Interim Results

Reed Elsevier PLC 26 July 2007 Issued on behalf of Reed Elsevier PLC and Reed Elsevier NV 26 July 2007 REED ELSEVIER 2007 INTERIM RESULTS Good Financial Progress Adjusted figures Continuing Operations (Elsevier, LexisNexis and Reed Business) â€¢ Revenues unchanged at Â£2,235m/up 1% to â‚¬3,308m; up 6% at constant currencies. â€¢ Adjusted operating profits, before amortisation of acquired intangible assets and acquisition integration costs, up 3% to Â£530m/up 5% to â‚¬784m; up 10% at constant currencies. â€¢ 12% growth in online information and digital services which now account for 45% of revenues. â€¢ Adjusted operating margins up 0.8%pts at 23.7%. â€¢ 90% of adjusted operating profits converted into cash. Total Operations (including Harcourt Education) â€¢ Adjusted earnings per share, at reported exchange rates, up 1% to 14.3p for Reed Elsevier PLC and unchanged at â‚¬0.32 for Reed Elsevier NV; up 8% at constant currencies. â€¢ Equalised interim dividends up 10% to 4.5p for Reed Elsevier PLC and up 12% to â‚¬0.114 for Reed Elsevier NV. Reported figures â€¢ Reported operating profits, after amortisation of acquired intangibles and acquisition integration costs, up 6% to Â£412m/up 8% to â‚¬610m. â€¢ Reported earnings per share, including disposal gains, up 46% to 12.5p for Reed Elsevier PLC/up 46% to â‚¬0.30 for Reed Elsevier NV. SHARPENED STRATEGIC FOCUS â€¢ Announced definitive sale agreements for entire Harcourt Education division for total proceeds of $4.95bn. â€¢ Intention to return the expected net proceeds of approximately $4.0bn to shareholders following completion. The sale of the Harcourt Education division is expected to be broadly neutral to adjusted earnings per share. â€¢ Elsevier, LexisNexis and Reed Business show good growth momentum as they accelerate their online information and workflow solution strategies. â€¢ Reed Elsevier is making encouraging progress in delivering on its strategic priorities: - Delivering authoritative content through leading brands - Driving online solutions - Improving cost efficiency - Upgrading portfolio OUTLOOK â€¢ On track to deliver in 2007 a minimum 10% growth in adjusted earnings per share at constant currencies. Reed Elsevier's Chief Executive Officer, Sir Crispin Davis, commented: 'We are seeing good momentum across our businesses, particularly with the growing impact of our online solutions strategy. We were pleased to announce sales of our Harcourt Education businesses at prices which recognised the exceptional quality of the Harcourt assets. We have also made good progress in the first half in putting together our plans to further drive cost efficiencies. The 2007 first half financial results are encouraging. Market conditions continue to be generally favourable, our strategy is clear, the business well focused, and we are leveraging our resources to good effect. Reed Elsevier is well placed for a strong second half and we are firmly on track to deliver our 2007 goals.' Reed Elsevier combined Six months ended 30 June Six months ended 30 June businesses Continuing operations Change at 2007 2006 Change 2007 2006 Change constant Â£m Â£m % â‚¬m â‚¬m % currencies Revenue 2,235 2,237 0% 3,308 3,266 +1% +6% Reported operating profit 412 387 +6% 610 565 +8% +13% Adjusted operating profit 530 513 +3% 784 749 +5% +10% Adjusted operating margin 23.7% 22.9% +0.8pts 23.7% 22.9% +0.8pts +0.9pts Adjusted operating cash flow 479 432 +11% 709 631 +12% +16% Parent companies Reed Elsevier PLC Reed Elsevier NV Continuing and discontinued operations Six months ended 30 June Six months ended 30 June Change at 2007 2006 Change 2007 2006 Change constant % % currencies Reported earnings per share 12.5p 8.6p +46% â‚¬0.30 â‚¬0.20 +46% Adjusted earnings per share 14.3p 14.2p +1% â‚¬0.32 â‚¬0.32 0% +8% Dividend per share 4.5p 4.1p +10% â‚¬0.114 â‚¬0.102 +12% The results of the Harcourt Education division are presented as discontinued operations and are excluded from revenue, reported and adjusted operating profit, adjusted operating margin and adjusted operating cash flow. Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible assets and acquisition integration costs, and, in respect of earnings, reflect a tax rate that excludes the effect of movements in deferred taxation assets and liabilities that are not expected to crystallise in the near term. Profit and loss on disposals and other non operating items are also excluded from the adjusted figures. ENQUIRIES Sybella Stanley (Investors) Patrick Kerr (Media) +44 20 7166 5630 +44 20 7166 5646 FINANCIAL HIGHLIGHTS (Growth rates at constant currencies unless otherwise indicated) Continuing operations Revenue growth and underlying margin improvement Revenues were up 6% and adjusted operating profits up 10% at constant currencies. Underlying revenue growth, excluding acquisitions and disposals, was 6%. Underlying adjusted operating profit was 9% higher reflecting the revenue growth and margin improvement, with good performances across all the continuing businesses. Revenue growth was driven by strong subscription revenues and good demand for online information and workflow solutions. Overall adjusted operating margin was up 0.8% points at reported exchange rates reflecting good revenue growth combined with continuing cost efficiency. Strong cash flow The quality of the earnings is underpinned by the strong cash flow, with 90% of operating profits converting into cash in the first half. Continuing and discontinued businesses Growth in adjusted earnings and dividends Growth in adjusted earnings per share at constant currencies was 8%. The impact of the weaker US dollar gives, at reported exchange rates, adjusted earnings growth of 1% for Reed Elsevier PLC to 14.3p and earnings for Reed Elsevier NV unchanged at â‚¬0.32. Since the first half 2006, the US dollar average rate has weakened from $1.79:Â£1 to $1.97:Â£1 and from $1.23:â‚¬1 to $1.33:â‚¬1, representing a fall of 10% against sterling and 8% against the euro. The interim dividend is increased by 10% for Reed Elsevier PLC and 12% for Reed Elsevier NV reflecting the positive outlook (the differential growth rates reflect movements in the Sterling/Euro exchange rates). Reported earnings per share Reported earnings per share (taking into account the amortisation of acquired intangible assets, disposal gains and losses, and movements in deferred tax balances not expected to crystallise in the near term) were up 46% expressed in both sterling and euros at 12.5p and â‚¬0.30 for Reed Elsevier PLC and Reed Elsevier NV respectively. CONTINUED STRATEGIC PROGRESS In February, Reed Elsevier announced a sharpening of strategic focus to best capitalise on growing digital opportunities in its Science & Medical, Legal and Business markets. Reed Elsevier is making good progress against its four strategic priorities, linked closely to its financial strategy. Deliver authoritative content through leading brands Reed Elsevier's authoritative content delivered through market leading brands provide our professional customers with the essential data, analysis and comment to support their decisions. In the first half Reed Elsevier continued to invest behind its brands with new launches, brand extensions, cloning and versioning of titles and events across geographic markets, and new publishing and content acquisition. Drive online solutions Digital revenues continue to drive overall revenue growth and were up 12% in the first half at constant currencies, and accounted for 45% of Reed Elsevier revenues. The success of our online strategies is based on compelling online content driven workflow solutions and increasing focus on business model innovation and solutions marketing. Improve cost efficiency In the first half new organisational structures have been developed and new appointments made to leverage more effectively our skills, technology and resources across an increasingly synergistic portfolio. Reed Elsevier has appointed a new Chief Technology Officer, a Chief Outsourcing and Offshoring Officer and a Chief Procurement Officer to that effect. While substantial cost savings have been made over the last five years, we are confident that there are further significant opportunities across the supply chain and in technology and infrastructure to continue this progress. Upgrade portfolio Reed Elsevier has entered into definitive agreements to sell its entire Harcourt Education division. In May Reed Elsevier announced the sale of the Harcourt Assessment and Harcourt Education International businesses to Pearson plc for $950m. The sale of the International business has largely been completed. In July the sale was announced of the Harcourt US Schools Education businesses to Houghton Mifflin Riverdeep for $4.0bn. This sale and that of Harcourt Assessment are subject to US regulatory approval, expected by the first half 2008. It is the intention to return the aggregate net proceeds of approximately $4.0bn to shareholders by way of special dividend in the equalisation ratio followed by a corresponding consolidation of share capital, following completion. Reed Elsevier has continued to pursue selective acquisitions that accelerate its strategy and overall business progress and meet its strict financial criteria. These include the acquisition by Elsevier of the Beilstein Database, the world's leading chemical database; by Reed Business of BuyerZone, a leading US online lead generation business; and by LexisNexis of further online services to enhance its total solutions and risk information and analytics products. OPERATING AND FINANCIAL REVIEW Six months ended 30 June Six months ended 30 June Change at 2007 2006 Change 2007 2006 Change constant Â£m Â£m % â‚¬m â‚¬m % currencies CONTINUING OPERATIONS Revenue Elsevier 711 721 -1% 1,052 1,053 0% +4% LexisNexis 764 768 -1% 1,131 1,121 +1% +8% Reed Business 760 748 +2% 1,125 1,092 +3% +6% Total 2,235 2,237 0% 3,308 3,266 +1% +6% Adjusted operating profit Elsevier 201 196 +3% 298 286 +4% +10% LexisNexis 176 169 +4% 260 247 +5% +13% Reed Business 155 152 +2% 229 222 +3% +7% Unallocated items (2) (4) (3) (6) Total 530 513 +3% 784 749 +5% +10% DISCONTINUED OPERATIONS Revenue Harcourt Education 322 390 -17% 477 569 -16% -10% Adjusted operating profit Harcourt Education (12) 10 (18) 15 Adjusted figures and constant currency growth rates are used by Reed Elsevier as additional performance measures. Adjusted operating profit is stated before the amortisation of acquired intangible assets and acquisition integration costs. Constant currency growth rates are based on 2006 full year average and hedge exchange rates. Unless otherwise indicated, all percentage movements in the following commentary refer to performance at constant exchange rates. Underlying growth rates are calculated at constant currencies, excluding acquisitions and disposals. The reported operating profit figures are set out in note 2 to the combined financial information and reconciled to the adjusted figures in note 6. FORWARD LOOKING STATEMENTS This Interim Statement contains forward looking statements within the meaning of Section 27A of the US Securities Act 1933, as amended, and Section 21E of the US Securities Exchange Act 1934, as amended. These statements are subject to a number of risks and uncertainties and actual results and events could differ materially from those currently being anticipated as reflected in such forward looking statements. The terms 'expect', 'should be', 'will be' and similar expressions identify forward looking statements. Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general economic conditions in Reed Elsevier's markets; exchange rate fluctuations; customers' acceptance of our products and services; the actions of competitors; legislative, fiscal and regulatory developments; changes in law and legal interpretations affecting Reed Elsevier's intellectual property rights and internet communications; and the impact of technological change. ELSEVIER Six months ended 30 June Six months ended 30 June Change 2007 2006 Change 2007 2006 Change at constant Â£m Â£m % â‚¬m â‚¬m % currencies Revenue Science & Technology 390 396 -2% 577 578 0% +3% Health Sciences 321 325 -1% 475 475 0% +6% 711 721 -1% 1,052 1,053 0% +4% Adjusted operating profit 201 196 +3% 298 286 +4% +10% Adjusted operating margin 28.3% 27.2% +1.1pts 28.3% 27.2% +1.1pts +1.4pts The Elsevier science and medical business has had a successful first half, with good underlying revenue growth. The second half is expected to continue well with good subscription renewals, growing online sales and the more important second half publishing programme. Revenues and adjusted operating profits were ahead 4% and 10% respectively at constant currencies, or 5% and 9% before acquisitions and disposals. Overall adjusted operating margins improved by 1.1 percentage points, or 1.4 percentage points before currency effects, driven by revenue growth, stabilising investment levels and continuing cost efficiency. The Science & Technology business saw underlying revenue growth of 6% reflecting strong journal subscription renewals and growing online sales including the successful roll out of the Scopus abstracts and indexing database. The business is making good progress in its customer service programmes with positive developments across a range of surveyed measures, including impact, functionality and service. Online usage of ScienceDirect continues to grow year on year at over 20%. Reported revenues were up 3% at constant currencies reflecting the prior year disposal of the Endeavor software business. In March, Elsevier acquired the full rights to the Beilstein chemical compounds database, previously operated under license, which is now being integrated with other content resources to deliver innovative online solutions. In Health Sciences, revenue growth was 6% at constant currencies, or 5% underlying with strong sales in the nursing and allied health professional sectors and rapidly growing online solutions. Growth in the first half was partly held back by some changes in US book distribution channels and weakness in the pharma advertising market. Online revenues continue to grow strongly as new products are released to improve healthcare productivity and medical outcomes. The first half saw further integration of the Gold Standard drugs database with clinical diagnostic tools and workflow applications. The MDConsult clinical reference product was successfully relaunched with significantly enhanced functionality and ease of use. The Consult series of point of care online workflow resources was expanded with Procedures Consult. Further innovative products will be launched in the second half with the pace of online product introduction accelerating through increasingly agile development processes. The second half should see continued good growth in revenue and margin development with growing online sales, a successful publishing programme and ongoing cost efficiency. LEXISNEXIS Six months ended 30 June Six months ended 30 June Change 2007 2006 Change 2007 2006 Change at constant Â£m Â£m % â‚¬m â‚¬m % currencies Revenue United States 544 562 -3% 805 820 -2% +7% International 220 206 +7% 326 301 +8% +10% 764 768 -1% 1,131 1,121 +1% +8% Adjusted operating profit 176 169 +4% 260 247 +5% +13% Adjusted operating margin 23.0% 22.0% +1.0pts 23.0% 22.0% +1.0pts +1.1pts LexisNexis has started the year well, with good growth seen in new sales of online information solutions in the US and internationally, and in risk information and analytics. Revenues and adjusted operating profits were up 8% and 13% respectively at constant currencies, or 6% and 11% before acquisitions. The overall adjusted operating margin improved by 1.0 percentage point, or 1.1 percentage points before currency translation effects, reflecting the good revenue growth and continued cost efficiency. LexisNexis United States revenues were 7% ahead at constant currencies, or 5% underlying. In US Legal Markets, good growth was seen in subscriptions and new solutions sales to both large and small law firms. Underlying growth of 4% was below trend due to a strong prior year comparison including larger case sizes in electronic discovery. Growth in the second half is aided this year by significant new solutions services. In Corporate and Public markets, underlying revenue growth was 7%, driven by strong demand in risk management and in processing higher volumes for the US patent and trademark office, although some delays were experienced in US government budget approvals. The LexisNexis International business outside the US saw underlying revenue growth of 7% driven by the growing penetration of its online information services across its markets and new publishing. The launch of workflow solutions products internationally is also stimulating demand for online services, with the first half seeing 18% underlying growth in online revenues. During the first half LexisNexis expanded its Total Solutions product portfolio in litigation, client development, practice management, corporate counsel and research, through organic investment and selective acquisition. The launch of Practice Advantage for the small law firm market has been particularly successful combining research with practice management and client development tools into one integrated easy to use solution. Other new solutions launches which will benefit the second half include Cases in Brief and Total Patent in research, Client Reviews in client development, Litigation Repository in litigation, and eight new releases within Total Practice Advantage. With continuous innovative new product development, launch and marketing, the LexisNexis brand is being transformed from its historic focus on research to embrace Total Practice Solutions. The sales forces in the US and internationally are being restructured and reskilled to solutions selling. Continued revenue momentum in US and international markets and further margin improvement is expected in the second half together with the benefit of some sales phasing and new product launches. REED BUSINESS Six months ended 30 June Six months ended 30 June Change 2007 2006 Change 2007 2006 Change at constant Â£m Â£m % â‚¬m â‚¬m % currencies Revenue Reed Business Information 445 458 -3% 659 669 -1% +1% Reed Exhibitions 315 290 +9% 466 423 +10% +14% 760 748 +2% 1,125 1,092 +3% +6% Adjusted operating profit 155 152 +2% 229 222 +3% +7% Adjusted operating margin 20.4% 20.3% +0.1pts 20.4% 20.3% +0.1pts +0.2pts Reed Business has performed well in the first half. Online information services grew rapidly, more than compensating for print declines. A good performance in the exhibitions business is held back in the first half by the cycling out of a number of non-annual shows. Revenues and adjusted operating profits increased by 6% and 7% respectively at constant currencies, or 6% and 4% underlying with profits held back by the cycling out of non-annual shows in the first half. Adjusted operating margins were up 0.1 percentage points, or 0.2 percentage points excluding currency translation effects, held back by the cycling out of contribution from biennial joint venture exhibitions. At Reed Exhibitions, revenues were ahead 14% at constant currencies, or 12% excluding acquisitions and disposals, with strong growth across the show portfolio and particular success at the Mipim international property show in Cannes, the SIMA property show in Madrid, and the JCK jewellery show in Las Vegas. Only two out of the top 35 shows failed to show growth. Adjusted operating profits were up 2% at constant currencies, or 4% lower excluding acquisitions and disposals, reflecting the cycling out of the contributions from biennial joint venture shows. The adverse cycling effects are largely reversed in the second half of the year as some of the major European biennial shows cycle in. Acquisitions included Alcantara Machado, a leading show organiser in Brazil, and a group of six international aerospace shows. The Reed Business Information magazine and information businesses saw revenues 1% ahead, or 3% before acquisitions and disposals. Strong growth in online services of over 20% more than compensated for a 3% decline in print as the business migrates online. Online revenues contributed 29% of RBI's revenues in the first half. Adjusted operating profits were up 5% before lower restructuring costs through continued actions to improve cost efficiency. In the US, RBI underlying revenues were 1% lower or flat excluding title closures. Online revenues are growing rapidly, particularly from advertising in community sites and news services, and are offsetting the print decline. In January, RBI acquired Buyerzone which matches online requests for proposals from buyers to qualifying suppliers. Buyerzone is being integrated with RBI's web services across its market sectors. In the UK, RBI underlying revenues were up 5% driven by 19% growth in online revenues. Online recruitment grew 38% in the first half led by Totaljobs, the leading UK recruitment site, which continues to expand its sector coverage and customer base. Online revenues now contribute 46% of RBI UK revenues. In continental Europe, underlying revenues were up 3%, with good growth in new online services and in government, financial and agriculture markets in the Netherlands. Revenues in Asia Pacific grew 9%. The outlook for Reed Business in the second half is positive. Strong demand for online services, offsetting print declines, and good growth in exhibitions, including favourable second half show cycling, are expected to deliver good growth in revenue and further margin improvement. DISCONTINUED OPERATIONS - HARCOURT EDUCATION Six months ended 30 June Six months ended 30 June Change 2007 2006 Change 2007 2006 Change at constant Â£m Â£m % â‚¬m â‚¬m % currencies Revenue Schools & Assessment 286 342 -16% 424 499 -15% -8% International 36 48 -25% 53 70 -24% -20% 322 390 -17% 477 569 -16% -10% Adjusted operating profit (12) 10 (18) 15 Adjusted operating margin -3.7% 2.6% -6.3pts -3.7% 2.6% -6.3pts -6.1pts Following announcement in February 2007 of the planned sale of the Harcourt Education division, the businesses are presented as discontinued operations. On 4 May, the sale of the Harcourt Education International and Harcourt Assessment businesses to Pearson plc was announced, and on 16 July the sale of the Harcourt US K-12 Education businesses to Houghton Mifflin Riverdeep Group was announced. The sale of the UK, Australian and New Zealand businesses of Harcourt Education International completed in May 2007. The sales of the remaining businesses are expected to complete by the first half of 2008, subject to regulatory approvals. Harcourt Education has performed well in US state textbook adoptions, particularly in secondary school markets, which will come through as sales in the second half. The first half results are unrepresentative of the year due to seasonality of the business. Assessment revenues were lower reflecting prior year state testing contract losses whilst profitability is significantly ahead through improved operational efficiency. Harcourt Education saw revenues 10% lower than in the prior first half at constant currencies, or 8% lower underlying. The majority of revenues are generated in the second half of the year ahead of and following the start of the academic year and first half comparisons are typically unrepresentative. The decline this first half reflects the strong prior year comparison, which saw early product call off by certain states, as well as weak open territory and supplemental markets. Because of the seasonality of the education revenues, the first half adjusted operating margin is typically very low. Harcourt Education recorded a small adjusted operating loss in the first half against a small adjusted operating profit in the prior first half reflecting the revenue decline and higher sales and marketing expenditures ahead of the larger state textbook adoption opportunities this year. The Harcourt US K-12 business has performed strongly in the 2007 state textbook adoptions, which will come through in second half sales. The adoption market is larger than in the prior year, following an upturn in the adoption calendar. Harcourt has had particular successes in elementary social studies and mathematics and in secondary science and mathematics. The new elementary reading programme launched this year in open territories has been very well received, which also bodes well for major reading adoptions next year. The supplemental businesses are expected to benefit from significant new publishing in the second half. The Assessment business saw 3% lower revenues reflecting prior year state testing contract losses. In the first half, the business has been awarded a number of new contracts and contract extensions, validating the turnaround in operational performance which is also reflected in improved profitability. Sale of most of the International businesses was completed in May. The outlook for the full year for Harcourt Education is positive driven by the strong 2007 textbook adoption calendar and a positive reception to Harcourt's new publishing programmes. FINANCIAL REVIEW REED ELSEVIER COMBINED BUSINESSES Currency The average US dollar exchange rate in the first half of 2007 is significantly weaker than in the prior year first half, having weakened 10% against sterling and 8% against the euro. The first half results are therefore significantly impacted by currency translation. Income statement Revenue from continuing operations (ie excluding Harcourt Education) at Â£2,235m/ â‚¬3,308m was little changed from 2006 expressed in sterling and up 1% when expressed in euros. At constant exchange rates, revenue was 6% higher, both including and excluding acquisitions and disposals. Reported figures Continuing operations Reported operating profit from continuing operations, after amortisation of acquired intangible assets and acquisition integration costs, at Â£412m/â‚¬610m, was up 6% in sterling and 8% in euros compared to the prior first half. The increase reflects the strong underlying operating performance and lower acquisition integration costs, partly offset by currency translation effects. The amortisation charge in respect of acquired intangible assets amounted to Â£108m/â‚¬160m, up Â£1m/â‚¬4m on the comparative period, with the impact of prior year acquisitions largely offset by currency translation effects. Acquisition integration costs amounted to Â£6m/â‚¬8m (2006: Â£12m/â‚¬18m). Disposals and other non operating items comprise gains on disposals of businesses and investments of Â£7m/â‚¬10m and fair value increases in the portfolio of venture capital investments of Â£1m/â‚¬2m. The reported profit before tax, including amortisation of acquired intangible assets, acquisition integration costs and non operating items, at Â£350m/â‚¬518m, was up 13% expressed in sterling and 15% expressed in euros compared to the 2006 first half. The reported tax charge of Â£88m/â‚¬130m, compares with a charge of Â£68m/â‚¬99m in the prior first half. The increase principally reflects prior year movements in deferred tax balances arising on unrealised exchange differences on long term inter affiliate lending. These deferred tax movements are recognised in the income statement but are not expected to crystallise in the foreseeable future. Total operations Net profit from discontinued operations comprises seasonal first half post tax losses, including amortisation of acquired intangible assets, from the Harcourt Education businesses of Â£21m/â‚¬31m (2006: Â£24m/â‚¬35m) and a post tax gain of Â£71m/ â‚¬108m on the completion of the sale of certain of the Harcourt Education International businesses in May 2007. The reported attributable profit of Â£311m/â‚¬464m compares with a reported attributable profit of Â£217m/â‚¬317m in the first half of 2006, reflecting the strong operating performance and the profit on sale of Harcourt Education International businesses. Adjusted figures Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before amortisation of acquired intangible assets and acquisition integration costs, and, in respect of earnings, reflect a tax rate that excludes the effect of movements in deferred taxation assets and liabilities that are not expected to crystallise in the near term. Profit and loss on disposals and other non operating items are also excluded from the adjusted figures. Comparison at constant exchange rates uses 2006 full year average and hedge exchange rates. Continuing operations Adjusted operating profit for the continuing operations, at Â£530m/â‚¬784m, was up 3% expressed in sterling and up 5% in euros. At constant exchange rates, adjusted operating profits were up 10%, or 9% excluding acquisitions and disposals. The net pension expense (including the unallocated net pension financing credit) was Â£20m/â‚¬30m, Â£8m/â‚¬11m lower than in the prior first half principally reflecting higher returns on plan assets and curtailments. The charge for share based payments was Â£17m/â‚¬25m, down from Â£24m/â‚¬35m in the prior first half, principally due to lower option grant volumes and the expiry of the 2004-2006 Long Term Incentive Plan. Restructuring costs, other than in respect of acquisition integration, were Â£7m/â‚¬10m (2006: Â£9m/â‚¬13m). Overall adjusted operating margin for the continuing businesses was up 0.8 percentage points at 23.7% reflecting the good revenue growth and cost efficiency. The cycling out of biennial joint venture exhibitions, which contribute to profit but not revenues, had a 0.3 percentage point adverse effect on overall margin growth. Currency translation mix and the effect of the science journal currency hedging programme reduced margin by 0.1 percentage points. (The net benefit of the Elsevier science journal hedging programme is lower in 2007 than in 2006 as the effect of the weaker US dollar is incorporated within the three year rolling programme, although the impact of the decline in hedge rates is less than in the prior year.) Net finance costs, at Â£70m/â‚¬104m, were Â£7m/â‚¬9m lower than in the prior first half largely due to currency translation effects. The benefit of 2006 free cash flow is offset by higher short term interest rates and acquisition financing. Adjusted profit before tax from continuing operations was Â£460m/â‚¬680m, up 6% compared to the prior first half expressed in sterling and 7% in euros. At constant exchange rates, adjusted profit before tax was up 12%. The effective tax rate on adjusted earnings for the continuing businesses, at 23.0%, was 0.5 percentage points lower than the equivalent rate in 2006, principally due to increased interest deductibility in the US. The effective tax rate on adjusted earnings excludes movements in deferred taxation assets and liabilities that are not expected to crystallise in the near term, and more closely aligns with cash tax costs. Adjusted operating profits and taxation are also grossed up for the equity share of taxes in joint ventures. The adjusted profit from continuing operations attributable to shareholders of Â£353m/â‚¬522m was up 6% compared to the prior first half expressed in sterling and 8% in euros. At constant exchange rates, adjusted profit attributable to shareholders was up 13% for continuing operations. Total operations For total operations, taking into account the first half Harcourt Education loss, the adjusted profit attributable to shareholders was Â£340m/â‚¬503m, up 1% expressed in sterling and 2% expressed in euros. At constant exchange rates, adjusted profit attributable to shareholders from total operations was up 8%. The effective tax rate on the profit from total operations, at 23.8%, was slightly lower than the 24.1% effective rate for the 2006 full year. Cash flows and debt Adjusted operating cash flow from continuing operations was Â£479m/â‚¬709m, up 11% on the prior first half expressed in sterling and 12% in euros, or 16% at constant currencies. The rate of conversion of adjusted operating profits into cash flow for continuing businesses in the first half was 90% (2006: 84%). The first half cash flow conversion is somewhat variable reflecting the seasonality of operating cash flows particularly in relation to advance subscription receipts and exhibition deposits, and the timing of capital spend. Capital expenditure included within adjusted operating cash flow from continuing operations was Â£65m/â‚¬96m (2006: Â£70m/â‚¬102m), including Â£41m/â‚¬61m in respect of capitalised development costs included within intangible assets. Spend on acquisitions was Â£260m/â‚¬385m. Including deferred consideration payable, an amount of Â£198m/â‚¬293m was capitalised as acquired intangible assets and Â£65m/ â‚¬96m as goodwill. Acquisition integration spend in respect of these and other recent acquisitions amounted to Â£7m/â‚¬10m. Free cash flow from continuing operations - after interest and taxation - was Â£286m/â‚¬423m, up Â£21m/â‚¬36m on the prior first half. Dividends paid to shareholders in the first half, relating to the 2006 final dividend, amounted to Â£299m/â‚¬443m (2006: Â£269m/â‚¬393m). Share repurchases by the parent companies amounted to Â£28m/â‚¬41m. Shares of the parent companies purchased by the employee benefit trust to meet future obligations in respect of share based remuneration amounted to Â£33m/â‚¬49m. Net proceeds from the exercise of share options were Â£156m/â‚¬231m. Proceeds from the sale of discontinued operations in the first half were Â£141m/â‚¬209m. Net borrowings at 30 June 2007 were Â£2,518m/ â‚¬3,752m, an increase of Â£204m/â‚¬304m since 31 December 2006, principally reflecting the payment of the 2006 final dividend, share repurchases, acquisition spend and the seasonal cash outflow within Harcourt Education, partly offset by the free cash flow from continuing operations in the first half, proceeds from the exercise of share options, disposal proceeds and the translation effect of the weakening of the US dollar between the beginning and end of the period. Currency translation effects decreased net debt expressed in sterling by Â£31m and in euros by â‚¬44m. The net pension surplus, ie pension assets less pension obligations, at 30 June 2007 was Â£196m/â‚¬292m which compares with a net deficit as at 31 December 2006 of Â£236m/â‚¬351m. The improvement principally arises from increases in the period in discount rates used to value scheme liabilities. PARENT COMPANIES For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjusted earnings per share for total operations were respectively up 1% at 14.3p (2006: 14.2p) and unchanged at â‚¬0.32 (2006: â‚¬0.32). At constant rates of exchange, the adjusted earnings per share of both companies increased by 8% over the prior first half. The reported earnings per share for Reed Elsevier PLC shareholders was 12.5p (2006: 8.6p) and for Reed Elsevier NV shareholders was â‚¬0.30 (2006: â‚¬0.20). From continuing operations, the reported earnings per share for Reed Elsevier PLC were 10.3p (2006: 9.5p) and for Reed Elsevier NV were â‚¬0.25 (2006: â‚¬0.23). The equalised interim dividends are 4.5p per share for Reed Elsevier PLC and â‚¬0.114 per share for Reed Elsevier NV, up 10% and 12% respectively on the prior first half reflecting the positive outlook. COMBINED FINANCIAL INFORMATION Combined income statement For the six months ended 30 June 2007 Year ended 31 Six months ended 30 Six months ended 30 December June June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 4,509 6,628 Revenue 2,235 2,237 3,308 3,266 (1,602) (2,355) Cost of sales (811) (806) (1,200) (1,177) 2,907 4,273 Gross profit 1,424 1,431 2,108 2,089 (925) (1,360) Selling and distribution costs (460) (473) (681) (691) (1,163) (1,709) Administration and other expenses (563) (585) (834) (853) 819 1,204 Operating profit before joint ventures 401 373 593 545 18 27 Share of results of joint ventures 11 14 17 20 837 1,231 Operating profit 412 387 610 565 21 31 Finance income 18 11 26 16 (179) (264) Finance costs (88) (88) (130) (129) (158) (233) Net finance costs (70) (77) (104) (113) (1) (1) Disposals and other non operating items 8 - 12 - 678 997 Profit before tax 350 310 518 452 (86) (127) Taxation (88) (68) (130) (99) 592 870 Net profit from continuing operations 262 242 388 353 33 49 Net profit/(loss) from discontinued operations 50 (24) 77 (35) 625 919 Net profit for the period 312 218 465 318 Attributable to: 623 916 Parent companies' shareholders 311 217 464 317 2 3 Minority interests 1 1 1 1 625 919 Net profit for the period 312 218 465 318 Net profit from discontinued operations is analysed in note 3. Adjusted profit figures are presented in note 6 as additional performance measures. Combined cash flow statement For the six months ended 30 June 2007 Year ended 31 Six months ended 30 Six months ended 30 December June June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m Cash flows from operating activities - continuing operations 1,213 1,782 Cash generated from operations 527 483 780 705 (172) (253) Interest paid (68) (77) (101) (112) 12 18 Interest received 13 5 19 7 (165) (241) Tax paid (138) (93) (204) (135) 888 1,306 Net cash from operating activities 334 318 494 465 Cash flows from investing activities - continuing operations (163) (240) Acquisitions (260) (136) (385) (198) (68) (100) Purchases of property, plant and equipment (24) (28) (35) (41) (99) (146) Expenditure on internally developed (41) (42) (61) (61) intangible assets (9) (13) Purchase of investments (3) (3) (4) (5) 2 3 Proceeds from disposals of property, - 1 - 1 plant and equipment 48 70 Proceeds from other disposals - 39 - 56 16 24 Dividends received from joint ventures 10 6 15 9 (273) (402) Net cash used in investing activities (318) (163) (470) (239) Cash flows from financing activities - continuing operations (371) (545) Dividends paid to shareholders of the (299) (269) (443) (393) parent companies 72 105 Increase in bank loans, overdrafts and 293 568 433 829 commercial paper 407 598 Issuance of other loans 148 7 219 10 (337) (495) Repayment of other loans (152) (31) (225) (45) (12) (18) Repayment of finance leases (5) (7) (7) (10) 93 137 Proceeds on issue of ordinary shares 156 43 231 63 (285) (419) Purchase of treasury shares (61) (288) (90) (420) (433) (637) Net cash from/(used in) financing activities 80 23 118 34 57 84 Net cash (used in)/from (43) (182) (64) (266) discontinued operations 239 351 Increase/(decrease) in cash 53 (4) 78 (6) and cash equivalents Movement in cash and cash equivalents 296 432 At start of period 519 296 774 432 239 351 Increase/(decrease) in cash and cash 53 (4) 78 (6) equivalents (16) (9) Exchange translation differences (2) (2) (3) (8) 519 774 At end of period 570 290 849 418 Net cash from discontinued operations is analysed in note 3. Adjusted operating cash flow figures are presented in note 6 as additional performance measures. Combined balance sheet As at 30 June 2007 As at 31 December As at 30 June As at 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m Non-current assets 2,802 4,175 Goodwill 2,414 2,983 3,597 4,296 2,524 3,761 Intangible assets 2,106 2,777 3,138 3,999 73 108 Investments in joint ventures 103 77 154 110 50 75 Other investments 54 44 80 64 298 444 Property, plant and equipment 235 296 350 426 20 30 Net pension assets 317 166 472 239 170 253 Deferred tax assets 82 139 122 200 5,937 8,846 5,311 6,482 7,913 9,334 Current assets 633 943 Inventories and pre-publication costs 256 661 382 952 1,443 2,150 Trade and other receivables 998 1,314 1,487 1,891 519 774 Cash and cash equivalents 570 290 849 418 2,595 3,867 1,824 2,265 2,718 3,261 - - Assets held for sale 1,585 20 2,362 29 8,532 12,713 Total assets 8,720 8,767 12,993 12,624 Current liabilities 1,934 2,882 Trade and other payables 1,547 1,677 2,304 2,415 921 1,372 Borrowings 1,034 1,637 1,541 2,357 479 714 Taxation 395 545 589 785 3,334 4,968 2,976 3,859 4,434 5,557 Non-current liabilities 2,085 3,107 Borrowings 2,141 1,906 3,190 2,745 850 1,266 Deferred tax liabilities 780 897 1,162 1,292 256 381 Net pension obligations 121 247 180 356 28 42 Provisions 23 37 36 52 3,219 4,796 3,065 3,087 4,568 4,445 - - Liabilities associated with assets held for 319 3 475 4 sale 6,553 9,764 Total liabilities 6,360 6,949 9,477 10,006 1,979 2,949 Net assets 2,360 1,818 3,516 2,618 Capital and reserves 191 285 Combined share capitals 194 191 289 275 1,879 2,800 Combined share premiums 2,033 1,858 3,029 2,676 (377) (562) Combined shares held in treasury (392) (382) (584) (550) (136) (201) Translation reserve (176) (40) (260) (63) 409 607 Other combined reserves 688 177 1,023 260 1,966 2,929 Combined shareholders' equity 2,347 1,804 3,497 2,598 13 20 Minority interests 13 14 19 20 1,979 2,949 Total equity 2,360 1,818 3,516 2,618 Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 25 July 2007. Combined statement of recognised income and expense For the six months ended 30 June 2007 Year ended 31 Six months ended Six months ended 30 December 30 June June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 625 919 Net profit for the period 312 218 465 318 (244) (300) Exchange differences on translation of (41) (118) (57) (208) foreign operations - - Cumulative exchange differences on disposal of 1 - (2) - foreign operations 139 204 Actuarial gains on defined benefit pension 388 290 574 423 schemes 3 4 Fair value movements on available for sale - 2 - 3 investments - - Cumulative fair value movements on disposal of (1) - (1) - available for sale investments 54 79 Fair value movements on cash flow hedges 12 32 18 47 (60) (88) Tax recognised directly in equity (96) (100) (142) (146) (108) (101) Net income/(expense) recognised directly 263 106 390 119 in equity (5) (7) Transfer to net profit from hedge reserve (net (10) (4) (15) (6) of tax) 512 811 Total recognised income and expense 565 320 840 431 for the period Attributable to: 510 808 Parent companies' shareholders 564 319 839 430 2 3 Minority interests 1 1 1 1 512 811 Total recognised income and expense 565 320 840 431 for the period Combined shareholders' equity reconciliation For the six months ended 30 June 2007 Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 510 808 Total recognised net income attributable to the 564 319 839 430 parent companies' shareholders (371) (545) Dividends declared (299) (269) (443) (393) 93 137 Issue of ordinary shares, net of expenses 156 43 231 63 (285) (419) Increase in shares held in treasury (61) (288) (90) (420) 49 72 Increase in share based remuneration reserve 21 29 31 42 (4) 53 Net increase/(decrease) in combined 381 (166) 568 (278) shareholders' equity 1,970 2,876 Combined shareholders' equity at start of period 1,966 1,970 2,929 2,876 1,966 2,929 Combined shareholders' equity at end of period 2,347 1,804 3,497 2,598 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 in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union. The Reed Elsevier accounting policies under IFRS are set out in the Reed Elsevier Annual Reports and Financial Statements 2006 on pages 58 to 61. The combined financial information has been prepared in accordance with those accounting policies and with IAS34 - Interim Financial Reporting. The combined financial information for the six months ended 30 June 2007 and the comparative amounts to 30 June 2006 are unaudited but have been reviewed by the auditors. The combined financial information for the year ended 31 December 2006 has been abridged from the Reed Elsevier Annual Reports and Financial Statements 2006, which received an unqualified audit report. 2 Segment analysis Harcourt Education, which has previously been presented as a separate business segment, has been classified as a discontinued operation and its results for the period are presented in note 3. Revenue Year ended 31 Six months ended 30 Six months ended December June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m Business segment 1,521 2,236 Elsevier 711 721 1,052 1,053 1,570 2,308 LexisNexis 764 768 1,131 1,121 1,418 2,084 Reed Business 760 748 1,125 1,092 4,509 6,628 Total 2,235 2,237 3,308 3,266 Geographical origin 2,219 3,262 North America 1,052 1,115 1,557 1,629 828 1,217 United Kingdom 414 379 613 553 497 731 The Netherlands 263 266 389 388 675 992 Rest of Europe 341 327 505 477 290 426 Rest of world 165 150 244 219 4,509 6,628 Total 2,235 2,237 3,308 3,266 Geographical market 2,322 3,413 North America 1,103 1,154 1,633 1,684 531 781 United Kingdom 285 262 422 383 196 288 The Netherlands 101 101 149 147 866 1,273 Rest of Europe 429 412 635 602 594 873 Rest of world 317 308 469 450 4,509 6,628 Total 2,235 2,237 3,308 3,266 Adjusted operating profit Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m Business segment 465 683 Elsevier 201 196 298 286 380 559 LexisNexis 176 169 260 247 241 354 Reed Business 155 152 229 222 1,086 1,596 Subtotal 532 517 787 755 (39) (57) Corporate costs (21) (21) (31) (31) 34 50 Unallocated net pension credit 19 17 28 25 1,081 1,589 Total 530 513 784 749 Geographical origin 486 715 North America 216 212 320 309 196 288 United Kingdom 83 69 123 101 175 257 The Netherlands 102 107 151 156 169 248 Rest of Europe 88 89 130 130 55 81 Rest of world 41 36 60 53 1,081 1,589 Total 530 513 784 749 Adjusted operating profit figures are presented as additional performance measures. They are stated before the amortisation of acquired intangible assets and acquisition integration costs, and are grossed up to exclude the equity share of taxes in joint ventures. Adjusted figures are reconciled to the reported figures in note 6. The unallocated net pension credit of Â£19m/â‚¬28m (2006: Â£17m/â‚¬25m) comprises the expected return on pension scheme assets of Â£98m /â‚¬145m (2006: Â£90m/â‚¬131m) less interest on pension scheme liabilities of Â£79m/ â‚¬117m (2006: Â£73m/â‚¬106m). Operating profit Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m Business segment 395 581 Elsevier 168 157 249 229 264 388 LexisNexis 120 114 178 167 183 269 Reed Business 126 120 186 175 842 1,238 Subtotal 414 391 613 571 (39) (57) Corporate costs (21) (21) (31) (31) 34 50 Unallocated net pension credit 19 17 28 25 837 1,231 Total 412 387 610 565 Geographical origin 329 485 North America 141 130 209 190 167 245 United Kingdom 68 55 101 80 172 253 The Netherlands 101 106 149 155 117 172 Rest of Europe 63 61 93 89 52 76 Rest of world 39 35 58 51 837 1,231 Total 412 387 610 565 Share of post-tax results of joint ventures of Â£11m/â‚¬17m (2006: Â£14m/â‚¬20m) included in operating profit comprises Â£2m/â‚¬3m (2006: Â£2m/â‚¬2m) relating to LexisNexis and Â£9m/â‚¬14m (2006: Â£12m/â‚¬18m) relating to Reed Business. 3 Discontinued operations Following announcement in February 2007 of the planned sale of the Harcourt Education division, the businesses are presented as discontinued operations. On 4 May the sale of the Harcourt Assessment and Harcourt Education International businesses for $950m was announced, and on 16 July the sale of the Harcourt US Schools Education businesses for $4.0bn was announced. The sale of the UK, Australian and New Zealand businesses of Harcourt Education International completed in May 2007. The sales of the remaining Harcourt Education businesses are expected to complete by the first half of 2008, subject to regulatory approvals. Net profit from discontinued operations Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 889 1,307 Revenue 322 390 477 569 (846) (1,244) Operating costs (344) (424) (510) (619) 43 63 Operating (loss)/profit and (loss)/profit before (22) (34) (33) (50) tax (10) (14) Taxation 1 10 2 15 33 49 (Loss)/profit after taxation (21) (24) (31) (35) - - Gain on disposals 73 - 111 - - - Tax on disposals (2) - (3) - 33 49 Net profit/(loss) from discontinued operations 50 (24) 77 (35) Operating (loss)/profit is stated after amortisation of acquired intangible assets of Â£10m/â‚¬15m (2006: Â£44m/â‚¬65m). The adjusted operating loss, before amortisation of acquired intangible assets, of the discontinued operations was Â£12m/â‚¬18m (2006: profit Â£10m/â‚¬15m). The gain on disposals of discontinued operations relates to the completed sale of the Harcourt Education International businesses in the United Kingdom, Australia and New Zealand. Cash flows from discontinued operations Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 86 126 Net cash flow from operating activities (165) (169) (244) (247) (29) (42) Net cash flow from investing activities 122 (13) 180 (19) - - Net cash flow from financing activities - - - - 57 84 Net movement in cash and cash equivalents (43) (182) (64) (266) Net cash flow from investing activities includes proceeds on the completed disposals of Â£141m/â‚¬209m (2006: nil). 4 Assets and liabilities held for sale The major classes of assets and liabilities of operations classified as held for sale, principally Harcourt Education, are as follows: As at 31 December As at 30 June As at 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m - - Goodwill 395 - 588 - - - Intangible assets 483 - 720 - - - Property, plant and equipment 37 1 55 1 - - Inventories and pre-publication costs 418 15 623 22 - - Trade and other receivables 220 4 328 6 - - Deferred tax assets 32 - 48 - - - Total assets held for sale 1,585 20 2,362 29 - - Trade and other payables 165 3 246 4 - - Deferred tax liabilities 154 - 229 - - - Total liabilities associated with assets held for 319 3 475 4 sale 5 Combined cash flow statement Reconciliation of operating profit before joint ventures to cash generated from operations - continuing operations Year ended 31 Six months ended Six months ended 30 December 30 June June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 819 1,204 Operating profit before joint ventures 401 373 593 545 211 309 Amortisation of acquired intangible assets 108 107 160 156 67 98 Amortisation of internally developed intangible 38 32 56 47 assets 81 119 Depreciation of property, plant and equipment 38 41 56 60 38 56 Share based remuneration 17 24 25 35 397 582 Total non cash items 201 204 297 298 (3) (4) Movement in working capital (75) (94) (110) (138) 1,213 1,782 Cash generated from operations 527 483 780 705 Reconciliation of net borrowings Six months ended 30 June Year ended Cash & Related 31 cash derivative December financial 2006 equivalents Borrowings instruments 2007 2006 Â£m Â£m Â£m Â£m Â£m Â£m (2,694) At start of period 519 (3,006) 173 (2,314) (2,694) 239 Increase/(decrease) in cash and cash 53 - - 53 (4) equivalents (130) Increase in borrowings - (284) - (284) (537) 109 Changes resulting from cash flows 53 (284) - (231) (541) (9) Inception of finance leases - (4) - (4) (3) 3 Fair value adjustments - 84 (84) - 2 277 Exchange translation differences (2) 35 (2) 31 136 (2,314) At end of period 570 (3,175) 87 (2,518) (3,100) Reconciliation of net borrowings Six months ended 30 June Year ended Cash & Related 31 cash derivative December financial 2006 equivalents Borrowings instruments 2007 2006 Â£m Â£m Â£m Â£m Â£m Â£m (3,933) At start of period 774 (4,479) 257 (3,448) (3,933) 351 Increase/(decrease) in cash and cash 78 - - 78 (6) equivalents (190) Increase in borrowings - (420) - (420) (784) 161 Changes resulting from cash flows 78 (420) - (342) (790) (14) Inception of finance leases - (6) - (6) (4) 5 Fair value adjustments - 125 (125) - 3 333 Exchange translation differences (3) 49 (2) 44 260 (3,448) At end of period 849 (4,731) 130 (3,752) (4,464) Net borrowings comprise cash and cash equivalents, loan capital, finance leases, promissory notes, bank and other loans, and those derivative financial instruments used to hedge the fair value of fixed rate borrowings. 6 Adjusted figures Reed Elsevier uses adjusted figures as key performance measures. Adjusted figures are stated before amortisation of acquired intangible assets, acquisition integration costs, disposals and other non operating items, related tax effects and movements in deferred taxation assets and liabilities that are not expected to crystallise in the near term. Adjusted operating profits are also grossed up to exclude the equity share of taxes in joint ventures. Adjusted operating cash flow is measured after dividends from joint ventures and net capital expenditure but before payments in relation to acquisition integration costs. Adjusted figures are derived as follows: Continuing operations Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 837 1,231 Operating profit - continuing operations 412 387 610 565 Adjustments: 211 309 Amortisation of acquired intangible assets 108 107 160 156 23 34 Acquisition integration costs 6 12 8 18 10 15 Reclassification of tax in joint ventures 4 7 6 10 1,081 1,589 Adjusted operating profit from continuing operations 530 513 784 749 678 997 Profit before tax - continuing operations 350 310 518 452 Adjustments: 211 309 Amortisation of acquired intangible assets 108 107 160 156 23 34 Acquisition integration costs 6 12 8 18 10 15 Reclassification of tax in joint ventures 4 7 6 10 1 1 Disposals and other non operating items (8) - (12) - 923 1,356 Adjusted profit before tax from continuing 460 436 680 636 operations Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 623 916 Profit attributable to parent companies' 311 217 464 317 shareholders (33) (49) Net (profit)/loss from discontinued operations (50) 24 (77) 35 Profit attributable to parent companies' 590 867 shareholders - continuing operations 261 241 387 352 Adjustments (post tax): 236 347 Amortisation of acquired intangible assets 121 118 179 171 16 24 Acquisition integration costs 4 10 5 15 (64) (95) Disposals and other non operating items (8) 2 (12) 4 Deferred tax not expected to crystallise in the near term: Unrealised exchange differences on long term inter (22) (32) affiliate lending 2 (17) 3 (25) (56) (82) Acquired intangible assets (30) (32) (44) (47) 6 9 Other 3 10 4 15 Adjusted profit attributable to parent companies' 706 1,038 shareholders - continuing operations 353 332 522 485 1,213 1,782 Cash generated from operations 527 483 780 705 16 24 Dividends received from joint ventures 10 6 15 9 (68) (100) Purchases of property, plant and equipment (24) (28) (35) (41) 2 3 Proceeds from disposals of property, plant and - 1 - 1 equipment (99) (146) Expenditure on internally developed intangible (41) (42) (61) (61) assets 22 33 Payments in relation to acquisition integration 7 12 10 18 costs 1,086 1,596 Adjusted operating cash flow from 479 432 709 631 continuing operations Total operations Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 837 1,231 Operating profit - continuing operations 412 387 610 565 43 63 Operating (loss)/profit - discontinued operations (22) (34) (33) (50) 880 1,294 Operating profit - total operations 390 353 577 515 Adjustments: 297 436 Amortisation of acquired intangible assets 118 151 175 221 23 34 Acquisition integration costs 6 12 8 18 10 15 Reclassification of tax in joint ventures 4 7 6 10 1,210 1,779 Adjusted operating profit from total operations 518 523 766 764 Year ended 31 Six months ended Six months ended December 30 June 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 678 997 Profit before tax - continuing operations 350 310 518 452 43 63 (Loss)/profit before tax - discontinued operations (22) (34) (33) (50) 721 1,060 Profit before tax - total operations 328 276 485 402 Adjustments: 297 436 Amortisation of acquired intangible assets 118 151 175 221 23 34 Acquisition integration costs 6 12 8 18 10 15 Reclassification of tax in joint ventures 4 7 6 10 1 1 Disposals and other non operating items (8) - (12) - 1,052 1,546 Adjusted profit before tax from total operations 448 446 662 651 Profit attributable to parent companies' 623 916 shareholders - total operations 311 217 464 317 Adjustments (post tax): 324 476 Amortisation of acquired intangible assets 133 163 197 238 16 24 Acquisition integration costs 4 10 5 15 (64) (95) Disposals and other non operating items (8) 2 (12) 2 Deferred tax not expected to crystallise in the near term: (22) (32) Unrealised exchange differences on long term inter 2 (17) 3 (25) affiliate lending (87) (128) Acquired intangible assets (34) (48) (50) (70) 6 9 Other 3 10 4 15 - - Post tax gain on disposal of discontinued operations (71) - (108) - 796 1,170 Adjusted profit attributable to parent companies' 340 337 503 492 shareholders - total operations 7 Exchange translation rates In preparing the combined financial information the following exchange rates have been applied: Year ended Income statement Balance sheet 31 December 2006 Income Balance 30 June 30 June 30 June 30 June statement sheet 2007 2006 2007 2006 1.47 1.49 Euro to sterling 1.48 1.46 1.49 1.44 1.84 1.96 US dollars to sterling 1.97 1.79 2.00 1.83 1.25 1.32 US dollars to euro 1.33 1.23 1.34 1.27 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 the results arising in Reed Elsevier PLC and its subsidiary undertakings. The summary financial information has been prepared on the basis of the group accounting policies of Reed Elsevier PLC as set out on page 112 of the Reed Elsevier Annual Reports and Financial Statements 2006, which are in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union, and is in accordance with IAS34 - Interim Financial Reporting. Reed Elsevier PLC's 52.9% economic interest in the net assets of the combined businesses is shown in the balance sheet as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier PLC and its subsidiary undertakings. The summary financial information does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. The interim figures for the six months ended 30 June 2007 and the comparative amounts to 30 June 2006 are unaudited but have been reviewed by the auditors. The summary financial information for the year ended 31 December 2006 has been abridged from the Reed Elsevier Annual Reports and Financial Statements 2006, which have been filed with the UK Registrar of Companies and received an unqualified audit report. Consolidated income statement For the six months ended 30 June 2007 Year ended Six months ended 30 31 June December 2006 2007 2006 Â£m Â£m Â£m (2) Administrative expenses - - (10) Effect of tax credit equalisation on distributed earnings (8) (7) 343 Share of results of joint ventures 174 120 331 Operating profit 166 113 (3) Finance charges (1) (2) 328 Profit before tax 165 111 (8) Taxation (8) (3) 320 Profit attributable to ordinary shareholders 157 108 Earnings per ordinary share For the six months ended 30 June 2007 Year ended Six months ended 30 31 June December 2006 2007 2006 pence pence pence From continuing and discontinued operations of the combined businesses 25.6p Basic earnings per share 12.5p 8.6p 25.3p Diluted earnings per share 12.3p 8.5p From continuing operations of the combined businesses 24.1p Basic earnings per share 10.3p 9.5p 23.8p Diluted earnings per share 10.2p 9.5p Adjusted profit and earnings per share figures are presented in note 1 as additional performance measures. Consolidated cash flow statement For the six months ended 30 June 2007 Six months ended 30 June 2006 2007 2006 Â£m Â£m Â£m Cash flows from operating activities (2) Cash used by operations - - (3) Interest received/(paid) 1 (1) (6) Tax paid (5) (2) (11) Net cash used in operating activities (4) (3) Cash flows from investing activities 596 Dividends received from joint ventures 400 285 Cash flows from financing activities (186) Equity dividends paid (149) (135) 47 Proceeds on issue of ordinary shares 79 21 (112) Purchase of treasury shares (14) (111) (334) Increase in net funding balances due from joint ventures (312) (57) (585) Net cash used in financing activities (396) (282) - Movement in cash and cash equivalents - - Consolidated balance sheet As at 30 June 2007 As at 30 June 2006 2007 2006 Â£m Â£m Â£m Non-current assets 1,090 Investments in joint ventures 1,295 1,004 1,090 Total assets 1,295 1,004 Current liabilities 36 Amounts owed to joint ventures 36 - 1 Payables 1 2 13 Taxation 16 12 50 53 14 Non-current liabilities - Amounts owed to joint ventures - 36 50 Total liabilities 53 50 1,040 Net assets 1,242 954 Capital and reserves 161 Called up share capital 163 160 1,033 Share premium account 1,110 1,008 (200) Shares held in treasury (including in joint ventures) (232) (201) 4 Capital redemption reserve 4 4 (98) Translation reserve (119) (31) 140 Other reserves 316 14 1,040 Total equity 1,242 954 Approved by the board of directors, 25 July 2007. Consolidated statement of recognised income and expense For the six months ended 30 June 2007 Year Six months ended ended 30 June 31 December 2006 2007 2006 Â£m Â£m Â£m 320 Profit attributable to ordinary shareholders 157 108 (57) Share of joint ventures' net income/(expense) recognised directly in equity 138 56 (3) Share of joint ventures' transfer to net profit from hedge reserve (5) (2) 260 Total recognised net income and expense for the period 290 162 Consolidated reconciliation of shareholders' equity For the six months ended 30 June 2007 Year Six months ended 30 ended June 31 December 2006 2007 2006 Â£m Â£m Â£m 260 Total recognised net income for the period 290 162 (186) Equity dividends declared (149) (135) 47 Issue of ordinary shares, net of expenses 79 21 (151) Increase in shares held in treasury (including in joint ventures) (32) (152) 26 Increase in share based remuneration reserve 11 15 2 Equalisation adjustments 3 1 (2) Net increase/(decrease) in shareholders' equity 202 (88) 1,042 Shareholders' equity at start of period 1,040 1,042 1,040 Shareholders' equity at end of period 1,242 954 Notes to the summary financial information 1 Adjusted figures Adjusted profit and earnings per share figures are used as additional performance measures. 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 is reconciled to the reported figures in note 6 to the combined financial information. The adjusted figures are derived as follows: Earnings per share from the continuing and discontinued operations of the combined businesses Year ended Six months ended 30 June 31 December Profit Basic Profit Basic attributable earnings attributable earnings to ordinary per to ordinary shareholders share shareholders per share 2006 2006 2007 2006 2007 2006 Â£m pence Â£m Â£m pence pence 320 25.6p Reported figures 157 108 12.5p 8.6p 10 0.8p Effect of tax credit equalisation on 8 7 0.6p 0.5p distributed earnings 330 26.4p Profit attributable to ordinary 165 115 13.1p 9.1p shareholders based on 52.9% economic interest in the Reed Elsevier combined businesses 91 7.2p Share of adjustments in joint ventures 15 63 1.2p 5.1p 421 33.6p Adjusted figures 180 178 14.3p 14.2p Earnings per share from the continuing operations of the combined businesses Year ended Six months ended 30 June 31 December Profit Basic Profit Basic earnings attributable attributable to to ordinary earnings ordinary per share shareholders per shareholders share 2006 2006 2007 2006 2007 2006 Â£m pence Â£m Â£m pence pence 320 25.6p Reported figures 157 108 12.5p 8.6p Share of joint ventures' net (profit)/loss from discontinued operations (18) (1.5)p (27) 12 (2.2)p 0.9p 302 24.1p Profit attributable to ordinary shareholders based on 130 120 10.3p 9.5p the continuing operations of the combined businesses 2 Dividends On 25 July 2007 an interim dividend of 4.5p per ordinary share (2006: interim 2006 dividend 4.1p per ordinary share) was declared by the Directors of Reed Elsevier PLC. The cost of this dividend of Â£57m (2006: Â£51m) will be recognised when paid. During the six months ended 30 June 2007, the final 2006 dividend of 11.8p per ordinary share was paid, at a cost of Â£149m (2006: final 2005 dividend 10.7p per ordinary share; Â£135m). 3 Share capital and treasury shares Year Six months ended 30 ended June 31 December 2006 2007 2006 Shares in Shares in Treasury Shares in Shares in issue net issue shares issue net issue net of of of treasury treasury treasury shares shares shares millions millions millions millions millions Number of ordinary shares 1,266.2 At start of period 1,287.4 (37.8) 1,249.6 1,266.2 10.4 Issue of ordinary shares 15.9 - 15.9 4.7 (20.6) Share repurchases - (2.3) (2.3) (20.6) (6.4) Net release/(purchase) of shares by employee benefit - 1.7 1.7 (6.7) trust 1,249.6 At end of period 1,303.3 (38.4) 1,264.9 1,243.6 1,251.9 Average number of ordinary shares during the period 1,257.7 1,257.4 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint ventures guaranteed jointly and severally by Reed Elsevier PLC and Reed Elsevier NV amounting to Â£2,831m at 30 June 2007 (31 December 2006: Â£2,589m). REED ELSEVIER NV - SUMMARY FINANCIAL INFORMATION Basis of preparation The Reed Elsevier NV share of the Reed Elsevier combined results has been calculated on the basis of the 50% economic interest of the Reed Elsevier NV shareholders in the Reed Elsevier combined businesses, after taking account of the results arising in Reed Elsevier NV and its subsidiary undertakings. The summary financial information has been prepared on the basis of the group accounting policies of Reed Elsevier NV as set out on page 130 of the Reed Elsevier Annual Reports and Financial Statements 2006, which are in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union, and is in accordance with IAS34 - Interim Financial Reporting. Reed Elsevier NV's 50% economic interest in the net assets of the combined businesses is shown in the balance sheet as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier NV and its subsidiary undertakings. The interim figures for the six months ended 30 June 2007 and the comparative amounts to 30 June 2006 are unaudited but have been reviewed by the auditors. The summary financial information for the year ended 31 December 2006 has been abridged from the Reed Elsevier Annual Reports and Financial Statements 2006, which received an unqualified audit report. Consolidated income statement For the six months ended 30 June 2007 Year ended Six months ended 30 31 June December 2006 2007 2006 â‚¬m â‚¬m â‚¬m (3) Administrative expenses (1) (1) 455 Share of results of joint ventures 211 159 452 Operating profit 210 158 7 Finance income 29 1 459 Profit before tax 239 159 (1) Taxation (7) - 458 Profit attributable to ordinary shareholders 232 159 Earnings per ordinary share For the six months ended 30 June 2007 Year ended Six months ended 30 31 June December 2006 2007 2006 â‚¬ â‚¬ â‚¬ From continuing and discontinued operations of the combined businesses â‚¬0.59 Basic earnings per share â‚¬0.30 â‚¬0.20 â‚¬0.59 Diluted earnings per share â‚¬0.29 â‚¬0.20 From continuing operations of the combined businesses â‚¬0.56 Basic earnings per share â‚¬0.25 â‚¬0.23 â‚¬0.56 Diluted earnings per share â‚¬0.25 â‚¬0.23 Adjusted profit and earnings per share figures are presented in note 1 as additional performance measures. Consolidated cash flow statement For the six months ended 30 June 2007 Year ended Six months ended 30 31 June December 2006 2007 2006 â‚¬m â‚¬m â‚¬m Cash flows from operating activities (3) Cash used by operations (1) (1) 12 Interest received 28 8 (1) Tax paid (1) - 8 Net cash from operating activities 26 7 Cash flows from investing activities 1,111 Dividends received from joint ventures 750 599 Cash flows from financing activities (272) Equity dividends paid (225) (197) 68 Proceeds on issue of ordinary shares 113 32 (156) Purchase of treasury shares (20) (156) (612) Increase in net funding balances due from joint ventures (735) (181) (972) Net cash used in financing activities (867) (502) 147 Movement in cash and cash equivalents (91) 104 Consolidated balance sheet As at 30 June 2007 As at 31 As at 30 June December 2006 2007 2006 â‚¬m â‚¬m â‚¬m Non-current assets 1,389 Investments in joint ventures 1,770 1,266 Current assets 148 Cash and cash equivalents 57 105 1,537 Total assets 1,827 1,371 Current liabilities 8 Payables 8 8 64 Taxation 70 64 72 Total liabilities 78 72 1,465 Net assets 1,749 1,299 Capital and reserves 48 Share capital issued 48 47 1,562 Paid-in surplus 1,675 1,527 (282) Shares held in treasury (including in joint ventures) (327) (278) (70) Translation reserve (99) (28) 207 Other reserves 452 31 1,465 Total equity 1,749 1,299 Approved by the Combined Board of directors, 25 July 2007. Consolidated statement of recognised income and expense For the six months ended 30 June 2007 Year Six months ended 30 ended 31 June December 2006 2007 2006 â‚¬m â‚¬m â‚¬m 458 Profit attributable to ordinary shareholders 232 159 (50) Share of joint ventures' net income/(expense) recognised directly in equity 195 60 (4) Share of joint ventures' transfer to net profit from hedge reserve (8) (3) 404 Total recognised net income and expense for the period 419 216 Consolidated reconciliation of shareholders' equity For the six months ended 30 June 2007 Year Six months ended 30 ended 31 June December 2006 2007 2006 â‚¬m â‚¬m â‚¬m 404 Total recognised net income for the period 419 216 (272) Equity dividends declared (225) (197) 68 Issue of ordinary shares, net of expenses 113 32 (210) Increase in shares held in treasury (including in joint ventures) (45) (210) 36 Increase in share based remuneration reserve 16 21 1 Equalisation adjustments 6 (1) 27 Net increase/(decrease) in shareholders' equity 284 (139) 1,438 Shareholders' equity at start of period 1,465 1,438 1,465 Shareholders' equity at end of period 1,749 1,299 Notes to the summary financial information 1 Adjusted figures Adjusted profit and earnings per share figures are used as additional performance measures. 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 is reconciled to the reported figures in note 6 to the combined financial information. The adjusted figures are derived as follows: Earnings per share from the continuing and discontinued operations of the combined businesses Year ended 31 Six months ended 30 June December Profit Basic Profit Basic earnings attributable earnings attributable to ordinary per to ordinary per share shareholders share shareholders 2006 2006 2007 2006 2007 2006 â‚¬m â‚¬ â‚¬m â‚¬m â‚¬ â‚¬ 458 â‚¬0.59 Reported figures 232 159 â‚¬0.30 â‚¬0.20 127 â‚¬0.17 Share of adjustments in joint ventures 20 87 â‚¬0.02 â‚¬0.12 585 â‚¬0.76 Adjusted figures 252 246 â‚¬0.32 â‚¬0.32 Earnings per share from the continuing operations of the combined businesses Year ended Six months ended 30 June 31 December Profit Basic Profit Basic earnings attributable earnings attributable to ordinary per to ordinary per share shareholders share shareholders 2006 2006 2007 2006 2007 2006 â‚¬m â‚¬ â‚¬m â‚¬m â‚¬ â‚¬ 458 â‚¬0.59 Reported figures 232 159 â‚¬0.30 â‚¬0.20 Share of joint ventures' net (profit)/loss from (24) â‚¬(0.03) discontinued operations (38) 17 â‚¬(0.05) â‚¬0.03 434 â‚¬0.56 Profit attributable to ordinary shareholders based on the 194 176 â‚¬0.25 â‚¬0.23 continuing operations of the combined businesses 2 Dividends On 25 July 2007 an interim dividend of â‚¬0.114 per ordinary share (2006: interim 2006 dividend â‚¬0.102 per ordinary share) was declared by the Boards of Reed Elsevier NV. The cost of this dividend of â‚¬84m (2006 interim: â‚¬74m) will be recognised when paid. During the six months ended 30 June 2007, the final 2006 dividend of â‚¬0.304 per ordinary share was paid, at a cost of â‚¬225m (2006: final 2005 dividend â‚¬0.267 per ordinary share; â‚¬197m). 3 Share capital and treasury shares Year ended Six months ended 30 June 31 December 2006 2007 2006 Shares in Shares in Treasury Shares in Shares in issue net issue shares issue net issue net of of of treasury treasury treasury shares shares shares millions millions millions millions millions Number of ordinary shares 736.3 At start of period 748.6 (22.6) 726.0 736.3 6.8 Issue of ordinary shares 10.6 - 10.6 3.4 (13.4) Share repurchases - (1.6) (1.6) (13.4) (3.7) Net release/(purchase) of shares by employee benefit - 1.3 1.3 (3.9) trust 726.0 At end of period 759.2 (22.9) 736.3 722.4 772.1 Average number of equivalent ordinary shares during 776.7 775.7 the period The average number of equivalent ordinary shares takes into account the 'R' shares in the company held by a subsidiary of Reed Elsevier PLC, which represents a 5.8% interest in the company's share capital. 4 Contingent liabilities There are contingent liabilities in respect of borrowings of joint ventures guaranteed jointly and severally by Reed Elsevier NV and Reed Elsevier PLC amounting to â‚¬4,212m at 30 June 2007 (31 December 2006: â‚¬3,858m). ADDITIONAL INFORMATION FOR US INVESTORS Summary financial information in US dollars This summary financial information in US dollars is a simple translation of the Reed Elsevier combined financial information into US dollars at the rates of exchange set out in note 7 to the combined financial information. 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 Generally Accepted Accounting Principles ('US GAAP'), which would be different in some significant respects. Combined income statement Year ended Six months ended 30 31December June 2006 2007 2006 US$m US$m US$m 8,297 Revenue - continuing operations 4,403 4,004 1,540 Operating profit - continuing operations 812 693 1,248 Profit before tax - continuing operations 690 555 61 Net profit/(loss) from discontinued operations 99 (43) 1,146 Net profit attributable to parent companies' shareholders - total operations 613 388 1,989 Adjusted operating profit - continuing operations 1,044 918 1,465 Adjusted profit attributable to parent companies' shareholders - total 670 603 operations US$ Basic earnings per American Depositary Share (ADS) - total operations US$ US$ $1.88 Reed Elsevier PLC (Each ADS comprises four ordinary shares) $0.99 $0.62 $1.48 Reed Elsevier NV (Each ADS comprises two ordinary shares) $0.80 $0.49 Adjusted earnings per American Depositary Share (ADS) - total operations $2.47 Reed Elsevier PLC (Each ADS comprises four ordinary shares) $1.13 $1.02 $1.90 Reed Elsevier NV (Each ADS comprises two ordinary shares) $0.85 $0.78 Adjusted earnings per American Depository Share is based on Reed Elsevier PLC shareholders' 52.9% and Reed Elsevier NV's 50% respective share of the adjusted profit attributable of the Reed Elsevier combined businesses. Adjusted figures are presented as additional performance measures and are reconciled to the reported figures at their sterling and euro amounts in note 6 to the combined financial information and in note 1 to the summary financial information of each of the two parent companies. Combined cash flow statement Year ended Six months ended 30 31 June December 2006 2007 2006 US$m US$m US$m 1,634 Net cash from operating activities - continuing operations 658 570 (503) Net cash used in investing activities - continuing operations (626) (292) (796) Net cash from/(used in) financing activities - continuing operations 157 41 105 Net cash from/(used in) discontinued operations (85) (326) 440 Increase/(decrease) in cash and cash equivalents 104 (7) 1,998 Adjusted operating cash flow - continuing operations 944 773 Combined balance sheet As at 31 As at 30 June December 2006 2007 2006 US$m US$m US$m 11,637 Non-current assets 10,622 11,862 5,086 Current assets 3,648 4,145 - Assets held for sale 3,170 37 16,723 Total assets 17,440 16,044 6,535 Current liabilities 5,952 7,062 6,309 Non-current liabilities 6,130 5,649 - Liabilities associated with assets held for sale 638 6 12,844 Total liabilities 12,720 12,717 3,879 Net assets 4,720 3,327 Summary of the principal differences between IFRS and US GAAP IFRS differ in certain significant respects to US GAAP. The Annual Reports and Financial Statements 2006 set out the principal differences, insofar as they relate to Reed Elsevier. The effects on net income attributable to shareholders and combined shareholders' equity of material differences to US GAAP are set out below. Year ended 31 Six months ended Six months ended 30 December 30 June June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 623 916 Net income as reported under IFRS 311 217 464 317 US GAAP adjustments: 1 1 Intangible assets (3) 2 (4) 3 (54) (79) Current taxation - - - - (156) (229) Pensions (82) (86) (121) (126) 3 4 Derivative financial instruments 1 2 1 3 (41) (60) Disposals (31) - (78) - 20 29 Deferred taxation 28 11 41 16 3 5 Other - (4) - (6) 399 587 Net income under US GAAP 224 142 303 207 As at 31 December As at 30 June As at 30 June 2006 2006 2007 2006 2007 2006 Â£m â‚¬m Â£m Â£m â‚¬m â‚¬m 1,966 2,929 Combined shareholders' equity as reported 2,347 1,804 3,497 2,598 under IFRS US GAAP adjustments: 1,256 1,871 Goodwill and intangible assets 1,074 1,428 1,600 2,056 - - Assets held for sale 227 - 338 - - - Pensions - 43 - 62 (9) (13) Deferred taxation (118) (17) (176) (24) 7 10 Other 7 3 10 4 3,220 4,797 Combined shareholders' equity under US GAAP 3,537 3,261 5,269 4,696 INDEPENDENT REVIEW REPORT TO REED ELSEVIER PLC AND REED ELSEVIER NV Introduction We have been instructed by the boards of Reed Elsevier PLC and Reed Elsevier NV to review 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 2007 which comprises the combined income statement, combined cash flow statement, combined balance sheet, combined statement of recognised income and expense, combined shareholders' equity reconciliation and related notes 1 to 7. We have also reviewed the summary financial information of Reed Elsevier PLC and Reed Elsevier NV for the six months ended 30 June 2007 which comprise, respectively, the consolidated income statement, consolidated cash flow statement, consolidated balance sheet, consolidated statement of recognised income and expenditure, reconciliation of shareholders' equity and the related notes 1 to 4. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to Reed Elsevier PLC and Reed Elsevier NV in accordance with International Standard on Review Engagements (United Kingdom and Ireland) 2410 as issued by the United Kingdom Auditing Practices Board, and Dutch Law. Our review work has been undertaken 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 in accordance with the Listing Rules of the United Kingdom Financial Services Authority and the requirements of International Accounting Standard 34: 'Interim Financial Reporting' as adopted by the European Union, which require that the accounting policies and presentation applied to the interim figures are 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 International Standard on Review Engagements (United Kingdom and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' as issued by the United Kingdom Auditing Practices Board, and Dutch Law. A review of interim financial information consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the 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 International Standards on Auditing and International Standards on Auditing (United Kingdom and Ireland), and Dutch Law, and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Review conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34: 'Interim Financial Reporting' as adopted in the European Union and the Listing Rules of the United Kingdom Financial Services Authority. Deloitte & Touche LLP Deloitte Accountants BV Chartered Accountants JPM Hopmans London Amsterdam United Kingdom The Netherlands 25 July 2007 25 July 2007 INVESTOR INFORMATION - FINANCIAL CALENDAR 2007 26 July PLC Announcement of interim results for the six months to 30 June 2007 NV 27 July NV Ex-dividend date - 2007 interim dividend, Reed Elsevier NV ordinary shares and ADRs 31 July NV Record date - 2007 interim dividend, Reed Elsevier NV ordinary shares and ADRs 01 August PLC Ex-dividend date - 2007 interim dividend, Reed Elsevier PLC ordinary shares and ADRs 03 August PLC Record date - 2007 interim dividend, Reed Elsevier PLC ordinary shares and ADRs 24 August PLC Payment date - 2007 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ordinary shares NV 31 August PLC Payment date - 2007 interim dividend, Reed Elsevier PLC and Reed Elsevier NV ADRs NV 15 November PLC Trading update issued in relation to the 2007 financial year NV 2008 21 February PLC Announcement of Preliminary Results for the year to 31 December 2007 NV 23 April PLC Annual General Meeting - Reed Elsevier PLC, London 24 April NV Annual General Meeting - Reed Elsevier NV, Amsterdam 31 July PLC Announcement of interim results for the six months to 30 June 2008 NV Listings Reed Elsevier PLC Reed Elsevier NV London Stock Exchange Euronext Amsterdam Ordinary shares (REL) Ordinary shares (REN) New York Stock Exchange New York Stock Exchange American Depositary Shares (RUK) - CUSIP No. 758205108 American Depositary Shares (ENL) - CUSIP No. 758204101 Each ADR represents four ordinary shares Each ADR represents two ordinary shares Contacts Reed Elsevier PLC Reed Elsevier NV Reed Elsevier PLC and Reed Elsevier NV 1-3 Strand Radarweg 29 ADR Depositary London WC2N 5JR 1043 NX Amsterdam The Bank of New York United Kingdom The Netherlands Investor Relations Tel: +44 (0) 20 7930 7077 Tel: +31 (0) 20 485 2222 PO Box 11258 Fax: +44 (0) 20 7166 5799 Fax: +31 (0) 20 618 0325 Church Street Station New York NY10286-1258 USA Tel: +1 888 269 2377 +1 212 815 3700 (outside the US) email: shareowners@bankofny.com www.adrbny.com Auditors Deloitte & Touche LLP Deloitte Accountants B.V. Hill House, 1 Little New Street Orlyplein 50 London EC4A 3TR 1043 DP Amsterdam United Kingdom The Netherlands Stockbrokers Reed Elsevier PLC Registrar JP Morgan Cazenove Limited ABN AMRO Bank NV Lloyds TSB Registrars 20 Moorgate Gustav Mahlerlann 10 The Causeway London EC2R 6DA 1082 PP Amsterdam Worthing United Kingdom The Netherlands West Sussex BN99 6DA UBS Investment Bank United Kingdom 1 Finsbury Avenue Tel: +44 (0) 870 600 3970 (UK callers) London EC2M 2PP +44 121 415 7047 (non-UK callers) United Kingdom www.shareview.co.uk For further investor information visit: www.reedelsevier.com This statement is being mailed to the shareholders of Reed Elsevier PLC 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. Reed Elsevier PLC has given email notification to those shareholders who have requested it of the availability of the Interim Results on the Reed Elsevier website. This information is provided by RNS The company news service from the London Stock Exchange

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