Retirement Benefits, will, with
effect from the 2005 financial year, introduce new accounting policies in
respect of pension arrangements. FRS17 also requires additional information to
be disclosed in the intervening period based on methodologies set out in the
standard which are different from those used by the scheme actuaries in
determining funding arrangements.
Reed Elsevier operates a number of pension schemes around the world. The major
schemes are of the defined benefit type with assets held in separate trustee
administered funds. The two largest schemes, which cover the majority of
employees, are in the UK and US. The main UK scheme was subject to a valuation
by Watson Wyatt Partners as at 5 April 2000. The scheme is valued formally every
three years, the next valuation being as at 5 April 2003. The main US scheme is
valued annually and was subject to a valuation by Towers Perrin as at 1 January
2002. The actuarial values placed on scheme assets as at their last valuation
date were sufficient to cover 121% and 103% of the benefits that had accrued to
members of the main UK and US schemes, respectively. No employer contributions
are currently being made to the main UK scheme.
Pension costs are accounted for in accordance with the UK accounting standard,
SSAP24. Under SSAP24, the net pension charge was £59m/€94m (2001: £39m/€63m),
of which £34m/€54m (2001: £24m/€39m) related to defined benefit type schemes.
The net pension expense for defined benefit schemes for 2002, based on the
methodologies prescribed by FRS17, would have been £11m/€17m higher at £45m/
€71m. The pension expense in respect of defined contribution schemes is
unchanged under FRS17.
As at 31 December 2002, under the methodologies prescribed by FRS17, the funded
defined benefit schemes in aggregate had a net deficit of £66m/€101m (2001: net
surplus £263m/€431m), representing 4% (2001: 13% surplus) of total assets in
those schemes, and the unfunded defined benefit schemes had a liability in
aggregate of £71m/€109m (2001: £66m/€108m), of which £52m/€80m (2001: £49m/€80m)
is provided for within creditors under SSAP24.
Basis of preparation
The Reed Elsevier PLC (formerly Reed International P.L.C.) share of the Reed
Elsevier combined results has been calculated on the basis of the 52.9% economic
interest of the Reed Elsevier PLC shareholders in the Reed Elsevier combined
businesses, after taking account of results arising in Reed Elsevier PLC and its
subsidiary undertakings. Reed Elsevier PLC's 52.9% economic interest in the net
assets of the combined businesses is shown in the balance sheet as interests in
joint ventures, net of the other assets and liabilities reported within Reed
Elsevier PLC and its subsidiary undertakings. 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 2002 2002 2001
£m £m
Share of combined turnover 2,656 2,412
Share of combined adjusted profit before tax 490 449
Share of amortisation (279) (265)
Share of exceptional items before tax (58) (38)
Reed Elsevier NV's share of UK tax credit on distributed earnings (7) (6)
Profit on ordinary activities before taxation 146 140
Tax on profit on ordinary activities (57) (79)
Profit attributable to ordinary shareholders 89 61
Equity dividends paid and proposed (143) (132)
Retained loss taken to reserves (54) (71)
Basic earnings per share 7.0p 4.8p
Diluted earnings per share 7.0p 4.8p
Adjusted earnings per share 28.5p 26.1p
Adjusted earnings per share is based upon the Reed Elsevier PLC shareholders'
52.9% share of the adjusted profit attributable of the Reed Elsevier combined
businesses. Tax on profit on ordinary activities includes £56m (2001: £76m) in
respect of joint ventures.
Dividends
The directors of Reed Elsevier PLC have proposed a final dividend of 8.0p per
ordinary share (2001: 7.4p) which, when added to the interim dividend already
paid of 3.2p per ordinary share (2001: 3.1p), amounts to a total 2002 dividend
of 11.2p per ordinary share (2001: 10.5p), an increase of 7%. The Reed Elsevier
PLC final dividend will be paid on 2 May 2003, with an ex-dividend and record
date of 9 April 2003 and 11 April 2003 respectively. Dividends paid to Reed
Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level
inclusive of the UK tax credit received by certain Reed Elsevier PLC
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 2002 2002 2001
£m £m
Net cash outflow from operating activities - (3)
Dividends received from Reed Elsevier Group plc 135 127
Equity dividends paid (135) (126)
Decrease in short term investments - 431
Investment in joint venture - (406)
Financing (including issue of ordinary shares £16m (2001 £10m)) (2) (33)
Other cash flows 2 10
Change in net cash - -
Summary consolidated balance sheet
AS AT 31 DECEMBER 2002 2002 2001
£m £m
Fixed asset investment in joint ventures 983 1,128
Net current assets 460 451
Creditors: amounts falling due after more than one year (36) (36)
Net assets 1,407 1,543
Net current assets includes amounts owed by Reed Elsevier Group plc group of
£573m (2001 £555m).
The financial information set out above has been abridged from the company's
statutory accounts for the year ended 31 December 2002, 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.
Basis of preparation
The results for the six months ended 31 December 2002 reflect the Reed Elsevier
NV (formerly Elsevier NV) shareholders' 50% economic interest in the Reed
Elsevier combined businesses, 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 2002 2002 2001
€m €m
Share of combined turnover 3,991 3,671
Share of combined adjusted profit before tax 737 683
Share of amortisation (419) (403)
Share of exceptional items before tax (88) (59)
Taxation (86) (120)
Profit attributable to shareholders 144 101
Allocation of profit
Equity dividends paid and proposed 221 221
Transfer from reserves (77) (120)
Profit attributable to shareholders 144 101
Basic earnings per share €0.18 €0.13
Diluted earnings per share €0.18 €0.13
Adjusted earnings per share €0.69 €0.64
Adjusted earnings per share is based upon the Reed Elsevier NV shareholders' 50%
share of the adjusted profit attributable of the Reed Elsevier combined
businesses.
Dividends
The directors of Reed Elsevier NV have proposed a final dividend of €0.21 per
ordinary share (2001: €0.21) which, when added to the interim dividend already
paid of €0.09 per ordinary share (2001: €0.09), amounts to a total 2002 dividend
of €0.30 per ordinary share (2001: €0.30). The Reed Elsevier NV final dividend
will be paid on 2 May 2003, with an ex-dividend date of 11 April 2003. Dividends
paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the
gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC
shareholders.
Summary cash flow statement
FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001
€m €m
Net cash outflow from operating activities - (3)
Dividends received from joint ventures 150 100
Equity dividends paid (222) (204)
Decrease in short term investments 10 946
Investment in joint venture - (916)
Financing (including issue of ordinary shares €22m (2001: €92m)) 59 (2)
Other cash flows 3 79
Change in net cash - -
Summary balance sheet
AS AT 31 DECEMBER 2002 2002 2001
€m €m
Fixed asset investment in joint ventures 2,195 2,506
Net current liabilities (96) (50)
Creditors: amounts falling due after more than one year (6) (5)
Provisions (59) (59)
Net assets 2,034 2,392
Net current liabilities include short term investments of €15m (2001: €25m).
The financial information in respect of the year ended 31 December 2002 has been
extracted from the statutory accounts of Reed Elsevier NV which have been
audited by Deloitte & Touche.
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,
derivative instruments, 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 2002 Reed Elsevier
Annual Reports and Financial Statements and the Reed Elsevier Annual Report on
Form 20-F.
Net income
FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 2002 2001
£m £m €m €m
Net income under UK and Dutch GAAP 181 126 288 202
US GAAP adjustments:
Goodwill and other intangible assets 223 (74) 355 (119)
Deferred taxation (50) (43) (80) (69)
Pensions 56 46 89 74
Stock based compensation - (15) - (24)
Derivative instruments (45) (56) (72) (90)
Other items - (4) - (6)
Net income/(loss) under US GAAP 365 (20) 580 (32)
Combined shareholders' funds
AS AT 31 DECEMBER 2002 2002 2001 2002 2001
£m £m €m €m
Combined shareholders' funds under UK and Dutch GAAP 2,659 2,917 4,068 4,784
US GAAP adjustments:
Goodwill and intangible assets 1,302 1,151 1,992 1,888
Deferred taxation (838) (860) (1,283) (1,410)
Pensions 151 132 231 216
Derivative instruments (117) (79) (179) (130)
Available for sale investments 3 36 5 59
Equity dividends 205 190 314 312
Other items (21) (20) (32) (33)
Combined shareholders' funds under US GAAP 3,344 3,467 5,116 5,686
Both Reed Elsevier PLC ('RUK', CUSIP No. 758205108) and Reed Elsevier NV ('ENL',
CUSIP No. 758204101) have American Depositary Shares (ADSs) listed on the New
York Stock Exchange (Depositary: Citibank NA). An ADS in Reed Elsevier NV
represents two ordinary shares in Reed Elsevier NV, while a Reed Elsevier PLC
ADS represents four ordinary shares in Reed Elsevier PLC. Final dividends on
Reed Elsevier PLC and Reed Elsevier NV ADSs will be paid on 9 May 2003.
Reed Elsevier is a world leading publisher and information provider and its
principal operations are in North America and Europe. Its two parent companies -
Reed Elsevier PLC and Reed Elsevier NV - are listed on the London and Amsterdam
Stock Exchanges respectively, and also on the New York Stock Exchange. The
returns to their respective shareholders are equalised in terms of dividend and
capital rights. 'Reed Elsevier' and 'the combined businesses' comprise Reed
Elsevier PLC and Reed Elsevier NV plus their two jointly owned companies, Reed
Elsevier Group plc and Elsevier Reed Finance BV, and their respective
subsidiaries and joint ventures.
The Reed Elsevier Annual Review 2002 and Reed Elsevier PLC 2002 Annual Report
and Financial Statements are being posted to Reed Elsevier PLC shareholders on 7
March 2003. Copies of the Reed Elsevier Annual Review 2002 and Reed Elsevier NV
2002 Annual Report and Financial Statements will be available to shareholders in
Reed Elsevier NV on request. Copies of the Preliminary Statement are available
to the public from the respective companies:
Reed Elsevier PLC Reed Elsevier NV
25 Victoria Street Sara Burgerhartstraat 25
London SW1H 0EX 1055 KV, Amsterdam
United Kingdom The Netherlands
Copies of all recent announcements, including this Preliminary Statement, and
additional information on Reed Elsevier can be found on the Reed Elsevier Home
Page on the World Wide Web:
http://www.reedelsevier.com
This information is provided by RNS
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