Final Results - Year Ended 31 Dec 1999, Part 1

Reed International PLC
Elsevier NV
24 February 2000


PART 1


HIGHLIGHTS OF THE PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 DECEMBER 1999

NEW REED ELSEVIER STRATEGY TO DRIVE INTERNET-LED GROWTH

Commitment to global leadership in Scientific, Legal and Business markets

Major investment programme to drive Internet revenues (£750m/E1,200m
investment over three years)

Focus on significant new Internet products, sales and marketing programmes,
and management and organisation effectiveness

£170m/E270m annualised cost savings; £130m/E210m to be realised in 2000

£1bn/E1.6bn of Internet revenues targeted by 2002 through media migration and
new revenue streams

Target of above market revenue growth and double digit earnings growth by 2002


1999 RESULTS

1999 results disappointing in less favourable competitive and market
conditions

Revenues up 5%, adjusted pre-tax profits down 9% (at constant rates).
Underlying revenue growth 3%, costs growth 5% including investment

1999 dividends reduced by one-third in support of aggressive investment-led
growth strategy

REED ELSEVIER

                                                                              
                                                                 Change at  
                                                                 constant
                                   1999    1998    1999    1998  currencies
                                     £m      £m      Em      Em           %
Turnover                          3,390   3,191   5,153   4,749         +5%
Adjusted profit before taxation     710     773   1,079   1,150         -9%

PARENT COMPANIES                  Reed International          Elsevier
                                                Change                Change
                               1999    1998          %   1999    1998      %
Adjusted earnings per share    24.4p   26.4p       -8%   E0.57   E0.60   -5%
Dividend per share             10.0p   15.0p      -33%   E0.27   E0.39  -31%

Crispin Davis, Chief Executive Officer of Reed Elsevier, commented:

'Reed Elsevier has powerful and valuable assets: leading brands and market
positions, high quality and in-depth content, scale, professional people and
financial strength.  Coupled with the exciting opportunities opened up to us
by the Internet, this represents a strong platform for growth.  We are
determined to build aggressively on this with a new management team and new
strategy in place.'

Enquiries         London              Amsterdam          New York           
                  Sybella Stanley     Pieter Jobsis      Paul Richardson
                  [phone]    [phone]    [phone] 




FINANCIAL HIGHLIGHTS 
FOR THE YEAR ENDED 31 DECEMBER 1999 
 
Reed Elsevier combined businesses 
                                                                    Change at 
                                                                     constant 
                               1999     1998     1999     1998     currencies 
                                 £m       £m       Em       Em              % 
Reported figures 
Turnover                      3,390    3,191    5,153    4,749            +5% 
Operating profit                180      402      274      598           -54% 
Profit before taxation          105    1,044      160    1,554           -88% 
Net borrowings                1,066      962    1,717    1,366      
Adjusted figures 
Operating profit                792      813    1,204    1,210            -3% 
Operating margin                23%      25%      23%      25%      
Profit before taxation          710      773    1,079    1,150            -9% 
Operating cash flow             780      808    1,186    1,203            -4% 
Operating cash flow conversion  98%      99%      98%      99%      
Interest cover (times)           10       20       10       20      
 
The Reed Elsevier combined financial statements 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' profit and cash flow figures, which are stated before 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 1998 full year average rates. 
 
 
 
Parent companies 
                               Reed International          Elsevier 
                              1999     1998     %      1999     1998     % 
                                £m       £m   change     Em       Em  change 
Reported (loss)/profit
attributable                   (39)     396             (48)     574 
Adjusted profit 
attributable                   279      302     -8%     401      425     -6% 
Average exchange rate E:£     1.52     1.49            1.52     1.49 
Reported (loss)/earnings per
share                         (3.4)p   34.7p         E(0.07)   E0.81 
Adjusted earnings per
share                         24.4p    26.4p    -8%   E0.57    E0.60     -5% 
Dividend per share            10.0p    15.0p   -33%   E0.27    E0.39    -31% 
 
The results of Reed International reflect its shareholders' 52.9% economic
interest, through a 50% share of the Reed Elsevier combined businesses and a
5.8% interest in Elsevier. The results of Elsevier reflect its 50% share of
the Reed Elsevier combined businesses. 
 
 
 
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER 
 
We are pleased to announce Reed Elsevier's new strategy for growth in the
electronic age. Our principal objective is to be the indispensable partner to
our target customers for information-driven services and solutions across our
three core areas of focus, Science, Legal and Business. Capitalising on the
potential of the Internet will be a key driver of our strategy. We are
convinced that Reed Elsevier's brands, depth of content, reach and overall
scale in these markets provide a genuinely differentiated platform for
success in the new media world. In addition, we are re-emphasising the core
disciplines of marketing, sales, customer service and new product development
as fundamental to achieving our aims. 

We are announcing a significant and detailed investment programme, with
a total three year spend in excess of £750m/E1,200m of which over 90% will be
Internet related. In turn, annual savings of more than £170m/E270m have been
identified which will result in a leaner, higher calibre, and faster moving
organisation. Together with our commitment to strengthen the management
structure and to increase our organisational efficiencies, we are confident
in our ability to put the business on a strong growth track over the next
three
years. 
 
1999 FINANCIAL PERFORMANCE 
Despite disappointing 1999 results with only 3% underlying revenue growth and
adjusted profits before tax down by 9% at constant exchange rates, important
steps were taken through the course of the year to get the business back on a
long term growth track. These include a single management structure, the
appointment of a new Chief Executive Officer and a major strategic review. 

Underlying revenue growth was held back by the competitive environment at
LEXIS-NEXIS, market conditions in key sectors at Cahners, and management
issues. A 5% increase in underlying costs, including investment, reduced
operating margins by 2.1 percentage points to 23.4%. 

Adjusted pre-tax profits, excluding exceptional items and amortisation of
goodwill and intangible assets, fell 8% to £710m/6% to E1,079m. Reported
pre-tax profits were £105m/E160m compared with £1,044m/E1,554m in 1998,
reflecting the impact of exceptional items. Cash flow conversion was strong
with operating cash flow at £780m/E1,186m, representing 98% of adjusted
operating profits. 

In the Scientific business, turnover and operating profits both increased by
5% at constant exchange rates, or 2% excluding acquisitions. Revenues were
adversely affected by the impact on subscription renewals of currency
movements on library budgets, particularly in Japan and Continental Europe.
ScienceDirect, the web based scientific database at the core of Elsevier
Science's strategy, continued its successful roll-out.  

In the Legal segment (previously called Professional), turnover increased by
13% whereas operating profit declined by 4% at constant exchange rates.
Excluding acquisitions, the figures were 5% and 12% respectively. This
reflected low underlying revenue growth at LEXIS-NEXIS and investment in the
development of web based legal research products and practice tools and
increased sales and marketing. The Lexis Publishing business had flat
revenues in very competitive markets. Usage of Nexis products grew strongly,
but suffered from industry-wide pricing pressures and revenues declined by
4%. These issues are now being firmly addressed through the growth strategy
for LEXIS-NEXIS. The legal publishing businesses outside the US continued to
perform strongly, particularly in the UK and France. The Educational business,
which is also included in this segment, saw good sales and profit growth with
market share gains and increased Government funding in schools.
 
Turnover in the Business to Business segment increased by 2% but operating
profits declined by 9% at constant exchange rates. The slowdown in revenue
growth in the US business, which began in the second half of 1998, persisted
to an unexpected degree in 1999 although is now recovering. A major
restructuring took place in Cahners in the second half of 1999 to reduce
operating costs. In the UK and Continental Europe, weakness in advertising
demand in the first half recovered in the second half. Reed Exhibitions
performed well with good growth in the annual trade shows in the US and a
strong launch programme. 

For the parent companies, Reed International and Elsevier, the adjusted
earnings per share, excluding exceptional items and the amortisation of
goodwill and intangible assets, were 24.4p (1998 26.4p) and E0.57 (1998
E0.60) respectively, representing a decline of 8% at constant rates of
exchange. The reported loss per share for Reed International shareholders was
3.4p (1998 earnings 34.7p) and for Elsevier shareholders E0.07 (1998 earnings
E0.81). 

The extensive strategic review conducted over the last four months has been
targeted at achieving a significant improvement in performance, and getting
the business back on a strong growth track. The key conclusions, new
strategy, vision and action programme arising from this are detailed below. 
 
 
VISION AND STRATEGY FOR GROWTH 
 
Vision and Key Objectives 
Reed Elsevier's key objective is to become the indispensable partner to its
target customers, the scientist, lawyer and business professional, for
information-driven services and solutions. This will be achieved through
delivery of highly valued and demonstrably superior and flexible information
solutions, increasingly via the Internet. 
 
 
 
Reed Elsevier's goal is to build a global capability and leadership in all
its target sectors with immediate focus on the three principal markets of
Scientific, Legal and Business to Business. 

Success against these objectives will enable Reed Elsevier to turnaround its
financial performance and deliver progressively stronger results against a
transitional year in 2000. By 2002, we target revenue growth across the whole
portfolio to exceed market growth, which is broadly estimated at 5-6%, and so
build share. This will be achieved organically, supplemented by in-fill
acquisitions and driven largely by Internet revenue growth. Accordingly, we
are targeting double digit earnings growth by 2002. We are committed to
delivering superior shareholder returns.  

Group Strategy  
The Reed Elsevier group strategy is built around the eight key foundations
outlined below. The divisional strategies reflecting all of these are
summarised later in this Preliminary Statement. 

1     Focus on the existing three core businesses, to maximise immediate
      growth potential 

The Science, Legal and Business to Business markets all offer real
opportunities for growth and all offer significant Internet migration and
business expansion paths. Each of these markets is large and is growing at
4-7% annually. There is a continuing and expanding information and related
services need. Reed Elsevier is well placed, holding number 1 or 2 positions
in its key markets, with strong brands, content and market reach. 
 
These three businesses share a number of important characteristics and
benefit from common ownership. All rely on the provision of proprietary and
high value content to professional customers. All are transitioning to
electronic. All exploit comparable publishing and sales/marketing skills. All
are becoming more global. The Internet is fast becoming the preferred
customer access system for all three, with links to a wider range of
content-related services and to transactional capabilities.  

We plan to exit businesses that do not fit directly with the strategy. 
We will thus be divesting a number of businesses, which in 1999 contributed
approximately £200m/E304m revenue and £33m/E50m operating profit. These will
include OAG Worldwide and Springhouse. Short-term these disposals may have a
small negative impact on earnings; longer-term they will help accelerate
growth rates. 

2     Significantly upgrade management and organisation effectiveness 

There is a clear need to strengthen the management structure, capability and
skill set, to deliver strong focused leadership and to ensure outstanding
execution of the new strategy. This is a critical priority for Reed Elsevier. 
To achieve this, key initiatives are: 

Creation of three global business units: Science, Legal and Business, each
headed by a global Chief Executive Officer with main board membership. This is
to ensure the strongest possible customer focus and alignment. This structure
will accelerate global expansion, brand and portfolio development, and
product/marketing upgrade. 

Strong new appointments to senior management positions. These include
the three key global unit CEO positions. In Science a new CEO has been
appointed; the recruitment of the other two positions is underway. In order
to leverage the significant technology opportunities across our business we
will also be appointing a global Chief Technology Officer. Appointments to
other key positions, including a new head of Cahners in the US and also
NEXIS, have been completed. Others will follow.  

Organisational separation of Internet activities. Internet development
is now separately organised within the businesses with clear management
leadership and accountabilities. Whilst working closely with the print
brands, content and marketing, the electronic media groups will independently
pursue growth opportunities in existing and carefully defined new market
segments. 

Re-definition of head office structure and role. The regional head
office structure has been streamlined. The role has become more sharply
strategic and catalytic, with reduction in staffing of over 40%. 

Introduction of significantly enhanced incentive schemes for all key
management, linked to our strategic goals. This includes a significant new
long-term 5-year incentive programme for key managers requiring superior
growth and shareholder return. This scheme will be put to shareholders at the
Annual General Meetings in April. 

3     Major upgrade of products, leveraging Internet technology, to deliver
superior services to our customers 

At the core of our strategy is a clear focus on Internet delivery, additional
high value added content and services, and greater ease of use and
functionality. Products will be increasingly customised to meet the specific
needs of the individual customer or customer group.  

In Science, our focus is on expanding ScienceDirect. New research from
our journals and from a growing number of other publishers is being added to
ScienceDirect daily and the archive is being significantly extended.
Authoring tools, library management tools and other taskware is being added
to improve customer productivity and utility. Throughout 2000 we will be
customising services and content to specific scientific disciplines, e.g.
biotechnology and pharmaceutical, and to the differing research markets, e.g.
academic, government and corporate.  
 
 
In Legal, our content is continuing to expand through an ambitious
authoring and editorial programme, and acquisitions and licensing. These
include specialist areas of law, case summaries and enhanced citations.
Functionality upgrades include improved browser based interfaces, smart
indexing and Intranet solutions. Our flagship products, Lexis.com in the US
and Butterworths Direct in the UK are being customised to suit large, medium
and small law firms, corporate law and courts and to provide Intranet
solutions for individual customers.  

In Business, our focus is on building vertical Internet portals in key
market sectors where Reed Elsevier has scale, and which offer significant
potential for Internet delivered information, marketing services and
critically e-commerce connectivity. In the US, key sectors include
Electronics, Construction, Entertainment and Publishing. In Europe, priority
sectors include Aerospace, Computing, Chemicals, Property and Recruitment. In
each sector a deeper content resource is being built (news, market, product
and service information). We will increasingly work in alliances and
partnerships to deliver total e-commerce solutions for customers. 

The product development programme is focused on the Internet. In 1999, some
£120m/E180m of revenues were Internet sourced. These are expected to
increase rapidly through media migration and new revenue streams so that in
2002 at least one quarter of revenue will be Internet based, at around
£1bn/E1.6bn. 

4     More effective marketing and sales programmes 

Significantly improved sales and marketing is a key strategic priority for 
Reed Elsevier to extend market penetration, to win new business and increase
overall customer loyalty: 

Our sales forces are being significantly enlarged to address the market
more comprehensively and, specifically, the broader online customer
opportunity. For instance, in both Science and Legal, the worldwide sales
forces are being almost doubled. 

We are also investing in more sophisticated customer research, usage
tracking and customer intelligence databases, as well as customer service
facilities. 

We are pursuing a significant programme of customising, marketing 
and selling efforts to the differing customer groups across our markets. This
includes re-invention of pricing models more suited to growth in Internet
services and away from 'one size fits all'. 

Global branding of Internet services, such as ScienceDirect and Lexis,
together with channel alliances and marketing networks with other online
service providers, will be a key element of our marketing strategy. We are
also significantly increasing our spending on advertising and promotion
behind Internet initiatives. 

5     Significantly increase investment - largely against Internet - to drive
revenue growth. 

Reed Elsevier has under invested in recent years, particularly against
product development, marketing and sales. This has been a key factor behind
lack of growth in some markets and share loss to both traditional and new
Internet competition. The US and Internet development are key areas for
increased investment. 

We have therefore budgeted a total spend of £260m/E420m investment in 2000 on
new development initiatives which compares with an average £50-80m/E80-120m in
recent years. This level of investment will continue, with a total three-year
spend reaching in excess of £750m/E1,200m. Around 90% of this investment will
be Internet related, including product, technology development, marketing and
sales. Detailed plans have been developed and are in execution. 

Of this total spend in 2000 allocation across the segments is budgeted as
follows: 

£35m/E55m in Science, with the focus on ScienceDirect content and
functionality targeted at specific communities. 

£115m/E185m in Legal, of which half is on product content and
functionality at Lexis Publishing and Nexis and a quarter on sales 
and marketing. 

£110m/E180m in Business, of which the majority is directed to the
building and marketing of new Internet portals. 

6     Aggressive cost saving programmes 

To finance this substantial investment, a wide ranging cost review has been
carried out across the whole business, primarily directed at non-revenue
generating costs, e.g. support staff, production, infrastructure, head
office. Savings of more than £170m/E270m, around 7% of the 1999 cost base
have been identified, of which more than £130m/E210m will be realised in
2000. There will be an exceptional restructuring charge of not more than
£250m/E400m, of which £161m/E244m has been charged in 1999. 

In addition to saving costs and freeing resources for revenue development,
this programme will result in a leaner, higher calibre, and faster moving
organisation. 

7     Expand geographically to build global capability and leadership
position 

Most Reed Elsevier markets are becoming increasingly global, or at least
regional, assisted by the increasing ubiquity of Internet connectivity.
Within Science, Reed Elsevier has moved a long way towards a fully global
organisation. Legal and Business are still regional in emphasis but both are
developing a global strategy. 
 
Reed Elsevier will focus on key geographical gaps in its portfolio and
develop branding and marketing strategies that align with the changing market
shape. Specifically and as a priority Reed Elsevier will pursue Legal and
Business to Business expansion into Continental Europe, South America and
Asia. 

8     Continue to target acquisitions/alliances to accelerate achievement of
strategic goals 

In the short to medium term, acquisitions and alliances, particularly in the
context of Internet development will continue to be used to reinforce Reed
Elsevier's strategy. Alliances with other Internet companies are a
significant component of the Business to Business portal initiatives where a
range of content, market and technology partners are necessary to deliver
complete solutions for customers.  

Additionally, we are establishing a venture fund of, initially, up to $100m
to make early stage investments in Internet related businesses, to provide
insight and involvement in new market and technology initiatives as well as
financial return. 

Dividend Policy 

The new Reed Elsevier strategy is focused on driving growth through a 
major programme of sustained investment in our business, which will be
predominantly Internet driven. We are therefore adjusting the dividend policy
to support this and to release funds through a reduction by one-third of the
equalised Reed International and Elsevier dividends from the 1998 level. 
This will release approximately £115m/E185m for reinvestment annually. This
will be implemented immediately through a proposed reduction in the 1999
final dividend. To restore normal proportions between the interim and final
dividends in 2000, the 2000 interim dividend will be reduced by one-third and
the final dividend adjusted upwards accordingly. It is intended to pursue
thereafter a policy of modest growth in dividends. We expect to maintain over
the longer term adjusted earnings cover for the dividend of at least two
times.  

The proposed Reed International final dividend is 5.4p per share. Together
with the interim dividend of 4.6p, the total 1999 dividend will be 10.0p, a
decrease of 33% on 1998. The Elsevier 1999 final dividend under the
equalisation arrangements is E0.15 per share. Together with the interim
dividend of E0.12, the 1999 total dividend will be E0.27, 31% lower than in
1998. The differences in percentage reductions between Reed International and
Elsevier reflect currency movements and the reduction in the rate of UK tax
credit gross up from 20% to 10% for the Elsevier interim dividend. 

PROSPECTS 

Although we should not expect the turnaround to be quick, we feel positive
and confident about Reed Elsevier's future. This year will be a year of
significant investment and change as we start implementing the new strategy,
and adjusted profits are budgeted to be somewhat below those of 1999. The
results will progressively improve thereafter and our goal is very firmly on
generating above market revenue growth and double digit profit growth for the
year 2002 and beyond.  

Reed Elsevier has powerful and valuable assets: leading brands and market
positions, high quality and in-depth content, scale, professional people and
financial strength. Coupled with the exciting opportunities opened up to us by
the Internet, this represents a strong platform for growth. We are determined
to build aggressively on this with a new management team and new strategy in
place. 
 
 
 
Morris Tabaksblat                         Crispin Davis 
Chairman                                  Chief Executive Officer 
 
 
 
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER  
Divisional Strategies 
 
Scientific 

The Science strategy is to extend its global leadership position in providing
high quality, scientific, technical and medical information solutions to
research scientists and information professionals. The prime driver of growth
will be revenue, led by the ScienceDirect family of Internet products, where
electronic access, extensive inter-linked content, and search capability
offer significant added value to users. 
 
 
Key strategic initiatives underpin the Science growth strategy: 
 
Significant expansion of the ScienceDirect Internet products to meet
the needs of specific scientific communities: 

New research is added daily from Elsevier Science's journals and a
growing number of other publishers. The archive is being enlarged, and links
to related scientific databases are now established. Current awareness and
scientific news services are being expanded, abstracting and indexing layers
are being extended; 

Throughout 2000, services and content will be developed further ,
tailored to specific scientific disciplines, e.g. biotechnology,
pharmaceutical and engineering, and to the differing research markets, e.g.
academic, government and corporate; 

Advanced search, navigation and access/delivery software tools
will remain a priority, exploiting development in web technologies and the
ScienceDirect search engine. Archiving tools, library management and other
taskware are being added to improve customer productivity and utility; 
 
Accelerated migration from print to electronic products, which have
demonstrably better capability to extend services and add further value. A
clear pricing policy has been introduced to facilitate this migration, and
enhance customer loyalty. This ensures a moderate and more predictable level
of price increases for core content subscriptions, whilst providing a more
tailored pricing approach to additional online services; 
 
Expansion to new usage groups, including smaller academic institutions,
individual researchers and corporate and industrial markets, supported by
customised products and pricing; 
 
Significant expansion of the sales and customer service activities that
have historically been conducted through third-party subscription agents.
Strengthened sales and marketing efforts and pricing initiatives will support
the migration of customers to ScienceDirect and related services, and
expansion to new usage groups. No competitor has a comparable sales
operation. 
 
Continued upgrade of systems infrastructure to provide web-based
authoring tools, speedier peer review and production, and to streamline back
office functions and distribution. 
 
Revenue growth in the Science business will accelerate through customer
migration from print to Internet services, greater customer loyalty to more
valued services and increased usage, and penetration of un-tapped market
segments. Through such accelerated growth Science will progressively gain
share vs its competitors. 
 
 
Legal 

The Legal strategy is to be the leading, preferred global provider of
information services and information-based solutions to legal professionals.
This will be driven by superior content and functionality, targeted sales and
marketing programmes and expansion into new markets. The short term
overriding priority is to improve the performance of the LEXIS-NEXIS
business in the US. 
 
 
Key initiatives are concentrated on: 
 
Developing and launching demonstrably superior products and services,
with focus on enhancing ease of use, content and navigation. The majority of
this effort will be on online internet products, whilst continuing to expand
the print and CD-ROM products in specific markets; 

content is being significantly expanded and enhanced through an
ambitious authoring and editorial programme e.g. core terms and case law
summaries at LEXIS, Eclipse (employment law and related fields) acquisition
in the UK; 

ease of use and functionality is a key focus of the product
strategy to provide intuitive navigation and access to a growing range of
Internet solution-driven research tools. Key functionality upgrades include
smart indexing, search advisors, reports and dossiers, and customised
Intranet solutions; 
 
Customisation of online products: including content, functionality,
pricing and customer support for different market sectors, e.g. small law,
corporate legal, government, corporate research, geographical sectors and
areas of specialised practice, as well as customer specific personalisation.
Intranet solutions are being provided to major customers, seamlessly linking
LEXIS-NEXIS information services with the customer's data and other
information available on the Internet; 
 
Significant expansion of the sales operations and marketing programmes
to secure market share shift in core markets. The sales force is to be nearly
doubled worldwide with extensive technical support teams. Law schools, where
preferences are first developed, are a priority target as well as other
customer groups. Investment is being made in a new Legal portal to provide a
more effective channel to the small law firm market; 
 
Expansion into related professional areas, with investment in content,
functionality, sales and marketing, and acquisitions, e.g. in UK into
regulatory and financial services, in US into corporate marketing, sales and
risk management 
 
Building up of global capability and presence, with increased alignment
of the US and non US businesses, particularly in servicing global accounts
and in branding, and expansion through acquisition and alliance in
Continental Europe, Asia and South America; 
 
Continued upgrade of systems infrastructure to provide integrated
fulfilment, customer service and back office support.  
 
Growth in the Legal business will be driven by increased migration to the
Internet, customer preference and market shift share, increased usage and new
services, and expansion into new market sectors and geographies. 
 
 
Business 

The Business to Business strategy is to be the first choice of business
professionals for information and decision support, marketing services and
e-commerce connectivity. Strong brands and market positions in key sectors,
built on high quality and online decision support information and premium
exhibition services, will attract the largest audiences and deliver to
Business to Business the more effective buyer-seller connections. 
 
 
The key strategic initiatives to drive growth across the segment include: 
 
Creation of leading Internet portals in market sectors where Reed
Elsevier has scale, and which offer significant growth potential for Internet
delivered information, marketing services and transactions. In the US, key
vertical sectors includes Electronic (e-Insite), Manufacturing (Manufacturing
Net), Construction (Buildingteam.com), Entertainment (Variety.com); and
Publishing. In Europe, priority sectors include Aerospace (ATi), Computing
(Computerweekly.com), Chemicals (CNi) and Property (EGi). Vertical portals
will be supported by horizontal services, such as the totaljobs.com online
recruitment portal, NEXIS news feeds and other licensed services; 
 
Expansion of the value chain into e-commerce, through acquisition or
alliance. Each service includes an extended content resource (news, market
information, products and services, directories), and critically will provide
direct connections to e-commerce services. An example is the joint venture
between e-Insite, which has the brands, information and market reach of the
Cahners Electronic titles, the electronic parts databases of Information
Handling Services, and the sourcing and distribution capabilities of
Partminer. 
 
Expanded marketing and sales activities, and customer relationship
management. Internet based channel alliances and marketing networks are
increasingly important. Key priority is to deepen customer profiling and
databases to strengthen relationship build with advertisers/exhibitors, and
to develop further customisation of product; 
 
Further growth in print magazines and exhibitions portfolio through
acquisition and increased investment in new launches and line extensions,
such as the ExpoComm joint venture in telecoms exhibitions, the magazine
launches of GRID in residential design and CommVerge in telecoms. Expansion
of other market products, such as supplements, newsletters and conferences; 
 
Geographic expansion, particularly, in Continental Europe and Asia. In
Business-to-Business, the information and exhibitions industry is fragmented
and opportunities exist for strategic acquisitions and competitive product
launch. Expansion will be focused against priority global sectors. 
 
Growth in the Business segment will be accelerated by new revenue streams
from the Internet portals and launches. This will be a mix of subscriptions
from users for valued information, advertising from sellers for cost
effective audience delivery and a share of transactional revenues through
participation in e-commerce. 
 
REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE 
 
REVIEW OF OPERATIONS 
                                                                  % change 
                           1999     1998     1999     1998     at constant 
                             £m       £m       Em       Em      currencies 
Turnover 
Scientific                  652      622      991      926             +5% 
Legal                     1,268    1,107    1,927    1,648            +13% 
Business                  1,470    1,434    2,235    2,134             +2% 
Continuing
operations                3,390    3,163    5,153    4,708             +6% 
Discontinued operations       -       28        -       41 
Total                     3,390    3,191    5,153    4,749             +5% 
 
Adjusted operating profit 
Scientific                  231      223      351      332             +5% 
Legal                       316      322      480      479             -4% 
Business                    245      268      373      399             -9% 
Continuing operations       792      813    1,204    1,210             -3% 
Discontinued operations       -        -        -        - 
Total                       792      813    1,204    1,210             -3% 
 
Unless otherwise indicated, all percentage movements in the following
commentary refer to constant currency rates, using 1998 full year average
rates, and are stated before amortisation of goodwill and intangibles and
exceptional items. During 1999, management and development responsibility for
the Elsevier Tuition training business has been transferred from the Legal to
the Business segment. Comparatives had been restated accordingly. 
 
 
SCIENTIFIC 
                                                                  % change 
                           1999     1998     1999     1998     at constant 
                             £m       £m       Em       Em      currencies 
Turnover 
Elsevier Science            534      513      812      764             +5% 
Medical Businesses          118      109      179      162             +6% 
                            652      622      991      926             +5% 
Adjusted operating profit   231      223      351      332             +5% 
Operating margin          35.4%    35.9%    35.4%    35.9%         -0.5pts 
 
Turnover and operating profits in the Scientific segment both increased 
by 5% at constant rates of exchange, or 2% excluding acquisitions. Operating
margins were slightly lower at 35.4%. Sales growth at Elsevier Science of 5%,
which included a 3% benefit from acquisitions, was adversely affected by the
impact on subscription renewals of currency movements on library budgets,
particularly in Japan and Continental Europe. Operating profits excluding
acquisitions increased by 4%.  

Good progress was made during the year in the roll-out of ScienceDirect, 
the web-based scientific information service, with over 25% of journal
subscription revenues now covering both print journals and the ScienceDirect
service. Over 800,000 scientific research articles are now available in the
online database. Usage is growing rapidly, significantly increasing the value 
of our information to the scientific community. An increasing number of
publishers now include their information within ScienceDirect, and linkages
have been established with other major databases. The new pricing approach
introduced in the year, moderating the impact of currencies so as to give
more predictable journal pricing for customers, has contributed to the
continuing success of the migration of revenue from print to electronic
delivery. Acquisitions in the year included Cell Press with its four first
class journals in the field of molecular biology. 

The outlook for Elsevier Science is positive. Considerable additional
investment is being made in the ScienceDirect product line and in sales and
marketing and other initiatives. This is being funded from cost savings
across the business and most particularly in production, pre-press and
distribution through the re-engineering of processes and technology advances. 

The medical publishing and communications business in 1999 reported turnover
growth of 6%, due to acquisitions, with underlying operating profits down 12%
due to some weakness in the sponsored communications business and in France.
A much stronger performance is expected in 2000 from improvements in the
market and in organisational effectiveness. 
 
LEGAL 
The Professional segment has been renamed Legal to reflect the principal
markets of this segment. 
 
                                                                  % change 
                           1999     1998     1999     1998     at constant 
                             £m       £m       Em       Em      currencies 
Turnover 
LEXIS-NEXIS                 854      741    1,298    1,103            +13% 
Reed Elsevier Legal
Division                    233      207      354      308            +13% 
Reed Educational &
Professional                181      159      275      237            +12% 
                          1,268    1,107    1,927    1,648            +13% 
Adjusted operating profit   316      322      480      479             -4% 
Operating margin          24.9%    29.1%    24.9%    29.1%         -4.2pts 
 
 
 
Turnover in the Legal segment increased by 13% whilst operating profits
declined by 4% at constant rates of exchange. Excluding the effect of
acquisitions, principally Matthew Bender and the remaining 50% of Shepard's
acquired in August 1998, turnover increased by 5% whereas operating profits
declined by 12%. This result reflected the combination of low revenue growth
at LEXIS-NEXIS and continued investment spend, resulting in operating margins
4.2 percentage points lower at 24.9% for the segment.  

At LEXIS-NEXIS, turnover increased by 13% whereas operating profits were down
8% as significant additional investment is made in new product development
and in sales and marketing. Excluding acquisitions, turnover was up 2% and
operating profits down 18%. In the US legal market, the LEXIS Publishing
businesses had flat revenues with a good performance in the large law firm
market offset by weaker revenues in other markets. The print/CD-Rom legal
publishing business saw some loss of revenues, principally at Shepard's, due
to heavy promotion and discounting by a competitor as its licence to the
Shepard's content expired. The Martindale-Hubbell legal directory business
had an excellent year with revenues 12% ahead. In the online business
information market, Nexis revenues fell by 4%, reflecting pricing pressures
across the industry. 

Throughout 1999, LEXIS-NEXIS has been launching innovative web-based legal
research products and legal practice tools, which have been well received in
the market. The content and editorial strengths of Matthew Bender and
Shepard's have been pivotal in these developments. The launch of the web
delivered lexis.com service has had a major impact in the law schools where
customer preferences are first developed. The benefits of these and other
initiatives will mostly be felt as customers migrate from the proprietary
systems to the easier to use web format of the lexis.com service, and as
subscription contracts come up for renewal. 

NEXIS continues to see strong growth in demand for its online business
information services, but this is not converting into growing revenues due to
pricing pressures across the industry. A step up in new product development
to add further value and differentiate from competitors is in hand under a
new management team. In January 2000, NEXIS acquired the FT Profile archival
news business together with a long term licence agreement for Financial Times
content. 

LEXIS-NEXIS has very strong positions in the US legal and online business
information markets, and is committed to restoring revenue growth to market
levels and beyond, through increasing investment in new product and in sales
and marketing. The pick up revenues from these investments, both made and
planned, will however take time due to the lag involved in changing embedded
customer preferences coupled with subscription cycles. Operating margins are,
therefore, expected to decline further, although a major re-engineering of
the businesses presently in process will release part of the funding required
for investment. 

The Reed Elsevier Legal Division, comprising Reed Elsevier's legal businesses
outside the USA, saw turnover and operating profits up 13% and 7%
respectively, including the benefit of small acquisitions in Austria,
Argentina, Australia and South Africa. Excluding these, operating profit
growth was 5% on sales up 7%, led by strong performances in the UK, France
and South East Asia. 

In the UK, Butterworths Direct, the legal and tax online service, continued
to add materials and add to its customer base, accounting for half of
Butterworth's new subscriptions. The continued expansion into regulatory
publishing was given a significant boost with the acquisition in January 2000
of Eclipse, the leading publisher of employment law and related fields. 
The outlook for the Reed Elsevier Legal Division remains positive. 

The Reed Educational & Professional Publishing business saw turnover and
operating profit increase by 12% and 9% respectively. The UK and US School's
businesses both increased sales by 15% driven by additional Government
funding for literacy materials and by increased market share. Costs increased
faster than revenues as investment was made in new publishing programmes to
capture market demand. The Butterworth-Heinemann businesses also performed
well with a strong front-list in scientific, technical and medical markets.
The outlook for Reed Educational & Professional Publishing is positive with a
strong publishing programme for 2000. 
 
BUSINESS 
 
                                                                  % change 
                             1999     1998     1999     1998     at constant 
                               £m       £m       Em       Em      currencies 
Turnover 
Cahners Business
Information                   542      531     824       790           -1% 
Reed Business Information     243      248     369       369           -2% 
Elsevier Business Information  
(including Tuition)           270      257     411       383           +7% 
OAG Worldwide                  85       90     129       134           -6% 
Reed Exhibition Companies     301      274     458       408           +8% 
Other                          29       34      44        50      
                            1,470    1,434   2,235     2,134           +2% 
Adjusted operating profit     245      268     373       399           -9% 
Operating margin            16.7%    18.7%   16.7%     18.7%       -2.0pts 
 
Turnover in the Business segment increased by 2% whilst operating profits
decreased by 9%, reflecting low underlying revenue growth, particularly at
Cahners, whilst costs rose. Excluding acquisitions, turnover was up 1% and
operating profits 11% lower. Operating margins at 16.7% were 2.0 percentage
points lower than the prior year. 

Cahners Business Information's turnover was flat for the year, before a 1%
reduction due to the net effect of divestments less acquisitions. Operating
profits declined by 40% due to a 5% increase in costs, largely reflecting the
full year effect of prior year investments made in the organisation which had
anticipated much stronger revenue growth. Whilst the Entertainment & Media,
Building & Construction and Retail sectors performed well, this was offset by
revenue declines in Manufacturing, Electronics and Travel. Although the
slowdown in sales growth began in the second half of 1998, the degree to
which this persisted into 1999 was unexpected. A major restructuring of the
business took place in the second half of 1999 to realign the cost base. 

The revenue outlook for 2000 is more encouraging. Major initiatives for the
development of internet services in targeted sectors are planned with a
substantial increase in development spending. This is largely financed from
funds released from the cost actions taken. 

At Reed Business Information, turnover and operating profits were down 2% and
6% respectively. Weakness in advertising demand, particularly in high margin
recruitment, in the first half was recovered in the second half as the UK
economy strengthened with the exception of the important Computer sector
which saw strong competition both in print and online. The Healthcare,
Property and Social Services sectors performed particularly well. Online
services established around core titles continue to develop well with good
growth in subscriptions and growing advertising support. In January 2000,
Reed Business Information launched its totaljobs.com internet recruitment
service which now holds 17,000 UK jobs, significantly more than any other
service. 

The Computer sector is expected to remain very competitive, particularly as
online recruitment grows, whilst the outlook for other advertising demand is
positive. Significant additional investment is being made in 2000 in the
launch of totaljobs.com and other internet services which will in large part
be funded from cost efficiency savings. 

At OAG Worldwide, operating profits increased by 18% on turnover down 6%.
During the year good progress was made in stabilising the business with
certain activities terminated to increase profitability, and plans developed
to capitalise on the growing demand for electronic products using OAG data.
Whilst good growth is seen in electronic revenues, the shift of customers
from print to online services continues to adversely affect overall revenues.
OAG is significantly increasing its investment spending and entering into a
number of alliance partnerships to capture more fully the benefit from the
growing demand for online travel solutions. 

Elsevier Business Information, excluding Tuition, saw underlying turnover and
turnover and operating profit growth of 3% and 6% respectively as advertising
demand in Continental Europe picked up as the year progressed. In the
Netherlands, the journal Elsevier and titles in the Human Resources, General
Management and Construction sectors performed particularly well, with good
profit growth also in Spain and France.  

The outlook for 2000 is positive with economic conditions expected to be more
favourable. Elsevier Business Information has an ambitious launch programme
for new internet services leveraging the strengths of its core brands, partly
funded by cost savings. 
 
Elsevier Tuition turnover and operating profits both increased by 8%, with
good performances in in-company and open training. During the year,
management responsibility of the business was moved within Elsevier Business
Information to provide combined product focus on targeted customer groups.
During 2000, the training portfolio will be reorganised accordingly. In
January 2000, Elsevier Tuition acquired the Baard group which is a leading
provider of management training in the Netherlands. 

Turnover at Reed Exhibition Companies was ahead by 8%, whilst operating
profits rose by 11%, driven by good growth in the annual trade shows,
particularly in the US, and the contribution of the PGA golf equipment shows
acquired in the previous year. 30 shows were launched in the year in the US,
Europe and Asia Pacific, adding over 3% to turnover. The impact of show
cycling, i.e. of non-annual shows, and acquisitions was broadly neutral in
1999.  

Reed Exhibitions is significantly stepping up its investment in new shows and
in show related web services, including information and contact broking to
increase the effectiveness of the trade shows for both exhibitors and
visiting buyers. Much of this investment will be funded from efficiency
savings. The results in 2000 will, however, be adversely affected by the net
cycling out of some important non-annual shows. 
 
 
REVIEW OF FINANCIAL PERFORMANCE 
 
Profit and 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 £105m/E160m, which compares with a reported profit of
£1,044m/E1,554m in 1998. The decline reflects the net £835m/E1,250m adverse
movement in exceptional items, higher amortisation charges arising from
acquisitions, and a weaker trading performance. The reported attributable
loss of £63m/E95m compares with a reported attributable profit of
£772m/E1,149m in 1998. 

Turnover increased by 6% expressed in Sterling to £3,390m, and by 9%
expressed in euros to E5,153m. Underlying revenue growth, excluding the
impact of acquisitions and disposals and currency translation effects, was
3%. 

Excluding exceptional items and the amortisation of goodwill and intangible
assets, adjusted operating profits were down 3% expressed in Sterling to
£792m, and flat expressed in euros at E1,204m. Operating margins at 23.4%
were 2.1 percentage points below the prior year. Whilst underlying revenue
growth was 3%, costs increased by 5%, principally reflecting investment in
people, products and sales and marketing. 

The amortisation charge for goodwill and intangible assets amounted to
£373m/E567m, up £41m/E73m reflecting acquisitions made in 1998 and 1999. 
Exceptional items showed a pre-tax charge of £232m/E352m, being £50m/E76m
costs incurred in 1999 in respect of the year 2000 compliance programme,
£28m/E43m on acquisition related integration, £161m/E244m in respect of the
major restructuring projects across the operating businesses, and £7m/E11m
profit on sale of fixed asset investments. This compares with a net gain on
exceptional items in 1998 of £603m/E898m which included a £692m/E1,031m
profit on the sale of IPC Magazines and other businesses. 

Net interest expense, at £82m/E125m, was £42m/E65m higher than the previous
year principally due to the financing of the Matthew Bender and Shepard's
acquisitions completed in the second half of 1998. Net interest cover was 10
times. 

Adjusted profit before tax, which excludes the amortisation of goodwill and
intangible assets and exceptional items, at £710m/E1,079m was 8% lower than
in previous years expressed in Sterling, and 6% lower expressed in euros. 

The effective tax rate on adjusted earnings was slightly lower at 25.6% (1998
26.0%). The total tax charge for the year is high as a proportion of profit
before tax principally due to the non-tax deductible amortisation, the
non-recognition of potential deferred tax assets and taxes arising on
restructuring related business consolidation.

The adjusted profit attributable to shareholders of £527m/E801m compared to
£571m/E850m in 1998, a decline of 8% at constant exchange rates. 

Cash flows, acquisitions 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, increasingly, investment in
systems infrastructure to support electronic publishing activities. 

Total capital expenditure in the year amounted to £148m/E225m. This was
£13m/E15m lower than the prior year in part reflecting the completion of
spend on replacement systems ahead of the millennium date change.
Depreciation in the year was £117m/E178m. 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 £780m/E1,186m,
representing a conversion rate of operating profit into cash flow of 98%,
which compares with 99% in 1998. 

Free cash flow - after interest, taxation and dividends but before
acquisition spend and exceptional receipts and payments - was £186m/E284m
compared to £246m/E366m in 1998. The decrease in 1999 reflects adjusted
operating cash flow, and higher taxation and interest payments. Net
exceptional payments of £61m/E93m relate to the 1999 exceptional charges,
less tax recoveries in respect of prior year exceptional charges. 
 
In 1999, acquisitions were made for a total consideration of £132m/E201m. An
amount of £138m/E210m was capitalised as goodwill and intangible assets. The
1999 acquisitions contributed £5m/E8m to operating profit in the year and
added £4m/E6m to operating cash flow.  

Net borrowings at 31 December 1999 were £1,066m/E1,717m, an increase of
£104m/E351m on the previous year end, principally reflecting spend on
acquisitions, payments in relation to exceptional items less free cash flow.  

Gross borrowings at 31 December 1999 amounted to £1,506m/E2,425m, denominated
mostly in US dollars and partly offset by cash balances totalling £440m/E708m
invested in short term deposits and marketable securities. Approximately 82%
of cash balances were held in sterling, euros and US dollars. A total of 67%
of Reed Elsevier's gross borrowings were at fixed rates, including £467m/E752m
of floating rate debt fixed through the use of interest rate swaps. At 31
December 1999, the fixed rate debt had a weighted average interest coupon of
6.7% and an average remaining life of 6.7 years. The net interest expense also
reflects the interest yield differentials between the short-term cash
investments and long-term fixed rate borrowings. 
 
YEAR 2000 

The Year 2000 compliance programme has so far proved very effective with
negligible disruption over the Millennium date change. Total costs of the
programme were £114m/E171m of which £50m/E76m was expensed in 1999. 

PARENT COMPANY EARNINGS AND DIVIDENDS 

Adjusted earnings per share for Reed International were 24.4p, a decline of
8% compared to the previous year and adjusted earnings per share for Elsevier
were E0.57, a decline of 5%. The difference in the percentage change is
entirely attributable to the impact of strengthening of sterling against the
euro in 1999. At constant rates of exchange, the adjusted earnings per share
of both companies would have shown a decline of 8% over the previous year. 

After their share of the exceptional items and the charge in respect of
goodwill and intangible assets amortisation, the reported loss per share of
Reed International and Elsevier after tax credit equalisation were 3.4p and
E0.07, compared to earnings per share in 1998 of 34.7p and E0.81
respectively. 

The Board of Reed International has recommended a final dividend of 5.4p,
giving a total dividend of 10.0p for the year, 33% lower than 1998. The board
of Elsevier, in accordance with the dividend equalisation arrangements have
declared a final dividend of E0.15 (Dfl 0.33), reflecting a guilder/sterling
exchange rate of Dfl 3.58 to £1. This results in a total dividend of E0.27
(Dfl 0.59) for the year, 31% lower than in 1998. The difference in growth
rates is attributable to the currency movements between the respective
dividend declaration dates and the change in the level of UK tax credit
effective April 1999. 

Dividend cover for Reed International, using adjusted earnings, was 2.4
times, compared with 1.8 times in 1998. For Elsevier, the adjusted dividend
cover was 2.2 times, compared with 1.6 times in 1998. Measured for the
combined businesses, dividend cover was 2.3 times compared with 1998 at 1.6
times. 
 
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, and the actions of competitors. 



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