Final Results - Year Ended 31 Dec 1999, Part 2
Reed International PLC
Elsevier NV
24 February 2000
PART 2
Combined profit and loss ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998 1999 1998
Note £m £m Em Em
Turnover
Including share of turnover
in joint ventures 3,464 3,271 5,265 4,867
Less: share of turnover
in joint ventures (74) (80) (112) (118)
3 3,390 3,191 5,153 4,749
Continuing operations
before
acquisitions 3,359 3,163 5,106 4,708
Acquisitions 31 - 47 -
Continuing
operations 3,390 3,163 5,153 4,708
Discontinued operations - 28 - 41
Cost of sales (1,185) (1,092) (1,801) (1,625)
Gross profit 2,205 2,099 3,352 3,124
Operating
expenses (2,028) (1,706) (3,083) (2,540)
Before amortisation and
exceptional
items (1,420) (1,304) (2,159) (1,941)
Amortisation of goodwill
and intangible
assets (369) (323) (561) (481)
Exceptional items 4 (239) (79) (363) (118)
Operating profit
(before joint ventures) 177 393 269 584
Continuing operations
before acquisitions 191 394 290 586
Acquisitions (14) - (21) -
Continuing operations 177 394 269 586
Discontinued operations - (1) - (2)
Share of operating profit
in joint ventures 3 9 5 14
Operating profit including
joint ventures 180 402 274 598
Non operating items 4
Continuing - net profit on
sale of fixed asset investments 7 - 11 -
- merger expenses - (10) - (15)
Discontinued - net profit
on sale of businesses - 692 - 1,031
Profit on ordinary activities
before interest 187 1,084 285 1,614
Net interest expense (82) (40) (125) (60)
Profit on ordinary activities
before taxation 105 1,044 160 1,554
Tax on profit on ordinary
activities (167) (271) (254) (404)
(Loss)/profit on ordinary activities
after taxation (62) 773 (94) 1,150
Minority interests and
preference dividends (1) (1) (1) (1)
(Loss)/profit attributable to parent
companies' shareholders (63) 772 (95) 1,149
Ordinary dividends paid
and proposed (234) (349) (356) (519)
Retained (loss)/profit taken
to combined reserves (297) 423 (451) 630
ADJUSTED FIGURES
1999 1998 1999 1998
Note £m £m Em Em
Adjusted operating profit 5 792 813 1,204 1,210
Adjusted profit before
tax 5 710 773 1,079 1,150
Adjusted profit attributable to
parent companies' shareholders 5 527 571 801 850
Adjusted figures exclude the amortisation of goodwill and intangible assets,
exceptional items and related tax effects, and are presented as additional
performance measures.
Combined cash flow statement
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998 1999 1998
Note £m £m Em Em
Net cash inflow from operating
activities before exceptional
items 6 898 937 1,365 1,395
Payments relating to exceptional
items charged to operating profit
6 (138) (258) (210) (384)
Net cash inflow from
operating activities 760 679 1,155 1,011
Dividends received from
joint ventures 4 11 6 16
Interest received 33 61 50 91
Interest paid (114) (106) (173) (158)
Returns on investments and
servicing of finance (81) (45) (123) (67)
Taxation (including £74m/E112m
(1998 £nil/Enil) exceptional
repayments) (99) (144) (150) (214)
Purchase of tangible fixed
assets (137) (151) (208) (225)
Proceeds from sale of fixed assets 15 11 23 17
Capital expenditure (122) (140) (185) (208)
Acquisitions (166) (1,232) (252) (1,833)
Payments against acquisition
provisions (1) (11) (2) (16)
Exceptional net proceeds from sale of
fixed asset investments and businesses 3 913 5 1,359
Merger expenses - (8) - (13)
Acquisitions and
disposals (164) (338) (249) (503)
Equity dividends paid to the
shareholders of the parent
companies (339) (362) (515) (540)
Cash outflow before changes in short
term investments and
financing (41) (339) (61) (505)
Decrease in short term investments 297 63 451 94
Financing (197) 192 (300) 286
Increase/(decrease) in cash 59 (84) 90 (125)
Short term investments include deposits of under one year if the maturity or
notice period exceeds 24 hours, commercial paper investments and interest
bearing securities that can be realised without significant loss at short
notice.
ADJUSTED FIGURES
1999 1998 1999 1998
Note £m £m Em Em
Adjusted operating cash flow 5 780 808 1,186 1,203
Adjusted operating cash flow
conversion 98% 99% 98% 99%
Reed Elsevier businesses focus on adjusted operating cash flow as the key
cash flow measure. Adjusted operating cash flow is measured after dividends
from joint ventures, tangible fixed asset spend and proceeds from the sale of
fixed assets but before operating exceptional payments and proceeds. Adjusted
operating cash flow conversion expresses adjusted operating cash flow as a
percentage of adjusted operating profit.
Combined BALANCE SHEET
AS AT 31 DECEMBER 1999
1999 1998 1999 1998
£m £m Em Em
Fixed assets
Goodwill and intangible
assets 3,400 3,598 5,474 5,110
Tangible assets 386 399 622 567
Investments 119 87 192 123
3,905 4,084 6,288 5,800
Current assets
Stocks 113 101 183 144
Debtors: amounts falling due
within one year 666 731 1,072 1,038
Debtors: amounts falling due
after more than one year 148 136 238 193
Cash and short term investments 440 708 708 1,005
1,367 1,676 2,201 2,380
Creditors: amounts falling due
within one
year (2,676) (2,791) (4,308) (3,963)
Net current
liabilities (1,309) (1,115) (2,107) (1,583)
Total assets less current
liabilities 2,596 2,969 4,181 4,217
Creditors: amounts falling due
after more than one
year (620) (797) (998) (1,132)
Provisions for liabilities and
charges (113) (36) (182) (51)
Minority interests (8) (6) (14) (9)
Net assets 1,855 2,130 2,987 3,025
Capital and reserves
Combined share capitals 168 168 270 239
Combined share premium accounts 341 353 549 501
Combined reserves 1,346 1,609 2,168 2,285
Combined shareholders'
funds 1,855 2,130 2,987 3,025
Net borrowings 1,066 962 1,717 1,366
The combined financial statements were approved by the Boards of Reed
International P.L.C. and Elsevier NV, 23 February 2000.
Combined statement of total recognised gains and losses
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998 1999 1998
£m £m Em Em
(Loss)/profit attributable to
parent companies' shareholders (63) 772 (95) 1,149
Exchange translation differences 17 (3) 405 (196)
Total recognised gains and
losses for the year (46) 769 310 953
Combined shareholders' funds reconciliation
FOR THE YEAR ENDED 31 DECEMBER 1999
1999 1998 1999 1998
£m £m Em Em
Combined shareholders'
funds at 1 January 2,130 1,692 3,025 2,564
(Loss)/profit attributable to
parent companies' shareholders (63) 772 (95) 1,149
Ordinary dividends paid and
proposed (234) (349) (356) (519)
Issue of shares on exercise of
options, less capital redemptions 5 18 8 27
Exchange translation differences 17 (3) 405 (196)
Combined shareholders'
funds at 31 December 1,855 2,130 2,987 3,025
COMBINED FINANCIAL STATEMENTS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1 Basis of preparation
The Reed Elsevier combined financial statements encompass the businesses of
Reed Elsevier plc and Elsevier Reed Finance BV and their respective
subsidiaries, joint ventures and associates, together with the parent
companies, Reed International and Elsevier. They are presented in both £
sterling and euros.
2 Exchange translation rates
Profit & loss Balance sheet
1999 1998 1999 1998
Euros to sterling 1.52 1.49* 1.61 1.42
Dutch guilders to sterling 3.35 3.28 3.55 3.13
US dollars to sterling 1.62 1.66 1.62 1.66
Euros to US dollars 0.94 0.90* 0.99 0.86
*based on the average guilder rate for 1998.
3 Segment analysis
Adjusted Adjusted
operating operating
Turnover profit Turnover profit
1999 1998 1999 1998 1999 1998 1999 1998
£m £m £m £m Em Em Em Em
Geographical
origin
North
America 1,836 1,663 359 390 2,791 2,476 547 581
United Kingdom 698 692 191 204 1,061 1,030 290 304
The
Netherlands 391 383 135 128 594 570 205 190
Rest of Europe 307 293 87 76 467 436 132 113
Rest of world 158 132 20 15 240 196 30 22
Continuing
operations 3,390 3,163 792 813 5,153 4,708 1,204 1,210
Discontinued
operations - 28 - - - 41 - -
Total 3,390 3,191 792 813 5,153 4,749 1,204 1,210
1999 1998 1999 1998
£m £m Em Em
Geographical
market
North America 1,906 1,726 2,898 2,569
United Kingdom 484 483 736 719
The Netherlands 237 222 360 330
Rest of Europe 418 407 635 606
Rest of world 345 325 524 484
Continuing
operations 3,390 3,163 5,153 4,708
Discontinued
operations - 28 - 41
Total 3,390 3,191 5,153 4,749
Discontinued operations comprise IPC Magazines and the remaining consumer book
publishing operations sold in 1998.
COMBINED FINANCIAL STATEMENTS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
4 Exceptional items
1999 1998 1999 1998
£m £m Em Em
Reorganisation costs (161) - (244) -
Acquisition related
integration costs (28) (26) (43) (39)
Year 2000 compliance costs (50) (53) (76) (79)
Charged to operating
profit (239) (79) (363) (118)
Net profit on sale of fixed asset
investments and businesses 7 692 11 1,031
Merger expenses - (10) - (15)
Total exceptional
(charge)/credit (232) 603 (352) 898
Tax credit/(charge) 15 (70) 23 (105)
5 Adjusted figures
Adjusted profit and cash flow figures are used by the Reed Elsevier
businesses as additional performance measures. These exclude the amortisation
of
goodwill and intangible assets, exceptional items and related tax effects,
and are derived as follows:
1999 1998 1999 1998
£m £m Em Em
Operating profit 180 402 274 598
Adjustments:
Amortisation of goodwill
and intangible assets 373 332 567 494
Exceptional items 239 79 363 118
Adjusted operating profit 792 813 1,204 1,210
Profit before tax 105 1,044 160 1,554
Adjustments:
Amortisation of goodwill
and intangible assets 373 332 567 494
Exceptional items 232 (603) 352 (898)
Adjusted profit before tax 710 773 1,079 1,150
(Loss)/profit attributable to
parent companies' shareholders (63) 772 (95) 1,149
Adjustments:
Amortisation of goodwill
and intangible assets 373 332 567 494
Exceptional items 217 (533) 329 (793)
Adjusted profit attributable to
parent companies' shareholders 527 571 801 850
Net cash inflow from
operating activities 760 679 1,155 1,011
Dividends received
from joint ventures 4 11 6 16
Purchase of tangible fixed
assets (137) (151) (208) (225)
Proceeds from sale of fixed assets 15 11 23 17
Payments in relation to exceptional
items charged to operating profit 138 258 210 384
Adjusted operating cash flow 780 808 1,186 1,203
COMBINED FINANCIAL STATEMENTS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
6 Reconciliation of net cash inflow from operating activities
1999 1998 1999 1998
£m £m Em Em
Operating profit (before joint ventures) 177 393 269 584
Exceptional charges to operating profit 239 79 363 118
Operating profit before exceptional
items 416 472 632 702
Amortisation of goodwill and intangible
assets 369 323 561 481
Depreciation charges 117 97 178 144
Net SSAP24 pension credit (3) (4) (5) (6)
Total non cash items 483 416 734 619
Increase in stocks (9) - (14) -
(Increase)/decrease in debtors (8) 17 (12) 26
Increase in creditors 16 32 25 48
Movement in working capital (1) 49 (1) 74
Net cash inflow from operating
activities before exceptional
items 898 937 1,365 1,395
Payments relating to exceptional
items charged to operating
profit (138) (258) (210) (384)
Net cash inflow from operating
activities 760 679 1,155 1,011
7 Reconciliation of net borrowings
1999 1998 1999 1998
£m £m £m Em
Net borrowings at 1
January (962) (630) (1,366) (955)
Increase/(decrease) in cash 59 (84) 90 (125)
Decrease in short term
investments (297) (63) (451) (94)
Decrease/(increase) in
borrowings 202 (174) 308 (259)
Change in net borrowings resulting
from cash flows (36) (321) (53) (478)
Inception of finance
leases (11) (10) (17) (15)
Exchange translation differences (57) (1) (281) 82
Net borrowings at 31
December (1,066) (962) (1,717) (1,366)
8 Contingent liabilities
A lawsuit has been filed in the United States against Reed Elsevier Inc. by
Jurisline.com LLC seeking declaratory relief relating to copyrights and
trademarks and challenging the validity of subscription agreements. It also
alleges that Reed Elsevier Inc. has engaged in anti-competitive behaviour and
seeks damages and injunctive relief. The lawsuit is being vigorously
defended. In a related lawsuit the Reed Elsevier subsidiary, Matthew Bender &
Company Inc., has filed a suit alleging that Jurisline has fraudulently
obtained its products and has sought to use those products in developing a
legal information service in breach of express contractual restrictions. Reed
Elsevier fully expects the courts to reaffirm the enforceability of its
contracts and dismiss the claims filed against Reed Elsevier Inc.. A decision
against Reed Elsevier could, however, have significant consequences across
the information industry in relation to the protection of databases. A
lawsuit has also been recently filed against Reed Elsevier Inc. and the
Thomson Corporation by two practising attorneys in the US Virgin Islands
alleging anti-competitive behaviour and claiming $6bn in damages and
penalties. The claim is regarded as baseless and Reed Elsevier expects that it
will be successfully defended. No amounts have been provided in respect of the
above claims.
REED INTERNATIONAL P.L.C.
SUMMARY FINANCIAL INFORMATION
Basis of preparation
The results for the year ended 31 December 1999 reflect Reed International's
50% share of the Reed Elsevier combined businesses, and its 5.8% interest
in Elsevier, both of which are accounted for on an equity basis.
Adjusted figures, which exclude amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as additional
performance measures.
Summary consolidated profit and loss account
1999 1998
FOR THE YEAR ENDED 31 DECEMBER 1999 £m £m
Share of combined turnover 1,793 1,688
Share of adjusted profit before tax
Reed Elsevier combined businesses (50%) 355 387
Elsevier (5.8%) 21 22
376 409
Share of amortisation (197) (176)
Share of exceptional items before tax (122) 319
Elsevier's share of UK tax credit on distributed
earnings (6) (12)
Profit on ordinary activities before taxation 51 540
Tax on profit on ordinary activities (90) (144)
(Loss)/profit attributable to ordinary
shareholders (39) 396
Dividends paid and proposed (116) (172)
Retained (loss)/profit taken to reserves (155) 224
Basic (loss)/earnings per share (3.4)p 34.7p
Diluted (loss)/earnings per share (3.4)p 34.6p
Adjusted earnings per share 24.4p 26.4p
Adjusted earnings per share is based upon the Reed International's
shareholders' 52.9% share of the adjusted profit attributable of the Reed
Elsevier combined businesses.
Tax on profit on ordinary activities includes £95m (1998 £143m) in respect of
joint ventures.
Dividends
The directors of Reed International have proposed a final dividend of 5.4p per
ordinary share (1998 10.4p) which when added to the interim dividend already
paid of 4.6p per ordinary share (1998 4.6p), amounts to a total 1999 dividend
of 10.0p per ordinary share (1998 15.0p), a decrease of 33%. Dividends paid to
Reed International and Elsevier shareholders are equalised at the gross level
inclusive of the UK tax credit received by certain Reed International
shareholders. The equalisation adjustment equalises the benefit of the tax
credit between the two sets of shareholders in accordance with the
equalisation agreement.
Reconciliation of shareholders' funds
1999 1998
£m £m
Shareholders' funds at 1 January 1,127 895
Retained (loss)/profit (155) 224
Issue of shares on exercise of options 4 14
Redemption of preference shares (4) -
Exchange translation differences 9 (6)
Shareholders' funds as at 31 December 981 1,127
The balance sheet of Reed International reflects its shareholders' 52.9%
interest in the net assets of the Reed Elsevier combined businesses.
Shareholders' funds are largely represented by the investment in Reed
Elsevier.
The financial information set out above has been abridged from the financial
statements for the year ended 31 December 1999, which have been audited by
Deloitte & Touche, and will be filed with the UK Registrar of Companies
following the Annual General Meeting. The audit report was unqualified and
did not contain statements under S237(2) or (3) Companies Act 1985.
ELSEVIER NV
SUMMARY FINANCIAL INFORMATION
Basis of preparation
The results for the year ended 31 December 1999 reflect Elsevier's 50% share
of the Reed Elsevier combined businesses, which are accounted for on an equity
basis.
Adjusted figures, which exclude amortisation of goodwill and intangible
assets, exceptional items and related tax effects, are presented as additional
performance measures.
Summary profit and loss account
1999 1998
FOR THE YEAR ENDED 31 DECEMBER 1999 Em Em
Share of combined turnover 2,577 2,375
Share of adjusted profit before tax
from Reed Elsevier combined businesses (50%) 540 575
Share of amortisation (284) (247)
Share of exceptional items before tax (176) 449
Taxation (128) (203)
(Loss)/profit attributable to shareholders (48) 574
Allocation of (loss)/profit
Dividends paid and proposed 179 263
Transfer (from)/to reserves (227) 311
(Loss)/profit attributable to shareholders (48) 574
Adjusted earnings per share (in euros) 0.57 0.60
Adjusted earnings per share is based upon Elsevier's shareholders' 50% share
of the adjusted profit attributable of the Reed Elsevier combined businesses.
Dividends
The directors of Elsevier have proposed a final dividend of E0.15/Dfl 0.33
per ordinary share (1998 E0.26/Dfl 0.58), which when added to the interim
dividend already paid of E0.12/Dfl 0.26 per ordinary share (1998 E0.13/Dfl
0.29), amounts to a total 1999 dividend of E0.27/Dfl 0.59 per ordinary share
(1998 E0.39/Dfl 0.87), a decrease of 31%. Dividends paid to Reed
International and Elsevier shareholders are equalised at the gross level
inclusive of the UK tax credit received by certain Reed International
shareholders. Equalisation represents the net movement to maintain Elsevier's
shareholders' funds at 50% of the combined net assets. Movements include
Elsevier's share of the UK tax credit on distributed earnings and an
adjustment to recognise Reed International's entitlement on its shareholders'
5.8% interest to distributions equivalent to those payable to other Elsevier
shareholders.
Reconciliation of shareholders' funds
1999 1998
Em Em
Shareholders' funds at 1 January 1,512 1,282
Retained (loss)/profit (227) 311
Issue of shares on exercise of options 8 5
Exchange translation differences and equalisation 200 (86)
Shareholders' funds at 31 December 1,493 1,512
The balance sheet of Elsevier reflects its 50% share of the net assets of the
combined businesses. Shareholders' funds are largely represented by the
investments in Reed Elsevier.
The financial information in respect of the year ended 31 December
1999 has been extracted from the statutory accounts of Elsevier which have
been audited by Deloitte & Touche.
ADDITIONAL information
FOR us INVESTORS
REED ELSEVIER SUMMARY COMBINED
FINANCIAL INFORMATION UNDER US GAAP
SUMMARY OF PRINCIPAL differences between UK and Dutch GAAP and US GAAP
Basis of preparation
The combined financial statements for Reed Elsevier are prepared in
accordance with UK and Dutch GAAP, which differ in certain significant
respects from US GAAP. The principal differences relate to the US GAAP
requirements in respect of the capitalisation and amortisation of goodwill
and other intangibles, deferred taxes, and the definition of continuing and
discontinued operations. A more complete explanation of accounting policies
used by the combined businesses and the differences between UK and Dutch GAAP
and US GAAP will be set out in the 1999 Reed Elsevier Annual Report and Reed
Elsevier Annual Report on Form 20-F.
Net income
For the year ended 31 December 1999
1999 1998 1999 1998
£m £m Em £m
Net income under UK and Dutch
GAAP (63) 772 (95) 1,149
US GAAP adjustments:
Amortisation of goodwill and other
intangibles (83) (477) (126) (710)
Deferred taxation 67 77 101 114
Pensions 6 30 9 45
Other items - (4) - (6)
Net income under US GAAP (73) 398 (111) 592
Analysed:
Continuing
operations (73) (122) (111) (182)
Discontinued operations
- income from operations - (1) - (1)
- gain on sales - 521 - 775
Net income under US GAAP (73) 398 (111) 592
Discontinued operations comprised IPC Magazines and the remaining consumer
book publishing operations which were the final elements of the Consumer
segment sold in 1998.
The adjustment for amortisation of goodwill and intangible assets in 1998
includes the additional write downs arising as a consequence of the
re-evaluation of the remaining asset lives of goodwill and intangible assets
under US GAAP.
Shareholders' funds
As at 31 December 1999 1998 1999 1998
£m £m Em £m
Combined shareholders' funds under
UK and Dutch GAAP 1,855 2,130 2,987 3,025
US GAAP adjustments:
Goodwill and other intangibles 553 637 890 905
Deferred taxation (180) (242) (290) (344)
Pensions 63 57 102 81
Other items 5 7 8 10
Ordinary dividends not declared in the
period 127 244 204 346
Combined shareholders' funds under US
GAAP 2,423 2,833 3,901 4,023
NOTES FOR EDITORS
Reed Elsevier is a world leading publisher and information provider and its
principal operations are in North America and Europe. Its two parent
companies - Reed International P.L.C. ('Reed International') and Elsevier NV
('Elsevier') - are listed on the Amsterdam, London and New York Stock
Exchanges and the returns to their respective shareholders are equalised in
terms of dividend and capital rights. 'Reed Elsevier' and 'the combined
businesses' comprise Reed International and Elsevier plus their two jointly
owned companies, Reed Elsevier plc and Elsevier Reed Finance BV and their
respective subsidiaries and joint ventures.
Both Reed International ('RUK', CUSIP No. 758212872) and Elsevier ('ENL',
CUSIP No. 290259100) have American Depositary Shares (ADSs) listed on the
New York Stock Exchange (Depositary: Citibank NA). An ADS in Elsevier
represents two ordinary shares in Elsevier, while a Reed International ADS
represents four ordinary shares in Reed International. Final dividends on
Reed International and Elsevier ADSs will be paid on 30 May 2000.
The final dividends will be paid on 22 May 2000 to Reed International and
Elsevier shareholders. The ex-dividend date for the Reed International
ordinary shares is 2 May 2000 and for the Elsevier ordinary shares is 1 May
2000. For the Reed International payment the record date will be 8 May 2000.
The Reed Elsevier Annual Review 1999 and Reed International P.L.C. 1999
Report and Accounts are being posted to Reed International shareholders on
17 March 2000. Copies of the Reed Elsevier Annual Review 1999 and Elsevier NV
Annual Report 1999 will be available to shareholders in Elsevier on request.
Copies of the Preliminary Statement are available to the public from the
respective companies:
Reed International P.L.C. Elsevier NV
25 Victoria Street Van de Sande Bakhuyzenstraat 4
London SW1H 0EX 1061 AG, Amsterdam
UK The Netherlands
Copies of all recent announcements, including this Preliminary Statement,
and additional information on Reed Elsevier can be found on the Reed Elsevier
Home Page on the World Wide Web:
http://www.reed-elsevier.com
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