Interim Results - Part 1
Reed International PLC
Elsevier NV
9 August 2000
Part 1
Issued on behalf of Reed International P.L.C. and Elsevier NV
HIGHLIGHTS OF THE INTERIM STATEMENT
For the six months ended 30 June 2000
GOOD PROGRESS ON STRATEGY TO DRIVE INTERNET LED GROWTH
Investment programme firmly on track
Appointment of new management team almost completed
Cost savings expected to be ahead of £130m / Euro210m 2000 target
Launch of new Internet based services
Acquisitions to expand content, technical capability and geographic spread
FINANCIAL HIGHLIGHTS:
Revenues up 6% to £1,795m / up 16% to Euro2,926m
Adjusted pre tax profits 5% lower at £351m / up 4% at Euro572m; 4% lower at
constant rates
Internet driven investment spending of £110m / Euro179m
REED ELSEVIER
2000 1999 Change 2000 1999 Change
Six months to 30 £m £m % Euro m Euro m %
June
Turnover 1,795 1,696 +6% 2,926 2,524 +16%
Adjusted profit 351 371 -5% 572 552 +4%
before tax
PARENT COMPANIES
Reed International Elsevier
2000 1999 Change 2000 1999 Change
% %
Six months to 30 June
Adjusted earnings per share 12.0p 12.8p -6% Euro 0.30 Euro 0.29 +3%
Dividend per share 3.1p 4.6p -33% Euro 0.09 Euro 0.12 -25%
Interim dividend reflects one-third reduction announced in February to
restore normal proportions between interim and final dividends; final
dividend will be adjusted upwards accordingly.
Crispin Davis, Chief Executive Officer of Reed Elsevier, commented:
'In February, we laid out in some detail our strategic priorities to turn
around Reed Elsevier's performance. Execution against those plans is firmly
on track and we are increasingly confident that our strategy will deliver the
superior growth and shareholder returns that we have targeted.'
Enquiries
London/Amsterdam New York
Crispin Davis Paul Richardson
Mark Armour +1 212 448 2399
Susanna Smart
+44 (0)20 7227 5670
REED ELSEVIER COMBINED BUSINESSES
Year ended Six months Six months Change at
31 December ended 30 June ended 30 June constant
1999 1999 2000 1999 2000 1999 currencies %
£m Euro m £m £m Euro m Euro m
3,390 5,153 Turnover 1,795 1,696 2,926 2,524 +6
792 1,204 Adjusted 394 408 642 607 -2
operating profit
710 1,079 Adjusted profit 351 371 572 552 -4
before tax
527 801 Adjusted profit 260 276 424 411 -4
attributable
780 1,186 Adjusted operating 306 244 499 363 +25
cash flow
1,066 1,717 Net borrowings 1,481 1,247 2,340 1,895
23% 23% Operating margin 22% 24% 22% 24%
98% 98% Operating cash 78% 60% 78% 60%
flow conversion
10 10 Interest cover 9 11 9 11
(times)
The financial highlights presented refer to 'adjusted' profit and cash flow
figures. These figures are used by the Reed Elsevier businesses as additional
performance measures and are stated before exceptional items, the amortisation
of goodwill and intangible assets and related tax effects.
The percentage change at constant currencies refers to the movements at
constant exchange rates, using 1999 full year average rates.
The Reed Elsevier combined businesses encompass the businesses of Reed
Elsevier plc and Elsevier Reed Finance BV, together with their two parent
companies, Reed International and Elsevier.
PARENT COMPANIES
Reed International
Year
ended Six months
31 December ended 30 June Change
1999 2000 1999 %
£m £m £m
Adjusted profit attributable
279 - at reported rates 138 146 -5
279 - at constant rates 139 145 -4
Adjusted earnings per share
24.4p - at reported rates 12.0p 12.8p -6
24.4p - at constant rates 12.1p 12.7p -5
10.0p Dividend per share 3.1p 4.6p -33
Elsevier
Year ended Six months
31 December ended 30 June Change
1999 2000 1999
Euro m Euro m Euro m %
Adjusted profit attributable
401 - at reported rates 212 206 +3
401 - at constant rates 200 209 -4
Adjusted earnings per share
Euro 0.57 - at reported rates Euro 0.30 Euro 0.29 +3
Euro 0.57 - at constant rates Euro 0.28 Euro 0.30 -5
Euro 0.27 Dividend per share Euro 0.09 Euro 0.12 -25
The results of Reed International reflect its shareholders' 52.9% economic
interest in the Reed Elsevier combined businesses, through a 50% share of the
Reed Elsevier combined businesses and a 5.8% interest in Elsevier. The results
of Elsevier reflect its 50% share of the Reed Elsevier combined businesses.
FORWARD-LOOKING STATEMENTS
The Interim Statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act 1993, as amended, and Section 21E of the
Securities Exchange Act 1934, as amended. These statements are subject to a
number of risks and uncertainties and actual results and events could differ
materially from those currently being anticipated as reflected in such
forward-looking statements. The terms 'expect', 'should be', 'will be', and
similar expressions identify forward-looking statements. Factors which may
cause future outcomes to differ from those foreseen in forward-looking
statements include, but are not limited to, general economic conditions and
business conditions in Reed Elsevier's markets, customers' acceptance of its
products and services, the actions of competitors, changes in law and legal
interpretation affecting Reed Elsevier's intellectual property rights, and the
impact of technological change.
REPORT OF THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
We are pleased to report good progress in the execution of the group's new
strategy for growth that we announced in February. We have significantly
strengthened the senior management team, our businesses are developing and
launching new Internet based information services, and our investment and cost
savings programmes are well on track. Acquisitions have been made to expand
our content, our technology capabilities, and the range and geographical
spread of our services. Non core businesses are being sold.
FINANCIAL RESULTS
The first half results are slightly ahead of our expectations. Revenues were
up
6% to £1,795m/16% to Euro2,926m whilst adjusted profits before tax were lower
by 5% to £351m / up 4% to Euro572m, or 4% lower at constant exchange rates.
Underlying revenue growth, excluding acquisitions, disposals and currency
translation, was up 4% which compares favourably with the 1% increase in the
first half of 1999. Operating margins were 2% lower at 22%, reflecting the
substantial increase in investment this year to accelerate long-term growth.
In Science, revenues and operating profits increased by 11% and 9%
respectively at constant exchange rates, or 8% and 7% excluding acquisitions
and disposals. This good revenue growth reflects stronger renewals and the
increasing penetration of the ScienceDirect web service.
In Legal, revenues increased by 4% whereas operating profit was down 20% at
constant exchange rates reflecting the significant step up in new product and
marketing initiatives to drive future growth. It is too early to see the
impact of this investment at LEXIS, where revenues were flat, whereas at NEXIS
revenues stabilised after falling last year. The legal publishing businesses
outside the US continued to perform well, particularly in the UK and France.
In the Business segment, revenues and operating profits increased by 5% and 6%
respectively at constant exchange rates. Underlying revenue growth was also
5% reflecting improved market conditions and revenue initiatives taken.
Underlying operating profits were up 8% including the positive impact of the
restructuring programme started last year, most particularly at Cahners. The
step up in investment costs will be greater in the second half.
PROGRESS ON STRATEGY
In February, we laid out in some detail our strategic priorities - focused
around the three core businesses of Science, Legal and Business to Business -
to turn around Reed Elsevier's performance and deliver superior shareholder
returns. Executing against those plans is on track and we believe even more
strongly now that the programme we are aggressively pursuing is the right one.
Significantly upgrade management and organisation effectiveness.
Our key priority has been to establish a high quality management team, within
a simplified structure sharply focused on the three core businesses. We have
now appointed new global CEOs for Science and Legal, with Business to Business
to follow. We also have new CEOs in place at the Cahners, LEXIS and NEXIS
operating businesses as well as a new Group Chief Technology Officer and HR
Director. This represents essentially a new management team for Reed
Elsevier, which has exceptional talent, expertise and proven track record. It
will provide discernible change in leadership and momentum.
Major upgrade of products, leveraging Internet technology, to deliver superior
services to our customers.
In Science, ScienceDirect is demonstrably the leading online provider of
scientific research in the world, and new and upgraded functionalities are
being constantly added. 35% of our scientific research subscriptions are now
Internet delivered by ScienceDirect, and usage is growing dramatically.
Customised web products for specific industry sectors have been launched with
more to come in the second half.
In Legal, the new lexis.com service has been well received in the market and
we believe it is as good as any competitor offering. We still have to
turnaround the ingrained effects of years of lost preference, but we are on
target to reach competitive parity this year in the law schools where
preferences are first formed. The LEXIS legal portal, aimed at the small law
firm market, was launched in July, providing free and paid for legal research
and related services and applications. The NEXIS Internet flagship has been
substantially upgraded and is shortly to be relaunched as nexis.com.
In Business to Business, Internet portals have been built, launched and
expanded, through internal development, acquisition and alliance. Our
e-inSITE portal in the Electronics sector has seen significant increases in
demand through its integration within the Partminer e-commerce joint venture.
In the Manufacturing sector, we formed a joint venture with i2/Aspect
Development greatly enhancing our Internet portal through the addition of
i2/Aspect's leading product databases and e-commerce engine. In addition to
Electronics and Manufacturing, we are on track to launch three further portals
in key sectors this year.
In June, we acquired e:Logic, a fast growing and leading application service
provider, giving us world class content management technology and accelerating
our strategy of building leading Internet portals. Outside the US, the
Business to Business strategies of launching Internet services around core
sectors has been significantly accelerated. There is a great deal still to
do, and the second half will see the launch of several new or redeveloped
Internet services.
More effective marketing and sales programmes.
Our sales forces in Science and Legal have been significantly expanded. We
are investing more heavily in customer research across all our businesses.
Pricing models are being reinvented as products migrate to the web, and we are
tackling the issues of global branding. Advertising has been stepped up and
new product introductions more aggressively promoted.
Significant increase in investment - largely against Internet - to drive
revenue growth.
The investment programme, aimed at delivering demonstrably superior products
to our customers supported by more aggressive marketing and sales programmes,
is firmly on track. This programme totals £750m/Euro1,200m over a three year
period, with £260m/Euro420m in 2000. In the first half a total of
£110m/Euro179m was spent, with the balance to follow over the second half.
Almost all of this investment is Internet driven.
Aggressive cost saving programme.
On cost savings, we targeted £130m/Euro210m of savings in 2000, primarily from
non-revenue generating areas. Savings of £60m / Euro98m have been delivered
in the first six months and we expect to be at our target for the year.
Expand geographically to build capability and leadership position.
Acquisitions and launches have extended and strengthened our position in
global markets. Each of the initiatives within Science, e.g. in customisation
of ScienceDirect or the acquisition of library management tools, has had
global application. In Legal, businesses have been acquired in the UK, Asia
and Latin America and we have stepped up our focus in Continental Europe,
including the acquisition of the FT Profile business. In Business to
Business, the acquisition last month of Miller Freeman Europe took us to
leadership in the exhibitions industry globally, and in most major European
economies, and in important industry sectors. Acquisitions and launches
internationally of key titles and exhibitions in sectors, such as chemicals
and construction, have filled out our global capability.
Continue to target acquisitions / alliances to accelerate achievement of
strategic goals.
Spending on acquisitions committed to date this year is £876m/Euro1,428m
including CMDG (construction information), Endeavor (library management
software), Riskwise (online fraud prevention tools), e:Logic (application
service provider), Miller Freeman Europe (exhibitions) and legal publishing
businesses in the UK, Asia and Latin America. All of these acquisitions build
our global capability and leadership position in our target markets, and are
focused on accelerating growth.
Alliances have been formed throughout our businesses to expand the scope of
our Internet services and drive them further into our target markets, for
example the Manufacturing.Net joint venture with i2/Aspect, the UK IT portal
joint venture with InterX, or the alliance with Siebel to embed NEXIS in its
products. A more detailed review of progress by business is included in the
Review of Operations.
PARENT COMPANY EARNINGS AND DIVIDENDS
For the parent companies, Reed International and Elsevier, the adjusted
earnings per share were 6% lower at 12.0p and up 3% at Euro0.30 respectively,
representing a decline of 5% at constant exchange rates. The reported
earnings per share for Reed International shareholders was 4.5p (1999 2.9p)
and for Elsevier shareholders Euro0.12 (1999 Euro0.07) in the first six
months, including the amortisation of goodwill and intangible assets and
exceptional items.
As announced in February, to restore normal proportions between the interim
and final dividends following the one third dividend reduction in 1999, the
2000 interim dividends have been reduced by around one-third and the 2000
final dividend will be adjusted upwards accordingly. For Reed International
the interim dividend is 3.1p. The Elsevier interim dividend under the
equalisation arrangements is Euro0.09.
OUTLOOK
In February, we stated that this year will be a year of significant investment
and change as we start implementing the new strategy, and that, ignoring
currency effects, adjusted profits were budgeted to be somewhat below those of
1999. We have not changed this view.
We are very encouraged by the progress that has been made so far this year.
We are at an early stage but we are increasingly confident that our strategy
will deliver the superior growth and shareholder returns that we have
targeted.
Morris Tabaksblat, Chairman Crispin Davis, Chief Executive Officer
REVIEW OF OPERATIONS AND FINANCIAL PERFORMANCE
REVIEW OF OPERATIONS
Year ended 6 month 6 months change
31 December ended 30 June ended 30 June at
1999 1999 2000 1999 2000 1999 constant
£m £m Euro m Euro m currencies %
Turnover
652 991 Scientific 345 318 562 473 +11
1,268 1,927 Legal 647 609 1,055 906 +4
1,470 2,235 Business 803 769 1,309 1,145 +5
3,390 5,153 Total 1,795 1,696 2,926 2,524 +6
Adjusted operating profit
231 351 Scientific 124 120 202 179 +9
316 480 Legal 120 146 196 217 -20
245 373 Business 150 142 244 211 +6
792 1,204 Total 394 408 642 607 -2
Unless otherwise indicated, all percentage movements in the commentary refer
to constant currency rates, using 1999 full year average rates, and are stated
before amortisation of goodwill and intangible assets and exceptional items.
SCIENTIFIC
The Science business had a good first half. The business had started earlier
than most in investing in world class Internet products and in addressing key
strategic issues such as global organisation and pricing. The benefits of
this are now starting to be seen.
Revenues and operating profits increased by 11% and 9% respectively at
constant exchange rates. Excluding acquisitions and disposals, the figures
were 8% and 7%. Sales growth at Elsevier Science has picked up with stronger
subscription renewals and the increasing penetration of the ScienceDirect web
service. Underlying operating margins were a little lower, with the
significantly increased spending on new product and marketing initiatives
mostly financed by cost savings in production and distribution through
re-engineering and technology investment.
ScienceDirect continued its successful expansion. It reached the milestone of
over one million scientific articles in full text search and retrieval over
the web. New functionalities and customised web services for specific user
groups, such as PhysicsDirect, were added and more are to come in the second
half.
More than 35% of the Elsevier Science subscriber base now takes ScienceDirect
and the accessibility and functionality of the product has driven a dramatic
rise in usage of our content. This provides much better value for customers
and upselling opportunities for Elsevier Science. In addition to the positive
impact on subscription renewals, incremental revenues from the service added 2
percentage points to sales growth.
Six months ended Six months ended Change
30 June 2000 30 June 1999 30 June 2000 30 June 1999 at
£m £m Euro m Euro m constant
currencies %
Turnover
Elsevier Science 291 267 474 397 +12
Medical Business 54 51 88 76 +7
Total 345 318 562 473 +11
Operating profit 124 120 202 179 +9
Operating margin 35.9% 37.7% 35.9% 37.7% -1.8pts
The new policy on pricing introduced for the 2000 subscription year also
contributed to the stronger renewals and had a positive impact in accelerating
the migration from print to electronic products.
Elsevier Science has extended its services through acquisition: to the library
community with Endeavor, the leading provider of digital library systems, and
to the pharmaceutical industry through Afferent, with its advanced drug
screening software. In June, the Springhouse business, focused on the nursing
community, was sold for $105 million.
LEGAL
The Legal segment's first half has been dominated by the investment at LEXIS
to restore its competitive position. The new lexis.com service has been well
received by the market, sales and marketing programmes have been significantly
expanded, and the legal portal aimed at the small law firm market was launched
in July. There is still a lot to do before revenues pick up meaningfully but
the progress is substantial and encouraging.
Overall, revenues increased by 4% whereas operating profit was down 20% at
constant rates, reflecting the significant step up in new product and
marketing initiatives. The effect of acquisitions was small. At LEXIS-NEXIS,
turnover was up 2% whilst operating profits were 28% lower.
At LEXIS, online revenues grew by 3% whilst overall sales were flat,
reflecting a migration of sales from print to online. LEXIS is investing
significantly to improve its competitive position through improved content,
more functionality and better performance, as well as a major expansion of its
sales and marketing operations. As these fundamentals come right, so the
effects will progressively come through in usage, revenues and profit.
Six months ended Six months ended Change
30 June 2000 30 June 1999 30 June 2000 30 June 1999 at
£m £m Euro m Euro m constant
currencies %
Turnover
LEXIS-NEXIS 440 418 717 622 +2
Reed Elsevier 117 106 191 158 +13
Legal
Educational 90 85 147 126 +5
Total 647 609 1,055 906 +4
Operating profit 120 146 196 217 -20
Operating margin 18.5% 24.0% 18.5% 24.0% -5.5pts
The launch of lexis.com has been well received in the market and is as good as
any competitor offering. Customers are migrating quickly from the older
research systems to the newer, significantly more functional, web platforms
and more than 40% of LEXIS searches are now web based.
The sales operations have been significantly expanded and marketing programmes
upgraded under new leadership. Law schools, where preferences are first
developed, are a priority and LEXIS is on track to reach its target of
competitive parity in the law schools this year.
Products are being customised to specific customer groups, with tailored
content packages and online practice tools. The LEXIS legal portal, lexisONE,
aimed at the small law firm market, was launched in July. This provides free
and paid for legal research as well as related services and applications, to
assist lawyers both in the practice of law and in the management of their
firms.
The Martindale Hubbell legal directory business continued to perform well with
strong renewals and growing lawyer home page sales in the lawyers.com website.
At NEXIS, online sales were flat, an improvement over the 4% decline seen last
year. Although pricing pressures continue to affect the business, NEXIS has
been winning important new accounts in corporate and government markets. The
major upgrade of the flagship Internet product is nearing completion and on
track for the launch of nexis.com shortly. The enhanced functionality and
ease of use of the nexis.com product will accelerate migration from the older
online search platforms and open up new sales opportunities.
NEXIS is also reinforcing its position with customers through providing
intranet solutions that integrate searching across a customer's intranet,
NEXIS and other information sources. Increased marketing penetration is being
achieved through recent alliances with major systems suppliers, such as Siebel
and E-solutions, with NEXIS embedded in their product. The $90 million
acquisition of Riskwise in May added a fast growing online fraud prevention
business for the rapidly growing e-commerce industry which fits well with the
NEXIS public records business.
Across LEXIS-NEXIS, a major re-engineering of the business organisation and
processes is well advanced. Substantial cost savings are being achieved in
almost every area, including production, IT, administration and other support
services. In addition to releasing substantial funds for reinvestment in new
product development and sales and marketing, the re-engineering will leave
LEXIS-NEXIS a leaner, faster moving organisation.
The RTIS Commercial division of LEXIS-NEXIS, which provides data management
and typesetting services for corporate customers, was sold in June.
The Reed Elsevier Legal Division, comprising the legal publishing businesses
outside the US, saw sales up 13%, or 6% excluding acquisitions, whilst
underlying operating profits were flat reflecting the significant increase in
the new product and marketing investment. In the UK, the web based
Butterworth LEXIS Direct continues to expand its range of research services
and the subscriber base is growing rapidly. In June, the service was
rebranded to include the LEXIS name reflecting the increasing globalisation of
Reed Elsevier's online legal information services. Acquisitions in the first
half included Eclipse, a leading publisher in UK employment law and related
fields, THC Press in Hong Kong, and Conosur and Publitecsa in Chile.
Reed Educational and Professional Publishing saw turnover up 5% with operating
profits flat, reflecting in particular the later phasing this year of spending
on books by UK schools. The US schools business increased sales by 33%
following the launch of its new literacy publishing programme.
BUSINESS
In Business, the first half has seen an improvement in conditions in our
principal markets with revenue growth picking up. Major work is going on to
build and launch the new Internet portals, and the opportunities to accelerate
growth have been expanded through key acquisitions and alliances.
Overall revenues and operating profits increased by 5% and 6% respectively at
constant exchange rates. The underlying figures were 5% and 8% as market
conditions improved and the benefits were seen from revenue initiatives taken
and the restructuring programme started last year, most particularly at
Cahners. The step up in investment will continue in the second half.
Cahners Business Information revenues and operating profits were up 5% and 26%
respectively before the impact of acquisitions. The Entertainment,
Electronics and Retail Sectors were particularly strong. Operating margins
improved, despite a significant increase in new product investment, reflecting
the major restructuring programme in the second half of last year.
Significant progress has been made over the last six months in the development
and execution of Cahners Internet strategy, including significant new
alliances and acquisitions.
In the Electronics sector, the e-inSITE portal has seen traffic continue to
increase as the functionality has been further developed through integration
within the Partminer e-commerce joint venture.
In the Manufacturing sector, in April, Cahners and i2/Aspect Development
formed a joint venture, Manufacturing.Net, to provide a market leading
exchange for MRO (maintenance, repairs and operations) procurement in the
manufacturing marketplace. The new Manufacturing.Net, to be launched in the
second half, will combine Cahners' industry-leading content and market reach
with i2/Aspect's MRO product databases, search technology and e-commerce
applications.
Six months ended Six months ended Change
30 June 2000 30 June 1999 30 June 2000 30 June 1999 at
£m £m Euro m Euro m constant
currencies %
Turnover
Cahners Business 301 273 491 406 +7
Information
Reed Business 130 121 212 180 +8
Information
Elsevier Business 138 137 225 204 +11
Information
Exhibitions 183 180 298 268 +2
OAG Worldwide 38 44 62 66 -15
Other 13 14 21 21
Total 803 769 1,309 1,145 +5
Operating profit 150 142 244 211 +6
Operating margin 18.7% 18.5% 18.7% 18.5% +0.2pts
In the Construction sector, in May, Cahners made the $300 million acquisition
of CMD Group. CMD is a leading international supplier of information to the
construction industry, including construction project information, both
nationally and regionally in the US, as well as directories of building
products and services and construction cost data. Combined with existing
construction magazines and websites, Cahners now has the strong platform from
which to lead the industry in e-commerce and information services.
In Entertainment, the acquisitions of Marketcast and LA411 have added,
respectively, research information and a services directory which are being
integrated within the variety.com entertainment portal.
Cahners also acquired in June for $73 million, e:Logic, a fast growing and
leading application service provider of web development, design and delivery
systems to media and Internet companies. e:Logic provides Cahners with world
class content management technology and accelerates its strategy of building
leading Internet portals. The second half will see considerable launch
activity at Cahners as the new and upgraded vertical portals reach market
readiness.
At Reed Business Information, turnover increased by 8%, or 5% excluding
acquisitions, with stronger growth and market share gains in display and
recruitment advertising in the UK magazines and in Internet revenues.
Despite significant cost reductions, operating profits were 1% lower,
reflecting the major increase in investment in Internet services, particularly
in totaljobs.com, the internet recruitment service, which commands the leading
market share in the UK. The skills, experience and technologies of
totaljobs.com have also been used across Reed Elsevier businesses to launch
sector specific online job services, such as sciencejobs.com.
RBI has also extended its market positioning through acquisition and alliance.
In June, RBI acquired the prestigious US based Chemical Market Reporter to
build further its capability in the global chemicals sector. In the important
UK IT sector, RBI entered into a 75/25 joint venture with InterX plc to
combine RBI's brands, content and publishing expertise, including
computerweekly.com, with InterX's technical and product data services.
At OAG Worldwide, turnover declined by 15% due to portfolio rationalisation
ahead of its impending sale and lower sales of the print product. Investment
has been significantly increased in new web products, in particular OAG.com
and OAGMobile to be launched in the second half, to drive future revenue
growth. The sale process is now in the marketing stage and is expected to be
completed by year-end.
At Elsevier Business Information, which now includes the Elsevier Tuition
businesses, turnover and operating profits grew by 11% and 17% respectively,
or 3% and 11% excluding acquisitions. Strong growth was seen at Elsevier
magazine and in the Human Resources, and Food and Catering sectors. Sales at
the Tuition businesses were 6% lower reflecting the impact of the disposal of
parts of the business. Operating margins improved, with increased investment
funded by production cost and other savings.
EBI's businesses in France, Spain and Belgium performed well and the portfolio
expanded with acquisitions in France, Spain and Germany. In July, Italian
publishing businesses, including Stammer, were acquired as part of Reed
Elsevier's acquisition of Miller Freeman Europe.
Reed Exhibition Companies turnover and operating profits were up 2% and 8%
respectively. Excluding acquisitions and disposals, underlying growth was 2%
and 4% respectively and reflects in part the adverse impact of the phasing of
non-annual shows, which will also impact the second half, and the significant
new show launch programme. Sales growth in Europe and Asia Pacific was
particularly strong.
In July, Reed Elsevier acquired for £360m/Euro585m the leading trade
exhibition organiser in Europe, Miller Freeman Europe, with operations in
France, Spain and Italy, and, with their acquisition subject to regulatory and
other consents, in Germany and Scandinavia. The portfolio has over 100 shows
and 66 related websites and includes prestigious international and national
domestic events across a number of sectors, including building and
construction, retail, food and hospitality, and environmental services.
REVIEW OF FINANCIAL PERFORMANCE
Adjusted Profit and Loss
Turnover increased by 6% expressed in sterling to £1,795m, and by 16%
expressed in euros to Euro2,926m. Underlying revenue growth, excluding the
impact of acquisitions and disposals and currency translation effects, was 4%.
Adjusted operating profits, excluding exceptional items and the amortisation
of goodwill and intangible assets, were down 3% expressed in sterling to £394m
and up 6% expressed in euros at Euro642m. Operating margins at 21.9% were 2.2
percentage points lower against the comparative period, principally reflecting
the investment programme less cost reductions achieved in production,
distribution and support areas.
Net interest expense, at £43m/Euro70m, was £6m/Euro15m higher than in the
corresponding first half principally due to the financing of acquisitions.
Net interest cover was 9 times.
Adjusted profit before tax at £351m/Euro572m was 5% lower than in 1999 first
half expressed in sterling, 4% higher expressed in euros, or 4% lower at
constant exchange rates.
The effective tax rate on adjusted earnings was little changed at 26%. The
adjusted profit attributable to shareholders of £260m/Euro424m compared to
£276m/Euro411m in the first half of 1999, 4% lower at constant exchange rates.
Reported Profit and Loss
Exceptional items showed a pre-tax gain of £33m/Euro54m (1999: charge of
£45m/Euro67m), the major components of which were net gains on business and
fixed asset disposals (£66m/Euro108m), restructuring costs (£27m/Euro44m) and
acquisition integration costs (£6m/Euro10m; 1999: £10m/Euro15m). The
restructuring costs relate to the ongoing cost savings programme, which startd
in 1999. In the first half of 1999 there were £35m/E52m of Year 2000
compliance costs.
The amortisation charge for goodwill and intangible assets amounted to
£192m/Euro313m, up £11m/Euro43m on the comparative period reflecting
acquisitions made in 1999 and 2000 and currency movements.
The reported profit before tax for the Reed Elsevier combined businesses,
including exceptional items and the amortisation of goodwill and intangible
assets, was £192m/Euro313m which compares with a reported profit of
£145m/Euro215m in the 1999 first half. The reported attributable profit of
£102m/Euro167m compares with a reported attributable profit of £68m/Euro101m
in the first half of 1999. The movement between the periods reflects the
exceptional items and higher amortisation charges arising from acquisitions,
as well as trading performance.
Cash flows, acquisitions, disposals and debt
Adjusted operating cash flow, before exceptional items, was £306m/Euro499m
(1999: £244m/Euro363m). Operating cash flow was higher than the prior first
half, reflecting improved working capital and lower capital expenditure. The
substantial majority of annual operating cash flows normally arises in the
second half of the year due, in particular, to the phasing of subscription and
other advance receipts and working capital.
Free cash flow - after interest, taxation and dividends but before acquisition
spend and exceptional receipts and payments - was £89m/Euro146m (1999:
£81m/Euro122m outflow). The improvement over the first half of 1999 reflected
the higher operating cash flow and lower final dividend paid in the period.
Due to the phasing of operating cash flows and the timing of dividend
payments, the majority of free cash flow normally arises in the second half of
the year.
Exceptional net inflows totalled £68m/Euro110m (1999: outflow £5m/Euro7m).
Proceeds of disposals were £116m/Euro189m, of which $70m related to
Springhouse with a further $35m received in July. Cash payments on
restructuring totalled £53m/Euro87m. Spend on acquisitions was £462m/Euro753m,
and a further £56m/Euro91m was deferred to future years. An amount of
£510m/Euro831m was capitalised as acquired goodwill and intangible assets.
Net borrowings at 30 June 2000 were £1,481m/Euro2,340m, an increase of
£415m/Euro623m since 31 December 1999, reflecting spend on acquisitions and
exchange translation effects, less free cash inflow and net exceptional
receipts.
PARENT COMPANIES
For the parent companies, Reed International and Elsevier, the adjusted
earnings per share, excluding exceptional items and the amortisation of
goodwill and intangible assets, were 12.0p (1999: 12.8p) and Euro0.30
(1999:Euro0.29) respectively, representing a decline of 5% at constant rates
of exchange. The reported earnings per share for Reed International
shareholders was 4.5p (1999: 2.9p) and for Elsevier shareholders Euro0.12
(1999: Euro0.07).
The Reed International interim dividend is 3.1p per share. The Elsevier
interim dividend under the equalisation arrangements is Euro0.09 per share.
These are respectively 33% and 25% lower than the 1999 interim dividends; the
differing percentages reflect the effect of currency movements and rounding.
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