REED ELSEVIER 2008 PRELIMINAR

RNS Number : 5642N
Reed Elsevier PLC
19 February 2009
 



Issued on behalf of Reed Elsevier PLC and Reed Elsevier NV

19 February 2009


REED ELSEVIER 2008 PRELIMINARY RESULTS

            

HIGHLIGHTS

£


€


Change at constant currencies


Continuing operations

2008
£m


Change


2008
€m

Change


Revenue

5,334

+16%


6,721

0%


+7%









Parent companies

Reed Elsevier PLC


Reed Elsevier NV


Change at constant currencies

Continuing and discontinued operations

2008

p

Change


2008
€

Change


Reported earnings per share

22.1p

-56%


€0.44

-60%



Adjusted earnings per share

44.6p

+24%


€0.87

 +9%


+15%

Ordinary dividend per share

20.3p

+12%


€0.404

-5%




  • Strong financial performance
    • Adjusted earnings per share at constant currency +15%; strongest growth in a decade 
    • Good underlying revenue growth +6% for Elsevier, LexisNexis and Reed Exhibitions businesses
    • Meaningful underlying margin improvement at 110 basis points

    • Return on capital increases for fifth successive year to 12.1% post tax

  • Major reshaping of portfolio

    • Sale of Harcourt Education fully completed; net proceeds of £2.0bn/€2.7bn returned to shareholders
    • £2.1bn/€2.7bn acquisition of ChoicePoint completed; business performance and integration going well
    • Divestment of Reed Business Information halted due to poor credit markets and deterioration in economic outlook


  • Restructuring programme on track and expanded
    • $290m restructuring announced February 2008 on track to deliver $200m annual savings by 2011
    • Restructuring programme expanded ($60m) and RBI now added ($160m)
    • The additional $220m restructuring targeting further $150m annual savings by 2011


  • Strong financial position

    • Strongly cash generative; conversion of adjusted operating profit into cash at 102%

    • Free cash flow of £999m/€1,259m before restructuring, acquisition spend and dividends

    • Refinancing of ChoicePoint acquisition facility on track

    • Term debt maturities well spaced; revolving credit facilities extended to 2012


  • Significant currency translation effects

    • Movement in average exchange rates boosts growth in adjusted eps expressed in sterling to 24% and constrains growth expressed in euros to 9%


2009 OUTLOOK


  • Challenging environment, Reed Elsevier resilient

    • Challenging economic environment; Elsevier and LexisNexis professional markets resilient but not immune; Reed Exhibitions and Reed Business Information business-to-business markets more impacted

    • Adjusted earnings growth at constant currencies expected to be positive

    • Significant positive currency translation impact on earnings reported in sterling, small benefit expressed in euros, at current exchange rates

    

  

Reed Elsevier's Chief Executive Officer, Sir Crispin Davis, commented:


'Reed Elsevier has had a very successful year with major progress in developing the business, and the strongest constant currency adjusted eps growth in a decade. Good revenue growth was seen across most of the business driven by the growing demand for online information and workflow solutions. The revenue growth and a strong focus on restructuring and cost management delivered meaningful margin improvement and the operating cash generation was excellent. Whilst the economic environment has become progressively more challenging, our business is more resilient than most and we are in a strong financial position.


The year saw demonstrable progress across the business from our continued investment in new content and online product development. In Elsevier, subscription renewals reached record levels whilst other online solutions for the scientific and healthcare communities grew rapidly. Online legal information solutions have continued to expand, and there is growing demand for information analytics in the risk market. In legal research we see significant opportunities for more intuitive and interoperable offerings to enhance customer productivity and are stepping up our investment to reflect this. Reed Exhibitions had an exceptional year including the benefit of non annual shows cycling in. Reed Business Information held up well for most of the year, helped by the strong growth of its significant online franchises. In the last quarter, however, the business increasingly felt the impact on advertising markets of the global downturn.


The year has also seen a major reshaping of our business with completion of the sale of the remaining Harcourt Education businesses and the acquisition of ChoicePoint. ChoicePoint transforms our position in the risk information and analytics sector and the strategic and financial benefits are very attractive. The business has performed well with the insurance data and services business, which accounts for the substantial majority of ChoicePoint's operating profits, delivering 10% year-on-year organic revenue growth. The integration with our existing risk business is progressing well and we are confident of achieving our savings and returns targets.  


We were disappointed not to be able to sell Reed Business Information but the macro-economic environment and poor credit market conditions made it too difficult to structure a transaction on acceptable terms.  Whilst the short term outlook for RBI is very challenging, RBI is a high quality business, with a strong management team and a record of success in developing online services. It remains our intention to divest RBI in the medium term when conditions are more favourable.


The $290m restructuring programme announced in February 2008 is progressing well and is expected to deliver a 2½ year cash payback, with the targeted 2008 cost savings of $30m delivered and the targeted $200m annual savings by 2011 on track.  The scope of the programme has now been expanded both to include the RBI business and to add further restructuring and consolidation opportunities which have been identified reflecting the good progress made and the more challenging economic environment.  The further targeted savings represent a 2½ year cash payback on $220m additional restructuring costs, with additional targeted annual savings of $150m by 2011; the bulk of this represents the inclusion of RBI in the programme.


Following the return to shareholders of £2.0bn/€2.7bn of net proceeds from the Harcourt Education sale and the £2.1bn/€2.7bn acquisition of ChoicePoint, Reed Elsevier remains in a strong financial position, with excellent cash flow generation. In January 2009 we issued $1.6bn of term debt as part of our planned refinancing of the ChoicePoint acquisition facility and Reed Elsevier's term debt maturities are well spaced over the next few years. In February 2009 we extended our revolving credit facilities beyond the 2010 maturity. Over the next 12-18 months our focus is on repayment of debt out of cash flow and to restore Reed Elsevier's credit ratios to more usual levels.


Turning to the outlook, 2009 is clearly going to be a more difficult year with most of the world's largest economies currently in recession. The key professional markets served by Elsevier and LexisNexis (which account for over 80% of Reed Elsevier's adjusted operating profits), whilst not immune to the impact of the economic downturn, are more resilient than most, and these businesses benefit from a strong subscription base and the growing demand for online solutions.  In business-to-business markets the demand for advertising and marketing services is much more affected by the tougher economic environment. Our businesses here are expected to show a significant profit decline this year, including the major effect in our exhibitions business of the net cycling out of biennial shows.  


Overall, with the cost actions we are taking, while continuing to invest in new and upgraded online products, Reed Elsevier should see positive adjusted eps development at constant currencies.  Whilst the short term outlook is more challenging, the portfolio restructuring, continued development of workflow solutions and the aggressive cost programme are standing Reed Elsevier in good stead for the future. 


In March, Ian Smith will succeed me as Chief Executive Officer. Ian joined us at the beginning of the year and has spent most of his time with our businesses and in meeting customers.  He will make a meaningful impact in the development and success of Reed Elsevier and I wish him well for the future. Reed Elsevier is a very fine business.' 
Reed Elsevier combined businesses
 
 
 
 
 
 
 
 
 
 
£
 
 
€
 
%
Continuing operations
2008
£m
2007
£m
Change
%
 
2008
 €m
2007
€m
Change
%
 
Change at
constant
currencies
Revenue
5,334
4,584
+16%
 
6,721
6,693
0%
 
+7%
Reported operating profit
901
888
+1%
 
1,135
1,296
-12%
 
-6%
Adjusted operating profit
1,379
1,137
+21%
 
1,737
1,660
+5%
 
+12%
Adjusted operating margin
25.9%
24.8%
+1.1pts
 
25.9%
24.8%
+1.1pts
 
 
Adjusted operating cash flow
1,407
1,108
+27%
 
1,773
1,618
+10%
 
+17%
Cash flow conversion
102%
97%
 
 
102%
97%
 
 
 
Parent companies
 
Reed Elsevier PLC
 
Reed Elsevier NV
 
Change at
constant
currencies
%
Continuing and discontinued operations
2008
2007
Change
%
 
2008
2007
Change
%
 
Reported earnings per share
22.1p
49.7p
-56%
 
€0.44
€1.10
-60%
 
 
Adjusted earnings per share
44.6p
35.9p
+24%
 
€0.87
€0.80
+9%
 
+15%
Ordinary dividend per share
20.3p
18.1p
+12%
 
€0.404
€0.425
-5%
 
 
 
 
 
 
 
 
 
 
 
 


The results of the Harcourt Education division, sold in separate transactions in 2007 and January 2008, are presented as discontinued operations and are excluded from revenue, reported and adjusted operating profit, adjusted operating margin and adjusted operating cash flow. The results of Reed Business Information (RBI) are included within continuing operations.

 

Adjusted figures are presented as additional performance measures and are stated before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related 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. Adjustments made to reported operating profit from continuing operations are amortisation of acquired intangible assets and goodwill impairment (£290m/€365m; 2007: £221m/€323m), exceptional restructuring and acquisition related costs (£179m/€226m; 2007: £20m/€29m) and reclassification of tax in joint ventures (£9m/€11m; 2007: £8m/€12m). Reconciliations between the reported and adjusted figures are provided in note 5 to the combined financial information (on page 26) and note 2 to the summary financial information of the respective parent companies (on pages 33 and 38).



STRONG FINANCIAL PERFORMANCE


Continuing Operations (excluding Harcourt Education)


  • Revenues +16% to £5,334m/flat at €6,721m; +7% at constant currencies.

  • Good performances across Elsevier, LexisNexis and Reed Exhibitions; underlying revenues grew 6%, ahead of the market. Reed Business Information (RBI) impacted by economic downturn; underlying revenues 1% lower.

  • Underlying revenue growth 4% (6% before RBI), driven by strong growth in online information and workflow solutions in Elsevier and LexisNexis and exceptional growth in Reed Exhibitions including benefit of biennial shows cycling in.

  • Online information and workflow solution revenues +14% at constant currencies; now represent over 50% of revenues; reflects success of investment led digital growth strategy.


        Adjusted (benchmark) figures


  • Adjusted operating margin at 25.9%, +110 basis points (underlying +110 basis points), from good revenue growth, tight cost management and ongoing cost initiatives.

  • Adjusted operating profit +21% to £1,379m/+5% to €1,737m; +12% at constant currencies.

  • Underlying adjusted operating profit +9% (+11% before RBI), reflecting the revenue growth and margin improvement.

  • Strong adjusted operating cash flow +27% to £1,407m/+10% to €1,773m, +17% at constant currencies, representing 102% conversion of adjusted operating profit into cash, driven by low capital intensity of the business and continued focus on tight working capital management.


  • Free cash flow up 39% to £999m/up 20% to €1,259m before restructuring and acquisition related spend and dividends. 

        Reported figures


  • Reported operating profit +1% to £901m/-12% to €1,135m; stated after amortisation of acquired intangible assets and goodwill impairment (£290m/€365m), exceptional restructuring costs (£152m/€192m) and acquisition related costs (£27m/€34m).


Total Operations (including Harcourt Education)


Adjusted figures


  • Adjusted earnings per share +24% to 44.6p for Reed Elsevier PLC and +9% to €0.87 for Reed Elsevier NV; +15% at constant currencies.

  • Return on invested capital up 0.3% points to 12.1% post tax; underlying increase +1.0% points before including low initial return on ChoicePoint acquisition.

Reported figures


  • Reported earnings per share -56% to 22.1p/-60% to €0.44 against a prior year significantly boosted by the Harcourt Education disposal gains and prior year tax credits (2007: +94% to 49.7p/+86% to €1.10);  also reflects amortisation of acquired ChoicePoint intangible assets and exceptional restructuring costs in 2008.


Dividends


  • Reed Elsevier PLC final dividend +10% to 15.0p; equalised Reed Elsevier NV final dividend -7% to €0.290. Total dividends (excluding special distributions) for 2008 +12% to 20.3p for Reed Elsevier PLC and -5% to €0.404 for Reed Elsevier NV. (Difference in growth rates in the equalised dividends reflects significant strengthening of euro against sterling since prior year dividend declaration dates.)

  • Cash returned to shareholders in January 2008 of £2.0bn/€2.7bn from net proceeds of Harcourt Education sale (special distribution of 82.0p for Reed Elsevier PLC and €1.767 for Reed Elsevier NV).


MAJOR RESHAPING OF PORTFOLIO


  • Sale of Harcourt Education fully completed; net proceeds of £2.0bn/€2.7bn returned to shareholders

  • Sale of Harcourt Assessment closed in January 2008, completing the divestment of the Harcourt Education division


  • £2.1bn/€2.7bn acquisition of ChoicePoint completed and integration on track

    • Transforms Reed Elsevier's position in attractive risk information and analytics market, with $1.4bn revenue leadership position
    • Insurance data and services business (>85% of ChoicePoint's adjusted operating profits) performing well, with 10% proforma organic revenue growth in 2008

    • Integration on track; $150m annual cost savings target by year 3 reaffirmed


  

  • Divestment of Reed Business Information halted due to poor credit markets and deterioration in economic outlook
    • Short term outlook very challenging given the marked deterioration in economic conditions; management focus on actions to reduce costs and reshaping the business to maximise long term value
    • Intention to divest RBI in medium term when conditions more favourable


RESTRUCTURING PROGRAMME ON TRACK AND EXPANDED


  • $290m restructuring announced February 2008 on track to deliver $200m annual savings by 2011

    • 2008 $30m savings target delivered; 2009 $100m target on track
    • Organisational consolidation: management and operational streamlining; IT, data centre operations and technology services; global procurement; real estate management
    • Significant outsourcing/offshoring: production; systems and development engineering; data centre operations; finance and administration; customer service and support


  • Restructuring programme expanded ($60m) and RBI now included ($160m)

    • Further significant opportunities identified and response to challenging economic environment
    • Targeting additional annual savings of $150m by 2011; 2½ year cash payback


STRONG FINANCIAL POSITION


  • Strongly cash generative; conversion of adjusted operating profit into cash at 102%

    • Net debt at 31 December 2008 £5,726m/€5,898m ($8,284m)
    • Free cash flow before restructuring and acquisition related spend and dividends of £999m/€1,259m
    • Net debt/ebitda, as adjusted: 3.7x (3.5x with proforma 2008 ChoicePoint ebitda; 2.8x using the same exchange rates for both net debt and ebitda)
    • Long term target range of 2.0-3.0x net debt/ebitda


  • Refinancing of ChoicePoint acquisition facility on track

    • $1.6bn term debt issued in January 2009 in 5 and 10 year maturities
    • Strong free cash flow and facilities already in place expected to be more than enough to repay debt maturing in 2010 and most of 2011


  • Further term debt issuance planned for later in year


  • Term debt maturities well spaced; revolving credit facilities extended
    • Term debt and ChoicePoint facilities maturities following January 2009 term debt issuance: 2009 nil; 2010 $0.9bn; 2011 $2.7bn; 2012 $0.8bn; 2013 $0.1bn; beyond 5 years $3.5bn
    • Revolving credit facilities supporting commercial paper borrowings ($0.6bn commercial paper outstanding at 31 December 2008) now in place to May 2012 ($2.5bn facility to 2010, $2.0bn facility to 2012)










ENQUIRIES:

Sybella Stanley (Investors)

+44 20 7166 5630

Patrick Kerr (Media)

+44 20 7166 5646








OPERATING AND FINANCIAL REVIEW


£




€



%


2008
£m

2007
£m


Change

%


2008
€m

2007

€m


Change

%


Change at constant currencies

CONTINUING OPERATIONS










Revenue










Elsevier

1,700

1,507

+13%


2,142

2,200

-3%


+4%

LexisNexis

1,940

1,594

+22%


2,444

2,328

+5%


+13%

Reed Exhibitions

707

577

+23%


891

842

+6%


+9%

Reed Business Information 

987

906

+9%


1,244

1,323

-6%


+1%

Total

5,334

4,584

+16%


6,721

6,693

0%


+7%

Adjusted operating profit










Elsevier

568

477

+19%


716

696

+3%


+11%

LexisNexis

513

406

+26%


646

593

+9%


+18%

Reed Exhibitions

183

139

+32%


230

203

+13%


+14%

Reed Business Information

126

121

+4%


159

177

-10%


-4%

Unallocated items

(11)

(6)



(14)

(9)




Total

1,379

1,137

+21%


1,737

1,660

+5%


+12%











DISCONTINUED OPERATIONS










Revenue

12

   752



15

1,098




Adjusted operating profit

-

121



-

177
















Adjusted figures and constant currency growth rates are used by Reed Elsevier as additional performance measures. Adjusted operating profit is stated before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, and is grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs principally relate to the major restructuring programme announced in February 2008. Acquisition related costs relate to acquisition integration and fees incurred in connection with acquisition financing. Constant currency growth rates are based on 2007 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 5.


Discontinued operations relate to the Harcourt Education division. The sale of Harcourt Assessment closed in January 2008, completing the divestment of Harcourt Education, most of which took place in 2007. No contribution to adjusted operating profit was made by Harcourt Education in 2008.






FORWARD LOOKING STATEMENTS

This presentation 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 and business conditions in Reed Elsevier's markets; exchange rate fluctuations; demand for our products and services; competitive factors in the industries in which we operate; legislative, fiscal and regulatory developments; changes in law and legal interpretations affecting Reed Elsevier's intellectual property rights and internet communications; the impact of technological change; and other risks referenced from time to time in the filings of Reed Elsevier PLC and Reed Elsevier NV including with the US Securities and Exchange Commission.


  Elsevier


£




€



%


2008
£m

2007
£m


Change

%


2008
€m

2007
€m


Change

%


Change
at constant
currencies

Revenue










Science & Technology

848

774

+10%


1,068

1,130

-5%


+2%

Health Sciences

852

733

+16%


1,074

1,070

0%


+6%


1,700

1,507

+13%


2,142

2,200

-3%


+4%

Adjusted operating profit

568

477

+19%


716

696

+3%


+11%

Adjusted operating margin

33.4%

31.7%

+1.7pts


33.4%

31.7%

+1.7pts


+2.2pts













Elsevier has had a successful year driven by new publishing and continued expansion of our online information and workflow solutions as well as increasing cost efficiency. The year saw good underlying revenue growth, significant margin improvement, and further major progress in the development of the business.


Revenues were up 5% at constant currencies and adjusted operating profits up 10% before acquisitions and disposals. Underlying margin improvement was 160 basis points, driven by the good revenue growth and tight cost management.


Including the effect of acquisitions and disposals, most notably the sale in 2007 of the MDL software business, revenues were 4% higher at constant currencies and adjusted operating profits up 11%. The overall adjusted operating margin was up 170 basis points at reported exchange rates to 33.4%.


The Science & Technology business saw underlying revenue growth of 6%.  ScienceDirect and journal subscription renewals were at a record 98%.  ScienceDirect saw a continued widening of distribution in small academic and emerging markets, and usage again increased by over 20% measured by article downloads. Good growth in online databases, including the Scopus scientific abstract and indexing database, and electronic book sales also contributed to the strong revenue growth. Taking the MDL disposal into account, revenues were up 2% at constant currencies.


The Health Sciences business saw underlying revenue growth of 4%, held back by the continued weakness in pharma promotion markets. The Clinical Solutions business performed well with new publishing and strong demand for online workflow solutions that combine content with predictive analytical algorithms. The Nursing and Health Professionals segment also saw strong growth with its successful publishing programme and online resources. In the pharma market, advertising and other promotional revenues declined 5% reflecting fewer drug launches and a contraction of marketing budgets. Excluding pharma, Health Sciences' underlying revenues were up 6%.


During the year Elsevier continued to invest in developing the solutions product pipeline focusing on content integration and interoperability to deliver contextualised answers instead of documents. A good example of this continuous innovation is Illumin8, an online workflow solution designed to help corporate researchers answer complex research and development questions with greater speed and efficiency. In Health, Mosby's Nursing Skills had a successful rollout; CPMRC, the provider of nursing care plans acquired in December 2007, was integrated within the clinical decision support business; and MEDai acquired in January 2008 was combined with the payer solutions business to provide data and analytics on healthcare outcomes.


Significant progress was made during the year in improving cost efficiency through restructuring of operations and leveraging shared service functions. Journal and book production operations have increasingly been outsourced in recent years and 2008 saw a step up in production activities in Elsevier's offshore facilities in India. The year also saw significant outsourcing of software engineering and financial transaction processing. These ongoing programmes together with the increasing consolidation across Reed Elsevier of technology operations, procurement and real estate management are keeping costs under tight control.


For 2009, subscription renewals are mostly completed and are encouraging. We expect continued growth in scientific research and in demand for our online solutions that make researchers more productive although increasing pressure on academic budgets is likely to affect discretionary purchases. The health professions continue to grow and our products are integral to their training, continuing education and practice. We expect however to see continued weakness in pharma promotion markets and lower growth in Asian markets particularly in imported US medical books given the strengthening of the US dollar. Whilst 2009 may not be quite as buoyant as 2008, we expect satisfactory revenue development and further underlying margin improvement driven by our cost efficiency programme.



LexisNexis


£




€



%


2008
£m

2007
£m


Change

%


2008
€m

2007
€m


Change

%


Change
at constant
currencies

Revenue










United States

1,395

1,113

+25%


1,757

1,625

+8%


+16%

International

545

481

+13%


687

703

-2%


+6%


1,940

1,594

+22%


2,444

2,328

+5%


+13%

Adjusted operating profit

513

406

+26%


646

593

+9%


+18%

Adjusted operating margin

26.4%

25.5%

+0.9pts


26.4%

25.5%

+0.9pts


+1.1pts














LexisNexis has had a good year despite more challenging markets, with continued growth in online information solutions in the US large law firm market and internationally, and good growth in risk information and analytics markets. Good revenue growth and the cost actions taken to improve efficiency delivered significant margin improvement.


Revenues were up 5% at constant currencies and adjusted operating profits up 10% before acquisitions and disposals. Underlying margin improvement was 130 basis points, driven by the good revenue growth and tight cost management.


 

Including the ChoicePoint business acquired in September 2008 and after other acquisitions and disposals, revenues were 13% higher at constant currencies and adjusted operating profits up 18%. The overall adjusted operating margin was up 95 basis points at reported exchange rates to 26.4%.


 

LexisNexis US saw underlying revenue growth of 4%. In US legal markets, good growth in online information solutions in the large law firm market was tempered by slower growth in smaller law firms and marginal declines in corporate and government markets reflecting an increasingly challenging economic environment. The risk information and analytics group saw 8% underlying growth, ie before taking into account the ChoicePoint business, driven by the collections sector, government and growing demand from the insurance, healthcare and energy sectors, whilst revenues from the financial services sector were flat. Including acquisitions and disposals, revenues were up 16% at constant currencies.


 

ChoicePoint, acquired in September 2008, saw strong proforma 2008 underlying revenue growth of 10% in the insurance business, which contributes over 85% of ChoicePoint's adjusted operating profits. The insurance business, which helps insurance carriers evaluate underwriting risk, was driven by increased transaction activity, reflecting insurance policy churn in the auto and property insurance markets, and by the increasing adoption by carriers of more powerful analytics in the underwriting process. The remaining ChoicePoint businesses saw revenues 6% lower reflecting the effect of the weaker economic environment on demand for pre-employment screening and for identity verification products from the mortgage and financial services sector. The integration of ChoicePoint and the LexisNexis risk information and analytics group is progressing well led by one management team drawn from both businesses headquartered in Atlanta, and is firmly on track to deliver the targeted annual cost savings of $150 million by the third year of ownership.  Overall, the ChoicePoint acquisition is on track to hit our returns targets.


 

The LexisNexis International business saw good underlying revenue growth of 5%, driven by new publishing and the growing penetration of online information services across its markets. Good growth was seen in UK legal markets, France and elsewhere in Europe, and in South Africa, although the growth rate was behind the previous year's reflecting the tougher economic environment. Electronic products now account for 46% of International revenues and the business has continued to expand its workflow solutions through organic development and selective acquisition. In April, the Latin American business was sold as it did not offer sufficiently attractive strategic and financial returns. Taking acquisitions and disposals into account, revenues were up 6% at constant currencies.


During the year LexisNexis has continued to invest significantly in developing and enhancing its workflow solutions, adding content and functionality and improving usability. A particular focus has been in practice management, litigation services and in client development which has seen the acceleration of Martindale-Hubbell's evolution from a legal directory business to web marketing services provider for law firms and online legal market place for consumers. A new investment programme now underway is aimed at transforming the productivity of US legal research with modernised technology and advanced algorithms and functionality to provide much more powerful contextual solutions for customers and at greater speed. Combined with this is a major upgrade in back office infrastructure and customer service and support platforms to provide an integrated and superior customer experience across our US legal research, client development and solutions products.


 

LexisNexis saw significant further improvement in adjusted operating margin through organisational consolidation and restructuring. The US Legal business and the Corporate and Public Markets business other than Risk were combined into one organisation early in the year and the US operations consolidated with significant streamlining of management and operational activities. In addition to cost savings, this realignment positions the organisation better to support the development and marketing of Total Solutions. Outsourcing of non-core activities has also accelerated with the outsourcing of systems engineering and maintenance, data fabrication, software development engineering and other activities. These ongoing programmes together with consolidation within Reed Elsevier of technology operations, procurement and real estate management are keeping costs under firm control and releasing funds for investment.


 

Looking ahead to 2009, legal and risk markets are more resilient than most but by no means immune from the deterioration in economic conditions. Law firm activity and corporate and government budgets are increasingly under pressure and this will reduce underlying revenue growth. LexisNexis has however a strong subscriber base, continuous releases of new publishing and workflow solutions to enhance customer productivity, a growing Risk business, and the benefit of a full year's contribution of ChoicePoint growth and synergies. The Risk business should see continued strong growth in the insurance business and collections sector and increasing demand from government. The gearing effects of lower underlying revenue growth and increased investment on adjusted operating margin should be offset by the benefits of the restructuring and other actions to improve cost efficiency and the growing profitability of the ChoicePoint business.



  Reed Exhibitions


£




€



%


2008
£m

2007
£m


Change

%


2008
€m

2007
€m


Change

%


Change
at constant
currencies

Revenue

707

577

+23%


891

842

+6%


+9%

Adjusted operating profit

183

139

+32%


230

203

+13%


+14%

Adjusted operating margin

25.9%

24.1%

+1.8pts


25.9%

24.1%

+1.8pts


+1.1pts













Reed Exhibitions had an exceptional year with successful major shows and the net cycling in of biennial exhibitions, demonstrating that, in an increasingly online world, 'face to face' exhibitions continue to deliver significant value for exhibitors and visitors alike.


Revenues were up 11% at constant currencies and adjusted operating profits up 20% before acquisitions and disposals. The strong growth was driven by good performances by annual shows and new events, together with the cycling in of non-annual shows. Excluding cycling effects, underlying revenue growth was 5%. The adjusted operating margin showed underlying improvement of 180 basis points reflecting the good revenue growth, tight cost control and the effect of the significant net cycling in at the show contribution level.


 

Reported revenues and adjusted operating profits were up 9% and 14% respectively at constant rates including acquisitions and disposals, most notably the sale of the defence sector shows. Overall adjusted operating margin was up 180 basis points at 25.9%.


 

Good growth was seen across most of the show portfolio with particular successes at the ISC West security show and National Hardware in the US; the Interclima Interconfort heating/cooling systems show and the Equip'Hotel catering show in Paris, and the Pollutec Lyon environment event; the Aluminium show in Germany; the Mipim international property show and Mipcom in Cannes; and the London International Book Fair and World Travel Market in London. The severe downturn in the Spanish residential property sector did however significantly reduce the size of the SIMA residential property show in Madrid. In Japan, M-Tech and other shows performed strongly. The biennial shows cycling in contributed 6% to underlying revenue growth; the most significant show cycling in was the Mostra Convegno Expocomfort show in Milan and cycling out was the Batimat construction show in Paris. 

 

During the year Reed Exhibitions launched 24 new shows including the very successful Photovoltaic Power Generation event in Tokyo, and acquired nine others, expanding its footprint in the Middle East, Russia, India and China. The sale of the defence shows was completed in May 2008. This will further exaggerate the year on year impact of show cycling in 2009 and beyond with no 'odd' year DSEi show to help balance the 'even' year benefit of Mostra Convegno and other biennial shows.


 

Reed Exhibitions' strong performance in 2008 is in part reflective of the more resilient and late cycle nature of the exhibitions business, in comparison to other marketing channels. Exhibitors book hall space well in advance and in a downturn demand tends to concentrate on leading events. The second half saw continued good growth overall in annual shows and in cycling events, although some shows were cancelled and the outlook has become progressively tougher across geographies and most industries.  Taking into account the budget pressures on exhibitors and visiting delegates, as well as the net cycling out of biennial shows and the sale of the defence shows, the 2009 outlook is for revenue decline and lower adjusted operating margin against an exceptional year in 2008. Whilst it is too early to judge the economic outlook and demand beyond, 2010 will see the cycling back in of major biennial shows with a positive boost to revenues and margin.


  Reed Business Information


£




€



%


2008
£m

2007
£m


Change

%


2008
€m

2007
€m


Change

%


Change
at constant
currencies

Revenue










UK

306

294

+4%


386

429

-10%


+3%

US

288

278

+4%


363

406

-11%


-5%

NL

202

181

+12%


254

264

-4%


-4%

International

191

153

+25%


241

224

+8%


+9%


987

906

+9%


1,244

1,323

-6%


+1%

Adjusted operating profit

126

121

+4%


159

177

-10%


-4%

Adjusted operating margin

12.8%

13.4%

-0.6pts


12.8%

13.4%

-0.6pts


-0.6pts












On 21 February 2008 Reed Elsevier announced a plan to divest Reed Business Information (RBI) which was accordingly then classified as a discontinued operation in the 2008 interim results. On 10 December 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms at that time and RBI has therefore been presented as a continuing operation in the combined financial statements.  



Reed Business Information held up well despite the difficult economic conditions throughout most of the year due to the successful development over the last few years of significant online franchises. This was however not enough to counter the recent impact on advertising markets of the downturn in global economic conditions, which was particularly felt in the last quarter.


 

Revenues and adjusted operating profits were 1% and 5% lower respectively at constant currencies before acquisitions and disposals, or 1% higher and 4% lower after portfolio effects.  Adjusted operating margin was 60 basis points lower at 12.8% reflecting the underlying revenue decline partly mitigated by tight cost management.

 

In the UK, underlying revenues were up 1% reflecting strong growth in online sales, up 12%. For most of the year, overall revenue momentum was encouraging although weakness was seen in sectors such as property and technology. However towards the end of the year, the deteriorating economic environment took its toll most particularly on recruitment advertising across most sectors, with overall underlying revenues year-on-year down 7% in the fourth quarter, compared with 3% growth in the third quarter. Online revenues continued to grow in the fourth quarter despite the weakness in advertising markets, with robust performances from online data products, such as XpertHR serving the HR community, Bankersalmanac.com providing information that facilitates interbank payments across the world, and ICIS Pricing serving the petrochemicals industry. In addition to organic development of its online franchises, RBI UK made a number of small acquisitions to further develop its online services to the energy, aerospace and personnel verticals as well as horizontal lead generation services matching vendors and buyers. Online revenues now represent over 50% of RBI UK revenues.

In the US, RBI underlying revenues were 5% lower, with online revenue growth of 9% more than offset by the 9% decline in print revenues despite market share gains. The slowdown has affected most sectors, including electronics, manufacturing, residential construction, furniture and home furnishings, jewellery and entertainment with Variety also impacted by the film and TV screenwriters' strike earlier in the year. Year-on-year revenues were down 11% in the fourth quarter, compared to 3% decline in the third quarter. Reed Construction Data bucked the trend with good growth in data services to the commercial construction industry following successful investment in online product development, research and sales. Online services were further expanded with the acquisition in February 2008 of Tectonic, a provider of building information modelling for the architectural, engineering and construction industries. Online revenues now represent nearly 30% of RBI US revenues.

 

In the Netherlands, underlying revenues were 1% lower, with online revenues up 11% against only a 3% decline in the print business which benefits from a higher proportion of subscription and circulation revenues than in other RBI geographies. Good growth was seen in the agriculture, construction and healthcare sectors and in tuition although most other sectors saw revenue declines from weaker advertising markets. Fourth quarter revenues were down 6% against the prior year, with the third quarter down 1%. Online revenues now represent 17% of RBI NL revenues.  


 

The International business (rest of Europe and Asia Pacific) saw underlying revenue growth of 2% with online revenues up 26%, including strong growth from the Hotfrog online directory search business, more than offsetting a 4% decline in print. In Europe, France saw growth from a recovery in training sales, whilst Spain and Italy saw revenues decline with weaker advertising markets particularly in the construction and automotive sectors respectively. Two small acquisitions were made in France and Spain earlier in the year to build scale and expand online tendering services. Asia Pacific saw 9% underlying revenue growth with strong Hotfrog sales and good growth in healthcare and construction in Australia. Fourth quarter revenues were flat against the prior year.  

 

Online revenues now represent 25% of RBI International revenues.


The outlook for 2009 for Reed Business Information is challenging. Advertising markets are significantly impacted by the global economic downturn, with slowing online revenue growth and accelerating print decline. Adjusted operating margins will be adversely impacted by the revenue decline, which can be mitigated only in part by the significant cost savings from restructuring and other cost actions. In this difficult environment, the focus in RBI is on right sizing the cost base to match reduced revenue expectations whilst maintaining investments, particularly against our online franchises, to be strongly competitively positioned as markets recover. 


  Financial review


REED ELSEVIER COMBINED BUSINESSES


Currency

The average exchange rates in the year saw the euro strengthen against both the US dollar and sterling, while sterling also weakened against the US dollar. This gives a favourable effect on translation of reported growth rates expressed in sterling and an adverse effect on growth rates expressed in euros.


Income statement

Revenue from continuing operations (ie excluding Harcourt Education) was £5,334m/€6,721m, up 16% expressed in sterling and flat when expressed in euros. At constant exchange rates, revenue was 7% higher, or 4% higher underlying, ie before acquisitions and disposals. 


Reported figures

Continuing operations

Reported operating profit from continuing operations, after amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, was £901m/€1,135m, up 1% in sterling and 12% lower in euros. The movements reflect the strong underlying operating performance and part year contribution from ChoicePoint, offset by the costs of the restructuring programme and currency translation effects.


The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, amounted to £281m/€354m, up £60m/€31m as a result of ChoicePoint and other recent acquisitions and currency translation effects. Goodwill impairment charges of £9m/€11m relate to minor exhibitions businesses.


Exceptional restructuring costs incurred to date in the restructuring programme announced in February 2008 and in RBI amounted to £152m/€192m (2007:nil) principally in respect of severance, outsourcing migration costs and associated property costs. Acquisition related costs amounted to £27m/€34m (2007: £20m/€29m). 


Disposals and other non operating items of £92m/€116m comprise gains on disposals of businesses and investments of £15m/€19m, costs of the RBI divestment process terminated in December 2008 of £31m/€39m, a £70m/€88m write down to £14m/€15m in the carrying value of the investment in Education Media and Publishing Group that arose on the sale of the Harcourt US K-12 Schools business in 2007, and fair value decreases in the portfolio of venture capital investments of £6m/€8m.


Net finance costs were higher at £192m/€242m (2007: £139m/€203m) principally reflecting funding of ChoicePoint and other recent acquisitions and currency translation effects, and include £18m/€23m of acquisition related costs with respect to fees incurred in connection with ChoicePoint acquisition financing.


The reported profit before tax, including amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, and non operating items, was £617m/€777m, down 24% expressed in sterling and 34% expressed in euros.

 

The reported tax charge of £155m/€195m compares with a credit of £82m/€120m in the prior year, which included the £223m/€326m credit in respect of previously unrecognised deferred tax assets and capital losses, arising in continuing operations, that were realisable as a result of the disposal of Harcourt Education. 


Discontinued operations

The gain on the disposal of discontinued operations was £67m/€72m relating to the disposal of Harcourt Assessment (2007: £611m/€849m on disposals of the Harcourt International and US K-12 Schools businesses), after £27m/€54m of recycled cumulative currency translation losses since adoption of IFRS previously taken to reserves. Taxes on the disposals were £49m/€62m (2007: £380m/€555m excluding the tax credits included in continuing operations described above). Net profit from discontinued operations in 2007 also included the post-tax results of Harcourt Education of £78m/€114m.


Total operations

The reported attributable profit of £476m/€587m compares with £1,200m/€1,709m in 2007, which included the tax credits, the results of Harcourt Education and the gain on sale of businesses.


Adjusted figures

Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related 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. Exceptional restructuring costs relate to the major restructuring programme announced in February 2008 and in RBI. Acquisition related costs relate to acquisition integration and fees incurred in connection with acquisition financing. Profit and loss on disposals and other non operating items are also excluded from the adjusted figures. Comparison at constant exchange rates uses 2007 full year average and hedge exchange rates.


Continuing operations

Adjusted operating profit for the continuing operations, including a part year contribution from ChoicePoint, was £1,379m/€1,737m, up 21% expressed in sterling and up 5% in euros. At constant exchange rates, adjusted operating profits were up 12%, or 9% underlying, ie before acquisitions and disposals. 


The net pension expense (excluding the unallocated net pension financing credit) was £75m/€95m (2007: £78m/€114m) reflecting higher discount rates and lower pension curtailment credits. The net pension financing credit was £39m/€49m (2007: £39m/€57m). The charge for share based payments was £46m/€58m (2007: £38m/€55m). Restructuring costs, other than in respect of the exceptional restructuring programmes and acquisition integration, were £13m/€16m (2007: £16m/€23m).


Overall adjusted operating margin for the continuing businesses was up 1.1 percentage points at 25.9% reflecting the good revenue growth and cost efficiency.  


Net interest expense, before acquisition related financing fees, was higher at £174m/€219m (2007: £139m/€203m) principally reflecting funding of ChoicePoint and other recent acquisitions and currency translation effects, less the benefit of disposals and free cash flow.  


Adjusted profit before tax from continuing operations was £1,205m/€1,518m, up 21% expressed in sterling and 4% in euros. At constant exchange rates, adjusted profit before tax grew by 11%.


The effective tax rate on adjusted profit before tax for the continuing businesses, at 23.4%, was similar to the rate in 2007. The effective tax rate on adjusted profit before tax 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 £919m/€1,159m was up 20% expressed in sterling and 4% in euros. At constant exchange rates, adjusted profit attributable to shareholders was up 11% for continuing operations. 



Discontinued operations

Adjusted operating profit from discontinued operations was nil (2007: £121m/€177m) following the sale of the Harcourt Education division.


Total operations

The adjusted profit attributable to shareholders, including discontinued operations, was £919m/€1,159m, up 8% expressed in sterling and down 7% expressed in euros. At constant exchange rates, adjusted profit attributable to shareholders from total operations was down 1%, reflecting the sale of the Harcourt Education division.


The effective tax rate on the profit from total operations, at 23.4%, was similar to the 23.6% effective rate for 2007. 


The adjusted profit before tax for total operations, if stated including the adjusted operating profits of discontinued operations, would have been £1,205m/€1,518m, compared to £1,119m/€1,634m in 2007.


Cash flows 

Adjusted operating cash flow from continuing operations was £1,407m/€1,773m, up 27% expressed in sterling and up 10% in euros, or up 17% at constant currencies. The rate of conversion of adjusted operating profits into cash flow for continuing businesses was 102% (2007: 97%) reflecting the continuous focus on management of working capital. 


Capital expenditure included within adjusted operating cash flow from continuing operations was £172m/€217m (2007: £145m/€212m), including £115m/€145m in respect of capitalised development costs included within intangible assets. 


Free cash flow from continuing operations - after interest and taxation - was significantly higher at £999m/€1,259m (2007: £717m/€1,047m) before exceptional restructuring and acquisition related spend, principally reflecting the stronger adjusted operating cash flow performance and currency translation effects.


Ordinary dividends paid to shareholders in the year, relating to the 2007 final and 2008 interim dividends, amounted to £418m/€528m (2007: £416m/€607m). The special distribution paid to shareholders in January 2008 from the net proceeds of the Harcourt Education disposal amounted to £2,013m/€2,690m (including £27m/€35m paid to the employee benefit trust). 


Share repurchases by the parent companies amounted to £40m/€50m (2007: £199m/€291m). Shares of the parent companies purchased by the employee benefit trust to meet future obligations in respect of share based remuneration amounted to £54m/€68m (2007: £74m/€108m). Net proceeds from the exercise of share options were £54m/€68m (2007: £177m/€258m).


Spend on acquisitions, after taking account of £51m/€64m net cash acquired, was £2,161m/€2,747m, including £1,931m/€2,457m in respect of ChoicePoint. Including deferred consideration payable, an amount of £1,579m/€2,007m was capitalised as acquired intangible assets and £1,279m/€1,626m as goodwill. Payments made in respect of acquisition integration amounted to £27m/€34m and acquisition related financing fees £18m/€23m.


Proceeds from disposals of businesses, other than discontinued operations, and of other assets, less the cash costs of the terminated RBI divestment process, amounted to £8m/€10m. Payments made in respect of the exceptional restructuring costs totalled £72m/€91m.


Net proceeds from the sale of discontinued operations in the year were £270m/€367m and taxes paid on completed disposals were £320m/€403m.  

Debt

Net borrowings at 31 December 2008 were £5,726m/ €5,898m, an increase of £5,234m/€5,229m since 31 December 2007. The increase principally reflects the payment of the special distribution to shareholders, the acquisition of ChoicePoint and currency translation effects, together with ordinary dividends paid, share repurchases and acquisition and restructuring spend, partly offset by the free cash flow from continuing operations, and proceeds from the exercise of share options and disposals. Expressed in sterling, currency translation differences increased net borrowings by £1,281m, reflecting the impact of the strengthening of the US dollar against sterling on the largely US dollar denominated net debt. Expressed in euros, currency translation differences increased net borrowings by €95m, reflecting the weakening of the euro against the US dollar between the balance sheet dates.  


Gross borrowings after fair value adjustments at 31 December 2008 amounted to £6,142m/€6,326m. The fair value of related derivative assets was £41m/€42m. Cash balances totalled £375m/€386m. 


Net pension obligations, ie pension obligations less pension assets, at 31 December 2008 were £369m/€380m which compares with a net surplus as at 31 December 2007 of £50m/€68m. The movement principally reflects a decline in asset values in the year.


As at 31 December 2008, after taking into account interest rate and currency derivatives, a total of 52% of Reed Elsevier's gross borrowings (equivalent to 56% of net borrowings) were at fixed rates and had a weighted average remaining life of 6.1 years and interest rate of 5.3%. After taking additional account of $1.6bn of term debt issued in January 2009, a total of 69% of gross borrowings (equivalent to 74% of net borrowings) were at fixed rates and had a weighted average remaining life of 6.6 years and interest rate of 6.0%. 


Liquidity

At 31 December 2008, Reed Elsevier had access to $3.0bn of committed bank facilities maturing in May 2010, providing back up for short term debt, of which $38m was drawn. In February 2009, this facility was reduced to $2.5bn and, at the same time, a new $2.0bn committed bank facility, forward starting in May 2010 and maturing in May 2012, was put in place. Together these two back up facilities provide security of funding for $2.5bn of short term debt to May 2010 and for $2.0bn from May 2010 to May 2012.


After taking account of these committed bank facilities, available cash resources and the $1.6bn of term debt issued in January 2009, no borrowings mature within the next two years, £1,253m/€1,291m of borrowings mature in the third year and £4,528m/€4,664m beyond the third year. The strong free cash flow of the business (£999m/€1,259m before exceptional restructuring and acquisition related spend and dividends in 2008), the available resources and back up facilities, and Reed Elsevier's ability to access debt capital markets are expected to provide sufficient liquidity to refinance the loans outstanding on the ChoicePoint acquisition facility, due in 2010 and 2011, and term debt as they mature.


The business is strongly cash generative with conversion of adjusted operating profit into cash at 102% in 2008. The ratio of net debt to adjusted ebitda (earnings before interest, tax, depreciation and amortisation) is 3.7x (3.5x on a pro forma basis including ChoicePoint; 2.8x using the same exchange rates for both net debt and ebitda). Reed Elsevier's target remains a ratio of net debt to ebitda of 2.0-3.0x over the longer term, consistent with a solid investment grade credit rating.


Capital employed and returns

The capital employed in the continuing businesses at 31 December 2008 was £13,125m/€13,470m (2007: £7,825m/€10,622m), after adding back accumulated amortisation of acquired intangible assets and goodwill. The increase of £5,300m/€2,848m principally reflects the impact of acquisitions and currency translation effects partially offset by disposals and increases in pension deficits.


The return on average capital employed for the continuing businesses in the year was 12.1% (2007: 11.8%). This return is based on adjusted operating profits, less tax at the effective rate, and the average capital employed, adjusted for acquisition timing and to exclude the gross up to goodwill in respect of deferred tax liabilities on acquisitions, retranslated at average exchange rates. The 0.3% increase reflects a 1.0% improvement from underlying profit growth and low capital requirements, partly offset by the dilutive effect of the ChoicePoint acquisition with its low initial returns.


Acquisitions typically dilute the overall return initially, but build quickly to deliver longer term returns well over Reed Elsevier's average for the business. The recent acquisitions made in the years 2006-2008 are delivering post tax returns in 2008 of 11%, 8% and proforma 4% respectively.


PARENT COMPANIES


For the parent companies, Reed Elsevier PLC and Reed Elsevier NV, adjusted earnings per share for total operations were respectively up 24% at 44.6p (2007: 35.9p) and up 9% at €0.87 (2007: €0.80). At constant rates of exchange, the adjusted earnings per share of both companies increased by 15%.


The reported earnings per share for Reed Elsevier PLC shareholders was 22.1p (2007: 49.7p) and for Reed Elsevier NV shareholders was €0.44 (2007: €1.10). The decline principally reflects that 2007 included the gain on disposal of Harcourt Education businesses and prior year tax credits. 


The equalised final dividends proposed are 15.0p per share for Reed Elsevier PLC and €0.290 per share for Reed Elsevier NV, 10% higher and 7% lower respectively compared with the prior year. This gives total dividends for the year of 20.3p and €0.404, up 12% and down 5% on 2007 respectively. The difference in growth rates in the equalised dividends reflects the significant strengthening of the euro against sterling between dividend announcement dates.


Dividend cover, based on adjusted earnings per share and the total interim and proposed final dividends for the year, was 2.2 times for both Reed Elsevier PLC and Reed Elsevier NV.


On 18 January 2008, a special distribution was paid to shareholders in the equalisation ratio from the estimated net proceeds of the sale of the Harcourt Education division. The distribution was 82.0p per share for Reed Elsevier PLC and €1.767 per share for Reed Elsevier NV and amounted to £2,013m/€2,690m in aggregate.


The special distribution was accompanied by a consolidation of the ordinary share capitals of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 new ordinary shares for every 67 existing ordinary shares. This represented a 13.4% consolidation of ordinary share capital, being the aggregate special distribution expressed as a percentage of the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC), as at the date of the announcement of the special distribution.


For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be 18 January 2008, being the date on which the special distribution was paid.


Shares repurchased in the year totalled 3.2 million ordinary shares of Reed Elsevier PLC and 2.1 million ordinary shares of Reed Elsevier NV.



COMBINED FINANCIAL INFORMATION


Combined income statement

For the year ended 31 December 2008


£



€


2008
£m

2007
£m


2008
€m

2007
€m

Revenue - continuing operations

5,334

4,584


6,721

6,693

Cost of sales

(1,916)

(1,624)


(2,414)

(2,371)

Gross profit

3,418

2,960


4,307

4,322

Selling and distribution costs

(1,053)

(938)


(1,327)

(1,370)

Administration and other expenses

(1,482)

(1,150)


(1,868)

(1,679)

Operating profit before joint ventures

883

872


1,112

1,273

Share of results of joint ventures

18

16


23

23

Operating profit - continuing operations

901

888


1,135

1,296

Finance income

33

43


42

63

Finance costs

(225)

(182)


(284)

(266)

Net finance costs

(192)

(139)


(242)

(203)

Disposals and other non operating items

(92)

63


(116)

92

Profit before tax - continuing operations

617

812


777

1,185

Taxation

(155)

82


(195)

120

Net profit from continuing operations

462

894


582

1,305

Net profit from discontinued operations

18

309


10

408

Net profit for the year

480

1,203


592

1,713

Attributable to:






Parent companies' shareholders

476

1,200


587

1,709

Minority interests

4

3


5

4

Net profit for the year

480

1,203


592

1,713







Net profit from discontinued operations is analysed in note 3.


Adjusted profit figures are presented in note 5 as additional performance measures.



Combined cash flow statement

For the year ended 31 December 2008


£



€


2008

£m

2007

£m


   2008

   €m

2007

€m



Cash flows from operating activities - continuing operations






Cash generated from operations

1,452

1,218


1,830

1,778

Interest paid

(222)

(174)


(280)

(254)

Interest received

43

26


54

38

Tax paid

(215)

(239)


(271)

(349)

Net cash from operating activities

1,058

831


1,333

1,213







Cash flows from investing activities - continuing operations






Acquisitions

(2,161)

(327)


(2,747)

(478)

Purchases of property, plant and equipment

(57)

(65)


(72)

(95)

Expenditure on internally developed intangible assets

(115)

(80)


(145)

(117)

Purchase of investments

(4)

(4)


(5)

(6)

Proceeds from disposals of property, plant and equipment

5

4 


6

6

Proceeds from other disposals

8

82


10

120

Dividends received from joint ventures

23

12


29

18

Net cash used in investing activities

(2,301)

(378)


(2,924)

(552)







Cash flows from financing activities - continuing operations






Dividends paid to shareholders of the parent companies

(2,404)

     (416)  


(3,183)

  (607)

(Decrease)/increase in short term bank loans, overdrafts and commercial paper

(407)

111


(513)

163

Issuance of other loans

2,373

276


3,017

403

Repayment of other loans

(411)

(311)


(520)

(454)

Repayment of finance leases

(56)

(12)


(71)

(18)

Redemption of debt related derivative financial instrument

62

-


78

-

Proceeds on issue of ordinary shares

54

177


68

258

Purchase of treasury shares

(94)

(273)


(118)

(399)

Net cash used in financing activities

(883)

(448)


(1,242)


 

(654)







Net cash (used in)/from discontinued operations

(48)

1,912


(33)

2,674







(Decrease)/increase in cash and cash equivalents

(2,174)

1,917


(2,866)

2,681







Movement in cash and cash equivalents






At start of year

2,467

519


3,355

774

(Decrease)/increase in cash and cash equivalents

(2,174)


 

1,917


(2,866)

2,681

Exchange translation differences

82

31


(103)

(100)

At end of year

375

2,467


386

3,355







Net cash from discontinued operations is analysed in note 3. 


Adjusted operating cash flow figures are presented in note 5 as additional performance measures.


Combined balance sheet

As at 31 December 2008


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Non-current assets






Goodwill

4,901

2,462


5,048

3,348

Intangible assets

4,404

2,089


4,536

2,841

Investments in joint ventures

145

116


149

158

Other investments

49

111


51

151

Property, plant and equipment

329

239


339

325

Net pension assets

152

183


157

249

Deferred tax assets

353

141


363

192


10,333

5,341


   10,643

7,264

Current assets






Inventories and pre-publication costs

348

271


358

368

Trade and other receivables

1,685

1,148


1,736

1,561

Derivative financial instruments

76

210


78

286

Cash and cash equivalents

375

2,467


386

3,355


2,484

4,096


2,558

5,570

Assets held for sale

49

341


50

464

Total assets

12,866

9,778


13,251

13,298







Current liabilities






Trade and other payables

2,769

1,966


2,852

2,674

Derivative financial instruments

258

22


266

30

Borrowings

448

1,127


461

1,533

Taxation

554

752


571

1,023

Provisions

79

-


81

-


4,108

3,867


4,231

5,260

Non-current liabilities






Borrowings

5,694

2,002


5,865

2,723

Deferred tax liabilities

1,525

695


1,570

945

Net pension obligations

521

133


537

181

Provisions

35

21


36

28


7,775

2,851


8,008

3,877

Liabilities associated with assets held for sale

2

84


2

114

Total liabilities

11,885

6,802


12,241

9,251

Net assets

981

2,976


1,010

4,047







Capital and reserves






Combined share capitals

209

197


215

268

Combined share premiums

2,529

2,143


2,605

2,914

Combined shares held in treasury

(783)

(619)


(806)

(842)

Translation reserve

(14)

(145)


174

(170)

Other combined reserves

(988)

1,389


(1,207)

1,862

Combined shareholders' equity

953

2,965


981

4,032

Minority interests

28

11


29

15

Total equity

981

2,976


1,010

4,047







Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 18 February 2009.


Combined statement of recognised income and expense

For the year ended 31 December 2008


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Net profit for the year

480

1,203


592

1,713







Exchange differences on translation of foreign operations

340

(33)


59

(350)

Actuarial (losses)/gains on defined benefit pension schemes

(347)

224


(437)

327

Fair value movements on available for sale investments

(9)

-


(11)

-

Fair value movements on cash flow hedges

(243)

3


(306)

4

Tax recognised directly in equity

156

(50)


196

(73)

Net (expense)/income recognised directly in equity

(103)

144


(499)

(92)







Cumulative exchange differences on disposal of foreign operations

27

148


54

206

Cumulative fair value movements on disposal of available for sale investments

-

(7)


-

(10)

Transfer to net profit from hedge reserve (net of tax)

(14)

(20)


(18)

(29)

Total recognised income and expense for the year

390

1,468


129

1,788







Attributable to:






Parent companies' shareholders

386

1,465


124

1,784

Minority interests

4

3


5

4

Total recognised income and expense for the year

390

1,468


129

1,788













 

Combined reconciliation of shareholders' equity

For the year ended 31 December 2008



 
 
£
 
 
€
 
2008
£m
2007
£m
 
2008
€m
2007
€m
 
 
Total recognised net income attributable to the parent companies’ shareholders
386
1,465
 
124
1,784
Dividends declared
(2,404)
(416)
 
(3,183)
(607)
Issue of ordinary shares, net of expenses
54
177
 
68
258
Increase in shares held in treasury
(94)
(273)
 
(118)
(399)
Increase in share based remuneration reserve
46
46
 
58
67
Net (decrease)/increase in combined shareholders’ equity
(2,012)
999
 
(3,051)
1,103
Combined shareholders’ equity at start of year
2,965
1,966
 
4,032
2,929
Combined shareholders’ equity at end of year
953
2,965
 
981
4,032
 
 
 
 
 
 


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, presented in condensed form, has been abridged from the audited combined financial statements for the year ended 31 December 2008, which have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and as issued by the International Accounting Standards Board. The Reed Elsevier accounting policies under IFRS are set out in the Reed Elsevier Annual Reports and Financial Statements 2007 on pages 96 to 100.  The combined financial information has been prepared in accordance with those accounting policies. Financial information is presented in both sterling and euros.


2    Segment analysis

On 21 February 2008 Reed Elsevier announced a plan to divest Reed Business Information (RBI) which was accordingly then classified as a discontinued operation in the 2008 interim results. On 10 December 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore now been presented as a continuing operation. RBI and Reed Exhibitions, previously presented together as the Reed Business segment, are now managed as separate divisions and are presented as separate business segments. Comparatives have been restated accordingly.


Revenue - continuing operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m



Business segment






Elsevier

1,700

1,507


2,142

2,200

LexisNexis

1,940

1,594


2,444

2,328

Reed Exhibitions

Reed Business Information

707

987

577

906


891

1,244

842

1,323

Total

5,334

4,584


6,721

6,693

Geographical origin






North America

2,544

2,147


3,206

3,135

United Kingdom

905

896


1,140

1,308

The Netherlands

594

505


748

737

Rest of Europe

893

708


1,125

1,034

Rest of world

398

328


502

479

Total

5,334

4,584


6,721

6,693

Geographical market






North America

2,624

2,233


3,306

3,260

United Kingdom

580

603


731

880

The Netherlands

234

206


295

301

Rest of Europe

1,136

897


1,431

1,310

Rest of world

760

645


958

942

Total

5,334

4,584


6,721

6,693









Adjusted operating profit - continuing operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Business segment






Elsevier

568

477


716

696

LexisNexis

513

406


646

593

Reed Exhibitions

Reed Business Information

183

126

139

121


230

159

203

177

Subtotal

1,390

1,143


1,751

1,669

Corporate costs

(50)

(45)


(63)

(66)

Unallocated net pension credit

39

39


49

57

Total

1,379

1,137


1,737

1,660

Geographical origin






North America

618

505


779

737

United Kingdom

239

211


301

308

The Netherlands

206

181


259

264

Rest of Europe

237

174


299

254

Rest of world

79

66


99

97

Total

1,379

1,137


1,737

1,660







Adjusted operating profit figures are presented as additional performance measures. They are stated before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related 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 5. The unallocated net pension credit of £39m/€49m (2007: £39m/€57m) comprises the expected return on pension scheme assets of £219m/€276m (2007: £196m/€286m) less interest on pension scheme liabilities of £180m/€227m (2007: £157m/€229m).


Operating profit - continuing operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Business segment






Elsevier

443

410


558

598

LexisNexis

291

287


367

419

Reed Exhibitions

Reed Business Information

123

55

106

91


155

69

155

133

Subtotal

912

894


1,149

1,305

Corporate costs

(50)

(45)


(63)

(66)

Unallocated net pension credit

39

39


49

57

Total

901

888


1,135

1,296

Geographical origin






North America

334

353


421

515

United Kingdom

183

180


231

263

The Netherlands

179

179


226

261

Rest of Europe

151

118


189

172

Rest of world

54

58


68

85

Total

901

888


1,135

1,296







Share of post-tax results of joint ventures of £18m/€23m (2007: £16m/€23m) included in operating profit comprises £4m/€5m (2007: £3m/€4m) relating to LexisNexis and £14m/€18m (2007: £13m/€19m) relating to Reed Exhibitions.


3    Discontinued operations

Discontinued operations comprise the results of the Harcourt Education division.  The disposal of the Harcourt Education International business completed in May and August 2007; the disposal of the Harcourt US K-12 Schools Education business completed in December 2007; and the disposal of the Harcourt Assessment business completed in January 2008.


Net profit from discontinued operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Revenue

12

752


15

1,098

Operating costs

  (12)

 (640)


(15)

(934)

Operating profit and profit before tax

-

112


-

164

Taxation

  -

(34)


-

(50)

Profit after taxation

-

78


-

114

Gain on disposals

67

611


72

849

Tax on disposals

(49)

(380)


(62)

(555)

Net profit from discontinued operations

18

309


10

408


The gain on disposals of discontinued operations in 2008 relates to the sale of Harcourt Assessment, which completed in January 2008.

 

Cash flows from discontinued operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Net cash flow from operating activities

2

33


3

48

Net cash flow (used in)/from investing activities

(50)

1,879


(36)

2,626

Net cash flow from financing activities

-

-


-

-

Net movement in cash and cash equivalents

(48)

1,912


(33)

2,674







Net cash flow from investing activities includes cash proceeds, net of expenses, on the completed disposals of £270m/€367m (2007: £1,912m/€2,674m) and taxes paid on completed disposals of £320m/€403m (2007: nil). Cash and cash equivalents disposed was nil (2007: £7m/€10m). 


4    Combined cash flow statement


Reconciliation of operating profit before joint ventures to cash generated from operations - continuing operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Operating profit before joint ventures

883

872


1,112

1,273







Amortisation of acquired intangible assets and goodwill impairment

287

219


361

320

Amortisation of internally developed intangible assets

88

72


111

105

Depreciation of property, plant and equipment

79

76


100

111

Share based remuneration

46

38


58

55

Total non cash items

500

405


630

591

Decrease/(increase) in working capital

69

(59)


88

(86)

Cash generated from operations

1,452

1,218


1,830

1,778



Cash flow on acquisitions 


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Purchase of businesses

(2,112)

(293)


(2,685)

(428)

Payment of ChoicePoint change of control and other non operating payables assumed 


(19)


-



(24)


-

Investments in joint ventures

-

(24)


-

(35)

Deferred payments relating to prior year acquisitions 

(30)

(10)


(38)

(15)

Total

(2,161)

(327)


(2,747)

(478)


Reconciliation of net borrowings





£


Cash & 

cash

equivalents

£m

Borrowings

£m

Related
derivative 
financial

instruments

£m

2008

£m

2007

£m

At start of year

   2,467

(3,129)

170

(492)

(2,314)







(Decrease)/increase in cash and cash equivalents

   (2,174)

-

-

(2,174)

1,917

Increase in borrowings

  - 

(1,499)

-

(1,499)

(64)

Redemption of debt related derivative financial instruments

-

-

(62)

(62)

-

Changes resulting from cash flows

    (2,174)

(1,499)

(62)

(3,735)

1,853

Borrowings in acquired business

-

(219)

-

(219)

-

Inception of finance leases

-

(1)

-

(1)

(11)

Fair value adjustments to borrowings and related derivatives

-

92

(90)

2

(2)

Exchange translation differences

82

(1,386)

23

(1,281)

(18)

At end of year

375

(6,142)

41

(5,726)

(492)












€


Cash & 

cash

equivalents

€m

Borrowings

€m

Related
derivative
financial

instruments

€m

2008

€m

2007

€m

At start of year

3,355

(4,256)

232

(669)

(3,448)







(Decrease)/increase in cash and cash equivalents

(2,866)

-

-

(2,866)

2,681

Increase in borrowings

-

(1,913)

-

(1,913)

(94)

Redemption of debt related derivative financial instruments

-

-

(78)

(78)

-

Changes resulting from cash flows

(2,866)

(1,913)

(78)

(4,857)

2,587

Borrowings in acquired business

-

(279)

-

(279)

-  

Inception of finance leases

-

(1)

-

(1)

(16)

Fair value adjustments to borrowings and related derivatives

-

116

(113)

3

(3)

Exchange translation differences

(103)

7

1

(95)

211

At end of year

386

(6,326)

42

(5,898)

(669)







Net borrowings comprise cash and cash equivalents, loan capital, finance leases, promissory notes, bank and other loans, and those derivative financial instruments that are used to hedge the fair value of fixed rate borrowings.



  Borrowings by year of repayment

 

 


 
£
2008
2007
 
Short term
bank loans, overdrafts and commercial paper
£m
Other 
loans
£m
Finance 
leases
£m
Total
£m
Short term bank loans, overdrafts and commercial paper
£m
Other 
loans
£m
Finance 
leases
£m
Total
£m
Within 1 year
446
-
2
448
753
369
5
1,127
Within 1 to 2 years
-
1,706
1
1,707
-
-
3
3
Within 2 to 3 years
-
1,885
-
1,885
-
220
3
223
Within 3 to 4 years
-
578
-
578
-
276
-
276
Within 4 to 5 years
-
104
-
104
-
423
-
423
After 5 years
-
1,420
-
1,420
-
1,077
-
1,077
 
-
5,693
1
5,694
-
1,996
6
2,002
Total
446
5,693
3
6,142
753
2,365
11
3,129
 
 
 
€
 
2008
2007
 
Short term
bank loans, overdrafts and commercial paper
€m
Other 
loans
€m
Finance 
leases
€m
Total
€m
Short term bank loans, overdrafts and commercial paper
€m
Other 
loans
€m
Finance 
leases
€m
Total
€m
Within 1 year
459
-
2
461
1,024
502
7
1,533
Within 1 to 2 years
-
1,757
1
1,758
-
-
4
4
Within 2 to 3 years
-
1,942
-
1,942
-
299
4
303
Within 3 to 4 years
-
595
-
595
-
376
-
376
Within 4 to 5 years
-
107
-
107
-
575
-
575
After 5 years
-
1,463
-
1,463
-
1,465
-
1,465
 
-
5,864
1
5,865
-
2,715
8
2,723
Total
459
5,864
3
6,326
1,024
3,217
15
4,256


In January 2009, fixed rate term debt of $1,500m (£1,037m/€1,068m) and floating rate term debt of €50m (£49m) due in more than five years from 31 December 2008 were issued and used to repay other loans maturing within one to two years.


Short term bank loans, overdrafts and commercial paper are backed up at 31 December 2008 by $3,000m (£2,074m/€2,136m) of committed bank facilities maturing in May 2010 of which $38m (£26m/€27m) were drawn. In February 2009 these facilities were reduced to $2,500m (£1,728m/€1,780m) and additional $2,000m (£1,382m/€1,423m) committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.

 

5    Adjusted figures


Reed Elsevier uses adjusted figures as key performance measures. Adjusted figures are stated before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, disposal gains and losses 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 profit is also grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs relate to the major restructuring programme announced in February 2008 and the restructuring in RBI not included in the February 2008 announcement as the business was to be divested.   Acquisition related costs relate to acquisition integration and fees incurred in connection with acquisition financing. Adjusted operating cash flow is measured after dividends from joint ventures and net capital expenditure but before payments in relation to exceptional restructuring and acquisition related costs. Adjusted figures are derived as follows:

Continuing operations


£



€

2008

£m

2007

£m


2008

€m

2007

€m

Operating profit - continuing operations

901

888


1,135

1,296

Adjustments:






Amortisation of acquired intangible assets and goodwill impairment

290

221


365

     323

Exceptional restructuring costs

152

-


192

-

Acquisition related costs

27

20


34

29

Reclassification of tax in joint ventures

9

8


11

12

Adjusted operating profit from continuing operations

1,379

1,137


1,737

1,660







Profit before tax - continuing operations

617

812


777

1,185

Adjustments:






Amortisation of acquired intangible assets and goodwill impairment 

290

221


365

323

Exceptional restructuring costs

152

-


192

-

Acquisition related costs

45

20


57

29

Reclassification of tax in joint ventures

9

8


11

12

Disposals and other non operating items

92

(63)


116

(92)

Adjusted profit before tax from continuing operations

1,205

998


1,518

1,457







Profit attributable to parent companies' shareholders

476

1,200


587

1,709

Net profit from discontinued operations

(18)

(309)


(10)

(408)

Profit attributable to parent companies' shareholders - continuing operations

458


891


577


1,301

Adjustments (post tax):






Amortisation of acquired intangible assets and goodwill impairment 

327

247


412

361

Exceptional restructuring costs

111

-


140

-

Acquisition related costs

31

13


39

19

Disposals and other non operating items

61

(290)


77

(423)

Deferred tax not expected to crystallise in the near term:






Unrealised exchange differences on long term inter affiliate lending

-

(21)


-

  (31)

Acquired intangible assets

(69)

(60)


(86)

(88)

Other

-

(15)


-

(22)

Adjusted profit attributable to parent companies' shareholders from continuing operations

        

919


765



1,159


1,117

Cash generated from operations

1,452

1,218


1,830

1,778

Dividends received from joint ventures

23

12


29

18

Purchases of property, plant and equipment

(57)

(65)


(72)

(95)

Proceeds from disposals of property, plant and equipment

5

4


6

6

Expenditure on internally developed intangible assets

(115)

(80)


(145)

(117)

Payments relating to exceptional restructuring costs

72

-


91

-

Payments relating to acquisition related costs

27

19


34

28

Adjusted operating cash flow from continuing operations

1,407

1,108


1,773

1,618

  Total operations


£



€


2008

£m

2007

£m


2008

€m

2007

€m

Operating profit - continuing operations

901

888


1,135

1,296

Operating profit - discontinued operations

-

112


-

164

Operating profit - total operations

901

1,000


1,135

1,460

Adjustments:






Amortisation of acquired intangible assets and goodwill impairment 

290

230


365

336

Exceptional restructuring costs

152

­-


192

-

Acquisition related costs

27

20


34

29

Reclassification of tax in joint ventures

9

8


11

12

Adjusted operating profit from total operations

1,379

1,258


1,737

1,837







Profit before tax - continuing operations

617

812


777

1,185

Profit before tax - discontinued operations

-

112


-

164

Profit before tax - total operations

617

924


777

1,349

Adjustments:






Amortisation of acquired intangible assets and goodwill impairment 

290

230


365

336

Exceptional restructuring costs

152

-


192

-

Acquisition related costs

45

20


57

29

Reclassification of tax in joint ventures

9

8


11

12

Disposals and other non operating items

92

(63)


116

(92)

Adjusted profit before tax from total operations

1,205

1,119


1,518

1,634







Profit attributable to parent companies' shareholders - total operations


476


1,200



587


1,709

Adjustments (post tax):






Amortisation of acquired intangible assets and goodwill impairment 

327

259


412

378

Exceptional restructuring costs

111

-


140

-

Acquisition related costs

31

13


39

19

Disposals and other non operating items

43

(521)


67

(717)

Deferred tax not expected to crystallise in the near term:






Unrealised exchange differences on long term inter affiliate lending

-

(21)


-

(31)

Acquired intangible assets

(69)

(63)


(86)

(92)

Other

-

(15)


-

(22)

Adjusted profit attributable to parent companies' shareholders from total operations

919

852


1,159

1,244

  6    Acquisitions


On 19 September 2008 Reed Elsevier acquired the entire share capital of ChoicePoint, Inc. for a total consideration amounting to £1,931m/€2,457m after taking account of net cash acquired of £46m/€58m. A number of other acquisitions were made for a total consideration of £200m/€252m, after taking account of net cash acquired of £5m/€6m. The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. Provisional fair values of the consideration given and the assets and liabilities acquired are summarised below:


£



ChoicePoint

Other

 


Notes

Book value on acquisition

£m

Fair value

£m

Book value on acquisition

£m

Fair value

£m

Total fair  value

£m

Goodwill

(i)

-

1,162

-

117

1,279

Intangible assets

(ii)

15

1,471

-

108

1,579

Property, plant and equipment


46

46

2

2

48

Current assets


117

117

11

11

128

Current liabilities


(221)

(221)

(16)

(16)

(237)

Borrowings


(219)

(219)

-

-

(219)

Taxation


25

(425)

3

(22)

(447)

Net assets acquired


(237)

1,931

- 

200

2,131

Consideration (after taking account of £51m net cash acquired)

Less: consideration deferred to future years


(iii)






2,131






(19)

Net cash flow






2,112




€



ChoicePoint

Other

 


Notes

Book value on acquisition

€m

Fair value

€m

Book value on acquisition

€m

Fair value

€m

Total fair value

€m

Goodwill

(i)

-

1,479

-

147

1,626

Intangible assets

(ii)

19

1,871

-

136

2,007

Property, plant and equipment


58

58

2

2

60

Current assets


149

149

14

14

163

Current liabilities


(280)

(280)

(20)

(20)

(300)

Borrowings


(279)

(279)

-

-

(279)

Taxation


32

(541)

4

(27)

(568)

Net assets acquired


(301)

2,457

- 

252

2,709

Consideration (after taking account of €64m net cash acquired)

Less: consideration deferred to future years


(iii)






2,709






(24)

Net cash flow






2,685


(i)    Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of a business to generate higher returns than individual assets, skilled workforces, acquisition synergies that are specific to Reed Elsevier, and high barriers to market entry. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation does not qualify for tax deductions. 

 

(ii)    The provisional fair values of intangible assets acquired with ChoicePoint have been established with advice from independent qualified valuers. 


(iii)    Consideration for ChoicePoint comprised £1,955m/€2,487m to acquire the entire share capital and £22m/€28m of professional fees and other costs relating to the acquisition. 


(iv)    The fair values of the assets and liabilities acquired are provisional pending the completion of the valuation exercises. Final fair values will be incorporated into the 2009 combined financial statements.

    

The businesses acquired in 2008 contributed £180m/€227m to revenue, £41m/€52m to adjusted operating profit, decreased net profit by £10m/€13m and contributed £42m/€53m to net cash inflow from operating activities for the part year under Reed Elsevier ownership.


 7    Exchange translation rates

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

Income statement


Balance sheet


2008

2007


2008

2007

Euro to sterling

1.26

1.46


1.03

1.36

US dollars to sterling

1.85

2.00


1.45

2.00

US dollars to euro

1.47

1.37


1.41

1.47




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, presented in condensed form, has been prepared on the basis of the group accounting policies of Reed Elsevier PLC as set out on page 154 of the Reed Elsevier Annual Reports and Financial Statements 2007, which are in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and as issued by the International Accounting Standards Board. 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 financial information set out below has been abridged from Reed Elsevier PLC's consolidated financial statements for the year ended 31 December 2008, which have been audited 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 section 237(2) or (3) of the Companies Act 1985.


Consolidated income statement

For the year ended 31 December 2008


£


2008

£m

2007

£m

Administrative expenses

(1)

(1)

Effect of tax credit equalisation on distributed earnings

(11)

(11)

Share of results of joint ventures

258

658

Operating profit

246

646

Finance income/(charges)

1

(3)

Profit before tax

247

643

Taxation

(6)

(19)

Profit attributable to ordinary shareholders

241

624







Earnings per ordinary share

For the year ended 31 December 2008


£


2008

pence

2007

pence

Basic earnings per share



From continuing operations of the combined businesses

21.2p

36.6p

From discontinued operations of the combined businesses

0.9p

13.1p

From total operations of the combined businesses

22.1p

49.7p

Diluted earnings per share



From continuing operations of the combined businesses

21.0p

36.2p

From discontinued operations of the combined businesses

0.9p

12.9p

From total operations of the combined businesses

21.9p

49.1p




Adjusted profit and earnings per share figures are presented in note 2 as additional performance measures.



Consolidated cash flow statement

For the year ended 31 December 2008


£


2008

£m

2007

£m

Cash flows from operating activities



Cash used by operations

(1)

(2)

Interest paid

-

(3)

Tax paid

(10)

(16)

Net cash used in operating activities

(11)

(21)




Cash flows from investing activities



Dividends received from joint ventures

500

850




Cash flows from financing activities



Equity dividends paid

(1,245)

(206)

Proceeds on issue of ordinary shares

32

92

Purchase of treasury shares

(20)

(92)

Repayment of loan from joint ventures

-

(36)

Decrease/(increase) in net funding balances due from joint ventures

744

(587)

Net cash used in financing activities

(489)

(829)




Movement in cash and cash equivalents

-

-







Consolidated balance sheet

As at 31 December 2008


£


2008

£m

2007

£m

Non-current assets



Investments in joint ventures

515

1,584

Total assets

515

1,584

Current liabilities



Taxation

11

16

Total liabilities

11

16

Net assets

504

1,568

Capital and reserves



Called up share capital

164

163

Share premium account

1,154

1,123

Shares held in treasury (including in joint ventures)

(347)

(302)

Capital redemption reserve

4

4

Translation reserve

157

(37)

Other reserves

(628)

617

Total equity

504

1,568




Approved by the Board of Directors, 18 February 2009.



Consolidated statement of recognised income and expense

For the year ended 31 December 2008


£


2008

£m

2007

£m

Profit attributable to ordinary shareholders

241

624

Share of joint ventures' net (expense)/income recognised directly in equity

(54)

77

Share of joint ventures' cumulative exchange differences on disposal of foreign operations

14

78

Share of joint ventures' cumulative fair value movements on disposal of available for sale investments

-

(4)

Share of joint ventures' transfer to net profit from hedge reserve

(8)

(11)

Total recognised net income and expense for the year

193

764







Consolidated reconciliation of shareholders' equity

For the year ended 31 December 2008


£


2008

£m

2007

£m

Total recognised net income for the year

193

764

Equity dividends declared

(1,245)

(206)

Issue of ordinary shares, net of expenses

32

92

Increase in shares held in treasury (including in joint ventures)

(49)

(130)

Increase in share based remuneration reserve

24

24

Equalisation adjustments

(19)

(16)

Net (decrease)/increase in shareholders' equity

(1,064)

528

Shareholders' equity at start of year

1,568

1,040

Shareholders' equity at end of year

504

1,568






Notes to the summary financial information

1    Earnings per share




£


Profit attributable to

ordinary shareholders

Basic earnings

per share


2008

£m

2007

£m

2008

pence

2007

pence

Reported figures 

241

624

22.1p

49.7p

Share of joint ventures' net profit from discontinued operations

(10)

(164)

(0.9)p

  (13.1)p

Profit attributable to ordinary shareholders based on the continuing operations of the combined businesses

231

460

21.2p

36.6p







2    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 5 to the combined financial information. The adjusted figures are derived as follows:


Earnings per share from total operations of the combined businesses




£


Profit attributable to

ordinary shareholders

Basic earnings

per share


2008

£m

2007

£m

2008

pence

2007

pence

Reported figures

241

624

22.1p

49.7p

Effect of tax credit equalisation on distributed earnings

11

11

1.0p

0.8p

Profit attributable to ordinary shareholders based on 52.9% economic interest in the Reed Elsevier combined businesses

252

635

23.1p

50.5p

Share of adjustments in joint ventures

234

(184)

21.5p

(14.6)p

Adjusted figures

486

451

44.6p

35.9p







3    Dividends and share consolidation


On 18 January 2008, the company paid a special distribution of 82.0p per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution of £1,041m was recognised when paid.  The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of 14 51/116p for every 67 existing ordinary shares of 12.5p, reflecting the ratio of the aggregate special distribution (including that paid by Reed Elsevier NV) to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at 12 December 2007, the date of the announcement of the special distribution. 


Other dividends declared in the year

2008

2007


2008

2007

pence

pence

£m

£m

Ordinary shares






Final for prior financial year

13.6p

11.8p


146

149

Interim for financial year

5.3p

4.5p


58

57

Total

18.9p

16.3p


204

206









The Directors of Reed Elsevier PLC have proposed a final dividend per ordinary share of 15.0p (2007: 13.6p). The cost of the final dividend, if approved by shareholders, is expected to be £162m. No liability has been recognised at the balance sheet date. The Reed Elsevier PLC final dividend as approved will be paid on 22 May 2009, with ex-dividend and record dates of 22 April 2009 and 24 April 2009 respectively. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstance, equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. The equalisation adjustment equalises the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement.


Other dividends paid and proposed relating to the financial year

2008

2007


pence

pence

Ordinary shares



Interim (paid)

5.3p

4.5p

Final (proposed)

15.0p

13.6p

Total

20.3p

18.1p





4    Share capital and treasury shares



2008

2007


Shares in issue

milions

Treasury shares

millions

Shares in issue net of treasury shares

millions

Shares in issue net of treasury shares millions

Number of ordinary shares





At start of year

1,305.9

(54.6)

1,251.3

1,249.6

Share consolidation

   (175.4)

7.3

(168.1)

-

Issue of ordinary shares

6.4

-

6.4

18.5

Share repurchases

-

(3.2)

(3.2)

(15.2)

Net purchase of shares by employee benefit trust

-

(3.8)

(3.8)

(1.6)

At end of year

1,136.9

(54.3)

1,082.6

1,251.3

Average number of ordinary shares during the year



1,089.5

1,256.5






5    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 £5,765m at 31 December 2008 (2007: £2,759m).




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, presented in condensed form, has been prepared on the basis of the group accounting policies of Reed Elsevier NV as set out on pages 173 to 174 of the Reed Elsevier Annual Reports and Financial Statements 2007, which are in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and as issued by the International Accounting Standards Board. 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 financial information in respect of the year ended 31 December 2008 has been abridged from the consolidated financial statements of Reed Elsevier NV which have been audited and will be filed with the Dutch Chamber of Commerce following the Annual General Meeting. The audit report was unqualified.


Consolidated income statement

For the year ended 31 December 2008


€


2008

€m

2007

€m 


Administrative expenses

(3)

(3)

Share of results of joint ventures

239

803

Operating profit

236

800

Finance income

77

73

Profit before tax

313

873

Taxation

(19)

(18)

Profit attributable to ordinary shareholders

294

855







Earnings per ordinary share

For the year ended 31 December 2008


€


2008

€

2007

€


Basic earnings per share



From continuing operations of the combined businesses

€0.43

€0.84

From discontinued operations of the combined businesses

€0.01

€0.26

From total operations of the combined businesses

€0.44

€1.10

Diluted earnings per share



From continuing operations of the combined businesses

From discontinued operations of the combined businesses

€0.43

€0.83

€0.01

€0.26

From total operations of the combined businesses

€0.44

€1.09


Adjusted profit and earnings per share figures are presented in note 2 as additional performance measures.



Consolidated cash flow statement

For the year ended 31 December 2008


€


2008

€m

2007

€m


Cash flows from operating activities



Cash used by operations

(2)

(2)

Interest received

78

71

Tax paid

(17)

(18)

Net cash from operating activities

59

51




Cash flows from investing activities



Dividends received from joint ventures

1,200

1,410




Cash flows from financing activities



Equity dividends paid

(1,569)

(310)

Proceeds on issue of ordinary shares

27

124

Purchase of treasury shares

(25)

(176)

Decrease/(increase) in net funding balances due from joint ventures

311

(1,238)

Net cash used in financing activities

(1,256)

(1,600)




Movement in cash and cash equivalents

3

(139)







Consolidated balance sheet

As at 31 December 2008


€


2008

€m

2007

€m


Non-current assets



Investments in joint ventures

551

2,075

Current assets



Amounts due from joint ventures

4

5

Cash and cash equivalents

12

9


16

14

Total assets

567

2,089

Current liabilities



Payables

10

9

Taxation

66

64

Total liabilities

76

73

Net assets

491

2,016

Capital and reserves



Share capital issued

49

49

Paid-in surplus

1,712

1,685

Shares held in treasury (including in joint ventures)

(477)

(459)

Translation reserve

(138)

(159)

Other reserves

(655)

900

Total equity

491

2,016




Approved by the Combined Board of Directors, 18 February 2009.

Consolidated statement of recognised income and expense

For the year ended 31 December 2008


€


2008

€m

2007

€m


Profit attributable to ordinary shareholders

294

855

Share of joint ventures' net expense recognised directly in equity

(250)

(45)

Share of joint ventures' cumulative exchange differences on disposal of foreign operations

27

103

Share of joint ventures' cumulative fair value movements on disposal of available for sale investments

-

(5)

Share of joint ventures' transfer to net profit from hedge reserve

(9)

(15)

Total recognised net income and expense for the year

62

893







Consolidated reconciliation of shareholders' equity

For the year ended 31 December 2008


€


2008

€m

2007

€m

Total recognised net income for the year

62

893

Equity dividends declared

(1,569)

(310)

Issue of ordinary shares, net of expenses

27

124

Increase in shares held in treasury (including in joint ventures)

(59)

(230)

Increase in share based remuneration reserve

29

34

Equalisation adjustments

(15)

40

Net (decrease)/increase in shareholders' equity

(1,525)

551

Shareholders' equity at start of year

2,016

1,465

Shareholders' equity at end of year

491

2,016








Notes to the summary financial information

1    Earnings per share 




€


Profit attributable to

 ordinary shareholders

Basic earnings

per share


2008

€m

2007

€m

2008

€

2007

€

Reported figures 

294

855

€0.44

€1.10

Share of joint ventures' net profit from discontinued operations

(5)

(204)

€(0.01)

€(0.26)

Profit attributable to ordinary shareholders based 
on the continuing operations of the combined businesses

289

651

€0.43

€0.84






2    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 5 to the combined financial information. The adjusted figures are derived as follows:


Earnings per share from total operations of the combined businesses




€


Profit attributable to   

ordinary shareholders

Basic earnings

per share


2008

€m

2007

€m

2008

€

2007

€

Reported figures 

294

855

€0.44

€1.10

Share of adjustments in joint ventures

286

(233)

€0.43

€(0.30)

Adjusted figures

580

622

€0.87

€0.80






3    Dividends and share consolidation


On 18 January 2008, the company paid a special distribution of €1.767 per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution of €1,299m was recognised when paid.  The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of €0.07 for every 67 existing ordinary shares of €0.06, reflecting the ratio of the aggregate special distribution (including that paid by Reed Elsevier PLC) to the combined market capitalisation of Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) and Reed Elsevier PLC as at 12 December 2007, the date of the announcement of the special distribution. The existing R-shares of €0.60 were consolidated on a similar basis into new R-shares of €0.70. 


Other dividends declared in the year


 

 
2008
2007
 
2008
2007
 
€
€
 
€m
€m
Ordinary shares
 
 
 
 
 
Final for prior financial year
€0.311
€0.304
 
198
225
Interim for financial year
€0.114
€0.114
 
72
85
Total
€0.425
€0.418
 
270
310
R-shares
-
-
 
-
-
 
 
 
 
 
 

The Directors of Reed Elsevier NV have proposed a final dividend per ordinary share of €0.290 (2007: €0.311). The cost of the final dividend, if approved by shareholders, is expected to be €181m. No liability has been recognised at the balance sheet date. The Reed Elsevier NV final dividend as approved will be paid on 22 May 2009, with ex-dividend and record dates of 24 April 2009 and 28 April 2009 respectively. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders, other than in special circumstances, are equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. 

  Other dividends paid and proposed relating to the financial year

 
2008
2007
 
€
€
Ordinary shares
 
 
Interim (paid)
€0.114
€0.114
Final (proposed)
€0.290
€0.311
Total
€0.404
€0.425
R-shares
–
–
 
 
 


 


4    Share capital and treasury shares



2008

2007


Shares in issue

milions

Treasury shares

millions

Shares in issue net of treasury shares

millions

Shares in issue net of treasury shares millions

Number of ordinary shares





At start of year

760.3

(35.4)

724.9

726.0

Share consolidation

(102.1)

4.7

(97.4)

-

Issue of ordinary shares

2.4

-

2.4

11.7

Share repurchases

-

(2.1)

(2.1)

(11.9)

Net purchase of shares by employee benefit trust

-

(2.4)

(2.4)

(0.9)

At end of year

660.6

(35.2)

625.4

724.9

Average number of equivalent ordinary shares during the year



669.0

774.9






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.


5    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 €5,917m at 31 December 2008 (2007: €3,745m).






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


$


2008

US$m

2007

US$m


Revenue - continuing operations

9,868

9,168

Operating profit - continuing operations

1,667

1,776

Profit before tax - continuing operations

1,141

1,624

Net profit from discontinued operations

33

618

Net profit attributable to parent companies' shareholders - total operations

881

2,400

Adjusted operating profit - continuing operations

2,551

2,274

Adjusted profit attributable to parent companies' shareholders - total operations

1,700

1,704

Basic earnings per American Depositary Share (ADS) - total operations

US$

US$

Reed Elsevier PLC (Each ADS comprises four ordinary shares)

$1.64

$3.98

Reed Elsevier NV (Each ADS comprises two ordinary shares)

$1.29

$3.01

Adjusted earnings per American Depositary Share (ADS) - total operations



Reed Elsevier PLC (Each ADS comprises four ordinary shares)

$3.30

$2.87

Reed Elsevier NV (Each ADS comprises two ordinary shares)

$2.56

$2.19




Adjusted earnings per American Depository Share is based on Reed Elsevier PLC shareholders' 52.9% and Reed Elsevier NV shareholders' 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 5 to the combined financial information and in note 2 to the summary financial information of each of the two parent companies.


Combined cash flow statement


$


2008

US$m

2007

US$m


Net cash from operating activities - continuing operations

1,957

1,662

Net cash used in investing activities - continuing operations

(4,257)

(756)

Net cash used in financing activities - continuing operations

(1,633)

(896)

Net cash used in/(from) discontinued operations

(89)

3,824

(Decrease)/increase in cash and cash equivalents

(4,022)

3,834

Adjusted operating cash flow - continuing operations

2,603

2,216







Combined balance sheet


$


2008

US$m

2007

US$m


Non-current assets

14,983

10,682

Current assets

3,601

8,192

Assets held for sale

71

682

Total assets

18,655

19,556

Current liabilities

5,957

7,734

Non-current liabilities

11,273

5,702

Liabilities associated with assets held for sale

3

168

Total liabilities

17,233

13,604

Net assets

1,422

5,952







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 Elsevier PLC and Reed Elsevier NV - are listed on the London and Amsterdam Stock Exchanges respectively, and also on the New York Stock Exchange. The returns to their respective shareholders are equalised in terms of dividend and capital rights. 'Reed Elsevier' and 'the combined businesses' comprise Reed Elsevier PLC and Reed Elsevier NV plus their two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV, and their respective subsidiaries and joint ventures.

The Reed Elsevier PLC 2008 Annual Reports and Financial Statements are expected to be posted to Reed Elsevier PLC shareholders on 13 March 2009, at which time they will also be available on the Reed Elsevier website at www.reedelsevier.com. Copies of the Reed Elsevier PLC and Reed Elsevier NV 2008 Annual Report and Financial Statements will be available to shareholders in Reed Elsevier NV on request. Copies of the Preliminary Statement are available to the public from the respective companies:

Reed Elsevier PLC
1-3 Strand
London WC2N 5JR
United Kingdom

Reed Elsevier NV
Radarweg 29 

1043 NX Amsterdam
The Netherlands



















Copies of all recent announcements, including this Preliminary Announcement, 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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