Interim Results - Part 2

Reed International PLC
9 August 2001

PART 2

COMBINED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 JUNE 2001 
 
 

                                                                              
        Year ended 31                          Six months    Six months ended
            December                        ended 30 June             30 June 
      2000          2000                     2001    2000      2001      2000
        £m         Eurom                       £m      £m     Eurom     Eurom 
                           Turnover                                           
     3,836         6,291   Including        2,067   1,824     3,308     2,973 
                           share of                                           
                           turnover of                                        
                           joint                                              
                           ventures                                           
      (68)         (111)   Less: share       (31)    (29)      (50)      (47) 
                           of turnover                                        
                           of joint                                           
                           ventures                                           
     3,768         6,180                    2,036   1,795     3,258     2,926 
     3,768         6,180   Continuing       2,017   1,795     3,228     2,926 
                           operations                                         
                           before                                             
                           acquisitions                                       
         -             -   Acquisitions        19       -        30         - 
   (1,332)       (2,185)   Cost of          (735)   (654)   (1,176)   (1,066) 
                           sales                                              
     2,436         3,995   Gross profit     1,301   1,141     2,082     1,860 
   (2,239)       (3,672)   Operating      (1,115)   (980)   (1,784)   (1,597) 
                           expenses                                           
   (1,659)       (2,721)   Before           (874)   (756)   (1,398)   (1,232) 
                           amortisation                                       
                           and                                                
                           exceptional                                        
                           items                                              
     (465)         (762)   Amortisation     (227)   (191)     (364)     (311) 
                           of goodwill                                        
                           and                                                
                           intangible                                         
                           assets                                             
     (115)         (189)   Exceptional       (14)    (33)      (22)      (54) 
                           items                                              
       197           323   Operating          186     161       298       263 
                           profit                                             
                           (before                                            
                           joint                                              
                           ventures)                                          
       197           323   Continuing         188     161       301       263 
                           operations                                         
                           before                                             
                           acquisitions                                       
         -             -   Acquisitions       (2)       -       (3)         - 
        13            21   Share of             9       8        14        12 
                           operating                                          
                           profit of                                          
                           joint                                              
                           ventures                                           
       210           344   Operating          195     169       312       275 
                           profit                                             
                           including                                          
                           joint                                              
                           ventures                                           
                           Non                                                
                           operating                                          
                           exceptional                                        
                           items                                              
        85           140   Net profit          15      66        24       108 
                           on sale of                                         
                           fixed asset                                        
                           investments                                        
                           and                                                
                           businesses                                         
       295           484   Profit on          210     235       336       383 
                           ordinary                                           
                           activities                                         
                           before                                             
                           interest                                           
     (103)         (169)   Net interest      (28)    (43)      (45)      (70) 
                           expense                                            
       192           315   Profit on          182     192       291       313 
                           ordinary                                           
                           activities                                         
                           before                                             
                           taxation                                           
     (159)         (261)   Tax on           (111)    (90)     (177)     (146) 
                           profit on                                          
                           ordinary                                           
                           activities                                         
        33            54   Profit              71     102       114       167 
                           attributable                                       
                           to parent                                          
                           companies'                                         
                           shareholders                                       
                                                                              
     (245)         (402)   Ordinary          (78)    (68)     (125)     (111) 
                           dividends                                          
                           paid and                                           
                           proposed                                           
     (212)         (348)   Retained           (7)      34      (11)        56 
                           (loss)/profit                                      
                           taken to                                           
                           combined                                           
                           reserves                                           
 
 
ADJUSTED FIGURES  
 

                                                                              
         Year ended 31                           Six months        Six months
             December                         ended 30 June     ended 30 June 
        2000         2000                       2001   2000     2001     2000
          £m        Eurom                         £m     £m    Eurom    Eurom 
         793        1 301   Adjusted             438    394      701      642 
                            operating                                         
                            profit                                            
         690        1 132   Adjusted             410    351      656      572 
                            profit before                                     
                            tax                                               
         511          838   Adjusted             303    260      485      424 
                            profit                                            
                            attributable                                      
                            to parent                                         
                            companies'                                        
                            shareholders  
                                    
Adjusted figures, which exclude the amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as
additional performance measures.
 

 
 
COMBINED CASH FLOW STATEMENT 
FOR THE SIX MONTHS ENDED 30 JUNE 2001 

                                                                              
Year ended 31 December                  Six months ended 30 Six months ended 30
                                                  June              June 
     2000      2000                           2001     2000     2001     2000 
       £m     Eurom                             £m       £m    Eurom    Eurom 
      907     1,487   Net cash inflow          357      347      571      566 
                      from operating                                          
                      activities before                                       
                      exceptional items                                       
     (94)     (154)   Payments relating       (43)     (53)     (69)     (87) 
                      to exceptional                                          
                      items charged to                                        
                      operating profit                                        
      813     1,333   Net cash inflow          314      294      502      479 
                      from operating                                          
                      activities                                              
                                                                              
        6        10   Dividends received         6        5       10        8 
                      from joint ventures                                     
                                                                              
       20        33   Interest received         45       13       72       21 
    (124)     (204)   Interest paid           (75)     (62)    (120)    (101) 
    (104)     (171)   Returns on              (30)     (49)     (48)     (80) 
                      investments and                                         
                      servicing of                                            
                      finance                                                 
                                                                              
    (141)     (231)   Taxation before         (54)     (45)     (87)     (73) 
                      exceptional items                                       
       31        51   Exceptional items          1        5        2        8 
    (110)     (180)   Taxation                (53)     (40)     (85)     (65) 
                                                                              
    (141)     (231)   Purchase of             (86)     (52)    (138)     (85) 
                      tangible fixed                                          
                      assets                                                  
        3         5   Proceeds from sale         1        6        2       10 
                      of fixed assets                                         
    (138)     (226)   Capital expenditure     (85)     (46)    (136)     (75) 
                                                                              
    (914)   (1,499)   Acquisitions            (60)    (462)     (96)    (753) 
      153       251   Exceptional net           78      116      125      189 
                      proceeds from sale                                      
                      of fixed asset                                          
                      investments and                                         
                      businesses                                              
    (761)   (1,248)   Acquisitions and          18    (346)       29    (564) 
                      disposals                                               
                                                                              
    (196)     (321)   Ordinary dividends     (175)    (123)    (280)    (200) 
                      paid to                                                 
                      shareholders of the                                     
                      parent companies                                        
                                                                              
    (490)     (803)   Cash outflow before      (5)    (305)      (8)    (497) 
                      changes in short                                        
                      term investments                                        
                      and financing                                           
  (1,137)   (1,865)   Decrease/(increase)      236      180      378      293 
                      in short term                                           
                      investments                                             
    1,634     2,679   Financing              (201)      138    (322)      225 
        7        11   Increase in cash          30       13       48       21 

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 
 

                                                                              
         Year ended 31                   Six months ended    Six months ended
             December                             30 June             30 June 
         2000     2000                       2001    2000       2001     2000 
           £m    Eurom                         £m      £m      Eurom    Eurom 
          775    1,271   Adjusted             278     306        445      499 
                         operating                                            
                         cash flow                                            
          98%      98%   Adjusted             63%     78%        63%      78% 
                         operating                                            
                         cash flow                                            
                         conversion                                           

Reed Elsevier businesses focus on adjusted operating cash flow as the key
cash flow measure. Adjusted operating cash flow is measured after dividends
from joint ventures, tangible fixed asset spend and proceeds from the sale of
fixed assets but before exceptional payments and proceeds. Adjusted operating
cash flow conversion expresses adjusted operating cash flow as a percentage
of adjusted operating profit.

COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE SIX MONTHS ENDED 30 JUNE 2001

                                                                              
          Year ended                      Six months ended    Six months ended
         31 December                              30 June             30 June 
        2000     2000                        2001    2000       2001     2000 
          £m    Eurom                          £m      £m      Eurom    Eurom 
          33       54   Profit                 71     102        114      167 
                        attributable                                          
                        to parent                                             
                        companies'                                            
                        shareholders                                          
         113      150   Exchange               37      77        213       64 
                        translation                                           
                        differences                                           
         146      204   Total                 108     179        327      231 
                        recognised                                            
                        gains and                                             
                        losses for the                                        
                        period                                                

COMBINED SHAREHOLDERS' FUNDS RECONCILIATION
FOR THE SIX MONTHS ENDED 30 JUNE 2001 

                                                                              
          Year ended                      Six months ended   Six months ended
         31 December                               30 June            30 June 
        2000     2000                        2001     2000      2001     2000 
          £m    Eurom                          £m       £m     Eurom    Eurom 
          33       54   Profit                 71      102       114      167 
                        attributable to                                       
                        parent                                                
                        companies'                                            
                        shareholders                                          
       (245)    (402)   Ordinary             (78)     (68)     (125)    (111) 
                        dividends paid                                        
                        and proposed                                          
       1,285    2,107   Issue of               10        4        16        6 
                        ordinary                                              
                        shares, net of                                        
                        expenses                                              
         113      150   Exchange               37       77       213       64 
                        translation                                           
                        differences                                           
       1,186    1,909   Net increase in        40      115       218      126 
                        combined                                              
                        shareholders'                                         
                        funds                                                 
       1,855    2,987   Combined            3,041    1,855     4,896    2,987 
                        shareholders'                                         
                        funds at the                                          
                        beginning of                                          
                        the period                                            
       3,041    4,896   Combined            3,081    1,970     5,114    3,113 
                        shareholders'                                         
                        funds at the                                          
                        end of the                                            
                        period                                                
 

COMBINED BALANCE SHEET
AS AT 30 JUNE 2001 

                                                                              
   As at 31 December                      As at 30 June         As at 30 June 
                                                                              
     2000      2000                     2001       2000       2001       2000 
       £m     Eurom                       £m         £m      Eurom      Eurom 
    4,127     6,644   Goodwill         4,059      3,873      6,738      6,119 
                      and                                                     
                      intangible                                              
                      assets                                                  
      569       917   Tangible           605        497      1,004        786 
                      fixed                                                   
                      assets and                                              
                      investments                                             
    4,696     7,561   Fixed            4,664      4,370      7,742      6,905 
                      assets                                                  
      114       184   Stocks             148        120        246        190 
      860     1,385   Debtors -          818        713      1,357      1,126 
                      amounts                                                 
                      falling due                                             
                      within one                                              
                      year                                                    
      164       264   Debtors -          169        171        281        270 
                      amounts                                                 
                      falling due                                             
                      after more                                              
                      than one                                                
                      year                                                    
    1,594     2,566   Cash and         1,369        278      2,273        440 
                      short term                                              
                      investments                                             
                                                                              
    2,732     4,399   Current          2,504      1,282      4,157      2,026 
                      assets                                                  
  (3,379)   (5,441)   Creditors:     (3,021)    (2,700)    (5,015)    (4,266) 
                      amounts                                                 
                      falling due                                             
                      within one                                              
                      year                                                    
    (647)   (1,042)   Net current      (517)    (1,418)      (858)    (2,240) 
                      liabilities                                             
                                                                              
    4,049     6,519   Total            4,147      2,952      6,884      4,665 
                      assets less                                             
                      current                                                 
                      liabilities                                             
                                                                              
    (873)   (1,406)   Creditors:       (899)      (867)    (1,492)    (1,370) 
                      amounts                                                 
                      falling due                                             
                      after more                                              
                      than one                                                
                      year                                                    
    (128)     (206)   Provisions       (160)      (105)      (266)      (166) 
                      for                                                     
                      liabilities                                             
                      and charges                                             
                                                                              
      (7)      (11)   Minority           (7)       (10)       (12)       (16) 
                      interests                                               
    3,041     4,896   Net assets       3,081      1,970      5,114      3,113 
      433       697   Net                530      1,481        880      2,340 
                      borrowings                                              
 

Approved by the Boards of Reed International P.L.C. and Elsevier NV, 8 August
2001.

NOTES TO THE COMBINED FINANCIAL INFORMATION

1 Basis of preparation 
The Reed Elsevier combined financial information ('the combined financial
information') represents the combined interests of the Reed International and
Elsevier shareholders and encompasses the businesses of Reed Elsevier plc and
Elsevier Reed Finance BV and their respective subsidiaries, associates and
joint ventures, together with the two parent companies, Reed International
and Elsevier ('the combined businesses').

The combined financial information has been prepared on the basis of the
accounting policies set out in the Reed Elsevier Annual Reports & Financial
Statements 2000, with the exception that the new UK financial reporting
standard, FRS19: Deferred Tax, has been adopted with effect from 1 January
2001. The effect of adopting FRS19 is not material to the Reed Elsevier
combined financial information.

The combined financial information is unaudited but has been reviewed by the
auditors and their report to the Boards of Reed International and Elsevier is
set out on page 17.

2 Exchange translation rates
In preparing the combined financial information the following exchange rates
have been applied:

                                                                              
                                            30 June                   30 June 
        Year ended                         Profit and           Balance sheet 
       31 December                             loss                           
       P&L     B/S                     2001              2000    2001    2000 
                                                                              
      1.64    1.61   Euro to           1.60              1.63    1.66    1.58 
                     Sterling                                                 
      1.51    1.49   US dollars to     1.44              1.57    1.41    1.52 
                     Sterling                                                 
      0.92    0.93   US dollars to     0.90              0.96    0.85    0.96 
                     euro                                                     
 

3 Segment analysis

Turnover 

                                                                              
                                                              
           Year ended                      Six months ended   Six months ended  
           31 December                             30 June            30 June   
         2000     2000                       2001     2000      2001     2000 
           £m    Eurom                         £m       £m     Eurom    Eurom 
                         Business                                             
                         segment                                              
          693    1,137   Science &            380      345       608      562 
                         Medical                                              
        1,201    1,970   Legal                642      557     1,027      908 
          202      331   Education            106       90       170      147 
        1,672    2,742   Business             908      803     1,453    1,309 
        3,768    6,180   Total              2,036    1,795     3,258    2,926 
                         Geographical                                         
                         origin                                               
        2,098    3,441   North America      1,113      995     1,781    1,622 
          734    1,204   United Kingdom       388      359       621      585 
          399      654   The                  218      196       349      319 
                         Netherlands                                          
          356      584   Rest of Europe       217      162       347      264 
          181      297   Rest of World        100       83       160      136 
        3,768    6,180   Total              2,036    1,795     3,258    2,926 
                         Geographical                                         
                         market                                               
        2,152    3,529   North America      1,165    1,021     1,864    1,664 
          521      855   United Kingdom       285      268       456      437 
          234      384   The                  113      114       181      186 
                         Netherlands                                          
          478      784   Rest of Europe       269      209       430      341 
          383      628   Rest of World        204      183       327      298 
        3,768    6,180   Total              2,036    1,795     3,258    2,926 

Adjusted operating profit -(excluding exceptional items and amortisation) 
 

                                                                              
          Year ended                     Six months ended    Six months ended
         31 December                              30 June             30 June 
        2000     2000                        2001    2000       2001     2000 
          £m    Eurom                          £m      £m      Eurom    Eurom 
                        Business                                              
                        segment                                               
         252      413   Science &             142     124        227      202 
                        Medical                                               
         237      389   Legal                 117     105        187      172 
          40       66   Education              18      15         29       24 
         264      433   Business              161     150        258      244 
         793    1,301   Total                 438     394        701      642 
                        Geographical                                          
                        origin                                                
         335      549   North America         188     165        301      269 
         191      313   United Kingdom         99      94        158      153 
         136      223   The                    81      66        130      108 
                        Netherlands                                           
         102      167   Rest of Europe         59      53         94       86 
          29       49   Rest of World          11      16         18       26 
         793    1,301   Total                 438     394        701      642 
 

Operating profit (including exceptional items and amortisation) 
 

                                                                              
                                                                              
          Year ended                      Six months ended    Six months ended
         31 December                              30 June             30 June 
        2000     2000                        2001    2000       2001     2000 
          £m    Eurom                          £m      £m      Eurom    Eurom 
                        Business                                              
                        segment                                               
         140      230   Science &              86      78        138      127 
                        Medical                                               
         (8)     (13)   Legal                  27       8         43       13 
          19       31   Education               7       7         11       11 
          59       96   Business               75      76        120      124 
         210      344   Total                 195     169        312      275 
                        Geographical                                          
                        origin                                                
        (89)    (146)   North America           6     (2)         10      (3) 
         109      179   United Kingdom         71      57        114       93 
         127      208   The                    76      64        121      104 
                        Netherlands                                           
          57       93   Rest of Europe         36      39         57       64 
           6       10   Rest of World           6      11         10       17 
         210      344   Total                 195     169        312      275 
 

4 Exceptional items 
 

                                                                              
                                                
         Year ended                             Six months   Six months ended
        31 December                          ended 30 June            30 June   
       2000     2000                          2001    2000      2001     2000 
         £m    Eurom                            £m      £m     Eurom    Eurom 
       (77)    (126)   Reorganisation            -    (27)         -     (44) 
                       costs                                                  
       (38)     (63)   Acquisition            (14)     (6)      (22)     (10) 
                       related costs                                          
      (115)    (189)   Charged to             (14)    (33)      (22)     (54) 
                       operating profit                                       
         85      140   Net profit on            15      66        24      108 
                       sale of fixed                                          
                       asset investments                                      
                       and businesses                                         
       (30)     (49)   Total exceptional         1      33         2       54 
                       credit/(charge)                                        
         20       33   Net tax                 (4)       1       (6)        2 
                       (charge)/credit                                        

5 Combined cash flow statement 

Reconciliation of operating profit to net cash inflow from operating
activities 
 

                                                                              
          Year ended                      Six months ended   Six months ended 
         31 December                               30 June            30 June 
        2000     2000                         2001    2000      2001     2000 
          £m    Eurom                           £m      £m     Eurom    Eurom 
         197      323   Operating              186     161       298      263 
                        profit (before                                        
                        joint ventures)                                       
         115      189   Exceptional             14      33        22       54 
                        charges to                                            
                        operating                                             
                        profit                                                
         312      512   Operating              200     194       320      317 
                        profit before                                         
                        exceptional                                           
                        items                                                 
         465      762   Amortisation of        227     191       364      311 
                        goodwill and                                          
                        intangible                                            
                        assets                                                
         118      194   Depreciation            62      55        98       90 
         (1)      (2)   Net SSAP24               -       -         -        - 
                        pension credit                                        
         582      954   Total non cash         289     246       462      401 
                        items                                                 
          13       21   Movement in          (132)    (93)     (211)    (152) 
                        working capital                                       
                                                                              
         907    1 487   Net cash inflow        357     347       571      566 
                        from operating                                        
                        activities                                            
                        before                                                
                        exceptional                                           
                        items                                                 
        (94)    (154)   Payments              (43)    (53)      (69)     (87) 
                        relating to                                           
                        exceptional                                           
                        items charged                                         
                        to operating                                          
                        profit                                                
         813    1,333   Net cash inflow        314     294       502      479 
                        from operating                                        
                        activities                                            
 
Reconciliation of net borrowings  
 

                                                                              
Year ended 
31 December                                                       Six months
                                                                ended 30 June 
    2000                           Cash   Short term  Borrow    2001     2000 
      £m                                 investments    ings     
                                    £m             £m     £m     £m        £m   
                                                                            
  (1,066)  Net borrowings at the    85        1,509   (2,027)  (433)  (1,066) 
           beginning of the                                                   
           period                                                             
       7   Increase in cash         30            -        -     30        13 
   1,137   (Decrease)/increase       -        (236)        -   (236)    (180) 
           in short term                                                      
           investments                                                        
   (347)   Decrease/(increase)       -            -      211    211     (134) 
           in borrowings                                                      
     797   Change in net            30        (236)      211      5     (301) 
           borrowings resulting                                               
           from cash flows                                                    
    (48)   Loans in acquired         -            -        -      -         - 
           businesses                                                         
     (3)   Inception of finance      -            -      (2)    (2)         - 
           leases                                                             
   (113)   Exchange translation    (1)         (18)     (81)   (100)    (114) 
           differences                                                        
   (433)   Net borrowings at the   114        1,255   (1,899)  (530)  (1,481) 
           end of the period                                                  
 
 

                                                                              
    Year                                                           
   ended                                                         
      31                                                                     
   Decem                                                           Six months   
     ber                                                        ended 30 June   
    2000                       Cash     Short term   Borrow     2001     2000 
   Eurom                       Eurom  investments      ings   Eurom     Eurom 
                                            Eurom        £m                   
  (1,717)  Net borrowings at    137         2,429   (3,263)   (697)   (1,717) 
           the beginning of                                                   
           the period                                                         
      11   Increase in cash      48             -         -      48        21 
   1,865   (Decrease)/increase    -         (378)         -   (378)     (293) 
           in short term                                                    
           investments                                                        
   (569)   Decrease/(increase)    -             -       338     338     (219) 
           in borrowings                                                    
   1,307   Change in net         48         (378)       338       8     (491) 
           borrowings                                                         
           resulting from                                                     
           cash flows                                                         
    (79)   Loans in acquired      -             -         -       -         - 
           businesses                                                         
     (5)   Inception of           -             -       (3)     (3)         - 
           finance leases                                                     
   (203)   Exchange               4            33     (225)   (188)     (132) 
           translation                                                        
           differences                                                        
   (697)   Net borrowings at    189         2,084   (3,153)   (880)   (2,340) 
           the end of the                                                     
           period                                                             
 

6 Adjusted figures 
 
Adjusted profit and cash flow figures are used by the Reed Elsevier
businesses as additional performance measures. The adjusted figures are
derived as follows:
 

                                                                              
        Year ended 31                           Six months   Six months ended
            December                         ended 30 June            30 June 
        2000     2000                         2001    2000      2001     2000 
          £m    Eurom                           £m      £m     Eurom    Eurom 
         210      344   Operating profit       195     169       312      275 
                        including joint                                       
                        ventures                                              
                        Adjustments:                                          
         468      768   Amortisation of        229     192       367      313 
                        goodwill and                                          
                        intangible                                            
                        assets                                                
          77      126   Reorganisation           -      27         -       44 
                        costs                                                 
          38       63   Acquisition             14       6        22       10 
                        related costs                                         
         793    1,301   Adjusted               438     394       701      642 
                        operating profit                                      
                                                                              
         192      315   Profit before          182     192       291      313 
                        tax                                                   
                        Adjustments:                                          
         468      768   Amortisation of        229     192       367      313 
                        goodwill and                                          
                        intangible                                            
                        assets                                                
          77      126   Reorganisation           -      27         -       44 
                        costs                                                 
          38       63   Acquisition             14       6        22       10 
                        related costs                                         
        (85)    (140)   Net profit on         (15)    (66)      (24)    (108) 
                        sale of fixed                                         
                        asset                                                 
                        investments and                                       
                        businesses                                            
         690    1,132   Adjusted profit        410     351       656      572 
                        before tax                                            
          33       54   Profit                  71     102       114      167 
                        attributable to                                       
                        parent                                                
                        companies'                                            
                        shareholders                                          
                        Adjustments:                                          
         468      768   Amortisation of        229     192       367      313 
                        goodwill and                                          
                        intangible                                            
                        assets                                                
          53       86   Reorganisation           -      25         -       41 
                        costs                                                 
          33       55   Acquisition             13       4        20        7 
                        related costs                                         
        (76)    (125)   Net profit on         (10)    (63)      (16)    (104) 
                        sale of fixed                                         
                        asset                                                 
                        investments and                                       
                        businesses                                            
         511      838   Adjusted profit        303     260       485      424 
                        attributable to                                       
                        parent                                                
                        companies'                                            
                        shareholders                                          
         813    1 333   Net cash inflow        314     294       502      479 
                        from operating                                        
                        activities                                            
           6       10   Dividend                 6       5        10        8 
                        received from                                         
                        joint ventures                                        
       (141)    (231)   Purchase of           (86)    (52)     (138)     (85) 
                        tangible assets                                       
           3        5   Proceeds from            1       6         2       10 
                        sale of fixed                                         
                        assets                                                
          94      154   Payments in             43      53        69       87 
                        relation to                                           
                        exceptional                                           
                        items charged to                                      
                        operating profit                                      
                                                                              
         775    1,271   Adjusted               278     306       445      499 
                        operating cash                                        
                        flow                                                  
 

7 Post balance sheet events
 
On 12 July 2001, Reed Elsevier plc acquired, through a US subsidiary, Reed
Elsevier Inc., the whole of the common stock and Series A cumulative
convertible stock of Harcourt General, Inc ('Harcourt') for US$4.45 billion.
On 13 July 2001, Reed Elsevier Inc. sold the Harcourt Higher Education
business and the Corporate and Professional Services businesses (other than
educational and clinical testing) to The Thomson Corporation for pre-tax
proceeds of US$2.06 billion. Following the on-sale, Reed Elsevier Inc. has
acquired Harcourt's Scientific, Technical and Medical business and its
Schools Education and Testing businesses for a net cost of approximately
US$4.5 billion after taking into account Harcourt's net debt of US$1.5
billion, taxes payable on the on-sale proceeds and the assumption of other
corporate liabilities. The net tangible assets of the businesses acquired,
excluding cash and debt, were approximately US$0.7 billion.

In order to refinance the majority of the short term borrowings incurred to
fund the Harcourt acquisition, on 31 July 2001 Reed Elsevier Capital Inc., a
wholly owned US subsidiary of Reed Elsevier plc, issued US$1.5 billion
equivalent of global notes, comprising US$550m 6.125% notes due in 2006,
Euro500m 5.750% notes due in 2008, and US$550m 6.750% notes due in 2011. The
notes have been jointly and severally guaranteed by Reed International P.L.C.
and Elsevier NV.

INDEPENDENT REVIEW REPORT TO THE DIRECTORS OF REED INTERNATIONAL P.L.C. AND TO
THE MEMBERS OF THE SUPERVISORY AND EXECUTIVE BOARDS OF ELSEVIER NV

Introduction 
On the instruction of the Boards of Reed International P.L.C. and Elsevier
NV, we have reviewed the combined financial information of Reed International
P.L.C., Elsevier NV, Reed Elsevier plc and Elsevier Reed Finance BV and their
respective subsidiaries, associates and joint ventures, (together 'the
combined businesses') for the six months ended 30 June 2001 which comprises
the profit and loss account, balance sheet, cash flow statement, statement of
total recognised gains and losses, shareholders' funds reconciliation and the
related notes 1 to 7. We have also reviewed the financial information of Reed
International P.L.C. for the six months ended 30 June 2001 which comprises
the consolidated profit and loss account, consolidated balance sheet,
consolidated cash flow statement, consolidated statement of total recognised
gains and losses, reconciliation of shareholders' funds and the related
notes, and the financial information of Elsevier NV for the six months ended
30 June 2001 which comprises the profit and loss account, balance sheet, cash
flow statement, reconciliation of shareholders' funds and the related notes.
We have read the other information contained in the Reed Elsevier Interim
Statement and considered whether it contains any apparent misstatement or
material inconsistencies with the financial information.

Directors' responsibilities 
The Reed Elsevier Interim Statement, including the financial information
contained therein, is the responsibility of, and has been approved by, the
directors of Reed International P.L.C. and Elsevier NV. The directors of Reed
International P.L.C. and Elsevier NV are responsible for preparing the Reed
Elsevier Interim Statement in accordance with the Listings Rules of the UK
Financial Services Authority and Generally Accepted Accounting Principles in
the UK and the Netherlands which require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.

Review work performed 
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the UK Auditing Practices Board. A review consists
principally of making enquiries of the managements of the Reed Elsevier
combined businesses and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing
whether accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests
of controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
Auditing Standards and therefore provides a lower level of assurance than an
audit. Accordingly, we do not express an audit opinion on the financial
information.

Review conclusion 
On the basis of our review we are not aware of any material modifications
that should be made to the financial information as presented for the six
months ended 30 June 2001.

Deloitte & Touche
Chartered Accountants
London     
8 August 2001     

Deloitte & Touche
Accountants
Amsterdam
8 August 2001

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