Final Results - Part 2

Reed International PLC 22 February 2001 PART 2 COMBINED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 2000 1999 Note £m £m Euro m Euro m Turnover Including share of turnover of joint ventures 3,836 3,464 6,291 5,265 Less: share of turnover of joint ventures (68) (74) (111) (112) 3 3,768 3,390 6,180 5,153 Continuing operations before acquisitions 3,589 3,390 5,886 5,153 Acquisitions 179 - 294 - Cost of sales (1,332) (2,185) (1,801) (1,185) Gross profit 2,436 2,205 3,995 3,352 Operating expenses (2,028) (3,672) (3,083) (2,239) Before amortisation and exceptional items (1,659)(1,420) (2,721) (2,159) Amortisation of goodwill and intangible (465) (369) (762) (561) assets Exceptional items 4 (115) (239) (189) (363) Operating profit (before joint ventures) 197 177 323 269 Continuing operations before acquisitions 282 177 462 269 Acquisitions (85) - (139) - Share of operating profit of joint ventures 13 3 21 5 Operating profit including joint ventures 210 180 344 274 Non operating exceptional items 4 Net profit on sale of fixed asset investments 85 7 140 11 and businesses Profit on ordinary activities before interest 295 187 484 285 Net interest expense (103) (82) (169) (125) Profit on ordinary activities before taxation 192 105 315 160 Tax on profit on ordinary activities (159) (167) (261) (254) Profit/(loss) on ordinary activities after 33 (62) 54 (94) taxation Minority interests - (1) - (1) Profit/(loss) attributable to parent 33 (63) 54 (95) companies' shareholders Equity dividends paid and proposed (245) (234) (402) (356) Retained loss taken to combined reserves (212) (297) (348) (451) ADJUSTED FIGURES 2000 1999 2000 1999 Note £m £m Euro m Euro m Adjusted operating profit 5 793 792 1,301 1,204 Adjusted profit before tax 5 690 710 1,132 1,079 Adjusted profit attributable to parent 5 511 527 838 801 companies' shareholders Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, and are presented as additional performance measures. Combined cash flow statement FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 2000 1999 Note £m £m Euro m Euro m Net cash inflow from operating activities before 6 907 898 1,487 1,365 exceptional items Payments relating to exceptional items charged to 6 (94) (138) (154) (210) operating profit Net cash inflow from operating activities 813 760 1,333 1,155 Dividends received from joint ventures 6 4 10 6 Interest received 20 33 33 50 Interest paid (124) (114) (204) (173) Returns on investments and servicing of finance (104) (81) (171) (123) Taxation (including £31m/Euro51m (1999 £74m/Euro (110) (99) (180) (150) 112m) exceptional inflow) Purchase of tangible fixed assets (141) (137) (231) (208) Proceeds from sale of tangible fixed assets 3 15 5 23 Capital expenditure (138) (122) (226) (185) Acquisitions (914) (167)(1,499)(254) Exceptional net proceeds from sale of fixed asset investments and businesses 153 3 251 5 Acquisitions and disposals (761) (164)(1,248)(249) Equity dividends paid to the shareholders of the (196) (339) (321)(515) parent companies Cash outflow before changes in short term (490) (41) (803) (61) investments and financing (Increase)/decrease in short term investments (1,137) 297 (1,865) 451 Financing 1,634 (197) 2,679 (300) Increase in cash 7 59 11 90 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 2000 1999 2000 1999 Note £m £m Euro m Euro m Adjusted operating cash flow 5 775 780 1,271 1,186 Adjusted operating cash flow conversion 98% 98% 98% 98% Reed Elsevier businesses focus on adjusted operating cash flow as the key cash flow measure. Adjusted operating cash flow is measured after dividends from joint ventures, tangible fixed asset spend and proceeds from the sale of fixed assets but before exceptional payments and proceeds. Adjusted operating cash flow conversion expresses adjusted operating cash flow as a percentage of adjusted operating profit. COMBINED BALANCE SHEET AS AT 31 DECEMBER 2000 2000 1999 2000 1999 £m £m Euro m Euro m Fixed assets Goodwill and intangible assets 4,127 3,400 6,644 5,474 Tangible assets 416 386 670 622 Investments 153 119 247 192 4,696 3,905 7,561 6,288 Current assets Stocks 114 113 184 183 Debtors - amounts falling due within one year 860 666 1,385 1,072 Debtors - amounts falling due after more than 164 148 264 238 one year Cash and short term investments 1,594 440 2,566 708 2,732 1,367 4,399 2,201 Creditors: amounts falling due within one year (3,379) (2,676) (5,441) (4,308) Net current liabilities (647) (1,309) (1,042) (2,107) Total assets less current liabilities 4,049 2,596 6,519 4,181 Creditors: amounts falling due after more than (873) (620) (1,406) (998) one year Provisions for liabilities and charges (128) (113) (206) (182) Minority interests (7) (8) (11) (14) Net assets 3,041 1,855 4,896 2,987 Capital and reserves Combined share capitals 185 168 298 270 Combined share premium accounts 1,621 341 2,610 549 Combined reserves 1,235 1,346 1,988 2,168 Combined shareholders' funds 3,041 1,855 4,896 2,987 Net borrowings 433 1,066 697 1,717 Approved by the Boards of Reed International P.L.C. and Elsevier NV, 21 February 2001 Combined statement of total recognised gains and losses FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 2000 1999 £m £m Euro m Euro m Profit/(loss) attributable to parent companies' 33 (63) 54 (95) shareholders Exchange translation differences 113 17 150 405 Total recognised gains and losses for the year 146 (46) 204 310 Combined shareholders' funds reconciliation FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 2000 1999 £m £m Euro m Euro m Profit/(loss) attributable to parent companies' 33 (63) 54 (95) shareholders Equity dividends paid and proposed (245) (234) (402)(356) Issue of ordinary shares, net of expenses and less 1,285 5 2,107 8 capital redemptions Exchange translation differences 113 17 150 405 Net increase/(decrease) in combined shareholders' funds 1,186 (275)1,909 (38) Combined shareholders' funds at 1 January 1,855 2,130 2,987 3,025 Combined shareholders' funds at 31 December 3,041 1,855 4,896 2,987 COMBINED FINANCIAL STATEMENTS NOTES TO THE COMBINED FINANCIAL STATEMENTS 1 Basis of preparation The Reed Elsevier combined financial statements encompass the businesses of Reed Elsevier plc and Elsevier Reed Finance BV and their respective subsidiaries, joint ventures and associates, together with the parent companies, Reed International and Elsevier. Financial information is presented in both sterling and euros. 2 Exchange rates Profit & loss Balance sheet 2000 1999 2000 1999 Euros to sterling 1.64 1.52 1.61 1.61 US dollars to sterling 1.51 1.62 1.49 1.62 Euros to US dollars 1.09 0.94 1.08 0.99 3 Segment analysis Turnover Adjusted operating Turnover Adjusted operating profit profit 2000 1999 2000 1999 2000 1999 2000 1999 £m £m £m £m Eurom Eurom Eurom Eurom Geographical origin North 2,098 1,836 335 359 3,441 2,791 549 547 America United 734 698 191 191 1,204 1,061 313 290 Kingdom The 399 391 136 135 654 594 223 205 Netherlands Rest of 356 307 102 87 584 467 167 132 Europe Rest of 181 158 29 20 297 240 49 30 World Total 3,768 3,390 793 792 6,180 5,153 1,301 1,204 2000 1999 2000 1999 £m £m Eurom Eurom Geographical market North 2,152 1,906 3,529 2,898 America United 521 484 855 736 Kingdom The 234 237 384 360 Netherlands Rest of 478 418 784 635 Europe Rest of 383 345 628 524 World Total 3,768 3,390 6,180 5,153 4 Exceptional items 2000 1999 2000 1999 £m £m Eurom Eurom Reorganisation costs (77) (161) (126) (244) Acquisition related costs (38) (28) (63) (43) Year 2000 compliance costs - (50) - (76) Charged to operating profit (115) (239) (189) (363) Net profit on sale of fixed asset investments and 85 7 140 11 businesses Total exceptional charge (30) (232) (49) (352) Net tax credit 20 15 33 23 5 Adjusted figures Adjusted profit and cash flow figures are used by the Reed Elsevier businesses as additional performance measures. These exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, and are derived as follows: 2000 1999 2000 1999 £m £m Euro m Euro m Operating profit including joint ventures 210 180 344 274 Adjustments: Amortisation of goodwill and intangible assets 468 373 768 567 Exceptional items 115 239 189 363 Adjusted operating profit 793 792 1,301 1,204 Profit before tax 192 105 315 160 Adjustments: Amortisation of goodwill and intangible assets 468 373 768 567 Exceptional items 30 232 49 352 Adjusted profit before tax 690 710 1,132 1,079 Profit/(loss) attributable to parent companies' 33 (63) 54 (95) shareholders Adjustments: Amortisation of goodwill and intangible assets 468 373 768 567 Exceptional items 10 217 16 329 Adjusted profit attributable to parent companies' 511 527 838 801 shareholders Net cash inflow from operating activities 813 760 1,333 1,155 Dividends received from joint ventures 6 4 10 6 Purchase of tangible fixed assets (141) (137) (231) (208) Proceeds from sale of fixed assets 3 15 5 23 Payments in relation to exceptional items charged to 94 138 154 210 operating profit Adjusted operating cash flow 775 780 1,271 1,186 6. Reconciliation of net cash inflow from operating activities 2000 1999 2000 1999 £m £m Euro m Euro m Operating profit (before joint ventures) 197 177 323 269 Exceptional charges to operating profit 115 239 189 363 Operating profit before exceptional items 312 416 512 632 Amortisation of goodwill and intangible assets 465 369 762 561 Depreciation 118 117 194 178 Net SSAP24 pension credit (1) (3) (2) (5) Total non cash items 582 483 954 734 Increase in stocks (3) (9) (5) (14) Increase in debtors (110) (8) (181) (12) Increase in creditors 126 16 207 25 Movement in working capital 13 (1) 21 (1) Net cash inflow from operating activities before 907 898 1,487 1,365 exceptional items Payments relating to exceptional items charged to (94) (138) (154) (210) operating profit Net cash inflow from operating activities 813 760 1,333 1,155 7 Reconciliation of net borrowings 2000 1999 2000 1999 £m £m Euro m Euro m Net borrowings at 1 January (1,066) (962) (1,717) (1,366) Increase in cash 7 59 11 90 Increase/(decrease) in short term investments 1,137 (297) 1,865 (451) (Increase)/decrease in borrowings (347) 202 (569) 308 Change in net borrowings resulting from cash 797 (36) 1,307 (53) flows Loans in acquired business (48) - (79) - Inception of finance leases (3) (11) (5) (17) Exchange translation differences (113) (57) (203) (281) Net borrowings at 31 December (433) (1,066) (697) (1,717) REED INTERNATIONAL P.L.C. SUMMARY FINANCIAL INFORMATION Basis of preparation The results for the year ended 31 December 2000 reflect the 52.9% economic interest of Reed International's shareholders in the Reed Elsevier combined businesses, after taking account of results arising in Reed International and its subsidiary undertakings. These interests have been accounted for on an equity basis. Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures. Summary consolidated profit and loss account FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 £m £m Share in combined turnover 1,994 1,793 Share of combined adjusted profit before tax 365 376 Share of amortisation (248) (197) Share of exceptional items before tax (15) (122) Elsevier's share of UK tax credit on distributed earnings (6) (6) Profit on ordinary activities before taxation 96 51 Tax on profit on ordinary activities (85) (90) Profit/(loss) attributable to ordinary shareholders 11 (39) Equity dividends paid and proposed (123) (116) Retained loss taken to reserves (112) (155) Basic earnings/(loss) per share 1.0p (3.4)p Diluted earnings/(loss) per share 1.0p (3.4)p Adjusted earnings per share 23.3p 24.4p Adjusted earnings per share is based upon the Reed International's shareholders' 52.9% share of the adjusted profit attributable of the Reed Elsevier combined businesses. Tax on profit on ordinary activities includes £ 83m (1999 £95m) in respect of joint ventures. Dividends The directors of Reed International have proposed a final dividend of 6.9p per ordinary share (1999 5.4p) which when added to the interim dividend already paid of 3.1p per ordinary share (1999 4.6p), amounts to a total 2000 dividend of 10.0p per ordinary share (1999 10.0p). The Reed International final dividend will be paid on 14 May 2001, with an ex-dividend and record date of 18 April and 20 April 2001, respectively Dividends paid to Reed International and Elsevier shareholders are equalised at the gross level inclusive of the UK tax credit received by certain Reed International shareholders. The equalisation adjustment equalises the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement. Summary consolidated cashflow statement 2000 1999 FOR THE YEAR ENDED 31 DECEMBER 2000 £m £m Net cash outflow from operating activities (1) (2) Dividends received from Reed Elsevier plc 97 172 Equity dividends paid (98) (173) (Increase)/decrease in short term investments (431) 2 Financing (including issue of ordinary shares £709m (1999 £nil)) 430 (9) Other cash flows 3 10 Change in net cash - - Summary consolidated balance sheet 2000 1999 AS AT 31 DECEMBER 2000 £m £m Fixed asset investment in joint ventures 801 857 Net current assets 844 160 Creditors: amounts falling due after more than one year (36) (36) Net assets 1,609 981 Net current assets includes short term investments of £431m (1999 £nil) and amounts owed by Reed Elsevier plc group of £512m (1999 £233m). On 5 December 2000, the company issued 113,700,000 new 12.5 pence ordinary shares at 625 pence each following a joint international offering by Reed International and Elsevier. The purpose of the offering was to finance the proposed acquisition by Reed Elsevier of the Scientific, Technical and Medical business and the Schools Education and Testing business of Harcourt General, Inc. The aggregate nominal value of the shares issued was £14.2m and the total net proceeds were £694m. The financial information set out above has been abridged from the financial statements for the year ended 31 December 2000, which have been audited by Deloitte & Touche, and will be filed with the UK Registrar of Companies following the Annual General Meeting. The audit report was unqualified and did not contain statements under S237(2) or (3) Companies Act 1985. ELSEVIER NV SUMMARY FINANCIAL INFORMATION Basis of preparation The results for the year ended 31 December 2000 reflect the 50% economic interest of Elsevier's shareholders in the Reed Elsevier combined businesses, which is accounted for on an equity basis. Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures. Summary profit and loss account FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 Euro m Euro m Share of combined turnover 3,091 2,577 Share of combined adjusted profit before tax 566 540 Share of amortisation (384) (284) Share of exceptional items before tax (25) (176) Taxation (130) (128) Profit/(loss) attributable to shareholders 27 (48) Allocation of profit/(loss) Equity dividends paid and proposed 200 179 Transfer from reserves (173) (227) Profit/(loss) attributable to shareholders 27 (48) Adjusted earnings per share (in euros) 0.59 0.57 Adjusted earnings per share is based upon the Elsevier shareholders' 50% share of the adjusted profit attributable of the Reed Elsevier combined businesses. Dividends The directors of Elsevier have proposed a final dividend of Euro0.19 per ordinary share (1999 Euro0.15), which when added to the interim dividend already paid of Euro0.09 per ordinary share (1999 Euro0.12), amounts to a total 2000 dividend of Euro0.28 per ordinary share (1999 Euro0.27), an increase of 4%. The Elsevier final dividend will be paid on 14 May 2001, with an ex-dividend date of 18 April 2001. Dividends paid to Reed International and Elsevier shareholders are equalised at the gross level inclusive of the UK tax credit received by certain Reed International shareholders. Summary cash flow statement 2000 1999 FOR THE YEAR ENDED 31 DECEMBER 2000 Euro m Euro m Net cash outflow from operating activities (2) (5) Dividends received from joint ventures 623 254 Equity dividends paid (160) (255) Increase in short term investments (952) (2) Investment in joint venture (533) - Financing (including issue of ordinary shares Euro956m (1999 Euro 1,016 5 8m)) Other cash flows 8 3 Change in net cash - - Summary balance sheet 2000 1999 AS AT 31 DECEMBER 2000 Euro m Euro m Fixed assets 1,674 1,559 Net current assets/(liabilities) 822 (22) Creditors: amounts falling due after more than one year (6) (8) Provisions (42) (36) Net assets 2,448 1,493 Net current assets includes short term investments of Euro971m (1999 Euro19m). On 5 December 2000, the company issued 66,255,000 new Euro0.06 ordinary shares at Euro14.50 each following a joint international offering by Reed International and Elsevier. The purpose of the offering was to finance the proposed acquisition by Reed Elsevier of the Scientific, Technical and Medical business and the Schools Education and Testing business of Harcourt General, Inc. The aggregate nominal value of the shares issued was Euro4.0m and the total net proceeds were Euro933m. The financial information in respect of the year ended 31 December 2000 has been extracted from the stutory accounts of Elsevier which have been audited by Deloitte & Touche. ADDITIONAL INFORMATION FOR US INVESTORS REED ELSEVIER SUMMARY COMBINED FINANCIAL INFORMATION UNDER US GAAP SUMMARY OF PRINCIPAL differences between UK and Dutch GAAP and US GAAP Basis of preparation The combined financial statements for Reed Elsevier are prepared in accordance with UK and Dutch GAAP, which differ in certain significant respects from US GAAP. The principal differences relate to the US GAAP requirements in respect of the capitalisation and amortisation of goodwill and other intangible assets and deferred taxes. A more complete explanation of accounting policies used by the combined businesses and the differences between UK and Dutch GAAP and US GAAP will be set out in the 2000 Reed Elsevier Annual Report and Reed Elsevier Annual Report on Form 20-F. Net income FOR THE YEAR ENDED 31 DECEMBER 2000 2000 1999 2000 1999 £m £m Euro m Euro m Net income/(loss) under UK and Dutch GAAP 33 (63) 54 (95) US GAAP adjustments: Amortisation of goodwill and other intangible (78) (83) (128) (126) assets Deferred taxation 85 67 139 101 Pensions 22 6 36 9 Other items (2) - (3) - Net income/ (loss) under US GAAP 60 (73) 98 (111) Combined shareholders' funds As at 31 December 2000 2000 1999 2000 1999 £m £m Euro m Euro m Combined shareholders' funds under UK and Dutch GAAP 3,041 1,855 4,896 2,987 US GAAP adjustments: Goodwill and other intangible assets 604 553 973 890 Deferred taxation (203) (180) (327) (290) Pensions 86 63 138 102 Other items 2 5 3 8 Ordinary dividends not declared in the period 177 127 285 204 Combined shareholders' funds under US GAAP 3,707 2,423 5,968 3,901 Both Reed International ('RUK', CUSIP No. 758212872) and Elsevier ('ENL', CUSIP No. 290259100) have American Depositary Shares (ADSs) listed on the New York Stock Exchange (Depositary: Citibank NA). An ADS in Elsevier represents two ordinary shares in Elsevier, while a Reed International ADS represents four ordinary shares in Reed International. Final dividends on Reed International and Elsevier ADSs will be paid on 21 May 2001. NOTES FOR EDITORS Reed Elsevier is a world leading publisher and information provider and its principal operations are in North America and Europe. Its two parent companies - Reed International P.L.C. ('Reed International') and Elsevier NV (' Elsevier') - are listed on the Amsterdam, London and New York Stock Exchanges and the returns to their respective shareholders are equalised in terms of dividend and capital rights. 'Reed Elsevier' and 'the combined businesses' comprise Reed International and Elsevier plus their two jointly owned companies, Reed Elsevier plc and Elsevier Reed Finance BV and their respective subsidiaries and joint ventures. The Reed Elsevier Annual Review 2000 and Reed International P.L.C. 2000 Report and Accounts are being posted to Reed International shareholders on 10 March 2001. Copies of the Reed Elsevier Annual Review 2000 and Elsevier NV Annual Report 2000 will be available to shareholders in Elsevier on request. Copies of the Preliminary Statement are available to the public from the respective companies: Reed International P.L.C. Elsevier NV 25 Victoria Street Van de Sande Bakhuyzenstraat 4 London SW1H 0EX 1061 AG, Amsterdam UK The Netherlands Copies of all recent announcements, including this Preliminary Statement, and additional information on Reed Elsevier can be found on the Reed Elsevier Home Page on the World Wide Web: http://www.reedelsevier.com

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