RNS Number:4132O
Reed Elsevier PLC
07 August 2003
FINANCIAL HIGHLIGHTS
for the six months ended 30 June 2003
Reed Elsevier combined businesses
Year ended 31 December Six months ended Six months ended Change at
30 June 30 June constant
2002 2002 2003 2002 2003 2002 currencies %
#m Eurom #m #m Eurom Eurom
Reported
figures
5,020 7,982 Turnover 2,345 2,467 3,424 3,972 -
507 806 Operating 247 198 361 319 +48%
profit
289 460 Profit before 216 100 315 161 +118%
taxation
2,732 4,180 Net borrowings 2,923 3,296 4,209 5,076
Adjusted
figures
1,133 1,801 Operating 496 505 724 813 -
profit
23% 23% Operating 21% 21% 21% 21% -
margin
927 1,474 Profit before 408 398 596 641 +3%
taxation
1,010 1,606 Operating cash 177 160 258 258 +6%
flow
89% 89% Operating cash 36% 32% 36% 32%
flow conversion
5.5 5.5 Interest cover 5.6 4.7 5.6 4.7
(times)
The Reed Elsevier combined businesses encompass the businesses of Reed Elsevier
Group plc and Elsevier Reed Finance BV, together with their parent companies,
Reed Elsevier PLC and Reed Elsevier NV.
Adjusted figures, which exclude the amortisation of goodwill and intangible
assets and exceptional items, are used by Reed Elsevier as additional
performance measures. A reconciliation between the reported and adjusted figures
is provided in note 5 to the combined financial information.
The percentage change at constant currencies refers to the movements at constant
exchange rates, using 2002 full year average rates.
Parent companies
Reed Elsevier PLC
Year
ended
31 December Six months ended 30 June Change at constant
2002 2003 2002 Change currencies
#m #m #m % %
89 Reported profit 49 49
attributable
361 Adjusted profit 159 155 +3% +3%
attributable
7.0p Reported earnings per 3.9p 3.9p
share
28.5p Adjusted earnings per 12.6p 12.3p +2% +3%
share
11.2p Dividend per share 3.3p 3.2p +3%
Reed Elsevier NV
Year
ended Change at
31 December Six months ended 30 June constant
2002 2003 2002 Change currencies
Eurom Eurom Eurom % %
144 Reported profit attributable 71 78
542 Adjusted profit attributable 219 236 -7% +3%
Euro0.18 Reported earnings per share Euro0.09 Euro0.10
Euro0.69 Adjusted earnings per share Euro0.28 Euro0.30 -7% +3%
Euro0.30 Dividend per share Euro0.08 Euro0.09 -11%
The results of Reed Elsevier PLC reflect its shareholders' 52.9% economic
interest in the Reed Elsevier combined businesses. The results of Reed Elsevier
NV reflect its shareholders' 50% economic interest in the Reed Elsevier combined
businesses. The respective economic interests of the Reed Elsevier PLC and Reed
Elsevier NV shareholders take account of Reed Elsevier PLC's 5.8% interest in
Reed Elsevier NV. Both parent companies equity account for their respective
interests in the Reed Elsevier combined businesses. Adjusted figures, excluding
the amortisation of goodwill and intangible assets, exceptional items and
related tax effects, are presented as additional performance measures.
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
The first half of 2003 saw continued good progress across the business despite
the challenging economic environment. The Science & Medical and Legal businesses
are performing well, with revenue growth ahead of their markets. The Education
business is well positioned for the important second half, when most of its
sales and profits arise, albeit in a weak market. The Business division has
shown continued resilience in depressed markets.
Underlying margin improvement is being delivered by firm action on costs, whilst
maintaining investment levels in new product development and sales and marketing
initiatives.
Our goal of above market revenue growth and double digit adjusted earnings per
share growth at constant currencies remains unchanged and, absent a marked
deterioration in market conditions, we are on track to deliver this again in
2003.
Financial Results
In the six months to 30 June 2003, revenues were down 5% to #2,345m/14% to
Euro3,424m. At constant exchange rates, revenues were flat. Adjusted pre-tax
profits were 3% higher at #408m/7% lower at Euro596m. At constant exchange rates,
adjusted pre tax profits were 3% higher. Adjusted figures are stated before
amortisation of goodwill and intangible assets and exceptional items.
Reed Elsevier's first half results are unrepresentative of the year as a whole
due to the second half weighting of the Education business and of the medical
book publishing programme which coincides with the start of the academic year.
In 2003, the first half reported results are also significantly affected by the
impact of the decline of the US dollar on translation of the results of our US
businesses into sterling and, in particular, into euros. This translation effect
does not however have any impact on the underlying performance of the
businesses.
Underlying revenues, excluding acquisitions and disposals and currency
translation, were 1% lower, with an underlying decline of 6% in the Business
division and in the Education business where delays in educational spending have
made the second half weighting even more pronounced. Underlying adjusted
operating profits were similarly 1% lower, with underlying margin improvement in
Science & Medical and Legal offset by the effect of the cycling of exhibition
joint ventures and the seasonality within Education. Overall adjusted operating
margin at 21.2% was 0.7 percentage points ahead, largely due to currency
translation effects.
The Science & Medical business, Elsevier, continues to perform well and is on
course for another good year. Revenues and adjusted operating profits were up 4%
and 5% respectively at constant exchange rates before acquisitions. Subscription
renewals are strong and there is continued good growth in online sales. Revenue
and profit growth will accelerate in the second half with a strong 2003 book
publishing programme and continued growth in electronic product sales.
The Legal business, LexisNexis, has continued to perform well in markets that
are seeing somewhat slower growth. Underlying revenues and adjusted operating
profit growth was 2% and 13% respectively at constant exchange rates. Growth in
the US and other markets has been held back in particular by the decline in
corporate markets which have been most affected by the economic slowdown.
LexisNexis continues, we believe, to outperform in US legal markets with
underlying revenue growth of 3% in the first half, driven by good growth in
online subscriptions particularly in the small law firm market. The cost actions
taken in 2002 together with the continued focus on managing costs are delivering
satisfactory margin improvement, particularly in the first half.
The Education business, Harcourt Education, has had more success in the first
half than is reflected in the results, with the usual weighting of sales and
profits to the second half compounded by the deferral of schools spending into
the second half. The US K-12 Schools business performed strongly in US state
textbook adoptions which will come through as sales in the second half. Revenues
and adjusted operating profits were respectively 6% and 35% lower at constant
exchange rates before acquisitions and disposals. The decline in underlying
revenues was largely a result of the loss of the California State testing
contract flagged last year, and the lower operating profits reflect year on year
differences in the timing of sales and investment. Harcourt Education can expect
to perform well in the second half, although any market growth this year is
uncertain and there could be a small decline.
In the Business division, Reed Business, advertising markets remain difficult
and, in the first half, the exhibitions business has been impacted by the war in
Iraq, the SARS outbreak, weak economic conditions and the net cycling out of
non-annual shows. Underlying revenues and adjusted operating profits were 6% and
12% lower respectively at constant exchange rates. Tight cost control has
largely protected margins other than the effect of joint venture exhibitions
cycling out. The second half should see a less demanding revenue comparison and
some margin improvement for Reed Business to deliver the modest decline in
underlying revenue and profitability for the year previously indicated.
Amortisation of goodwill and intangible assets at #226m/Euro329m was #50m/Euro115m
lower than in the prior first half, principally as a result of currency
translation effects and some past acquisitions becoming fully amortised.
Exceptional pre tax gains of #34m/Euro48m reflect net profit on disposals less
acquisition related integration and other restructuring costs of #23m/Euro34m.
The reported profit before tax, including amortisation of goodwill and
intangible assets and exceptional items, was #216m/Euro315m, which compares with
#100m/Euro161m in the 2002 first half. The reported attributable profit of #97m/
Euro142m was similar to that reported in the first half 2002 of #97m/Euro156m which
included exceptional prior year tax credits.
Further information on performance is set out in the Operating and Financial
Review.
Business Progress
Throughout the first half, we have continued to rigorously execute on our
strategy whilst managing the business through a challenging economic
environment. Although the fundamentals of our strategy are unchanged, the
emphasis is moving more sharply now towards product innovation and market
expansion to drive superior revenue growth.
Investment in the ScienceDirect web service is being stepped up to add new
content and innovative product features to address new opportunities as
institutions migrate online. The building of the LexisNexis global delivery
platform is making good progress and will start being rolled out across
individual markets, significantly improving functionality, service and
efficiency. In Education, investment is being made in assessment and learning
technologies, to improve teaching effectiveness and educational outcomes. In
Business, new online information services are driving growth in subscriptions
and related advertising.
Bolt-on acquisitions are also playing an important role in expanding our
services and accelerating growth, and this year include: the Holtzbrinck STM
publishing business in Germany, adding to our international Health Sciences
business with high quality German language medical publishing and strong local
marketing and distribution channels for versioned international content; the
Dolan Media public records business aimed at the credit market which fits well
with the fast growing LexisNexis risk solutions business; Applied Discovery Inc
providing high growth electronic legal discovery applications for US litigation
lawyers. All three acquisitions are in strong growth sectors and are
demonstrating good revenue growth.
Strong revenue growth across the business will require recovery in our markets,
however we are not prepared to wait for this to improve our revenue performance.
Although our earnings objectives are demanding, investment levels are being
maintained or increased. The focus continues on improving cost efficiency to
release further funds for this investment.
Parent Company Earnings and Dividends
For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, the adjusted
earnings per share were respectively up 2% at 12.6p and down 7% at Euro0.28. At
constant rates of exchange, this represents an increase of 3%. The reported
earnings per share, including the amortisation of goodwill and intangible assets
and exceptional items, was for Reed Elsevier PLC 3.9p (2002: 3.9p) and for Reed
Elsevier NV shareholders Euro0.09 (2002: Euro0.10).
The equalised interim dividends are 3.3p, up 3%, for Reed Elsevier PLC and
Euro0.08, 11% lower, for Reed Elsevier NV. The difference in dividend growth rates
reflects the impact of the significant appreciation of the euro against sterling
since last year's interim dividend declaration.
Outlook
We are encouraged by the first half performance. Our businesses are performing
well in their respective markets with the focus on investing in further revenue
growth, driving new sales and tightly managing costs.
Although each of our markets is affected in varying degrees by the challenging
economic environment, our business remains strong and is showing good growth
momentum. Absent any marked deterioration in our markets, we expect to deliver
on our targets of above market revenue growth and double digit adjusted earnings
per share growth at constant currencies for 2003.
Morris Tabaksblat, Crispin Davis,
Chairman Chief Executive Officer
OPERATING AND FINANCIAL REVIEW
Review of operations
Change
Year ended 31 December Six months ended 30 June Six months ended 30 June at constant
2002 2002 2003 2002 2003 2002 currencies
#m Eurom #m #m Eurom Eurom %
Turnover
1,295 2,059 Science & 646 623 943 1,003 +6%
Medical
1,349 2,145 Legal 643 670 939 1,079 +4%
993 1,579 Education 387 449 565 723 -5%
1,383 2,199 Business 669 725 977 1,167 -6%
5,020 7,982 Total 2,345 2,467 3,424 3,972 -
Adjusted
operating
profit
429 682 Science & 219 202 320 325 +5%
Medical
287 456 Legal 133 122 194 197 +17%
183 291 Education 29 48 42 77 -32%
234 372 Business 115 133 168 214 -12%
1,133 1,801 Total 496 505 724 813 -
Unless otherwise indicated, all percentage movements in the following commentary
refer to constant currency rates, using 2002 full year average rates, and are
stated before the amortisation of goodwill and intangible assets and exceptional
items.
Science & Medical
Six months ended Six months ended Change
30 June 30 June at constant
2003 2002 2003 2002 currencies %
#m #m Eurom Eurom
Turnover
Elsevier
Science & Technology 388 375 566 604 +4%
Health Sciences 258 248 377 399 +9%
Total 646 623 943 1,003 +6%
Adjusted operating profit 219 202 320 325 +5%
Operating margin 33.9% 32.4% 33.9% 32.4% +1.5pts
The Elsevier business continues to perform well. Strong subscription renewals
and growing online sales drive revenue growth in Science & Technology and a
strong book publishing programme should deliver good growth in Health Sciences
in the second half.
Revenues and adjusted operating profits increased by 6% and 5% respectively at
constant exchange rates, or 4% and 5% excluding the Holtzbrinck STM business
acquired at the beginning of the year. Revenue and profit growth will accelerate
in the second half with a strong book publishing programme and continued good
growth in electronic product sales.
The Science & Technology division saw underlying revenue growth of 4%, with
strong subscription renewals and growing online sales, including backfiles and
subject collections, in the core journals and ScienceDirect business. Phasing of
the frontlist books programme as well as of new licence sales at MDL and
Endeavor will favour revenue growth in the second half. Migration to e-only
contracts has continued to accelerate, which, whilst generating lower revenue
than a combined print and electronic sale, has a positive impact on operational
efficiency.
The ScienceDirect service continues to make excellent progress. The number of
full text articles now available in ScienceDirect is 4.5 million, which compares
with 3.3 million at the beginning of the year and reflects new publishing and
good progress digitising the archive, or backfiles, for ScienceDirect
distribution. The penetration is now nearly 75% by subscriber value, before
taking into account the former subscriptions to the Harcourt IDEAL platform
which has been migrated to ScienceDirect. Usage continues to grow strongly, with
total article downloads in the twelve months to 30 June 2003 nearly double those
in the preceding year. Additional investment is being made in new content
services as well as on further customisation of services.
In Health Sciences, underlying revenue growth was 3% with the majority of new
publishing arising in the second half. Good growth was seen in the medical
journals programme and the MD Consult web service, whereas the market demand
from the pharmaceutical industry for sponsored projects and conferences was
weaker. Good growth in backlist book sales reflected the strength of the nursing
and healthcare markets. The medical book publishing programme has been well
received to date and is expected to accelerate growth in the second half.
Operating margins at 33.9% were 1.5 percentage points ahead of the prior first
half, mostly reflecting the impact of currency translation on the business mix,
less dilution from the acquisition of the lower margin Holtzbrinck STM business.
Underlying margins were up 0.3 percentage points, with further improvement
expected in the second half reflecting the phasing of sales growth in the year.
In the first half, the further benefits of the integration of the Harcourt STM
business is mostly balanced by increased investment.
The second half will see an acceleration in sales growth with strong new
publishing. This together with operational gearing and tight cost management,
should ensure another good performance for the Elsevier business.
Legal
Six months ended Six months ended Change
30 June 30 June at constant
2003 2002 2003 2002 currencies %
#m #m Eurom Eurom
Turnover
LexisNexis
North America 494 534 721 860 +3%
International 149 136 218 219 +7%
Total 643 670 939 1,079 +4%
Adjusted operating profit 133 122 194 197 +17%
Operating margin 20.7% 18.2% 20.7% 18.2% +2.5pts
The LexisNexis business has continued to perform well in markets seeing slower
growth. The US legal business is, we believe, performing ahead of the market,
whilst the continued slowdown within US corporate and federal markets for
corporate business information has been offset by the stronger growth in the
risk solutions business. Continued investment has been made in new online
services whilst good progress is made in improving margins.
Revenues and adjusted operating profits increased by 4% and 17% respectively at
constant exchange rates, or 2% and 13% excluding acquisitions and disposals.
LexisNexis North America saw underlying growth of 2% held back by the impact of
the economic slowdown, particularly in corporate markets. Outside the US,
revenue growth was also 2% with similar weakness in European corporate
information markets. Operating margins at 20.7% were 2.5 percentage points ahead
of the prior first half at constant exchange rates reflecting the cost actions
taken in the second half of 2002 and continuing this year to fund investment.
Due to the timing of these cost savings and the investment spending, the
underlying margin improvement for the full year will be less than that seen in
the first half.
In US Legal markets, revenues grew by 3%. Online revenue growth was 7% with
continued good growth seen in the small law firm market. Print and CD sales were
broadly flat as the market continues to move online. The legal directories
business had a good first half with strong renewals and growth in expanded web
services. In US Corporate and Federal markets, revenues were flat with strong
growth in the risk solutions business offset by the reduced demand for corporate
business information. Underlying operating profit growth at LexisNexis North
America was 21% in the first half reflecting the cost actions taken.
LexisNexis is continuing to invest in new content and functionalities for its
core products as well as in expanding its services through acquisitions. Good
progress has been made in expanding coverage of annotated codes for individual
states and case law summaries. The global online delivery platform is nearing
completion of the first development phase, and roll out across individual
markets will provide greater utility and significantly increased efficiency. Two
acquisitions have recently been completed in the US expanding LexisNexis's
position in fast growing contiguous markets: Applied Discovery Inc., which is
the leading provider in the US of electronic discovery services, enabling online
retrieval and review of documents required in the discovery phase of litigation,
antitrust reviews and government investigations; and the public records business
of Dolan Media which is a leading provider of electronic public record
information, including court judgements and liens, and will expand further
LexisNexis's position in the strongly growing risk management market.
The LexisNexis International businesses outside North America saw revenue and
adjusted operating profits up 7% and 2% respectively at constant exchange rates.
Excluding MBO Verlag, the German legal publisher acquired in 2002, underlying
revenue growth was 3%. Strong growth in online sales of legal, tax and
regulatory product across all major markets was mitigated by print migration and
by weakness in demand in the UK for corporate news and business information.
Underlying operating profits were 2% lower as investment was increased,
particularly in Germany and Asia Pacific.
The second half should deliver a strong performance for the year for LexisNexis
with strengthening revenue progress from new publishing and products
initiatives, and margin improvements driven by increasing cost efficiency.
Education
Six months ended Six months ended Change
30 June 30 June at constant
2003 2002 2003 2002 currencies %
#m #m Eurom Eurom
Turnover
Harcourt Education
US Schools & Testing 321 382 469 615 -6%
International 66 67 96 108 +1%
Total 387 449 565 723 -5%
Adjusted operating profit 29 48 42 77 -32%
Operating margin 7.5% 10.7% 7.5% 10.7% -3.2pts
The Harcourt Education business has had a successful first half, performing well
in US state textbook adoptions and seeing good sales growth to non-adoption
states. This positions it well for the important second half when the majority
of schools purchase learning materials. The market however remains weak with
education budgets under pressure and a trough in the US state textbook adoption
cycle.
Revenues and adjusted operating profits were respectively 5% and 32% lower at
constant exchange rates, or 6% and 35% excluding acquisitions and disposals. The
first half results are not representative of the business's performance due to
the seasonality of the market, particularly in the US, which is geared towards
the start of the academic year. Whilst the majority of selling expenses in the
US are incurred in the first half of the year, the majority of sales are in the
second half. The first half sales are also a reflection of when individual
states call for product within the peak June through September sales season, and
with education budgets under pressure, schools spending is likely to be even
more second half weighted this year.
The US K-12 schools business saw flat revenues in the first half of the year.
Strong growth in backlist sales and sales to open territories in both the
Elementary and Secondary schools businesses was offset by lower revenues from
new state adoptions in Elementary, due mostly to delayed spending by state
districts, and in supplementary markets. Harcourt Education performed well in
2003 state adoptions, gaining the highest overall market share. With over 90% of
state district adoptions now awarded, Harcourt Education has a clear No 1
position in the Elementary market and a No 1 position in Secondary although all
four major publishers are believed to have around one quarter of the Secondary
adoption market. Particular successes in the Elementary market were achieved in
Georgia reading and in social studies in North Carolina and Texas. In the
Secondary market, whilst performance in social studies was below expectation,
the literature and language arts programmes maintained their leading position
with successes in California and Florida and the science programme also led with
a major win in Tennessee. Underlying operating profits were 19% lower reflecting
the mismatch of selling expenses and higher plate amortisation costs against the
sales seasonality.
The Harcourt Testing businesses saw underlying revenues decline by 27%, largely
due to the loss of the California state testing contract reported last year.
Revenues were also held back by state budget pressures. The new edition of the
Stanford Achievement Test, which combines the power of the well established
norm-reference tests with the flexibility to test state-specific criteria, has
been well received in the market and is expected to drive significant long term
future growth. Harcourt Assessment has won a high proportion of new state
contracts awarded this year, including Nevada, New Mexico and Minnesota, which
will impact in 2004. Underlying operating profits were 51% lower than in the
prior first half due principally to the higher amortisation of plate spend on
new publishing which is expected to generate strong sales growth in the second
half.
The Harcourt Education International businesses saw revenues 1% ahead, with
strong growth in the academic publishing and global library business offset by a
marked reduction in the UK Primary schools market due to shortfalls in schools
funding. Underlying operating profits fell by 21% due to the lower UK Primary
sales and continued investment in new publishing and in expansion of the global
library sales and marketing organisation. The decline in first half
profitability is exaggerated due to the strong seasonal weighting of operating
profits to the more significant second half.
The Harcourt Education business is well positioned to have a relatively strong
performance in the second half but in a market that is facing significant
pressures. Although federal funds in support of new US learning initiatives have
started to be allocated, they are not expected to have a significant impact on
textbook budgets this year, and the market overall is likely to be flat or show
a small decline. Harcourt Education will again be looking to grow ahead of the
market, although this is somewhat of a challenge given comparison against a
period of significant outperformance. The cost savings programmes and continuing
integration benefits should however deliver further underlying margin
improvement whilst continuing investment in new publishing and electronic
learning.
Business
Six months ended Six months ended Change
30 June 30 June at constant
2003 2002 2003 2002 currencies %
#m #m Eurom Eurom
Turnover
Reed Business Information
US 190 235 277 378 -6%
UK 112 114 164 184 -2%
Continental Europe 137 128 200 206 -7%
Reed Exhibitions 217 236 317 380 -8%
Other 13 12 19 19
Total 669 725 977 1,167 -6%
Adjusted operating profit 115 133 168 214 -12%
Operating margin 17.2% 18.3% 17.2% 18.3% -1.1pts
The Reed Business division has continued to perform well against very difficult
markets. The rate of decline of advertising markets has slowed, particularly in
the US, but there is little sign of any real recovery. The Exhibitions business
has been tightly managed through weak economic conditions, the war in Iraq and
the SARS outbreak. Underlying margins are being maintained through firm cost
management.
Revenues and adjusted operating profits were respectively 6% and 12% lower at
constant exchange rates, or 6% and 12% excluding acquisitions and disposals. The
magazine and information publishing business saw a revenue decline of 5% due to
advertising market weakness since the 2002 first half, and the exhibitions
business revenues were 8% lower, or 3% before taking account of the net cycling
out of non-annual shows. Excluding cycling effects, margins were broadly flat
against the prior first half reflecting the firm cost actions taken.
In the US, Reed Business Information saw revenues, excluding disposals, 6% lower
than in the stronger first half in 2002. Whilst advertising markets overall
remain at depressed levels, the rate of decline has slowed and, in some sectors,
such as Media, there has been strong growth. There are however no signs of
recovery in the Manufacturing and Electronics sectors and the Construction
sector is now seeing late cycle effects. Investment in product quality has
continued together with strong discipline in yield management. The cost actions
taken last year and in early 2003 are reflected in an improved margin, despite
the lower revenues, with underlying operating profits 27% ahead.
In the UK, the underlying revenues of Reed Business Information were 2% lower,
due mostly to declines in hard copy recruitment advertising across most sectors
and the phasing of business directories. Strong growth was seen in online
information services, which now account for over 20% of revenues. Operating
profits were 7% ahead following the cost actions taken over the last year.
In Continental Europe, Reed Business Information saw underlying revenues down 6%
as economic conditions weakened further. The resilience of subscription revenues
in part mitigated advertising market declines which were seen across almost
every sector. The regulatory information services in the Netherlands were
particularly impacted by the extended period without governmental legislation.
Continued action on costs improved underlying operating profits by 4%.
At Reed Exhibitions, underlying revenues were 8% lower, or 3% before the effect
of the net cycling out of non-annual shows which particularly falls in the first
half. Growth in Australia and Japan and in the majority of the North American
shows was offset by weakness in the US manufacturing sector and in Europe
particularly in the international shows. Underlying operating profits were 25%
lower, or approximately 8% before the impact of the non-annual shows, including
the profit contribution from joint ventures. Given the weak economic conditions
in most markets and the impact on business travel of the Iraq war and the SARS
outbreak, this is a very strong performance and reflects the quality of the
exhibitions business and very focused management.
Reed Business's markets remain uncertain and are not expected to see any overall
recovery in the second half of the year although revenue decline should be more
modest than that seen in the first half. The cost actions taken should improve
margins to help mitigate the effect of the revenue decline for the year on
profitability. With the market share gains achieved, improving yields and a much
leaner cost base, Reed Business is well positioned to benefit as economic
conditions improve.
Reed Elsevier combined businesses
Profit & Loss
The reported profit before tax for the Reed Elsevier combined businesses, after
the amortisation of goodwill and intangible assets and exceptional items, was
#216m/Euro315m, which compares with a reported profit before tax of #100m/Euro161m in
the 2002 first half. The increase principally reflects exceptional gains on
disposal of businesses and lower goodwill and intangible asset amortisation. The
reported attributable profit of #97m/Euro142m compares with a reported attributable
profit of #97m/Euro156m in the first half of 2002, which included exceptional prior
year tax credits.
The decline of the US dollar since the prior first half has had significant
adverse translation effects on the results expressed in sterling and more
particularly, in euros. The strengthening of the euro relative to sterling has
compounded this adverse translation effect on the results expressed in euros,
whilst mitigating the impact of translation on the results expressed in
sterling. This translation effect does not however have any impact on the
underlying performance of the businesses.
Turnover reduced by 5% expressed in sterling to #2,345m, and by 14% expressed in
euros to Euro3,424m. At constant exchange rates, revenues were flat, or 1% lower
than in the prior first half excluding acquisitions and disposals. The Science &
Medical and Legal businesses saw underlying revenue growth of 4% and 2%
respectively, which was more than offset by the 6% decline in the Business
division and in the Education business. The revenue decline in the Education
business in particular is unrepresentative of performance for the year due to
the significant weighting of sales to the second half and changes in the timing
of shipments to US schools ahead of the academic year.
Adjusted operating profits, excluding the amortisation of goodwill and
intangible assets and exceptional items, were down 2% expressed in sterling to
#496m, and by 11% expressed in euros at Euro724m. At constant exchange rates,
adjusted operating profits were flat, or 1% lower excluding acquisitions and
disposals. Adjusted operating margin at 21.2% was 0.7 percentage points ahead,
largely due to currency translation effects. Underlying margin improvement was
masked by the seasonality in Education and the cycling of exhibition joint
ventures.
The amortisation charge for goodwill and intangible assets amounted to #226m/
Euro329m, down #50m/Euro115m on the comparative period, principally as a result of
translation effects and some past acquisitions becoming fully amortised.
Exceptional items showed a pre-tax gain of #34m/Euro48m (2002: #22m/Euro36m charge)
comprising a #57m/Euro82m net gain on disposals of businesses and fixed asset
investments, partly offset by #15m/Euro22m of Harcourt and other acquisition
integration and related costs and a #8m/Euro12m charge in respect of restructuring
actions. After a tax charge of #9m/Euro12m (2002: #95m/Euro153m credit, mostly in
respect of prior year disposals), exceptional items showed a post-tax gain of
#25m/Euro36m (2002: #73m/Euro117m).
Net interest expense, at #88m/Euro128m, was #19m/Euro44m lower than in the
corresponding first half, reflecting the benefit of 2002 free cash flow, lower
interest rates and currency translation effects.
Adjusted profits before tax, before the amortisation of goodwill and intangible
assets and exceptional items, at #408m/Euro596m were up 3% on the 2002 first half
expressed in sterling, and 7% lower expressed in euros. At constant exchange
rates, adjusted profits before tax were up 3%.
The effective tax rate on adjusted earnings was little changed at 26%. The
adjusted profit attributable to shareholders of #300m/Euro438m was up 2% expressed
in sterling, 7% lower expressed in euros, and up 3% at constant exchange rates.
Cash flows and debt
Adjusted operating cash flow, before exceptional items, was #177m/Euro258m, #17m/
Euronil higher than in the prior first half. The substantial majority of Reed
Elsevier annual operating cash flows normally arises in the second half of the
year due to the timing of subscription and other advance receipts and working
capital movements. The Harcourt Education businesses have a significant cash
outflow in the first half of each year as product is produced and expenses
incurred ahead of the peak sales period in June through September, and after
which there is substantial cash inflow in the second half. The rate of
conversion of operating profits into cash flow in the first half of 36% (2002:
32%) reflects this. In the twelve months to 30 June 2003, the cashflow
conversion rate was 90% (2002: 84%) reflecting improved working capital
management and timing of capital expenditures.
Free cash flow - after interest, taxation and dividends but before acquisition
spend and exceptional receipts and payments - was #214m/Euro313m outflow (2002:
#226m/Euro364m outflow) principally reflecting the seasonal working capital
requirements of the businesses. Due to the phasing of operating cash flows and
dividend payments, the free cash flow for the year arises in the second half.
Exceptional net inflows of #48m/Euro71m include #89m/Euro130m proceeds from the sale
of businesses and fixed asset investments, principally LexisNexis Document
Solutions, and #9m/Euro14m of reduced tax payments, less exceptional acquisition
related and other restructuring payments of #50m/Euro73m. Spend on acquisitions was
#76m/Euro111m, including #11m/Euro16m of payments in respect of prior year
acquisitions. An amount of #62m/Euro91m was capitalised as acquired goodwill and
intangible assets.
Net borrowings at 30 June 2003 were #2,923m/Euro4,209m, an increase of #191m/Euro29m
since 31 December 2002, reflecting the free cash outflow and acquisition spend
in the first half, less net exceptional inflows and favourable exchange
translation effects which reduced reported net borrowings by #71m/Euro353m.
Parent companies
For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjusted
earnings per share, excluding the amortisation of goodwill and intangible assets
and exceptional items, were respectively up 2% at 12.6p (2002: 12.3p) and 7%
lower at Euro0.28 (2002: Euro0.30). The difference in percentage change is entirely
attributable to the impact of currency movements on the translation of reported
results. At constant rates of exchange, the adjusted earnings per share of both
companies would have shown an increase of 3% over the previous half year. The
reported earnings per share, including the amortisation of goodwill and
intangible assets and exceptional items, for Reed Elsevier PLC shareholders was
3.9p (2002: 3.9p) and for Reed Elsevier NV shareholders was Euro0.09 (2002: Euro0.10).
The equalised interim dividends are 3.3p per share, an increase of 3%, for Reed
Elsevier PLC and Euro0.08 per share, a reduction of 11%, for Reed Elsevier NV. The
difference in dividend growth rates reflects the impact of the significant
appreciation of the euro against sterling since last year's interim dividend
declaration.
FORWARD LOOKING STATEMENTS
The Interim Statement contains forward looking statements within the meaning of
Section 27A of the Securities Act 1933, as amended, and Section 21E of the
Securities Exchange Act 1934, as amended. These statements are subject to a
number of risks and uncertainties and actual results and events could differ
materially from those currently anticipated as reflected in such forward looking
statements. The terms 'expect', 'should be', 'will be', and similar expressions
identify forward looking statements. Factors which may cause future outcomes to
differ from those foreseen in forward looking statements include, but are not
limited to: general economic conditions and business conditions in Reed
Elsevier's markets; exchange rate fluctuations; customers' acceptance of its
products and services; the actions of competitors; legislative, fiscal and
regulatory developments; changes in law and legal interpretation affecting Reed
Elsevier's intellectual property rights; and the impact of technological change.
COMBINED FINANCIAL INFORMATION
Combined profit and loss account
For the six months ended 30 June 2003
Year ended 31 December Six months ended 30 June Six months ended 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
Turnover
5,094 8,099 Including share of 2,392 2,512 3,492 4,044
turnover of joint
ventures
(74) (117) Less: share of (47) (45) (68) (72)
turnover of joint
ventures
5,020 7,982 2,345 2,467 3,424 3,972
5,020 7,982 Continuing 2,326 2,467 3,396 3,972
operations before
acquisitions
- - Acquisitions 19 - 28 -
(1,794) (2,852) Cost of sales (819) (906) (1,196) (1,459)
3,226 5,130 Gross profit 1,526 1,561 2,228 2,513
(2,736) (4,351) Operating expenses (1,290) (1,378) (1,883) (2,218)
(2,113) (3,361) Before amortisation (1,042) (1,073) (1,521) (1,727)
and exceptional
items
(524) (833) Amortisation of (225) (274) (328) (441)
goodwill and
intangible assets
(99) (157) Exceptional items (23) (31) (34) (50)
490 779 Operating profit 236 183 345 295
(before joint
ventures)
490 779 Continuing 238 183 348 295
operations before
acquisitions
- - Acquisitions (2) - (3) -
17 27 Share of operating 11 15 16 24
profit of joint
ventures
507 806 Operating profit 247 198 361 319
including joint
ventures
Non operating
exceptional items
(12) (19) Net profit/(loss) 57 9 82 14
on disposal of
businesses and
fixed asset
investments
495 787 Profit on ordinary 304 207 443 333
activities before
interest
(206) (327) Net interest (88) (107) (128) (172)
expense
289 460 Profit on ordinary 216 100 315 161
activities before
taxation
(107) (171) Tax on profit on (118) (3) (171) (5)
ordinary activities
(229) (365) Before exceptional (109) (98) (159) (158)
items
122 194 Exceptional items (9) 95 (12) 153
182 289 Profit on ordinary 98 97 144 156
activities after
taxation
(1) (1) Minority interests (1) - (2) -
181 288 Profit attributable 97 97 142 156
to parent
companies'
shareholders
(282) (448) Equity dividends (82) (82) (120) (132)
paid and proposed
(101) (160) Retained 15 15 22 24
profit/(loss) taken
to combined
reserves
Adjusted figures
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
1,133 1,801 Adjusted operating 496 505 724 813
profit
927 1,474 Adjusted profit before 408 398 596 641
tax
682 1,084 Adjusted profit 300 293 438 472
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, and are reconciled to the reported figures in note 5 to
the combined financial information.
Combined cash flow statement
For the six months ended 30 June 2003
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
Net cash inflow from
operating activities
before
1,154 1,835 exceptional items 240 245 350 395
(119) (190) Payments relating to (50) (53) (73) (85)
operating exceptional
items
1,035 1,645 Net cash inflow from 190 192 277 310
operating activities
13 21 Dividends received from 10 5 15 8
joint ventures
25 40 Interest and similar 8 26 12 42
income received
(230) (366) Interest and similar (93) (134) (136) (216)
charges paid
(205) (326) Returns on investments and (85) (108) (124) (174)
servicing of finance
(154) (245) Taxation before (97) (88) (142) (142)
exceptional items
20 32 Exceptional items 9 16 14 26
(134) (213) Taxation (88) (72) (128) (116)
(163) (259) Purchase of tangible fixed (74) (94) (108) (151)
assets
(9) (14) Purchase of fixed asset (21) (2) (30) (3)
investments
6 9 Proceeds from sale of 1 4 1 6
tangible fixed assets
118 188 Exceptional proceeds from 16 113 23 182
disposal of fixed asset
investments
(48) (76) Capital expenditure and (78) 21 (114) 34
financial investment
(184) (293) Acquisitions (76) (88) (111) (142)
(12) (19) Exceptional net 73 - 107 -
proceeds/(costs) from
disposal of businesses
(196) (312) Acquisitions and disposals (3) (88) (4) (142)
(273) (434) Equity dividends paid to (209) (190) (305) (306)
shareholders of the parent
companies
192 305 Cash (outflow)/inflow (263) (240) (383) (386)
before changes in short
term investments and
financing
(55) (88) Decrease/(increase) in 285 (25) 416 (40)
short term investments
(65) (103) Financing (59) 269 (86) 432
72 114 (Decrease)/increase in (37) 4 (53) 6
cash
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 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
1,010 1,606 Adjusted operating 177 160 258 258
cash flow
89% 89% Adjusted operating 36% 32% 36% 32%
cash flow conversion
Reed Elsevier businesses focus on adjusted operating cash flow as a key cash
flow measure. Adjusted operating cash flow is measured after dividends from
joint ventures, tangible fixed asset spend and proceeds from the sale of
tangible fixed assets but before exceptional payments and proceeds, and is
reconciled to the reported figures in note 5 to the combined financial
information. 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 2003
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
181 288 Profit attributable to 97 97 142 156
parent companies'
shareholders
(187) (604) Exchange translation (65) (97) (333) (443)
differences
(6) (316) Total recognised gains 32 - (191) (287)
and losses for the
period
Combined shareholders' funds reconciliation
For the six months ended 30 June 2003
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
181 288 Profit attributable to 97 97 142 156
parent companies'
shareholders
(282) (448) Equity dividends paid (82) (82) (120) (132)
and proposed
30 48 Issue of ordinary 7 24 10 38
shares, net of
expenses
(187) (604) Exchange translation (65) (97) (333) (443)
differences
(258) (716) Net decrease in (43) (58) (301) (381)
combined shareholders'
funds
2,917 4,784 Combined shareholders' 2,659 2,917 4,068 4,784
funds at the beginning
of the period
2,659 4,068 Combined shareholders' 2,616 2,859 3,767 4,403
funds at the end of
the period
Summary combined balance sheet
As at 30 June 2003
As at 31 December As at 30 June As at 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
5,814 8,895 Goodwill and 5,541 6,210 7,979 9,563
intangible assets
624 955 Tangible fixed assets 632 657 910 1,012
and investments
6,438 9,850 Fixed assets 6,173 6,867 8,889 10,575
500 765 Inventories and 551 558 793 859
pre-publication costs
923 1,412 Debtors - amounts 1,026 1,048 1,478 1,615
falling due within
one year
321 491 Debtors - amounts 313 428 451 659
falling due after
more than one year
570 872 Cash and short term 257 473 370 728
investments
2,314 3,540 Current assets 2,147 2,507 3,092 3,861
(3,629) (5,552) Creditors: amounts (3,194) (4,002) (4,600) (6,163)
falling due within
one year
(1,315) (2,012) Net current (1,047) (1,495) (1,508) (2,302)
liabilities
5,123 7,838 Total assets less 5,126 5,372 7,381 8,273
current liabilities
(2,270) (3,473) Creditors: amounts (2,310) (2,300) (3,326) (3,542)
falling due after
more than one year
(187) (286) Provisions for (189) (207) (272) (319)
liabilities and
charges
(7) (11) Minority interests (11) (6) (16) (9)
2,659 4,068 Combined 2,616 2,859 3,767 4,403
shareholders' funds
2,732 4,180 Net borrowings 2,923 3,296 4,209 5,076
Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 6 August 2003.
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 Elsevier PLC and
Reed Elsevier NV shareholders and encompasses the businesses of Reed Elsevier
Group plc and Elsevier Reed Finance BV and their respective subsidiaries,
associates and joint ventures, together with the two parent companies, Reed
Elsevier PLC and Reed Elsevier NV ("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 and Financial
Statements 2002. These accounting policies are in accordance with applicable UK
Generally Accepted Accounting Principles (GAAP), which are required to be
adopted by UK companies for the preparation of financial statements. Following
changes to Dutch GAAP effective for the 2003 financial year in respect of the
presentation of dividends and pension accounting, UK and Dutch GAAP have
diverged such that the Reed Elsevier accounting policies, which previously have
been in accordance with both UK and Dutch GAAP, no longer accord with Dutch
GAAP. Under Article 362.1 of Part 9, Book 2 of the Dutch Civil Code, UK GAAP may
be adopted by Dutch companies with international operations for the preparation
of financial statements and, accordingly, UK GAAP has been so adopted ensuring
consistency with the prior year of the accounting policies applied in the
combined financial information.
The combined financial information is unaudited but has been reviewed by the
auditors and their report to the boards of Reed Elsevier PLC and Reed Elsevier
NV is set out on page 26. The financial information for the year ended 31
December 2002 has been abridged from the audited combined financial statements
for that year, which received an unqualified audit report.
2. Segment analysis
Turnover
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
Business segment
1,295 2,059 Science & Medical 646 623 943 1,003
1,349 2,145 Legal 643 670 939 1,079
993 1,579 Education 387 449 565 723
1,383 2,199 Business 669 725 977 1,167
5,020 7,982 Total 2,345 2,467 3,424 3,972
Geographical origin
3,158 5,021 North America 1,364 1,568 1,992 2,524
782 1,243 United Kingdom 371 369 542 594
419 666 The Netherlands 246 208 359 335
456 725 Rest of Europe 257 225 375 362
205 327 Rest of world 107 97 156 157
5,020 7,982 Total 2,345 2,467 3,424 3,972
Geographical market
3,209 5,102 North America 1,446 1,569 2,111 2,526
551 876 United Kingdom 259 266 378 428
209 332 The Netherlands 100 102 146 164
638 1,014 Rest of Europe 342 313 500 504
413 658 Rest of world 198 217 289 350
5,020 7,982 Total 2,345 2,467 3,424 3,972
Adjusted operating profit (excluding exceptional items and amortisation)
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
Business segment
429 682 Science & Medical 219 202 320 325
287 456 Legal 133 122 194 197
183 291 Education 29 48 42 77
234 372 Business 115 133 168 214
1,133 1,801 Total 496 505 724 813
Geographical origin
616 979 North America 226 251 330 404
190 302 United Kingdom 82 89 120 143
169 269 The Netherlands 110 89 160 143
119 189 Rest of Europe 60 58 88 93
39 62 Rest of world 18 18 26 30
1,133 1,801 Total 496 505 724 813
Operating profit (including exceptional items and amortisation)
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
Business segment
294 467 Science & Medical 179 130 262 209
61 97 Legal 35 17 51 27
102 162 Education (11) 7 (16) 11
50 80 Business 44 44 64 72
507 806 Total 247 198 361 319
Geographical origin
142 226 North America 40 5 58 8
129 205 United Kingdom 62 65 91 105
153 243 The Netherlands 99 81 145 131
55 87 Rest of Europe 32 33 47 53
28 45 Rest of world 14 14 20 22
507 806 Total 247 198 361 319
3. Exceptional items
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
(42) (67) Reorganisation costs (8) (9) (12) (14)
(57) (90) Acquisition related costs (15) (22) (22) (36)
(99) (157) Charged to operating (23) (31) (34) (50)
profit
(12) (19) Net profit/(loss) on 57 9 82 14
disposal of businesses
and fixed asset
investments
(111) (176) Exceptional 34 (22) 48 (36)
credit/(charge) before
tax
122 194 Net tax (charge)/credit (9) 95 (12) 153
11 18 Total exceptional credit 25 73 36 117
The net profit on disposal of businesses and fixed asset investments in 2003
principally relates to the sale of LexisNexis Document Solutions.
4. Combined cash flow statement
Reconciliation of operating profit to net cash inflow from operating activities
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
490 779 Operating profit 236 183 345 295
(before joint
ventures)
99 157 Exceptional charges to 23 31 34 50
operating profit
589 936 Operating profit 259 214 379 345
before exceptional
items
524 833 Amortisation of 225 274 328 441
goodwill and
intangible assets
136 216 Depreciation 67 66 98 106
660 1,049 Total non cash items 292 340 426 547
(95) (150) Movement in working (311) (309) (455) (497)
capital
1,154 1,835 Net cash inflow from 240 245 350 395
operating activities
before exceptional
items
(119) (190) Payments relating to (50) (53) (73) (85)
operating exceptional
items
1,035 1,645 Net cash inflow from 190 192 277 310
operating activities
Reconciliation of net borrowings
Year ended 31
December Short term Six months ended 30 June
2002 Cash investments Borrowings 2003 2002
#m #m #m #m #m #m
(3,229) Net borrowings at the 169 401 (3,302) (2,732) (3,229)
beginning of the period
72 (Decrease)/increase in (37) - - (37) 4
cash
55 (Decrease)/increase in - (285) - (285) 25
short term investments
95 Decrease/(increase) in - - 66 66 (245)
borrowings
222 Change in net borrowings (37) (285) 66 (256) (216)
resulting from cash flows
(16) Inception of finance - - (6) (6) (9)
leases
291 Exchange translation 3 6 62 71 158
differences
(2,732) Net borrowings at the end 135 122 (3,180) (2,923) (3,296)
of the period
Year ended 31
December Short term Six months ended 30 June
2002 Cash investments Borrowings 2003 2002
Eurom Eurom Eurom Eurom Eurom Eurom
(5,296) Net borrowings at the 259 613 (5,052) (4,180) (5,296)
beginning of the period
114 (Decrease)/increase in (53) - - (53) 6
cash
88 (Decrease)/increase in - (416) - (416) 40
short term investments
151 Decrease/(increase) in - - 96 96 (394)
borrowings
353 Change in net borrowings (53) (416) 96 (373) (348)
resulting from cash flows
(25) Inception of finance - - (9) (9) (14)
leases
788 Exchange translation (12) (21) 386 353 582
differences
(4,180) Net borrowings at the end 194 176 (4,579) (4,209) (5,076)
of the period
5. Adjusted figures
Adjusted profit and cash flow figures are used by the Reed Elsevier businesses
as additional performance measures. The adjusted figures are stated before the
amortisation of goodwill and intangible assets, exceptional items and
related tax effects, and are derived as follows:
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
507 806 Operating profit 247 198 361 319
including joint
ventures
Adjustments:
527 838 Amortisation of 226 276 329 444
goodwill and intangible
assets
42 67 Reorganisation costs 8 9 12 14
57 90 Acquisition related 15 22 22 36
costs
1,133 1,801 Adjusted operating 496 505 724 813
profit
289 460 Profit before tax 216 100 315 161
Adjustments:
527 838 Amortisation of 226 276 329 444
goodwill and intangible
assets
42 67 Reorganisation costs 8 9 12 14
57 90 Acquisition related 15 22 22 36
costs
12 19 Net (profit)/loss on (57) (9) (82) (14)
disposal of businesses
and fixed
asset investments
927 1,474 Adjusted profit before 408 398 596 641
tax
181 288 Profit attributable to 97 97 142 156
parent companies'
shareholders
Adjustments:
512 814 Amortisation of 228 269 332 433
goodwill and intangible
assets
32 51 Reorganisation costs 5 6 8 9
43 68 Acquisition related 7 16 10 26
costs
Net profit on disposal
of businesses and fixed
asset
(86) (137) investments (37) (95) (54) (152)
682 1,084 Adjusted profit 300 293 438 472
attributable to parent
companies' shareholders
1,035 1,645 Net cash inflow from 190 192 277 310
operating activities
13 21 Dividends received from 10 5 15 8
joint ventures
(163) (259) Purchase of tangible (74) (94) (108) (151)
fixed assets
6 9 Proceeds from sale of 1 4 1 6
tangible fixed assets
119 190 Payments in relation to 50 53 73 85
operating exceptional
items
1,010 1,606 Adjusted operating cash 177 160 258 258
flow
6. Exchange translation rates
In preparing the combined financial information the following exchange rates
have been applied:
Year ended
31 December 2002 Profit and loss Balance sheet
Profit Balance 30 June 30 June 30 June 30 June
and loss sheet 2003 2002 2003 2002
1.59 1.53 Euro to sterling 1.46 1.61 1.44 1.54
1.50 1.60 US dollars to 1.61 1.44 1.65 1.53
sterling
0.94 1.05 US dollars to euro 1.10 0.89 1.15 0.99
REED ELSEVIER PLC
Summary financial information
Basis of preparation
The Reed Elsevier PLC share of the Reed Elsevier combined results has been
calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC
shareholders in the Reed Elsevier combined businesses, after taking account of
results arising in Reed Elsevier PLC and its subsidiary undertakings. Reed
Elsevier PLC's 52.9% economic interest in the net assets of the combined
businesses has been shown in the balance sheet as interests in joint ventures,
net of the assets and liabilities reported as part of Reed Elsevier PLC and its
subsidiary undertakings.
The interim figures for the six months ended 30 June 2003 and the comparative
amounts to 30 June 2002 are unaudited but have been reviewed by the auditors and
their report to the board of Reed Elsevier PLC is set out on page 26. The
financial information for the year ended 31 December 2002 has been abridged from
the financial statements for that year, which have been filed with the UK
Registrar of Companies and received an unqualified audit report.
Consolidated profit and loss account
Year
ended Six months ended
31 December 30 June
2002 2003 2002
#m #m #m
2,656 Share of turnover of joint ventures 1,241 1,305
(1) Operating loss (before joint ventures) - (1)
Share of operating profit of joint ventures
593 Before amortisation and exceptional items 260 266
(331) Amortisation and exceptional items (131) (162)
261 Operating profit including joint ventures 129 103
(6) Share of non operating exceptional items of joint ventures 30 5
(109) Net interest (including share of joint ventures) (47) (57)
146 Profit on ordinary activities before taxation 112 51
(57) Tax on profit on ordinary activities (63) (2)
(1) UK corporation tax - -
(56) Share of tax of joint ventures (63) (2)
89 Profit attributable to ordinary shareholders 49 49
(143) Equity dividends paid and proposed (42) (41)
(54) Retained profit/(loss) taken to reserves 7 8
7.0p Basic earnings per share 3.9p 3.9p
7.0p Diluted earnings per share 3.9p 3.9p
28.5p Adjusted earnings per share 12.6p 12.3p
Adjusted earnings per share is based upon the Reed Elsevier PLC shareholders'
52.9% economic interest in the adjusted profit attributable of the Reed Elsevier
combined businesses, which excludes amortisation of goodwill and intangible
assets, exceptional items and related tax effects.
Dividends
The directors of Reed Elsevier PLC have declared an interim dividend of 3.3p per
ordinary share (2002 interim: 3.2p per ordinary share). In 2002 the full year
dividend was 11.2p per ordinary share.
Consolidated statement of total recognised gains and losses
Year
ended
31 December Six months ended 30 June
2002 2003 2002
#m #m #m
89 Profit attributable to ordinary shareholders 49 49
(98) Exchange translation differences (34) (51)
(9) Total recognised gains and losses for the period 15 (2)
Consolidated cash flow statement
Year
ended
31 December Six months ended 30 June
2002 2003 2002
#m #m #m
- Net cash flow from operating activities - -
135 Dividends received from Reed Elsevier Group plc 102 94
3 Returns on investments and servicing of finance 1 -
(1) Taxation - (2)
(135) Equity dividends paid (102) (94)
2 Cash inflow/(outflow) before changes in short term 1 (2)
investments and financing
(2) Financing (1) 2
16 Issue of ordinary shares 5 12
(18) Increase in net funding balances to Reed Elsevier Group plc (6) (10)
group
- Change in net cash - -
Reconciliation of consolidated shareholders' funds
Year
ended
31 December Six months ended 30 June
2002 2003 2002
#m #m #m
89 Profit attributable to ordinary shareholders 49 49
(143) Equity dividends paid and proposed (42) (41)
16 Issue of ordinary shares, net of expenses 5 12
(98) Exchange translation differences (34) (51)
- Equalisation adjustments (1) -
(136) Net decrease in shareholders' funds (23) (31)
1,543 Shareholders' funds at the beginning of the period 1,407 1,543
1,407 Shareholders' funds at the end of the period 1,384 1,512
Consolidated balance sheet
As at
31 December As at 30 June
2002 2003 2002
#m #m #m
983 Fixed asset investment in joint ventures 894 1,031
Current assets
573 Debtors 579 567
573 579 567
(113) Creditors: amounts falling due within one year (53) (50)
460 Net current assets 526 517
1,443 Total assets less current liabilities 1,420 1,548
(36) Creditors: amounts falling due after more than one year (36) (36)
1,407 Shareholders' funds 1,384 1,512
Approved by the board of directors, 6 August 2003.
REED ELSEVIER NV
Summary financial information
Basis of preparation
The results for the six months ended 30 June 2003 reflect the Reed Elsevier NV
shareholders' 50% economic interest in the Reed Elsevier combined businesses,
accounted for on an equity basis. The summary financial information has been
prepared on the basis of the accounting policies set out in the Reed Elsevier
Annual Reports and Financial Statements 2002, which are in accordance with UK
Generally Accepted Accounting Principles (GAAP). Following changes to Dutch GAAP
effective for the 2003 financial year in respect of the presentation of
dividends and pensions accounting, UK GAAP and Dutch GAAP have diverged. As
permitted by Article 362.1 of Part 9, Book 2 of the Dutch Civil Code, the
summary financial information has, therefore, been prepared using accounting
policies that are in accordance with UK GAAP ensuring consistency with the prior
year of the accounting policies applied. The adoption of UK GAAP has no effect
on the shareholders' equity previously reported under Dutch GAAP.
The interim figures for the six months ended 30 June 2003 and the comparative
amounts to 30 June 2002 are unaudited but have been reviewed by the auditors and
their report to the boards of Reed Elsevier NV is set out on page 26. The
financial information for the year ended 31 December 2002 has been abridged from
the statutory accounts of Reed Elsevier NV for that year and the auditors have
confirmed that their opinion on those accounts was unqualified.
Profit and loss account
Year ended
31 December Six months ended 30 June
2002 2003 2002
Eurom Eurom Eurom
3,991 Share of turnover of joint ventures 1,712 1,986
(3) Operating loss (before joint ventures) (1) (1)
Share of operating profit of joint ventures
904 Before amortisation and exceptional items 364 408
(498) Amortisation and exceptional items (182) (247)
403 Operating profit including joint ventures 181 160
(9) Share of non operating exceptional items of joint 41 7
ventures
(164) Net interest (including share of joint ventures) (64) (86)
230 Profit on ordinary activities before taxation 158 81
(86) Tax on profit on ordinary activities (87) (3)
144 Profit attributable to ordinary shareholders 71 78
(221) Equity dividends paid and proposed (59) (66)
(77) Retained profit/(loss) taken to reserves 12 12
Euro0.18 Basic earnings per share Euro0.09 Euro0.10
Euro0.18 Diluted earnings per share Euro0.09 Euro0.10
Euro0.69 Adjusted earnings per share Euro0.28 Euro0.30
Adjusted earnings per share is based upon the Reed Elsevier NV shareholders' 50%
economic interest in the adjusted profit attributable of the Reed Elsevier
combined businesses, which excludes amortisation of goodwill and intangible
assets, exceptional items and related tax effects.
Dividends
The directors of Reed Elsevier NV have declared an interim dividend of Euro0.08 per
ordinary share (2002 interim: Euro0.09 per ordinary share). In 2002 the full year
dividend was Euro0.30 per ordinary share.
Cash flow statement
Year ended
31 December Six months ended 30 June
2002 2003 2002
Eurom Eurom Eurom
- Net cash outflow from operating activities - (2)
150 Dividends received from joint ventures 150 100
6 Returns on investments and servicing of finance 2 3
(3) Taxation (6) -
(222) Equity dividends paid (156) (155)
(69) Cash outflow before changes in short term investments and (10) (54)
financing
10 Decrease/(increase) in short term investments 4 (54)
59 Financing 6 108
22 Issue of shares, net of expenses 4 19
(1) Net increase in/(repayment of) debenture loans 1 1
38 Decrease in net funding balances to joint ventures 1 88
- Change in net cash - -
Reconciliation of shareholders' funds
Year ended
31 December Six months ended 30 June
2002 2003 2002
Eurom Eurom Eurom
144 Profit attributable to ordinary shareholders 71 78
(221) Equity dividends paid and proposed (59) (66)
22 Issue of shares, net of expenses 4 19
(303) Exchange translation differences (167) (222)
- Equalisation adjustments 1 1
(358) Net decrease in shareholders' funds (150) (190)
2,392 Shareholders' funds at the beginning of the period 2,034 2,392
2,034 Shareholders' funds at the end of the period 1,884 2,202
Balance sheet
As at
31 December As at 30 June
2002 2003 2002
Eurom Eurom Eurom
2,195 Fixed asset investment in joint ventures 1,948 2,262
Current assets
56 Debtors 55 6
15 Short term investments 11 79
71 66 85
(167) Creditors: amounts falling due within one year (64) (80)
(96) Net current assets/(liabilities) 2 5
2,099 Total assets less current liabilities 1,950 2,267
(6) Creditors: amounts falling due after more than one year (7) (6)
(59) Provisions (59) (59)
2,034 Shareholders' funds 1,884 2,202
Signed by the boards of directors, 6 August 2003.
ADDITIONAL INFORMATION FOR US INVESTORS
Summary financial information in US dollars
The summary financial information is a simple translation of the Reed Elsevier
combined financial information into US dollars at the stated rates of exchange.
The financial information provided below is prepared in accordance with
accounting principles as used in the preparation of the Reed Elsevier combined
financial information. It does not represent a restatement under US GAAP which
would be different in some significant respects.
Exchange rates for translation
Year
ended
31 December Six months ended 30 June
2002 2003 2002
US$ US$ US$
Sterling
1.50 Profit and loss and cash flow 1.61 1.44
1.60 Balance sheet 1.65 1.53
Euro
0.943 Profit and loss and cash flow 1.103 0.894
1.046 Balance sheet 1.146 0.994
Profit and loss account
Year ended
31 December Six months ended 30 June
2002 2003 2002
US$m US$m US$m
7,530 Net sales 3,775 3,552
1,700 Adjusted operating profit 799 727
434 Profit before tax 348 144
272 Profit attributable 156 140
1,391 Adjusted profit before tax 657 573
1,023 Adjusted profit attributable to parent companies' 483 422
shareholders
US$ US$ US$
Basic earnings per American Depository share (ADS)
0.42 Reed Elsevier PLC (Each ADS comprises four ordinary shares) 0.25 0.22
0.34 Reed Elsevier NV (Each ADS comprises two ordinary shares) 0.20 0.18
Adjusted earnings per American Depository Share (ADS)
1.71 Reed Elsevier PLC (Each ADS comprises four ordinary shares) 0.81 0.71
1.30 Reed Elsevier NV (Each ADS comprises two ordinary shares) 0.62 0.54
Adjusted earnings per American Depository Share is based on Reed Elsevier PLC
shareholders' 52.9% and Reed Elsevier NV's 50% respective share of the adjusted
profit attributable of the Reed Elsevier combined businesses. Adjusted figures
are presented as additional performance measures and exclude amortisation of
goodwill and intangible assets, exceptional items and related tax effects.
Cash flow
Year ended
31 December Six months ended 30 June
2002 2003 2002
US$m US$m US$m
1,553 Net cash inflow from operating activities 306 277
20 Dividends received from joint ventures 16 7
(308) Returns on investments and servicing of finance (137) (156)
(201) Taxation (including US$14m (2002 interim: US$23m) (142) (104)
exceptional net inflow)
(72) Capital expenditure and financial investment (126) 30
(294) Acquisitions and disposals (5) (127)
(410) Equity dividends paid to shareholders of the parent (335) (273)
companies
288 Cash (outflow)/inflow before changes in short term (423) (346)
investments and financing
(83) Decrease/(increase) in short term investments 459 (36)
(97) Financing (96) 388
108 (Decrease)/increase in cash (60) 6
1,515 Adjusted operating cash flow 285 230
89% Adjusted operating cash flow conversion 36% 32%
Balance sheet
As at
31 December As at 30 June
2002 2003 2002
US$m US$m US$m
9,302 Goodwill and intangible assets 9,143 9,501
999 Tangible fixed assets and investments 1,042 1,005
10,301 Fixed assets 10,185 10,506
800 Inventories and pre-publication costs 910 854
1,476 Debtors - amounts falling due within one year 1,693 1,603
514 Debtors - amounts falling due after more than one year 516 655
912 Cash and short term investments 424 724
3,702 Current assets 3,543 3,836
(5,806) Creditors: amounts falling due within one year (5,271) (6,123)
(2,104) Net current liabilities (1,728) (2,287)
8,197 Total assets less current liabilities 8,457 8,219
(3,633) Creditors: amounts falling due after more than one year (3,812) (3,519)
(299) Provisions for liabilities and charges (312) (317)
(11) Minority interests (17) (9)
4,254 Combined shareholders' funds 4,316 4,374
Summary of the principal differences to US GAAP
The combined financial information has been prepared in accordance with
accounting principles which differ in certain significant respects to US GAAP.
The principal differences that affect net income and combined shareholders'
funds relate to the capitalisation and amortisation of goodwill and intangible
assets, pensions, derivative instruments and related deferred tax effects. A
more complete explanation of the accounting policies used by the Reed Elsevier
combined businesses and the differences to US GAAP is set out in the Reed
Elsevier Annual Reports & Financial Statements 2002.
The effects on net income and combined shareholders' funds of material
differences to US GAAP are set out below:
Year ended 31 December Six months ended Six months ended
30 June 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
181 288 Net income as reported 97 97 142 156
US GAAP adjustments:
223 355 Goodwill and intangible 78 138 114 222
assets
(50) (80) Deferred taxation (21) (31) (31) (50)
56 89 Pensions 38 28 56 45
- - Stock based 3 (9) 4 (14)
compensation
(45) (72) Derivative instruments - 34 - 55
365 580 Net income under US 195 257 285 414
GAAP
As at 31 December As at 30 June As at 30 June
2002 2002 2003 2002 2003 2002
#m Eurom #m #m Eurom Eurom
2,659 4,068 Combined 2,616 2,859 3,767 4,403
shareholders' funds
as reported
US GAAP adjustments:
1,302 1,992 Goodwill and 1,370 1,242 1,973 1,913
intangible assets
(838) (1,283) Deferred taxation (862) (856) (1,241) (1,318)
151 231 Pensions 193 160 278 246
(117) (179) Derivative (114) (42) (164) (65)
instruments
3 5 Available for sale 2 14 3 22
investments
205 314 Equity dividends 82 82 118 126
(19) (29) Treasury stock (38) (17) (55) (26)
(2) (3) Other items (2) (2) (3) (3)
3,344 5,116 Combined 3,247 3,440 4,676 5,298
shareholders' funds
under US GAAP
INDEPENDENT REVIEW REPORT
Independent review report to Reed Elsevier PLC and Reed Elsevier NV
Introduction
On the instruction of the boards of Reed Elsevier PLC and Reed Elsevier NV, we
have reviewed the combined financial information of Reed Elsevier PLC, Reed
Elsevier NV, Reed Elsevier Group 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 2003 which comprises the combined
profit and loss account, combined cash flow statement, combined statement of
total recognised gains and losses, combined shareholders' funds reconciliation,
summary combined balance sheet and the related notes 1 to 6. We have also
reviewed the summary financial information of Reed Elsevier PLC for the six
months ended 30 June 2003 which comprises the consolidated profit and loss
account, consolidated statement of total recognised gains and losses,
consolidated cash flow statement, reconciliation of consolidated shareholders'
funds, consolidated balance sheet and the related notes, and the summary
financial information of Reed Elsevier NV for the six months ended 30 June 2003
which comprises the profit and loss account, cash flow statement, reconciliation
of shareholders' funds, balance sheet 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.
Our review work has been undertaken in accordance with Bulletin 1999/4 issued by
the UK Auditing Practices Board so that we might state to Reed Elsevier PLC and
Reed Elsevier NV those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by applicable law, we do not accept or assume responsibility to anyone
other than Reed Elsevier PLC and Reed Elsevier NV for our review work, for this
report or for the conclusions we have formed.
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 Elsevier PLC and Reed Elsevier NV. The directors of Reed
Elsevier PLC and Reed Elsevier NV are responsible for preparing the Reed
Elsevier Interim Statement, which has been prepared in accordance with the
Listing Rules of the UK Financial Services Authority and applicable Generally
Accepted Accounting Principles in the United Kingdom 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 management 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 generally accepted in the UK and
the Netherlands 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 2003.
Deloitte & Touche LLP Deloitte & Touche
Chartered Accountants Accountants
London Amsterdam
6 August 2003 6 August 2003
INVESTOR INFORMATION
Financial Calendar
2003
7 August Announcement of Interim Results for the six months to 30 June
2003
7 August Record date interim dividend - Reed Elsevier NV ordinary shares
8 August Ex-dividend date interim dividend - Reed Elsevier NV ordinary
shares and ADSs
12 August Record date interim dividend - Reed Elsevier NV ADSs
13 August Ex-dividend date interim dividend - Reed Elsevier PLC ordinary
shares and ADSs
15 August Record date interim dividend - Reed Elsevier PLC ordinary
shares and ADSs
5 September Interim dividends paid - Reed Elsevier PLC and Reed Elsevier NV
ordinary shares
12 September Interim dividends paid - Reed Elsevier PLC and Reed Elsevier NV
ADSs
4 December Announcement of Trading Update in relation to the 2003
financial year
2004
19 February Announcement of Preliminary Results for the year to 31 December
2003
28 April Annual General Meeting - Reed Elsevier PLC, London
29 April Annual General Meeting - Reed Elsevier NV, Amsterdam
5 August Announcement of Interim Results for the six months to 30 June
2004
Listings
London Stock Exchange Euronext, Amsterdam New York Stock Exchange
Reed Elsevier PLC (REL) Reed Elsevier NV (REN) Reed Elsevier PLC (RUK)
- CUSIP No. 758205108
Ordinary shares Ordinary shares Each ADS represents four
ordinary shares
Reed Elsevier NV (ENL)
- CUSIP No. 758204101
Each ADS represents two
ordinary shares
Contacts
Reed Elsevier PLC Reed Elsevier NV For further investor
information and contacts
visit:
25 Victoria Street Sara Burgerhartstraat 25 www.reedelsevier.com
London SW1H 0EX 1055 KV Amsterdam
United Kingdom The Netherlands
Tel: +44 (0) 20 7222 8420 Tel: +31 (0) 20 485 2434
Fax: +44 (0) 20 7227 5799 Fax: +31 (0) 20 618 0325
Stockbrokers Reed Elsevier PLC Registrar
Cazenove & Co Ltd ABN AMRO Bank NV Computershare Investor Services PLC
20 Moorgate Gustav Mahlerlann 10 PO Box 82
London EC2R 6DA 1082 PP Amsterdam The Pavilions
United Kingdom The Netherlands Bridgwater Road
Bristol BS99 7NH
Auditors United Kingdom
Deloitte & Touche LLP Deloitte & Touche Tel: +44 (0) 8707 020000
180 Strand Orlyplein 50 www.computershare.co.uk
London WC2R 1BL 1043 DP Amsterdam
United Kingdom The Netherlands Reed Elsevier PLC and Reed Elsevier
NV ADR Depositary
Citibank NA
Citibank Depositary Receipts Services
PO Box 2502
Jersey City
NJ 07303-2502
USA
Tel: +1 877 248 4237
www.citibank.com/adr
This statement is being mailed to shareholders of Reed Elsevier PLC on 7 August
2003 and will be available to the shareholders of Reed Elsevier NV upon request.
Copies are available to the public from the registered offices of the respective
companies shown above. A copy of this statement in Dutch will be made available
on the Reed Elsevier website. Reed Elsevier PLC has given e-mail notification
to those shareholders who have requested it of the availability of the Interim
Statement on the Reed Elsevier website. The Reed Elsevier website contains a
link to enable shareholders to register for electronic communication.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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