RELX
Annual Report 2003

INDISPENSABLE 
GLOBAL 
INFORMATION

ANNUAL REPORTS AND FINANCIAL STATEMENTS 2003

For the Reed Elsevier Combined Businesses,
Reed Elsevier PLC and Reed Elsevier NV

www.reedelsevier.com

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SCIENCE & MEDICAL

LEGAL

EDUCATION

BUSINESS

LIFE SCIENCES > NEUROSCIENCE >
CHEMISTRY > MATHEMATICS >
PHYSICS > DECISION SCIENCES >
SOCIAL AND BEHAVIOURAL SCIENCES >
MEDICINE > NURSING > DENTISTRY >
VETERINARY SCIENCE

STATUTES > CASE LAW >
COMMENTARIES > CITATIONS > TAX
INFORMATION> DIRECTORIES > COURT
RECORDS > LEGAL DISCOVERY >
BUSINESS INFORMATION> RISK
SOLUTIONS > CONGRESSIONAL
INFORMATION

ELEMENTARY > SECONDARY >
SUPPLEMENTAL > ASSESSMENT >
E-LEARNING > PROFESSIONAL
DEVELOPMENT > TEACHING
SUPPORT > LIBRARY MATERIALS >
CLINICAL TESTING

AEROSPACE > COMMUNICATIONS >
MEDIA AND ENTERTAINMENT > IT >
BUILDING AND CONSTRUCTION >
LOGISTICS AND DISTRIBUTION >
SOCIAL CARE > SPORT AND LEISURE >
FOOD AND HOSPITALITY >
AGRICULTURE > MANUFACTURING

 
 
 
 
 
 
Contents

01 Financial highlights

03 Operating and financial review

22 Structure and corporate governance

27 Report of the audit committees

29 Directors’ remuneration report

Reed Elsevier combined financial statements

40 Accounting policies

42 Combined financial statements

46 Notes to the combined financial statements

70 Independent auditors’ report

Reed Elsevier PLC annual report and financial statements

72 Financial highlights

73 Directors’ report

76 Accounting policies

77 Financial statements

81 Notes to the financial statements

88 Independent auditors’ report

Reed Elsevier NV annual report and financial statements

90 Financial highlights

91 The Supervisory Board’s report

91 The Executive Board’s report

92 Accounting policies

94 Financial statements

97 Notes to the financial statements

104 Independent auditors’ report

104 Other information

Additional information for US investors

106 Reed Elsevier combined businesses

111 Reed Elsevier PLC

113 Reed Elsevier NV

115 Principal operating locations

This document contains Annual Reports information and the Financial Statements in respect of
the Reed Elsevier combined businesses and the two parent companies, Reed Elsevier PLC and
Reed Elsevier NV. This, together with the separate summary document Reed Elsevier Annual
Review and Summary Financial Statements 2003, forms the Annual Reports and Financial
Statements of Reed Elsevier PLC and Reed Elsevier NV for the year ended 31 December 2003
and the two documents should be read together.

Financial highlights

For the year ended 31 December 2003

Reed Elsevier combined businesses

Reported figures
Turnover
Operating profit
Profit before taxation
Net borrowings

Adjusted figures 
Operating profit
Profit before taxation
Operating cash flow

Operating margin
Operating cash flow conversion
Interest cover (times)

Parent companies

Reported profit attributable
Adjusted profit attributable
Average exchange rate €:£
Reported earnings per share
Adjusted earnings per share
Dividend per share

2003
£m

2002
£m

2003
€m

2002
€m

4,925
661
519
2,372

1,178
1,010
1,028

24%
87%
7.0

5,020
507
289
2,732

1,133
927
1,010

23%
89%
5.5

7,141
958
752
3,368

1,708
1,465
1,491

24%
87%
7.0

Reed Elsevier PLC

Reed Elsevier NV

2003
£m
169
394
1.45
13.4p
31.2p
12.0p

2002
£m
89
361
1.59
7.0p
28.5p
11.2p

%
change
90%
9%

91%
9%
7%

2003
€m
242
540
1.45
€0.31
€0.69
€0.30

2002
€m
144
542
1.59
€0.18
€0.69
€0.30

7,982
806
460
4,180

1,801
1,474
1,606

23%
89%
5.5

%
change
68%
–

72%
–
–

Change
at constant
currencies
%

1%
29%
75%

6%
10%
3%

Change
at constant
currencies
%

10%

10%

The Reed Elsevier combined businesses encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV,
together with their two parent companies, Reed Elsevier PLC and Reed Elsevier NV (the “Reed Elsevier combined businesses”).
The results of Reed Elsevier PLC reflect its shareholders’ 52.9% economic interest in the Reed Elsevier combined businesses.
The results of Reed Elsevier NV reflect its shareholders’ 50% economic interest in the Reed Elsevier combined businesses.
The respective economic interests of the Reed Elsevier PLC and Reed Elsevier NV shareholders take account of Reed Elsevier
PLC’s 5.8% interest in Reed Elsevier NV.

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 the amortisation of goodwill and intangible assets,
exceptional items and related tax effects. A reconciliation between the reported and adjusted figures is provided in the notes to
the financial statements.

The percentage change at constant currencies refers to the movements at constant exchange rates, using 2002 full year
average rates.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

1

Reed Elsevier combined businesses

Turnover

m
0
9
3
,
3
£

m
8
6
7
,
3
£

m
0
6
5
,
4
£

m
0
2
0
,
5
£

m
5
2
9
,
4
£

£ sterling

Adjusted 
operating 
profit

m
2
9
7
£

m
3
9
7
£

m
0
9
9
£

m
3
3
1
,
1
£

m
8
7
1
,
1
£

Adjusted 
operating 
cash flow

m
0
8
7
£

m
5
7
7
£

m
6
0
0
,
1
£

m
0
1
0
,
1
£

m
8
2
0
,
1
£

Adjusted 
pre-tax profit

m
0
1
7
£

m
0
9
6
£

m
8
4
8
£

m
7
2
9
£

m
0
1
0
,
1
£

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

m
3
5
1
,
5
€

m
0
8
1
,
6
€

m
2
4
3
,
7
€

m
2
8
9
,
7
€

m
1
4
1
,
7
€

€ euro

m
4
0
2
,
1
€

m
1
0
3
,
1
€

m
4
9
5
,
1
€

m
1
0
8
,
1
€

m
8
0
7
,
1
€

m
6
8
1
,
1
€

m
1
7
2
,
1
€

m
0
2
6
,
1
€

m
6
0
6
,
1
€

m
1
9
4
,
1
€

m
9
7
0
,
1
€

m
2
3
1
,
1
€

m
5
6
3
,
1
€

m
4
7
4
,
1
€

m
5
6
4
,
1
€

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

Reed Elsevier PLC

Reed Elsevier NV

Adjusted 
earnings 
per share

Full year 
dividend

p
4
.
4
2

p
3
.
3
2

p
1
.
6
2

p
5
.
8
2

p
2
.
1
3

p
0
.
0
1

p
0
.
0
1

p
5
.
0
1

p
2
.
1
1

p
0
.
2
1

Adjusted 
earnings 
per share

7
5
.
0
€

9
5
.
0
€

4
6
.
0
€

9
6
.
0
€

9
6
.
0
€

Full year 
dividend

7
2
.
0
€

8
2
.
0
€

0
3
.
0
€

0
3
.
0
€

0
3
.
0
€

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

99

00

01

02

03

2 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Operating and financial review

This review provides a commentary on the operating and financial performance of the Reed Elsevier combined
businesses for the year ended 31 December 2003. It includes a description of the operating business, a review of
performance and a financial review, including consideration of accounting policies, as well as a review of the finance
activities and the financial performance and dividends of the parent companies.

DESCRIPTION OF BUSINESS

Reed Elsevier
Reed Elsevier is one of the world’s leading publishers
and information providers. The principal operations are
in North America and Europe and include science and
medical, legal, education and business publishing. Total
revenues for the year ended 31 December 2003 were
£4,925 million/€7,141 million, principally derived from
subscriptions, circulation and copy sales, advertising
sales and exhibition fees.

Reed Elsevier is well positioned in long term attractive
markets and has a clear investment led growth strategy
which has delivered significant market outperformance
in recent years. 

Long term growth in our markets is expected to be
sustained by the continuing demand for professional
information. The increasing levels of scientific, medical,
legal and business activity, as well as the commitment
to improved educational standards, are generating
more demand for high quality, specialist information. In
addition, professionals are looking for significant
improvements in productivity through access to highly
functional online services and associated workflow
tools. 

Our strategy is aimed at delivering good sales growth

in these markets through the development of
innovative, superior products and strong sales and

marketing capabilities. We expect to see sustainable
growth in our core information offerings and to develop
these further in new geographical and commercial
markets. Additionally we are expanding through
investment and acquisition into new and faster growing
contiguous markets. Our commitment to our ongoing
major investment programmes is aimed at delivering
highly functional information based products and
services that deliver greater productivity and success
for our business and professional customers.

Our strategy to deliver good top line growth is

accompanied by continued commitment to outstanding
execution built on strong management, organisational
effectiveness and tight cost control. 

We have established long term financial targets which
are to achieve above market revenue growth and double
digit adjusted earnings per share growth at constant
currencies. The business is strongly cash generative.

Science & Medical
The science and medical business, Elsevier, comprises
worldwide scientific, technical and medical publishing
and communications businesses. Total revenues for the
year ended 31 December 2003 were £1,381 million/
€2,002 million.
Growth in the scientific information market is driven
by ever increasing scientific research and discovery and

FORWARD LOOKING STATEMENTS
The Reed Elsevier Annual Reports & Financial Statements 2003 contain forward looking statements within the
meaning of Section 27A of the US Securities Act 1933, 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; exchange rate fluctuations; customers’ acceptance of its products and services; the actions
of competitors; legislative, fiscal and regulatory developments; changes in law and legal interpretation affecting
Reed Elsevier’s intellectual property rights and internet communications; and the impact of technological
change. 

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

3

OPERATING AND FINANCIAL REVIEW

the demands for greater efficiency and productivity in
the research process. In healthcare, advances in
medical science and procedures and the demand for
improved medical outcomes drive the need for high
quality specialist information and associated online
tools.

The Science & Technology division of Elsevier supplies

scientific and technical information for libraries,
scientists and professionals serving a wide range of
research fields. It is a leading global academic journal
publisher and each year publishes over 150,000 new
research articles in some 1,200 journals and 1,000 new
book titles. Elsevier also publishes secondary material
in the form of supporting bibliographic data, indexes
and abstracts, and tertiary information in the form of
review and reference works. Its flagship electronic
product, ScienceDirect, is a full text online research
service holding over 5 million scientific articles and 15
major reference works. The fully searchable database is
used by over 5 million researchers each year and has
provided significant improvements in productivity
through quicker and easier access to high quality
content.

The Health Sciences division of Elsevier comprises an

international network of nursing, health professions
and medical publishing and communications
businesses. The division supplies healthcare and
medical information to medical researchers, practising
professionals and students. It publishes over 8,000
textbooks and clinical reference works and over 500
journals. Elsevier is also accelerating the development
of electronic products. These include multimedia
products for use by both medical faculties and students
to support core textbooks as well as online products for
continuing practitioner education. Internationally,
Elsevier is leveraging both its print and online content
into new markets through adaptation and translation.
The Excerpta Medica communications business
publishes customised information for healthcare
professionals, medical societies and pharmaceutical
companies.

Legal
The legal business, LexisNexis, provides legal, tax,
regulatory and business information to professional,
business and government customers internationally.
Total revenues for the year ended 31 December 2003
were £1,318 million/€1,911 million.

4 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Legal and regulatory markets worldwide are seeing

continuing expansion in legislative activity and
increasing demand for legal services, together with a
focus on improved efficiency and productivity. Additional
opportunities are developing beyond the core research
market, through the delivery of online workflow support
services. Increasingly legal information and services
are being delivered online, with considerable potential
to deliver such products in markets outside the United
States where online penetration is lower than in the US
legal market. In recent years, LexisNexis has, with its
comprehensive US public records databases, expanded
in the market for risk solutions. This is growing strongly
in the face of increasing credit card fraud and identity
theft. 

LexisNexis North America offers legal information
products in electronic and print formats to law firms
and practitioners, law schools and state and local
governments in the United States and Canada. Its
North American Legal Markets division provides
statutes and case law for all 50 US states and Canada
as well as research, analysis and citation services from
Matthew Bender, Michie and Shepard’s. The Martindale
Hubbell Law Directory, including the martindale.com
databases, provides access to the qualifications and
credentials of over one million lawyers and law firms
worldwide. LexisNexis also operates in fast growing
areas beyond its core research product. These include
electronic filing of documents with courts and
electronic access and monitoring of court records as
well as electronic legal discovery applications. The
Corporate and Federal Markets division offers
LexisNexis products and services to corporations,
federal government agencies and academic institutions
together with news, business, financial and public
records content. Its risk management applications are
designed to assist customers in managing risk through
fraud detection and prevention, identity verification, pre-
employment screening and due diligence.

Outside North America, LexisNexis International

serves markets in Europe, Africa, Asia Pacific and Latin
America with a range of local and international legal,
tax, regulatory and business information solutions. 

Education
The education business, Harcourt Education, publishes
school textbooks and related instructional and
assessment materials, principally in the United States,
the United Kingdom, Australia, New Zealand and

OPERATING AND FINANCIAL REVIEW

southern Africa. Total revenues for the year ended
31 December 2003 were £898 million/€1,302 million.
The long standing commitment across the world to
improving educational standards remains strong and
there is a continuing requirement to deliver proven
educational programmes to support this. In recent
years, there has also been a developing trend for the
measurement of the educational results of students,
both to monitor and assist improvement in individual
educational outcomes and to improve accountability.
Overall funding for education is expected to continue to
increase. 

In the United States, Harcourt School Publishers is a
publisher of print and technology enabled instructional
materials for students in kindergarten to 6th grade.
Holt, Rinehart and Winston offers educational textbooks
and related instructional materials for students in
middle and secondary schools. Harcourt Achieve is a
publisher of supplemental school and adult education
materials as well as providing professional
development services for teachers. Greenwood-
Heinemann publishes monograph and reference lists
and professional resources for teachers. Harcourt
Education has achieved good performances in recent
years both in the adoption states and in open territories
based on strong curriculum product in key subjects
such as reading and literature, science and health and
elementary maths and social studies.  

Harcourt Assessment develops assessment products

and services for elementary, secondary and higher
education as well as tests for practising and research
psychologists. In educational testing, it provides a range
of achievement, aptitude and guidance testing services
for measuring student progress. It is well known for the
Stanford Achievement Test, now in its 10th edition,
which is used in school districts in every US state. In
clinical testing, it provides psychologists with
assessment tests for many aspects of human
behaviour, intelligence and development. The Wechsler
products, including the Wechsler Preschool and
Primary Scale of Intelligence, are licensed for
publication in over 30 countries. 

Outside the United States, Harcourt Education
International is a provider of textbooks and related
instructional materials to the UK primary and
secondary schools market through the Heinemann,
Rigby and Ginn imprints and other English language
markets in Australia, New Zealand and southern Africa.

The Global Library business publishes reference
materials for school libraries. 

Business
The business division, Reed Business, provides
information and marketing solutions, including trade
shows, to business professionals in the United States,
the United Kingdom, continental Europe, Australia and
Asia. Total revenues for the year ended 31 December
2003 were £1,328 million/ €1,926 million.
Business to business magazines and exhibitions

provide an effective marketing channel through which
buyers and sellers are connected, increasingly through
leading brands in each sector. Alongside print
magazines, demand is growing for online products
which provide improvements in productivity through
quicker and easier access to more comprehensive and
searchable data. Business to business marketing spend
has been driven historically by levels of corporate
profitability, which itself has followed overall GDP
growth. Over the economic cycle, growth in marketing
spend has historically at least equalled growth in GDP.
Reed Business Information publishes over 500 trade

magazines, directories, newsletters and loose leaf
publications. Important magazine titles include Variety
and Publishers Weekly in the United States, Computer
Weekly, Estates Gazette, Flight International and New
Scientist in the United Kingdom, and Elsevier and FEM
in the Netherlands. Reed Business Information also
publishes directories in selected markets, including the
industrial directory Kelly’s and The Bankers’ Almanac.
Through its Reed Construction Data business, it
provides nationwide coverage of construction project
information for the United States. 

The majority of Reed Business Information’s

magazines drive further value through companion
websites. In addition, Reed Business Information has
been particularly successful in developing online
products and services, which have been growing at well
over 20% per annum and at $140 million now represent
7% of the division’s total revenues. These products
include totaljobs.com, a major online recruitment site
in the UK; ICIS-LOR, a global information and pricing
service for the petrochemicals sector; zibb.nl, a
business information service in the Netherlands; and
an online version of the Kelly’s directory which is being
launched internationally. 

Reed Exhibitions organises trade exhibitions and
conferences internationally, with over 430 events in

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

5

experience a significant failure, interruption, or
security breach.

•Our products and services are largely comprised of
intellectual property content delivered through a
variety of media. We rely on trademark, copyright,
patent and other intellectual property laws to
establish and protect our proprietary rights in these
products and services. However, there is a risk that
our proprietary rights could be challenged, limited,
invalidated or circumvented.

•Our businesses operate in over 100 locations

worldwide and our earnings are subject to taxation in
many differing jurisdictions and at differing rates. We
seek to organize our affairs in a tax efficient manner,
taking account of the jurisdictions in which we
operate. However, tax laws that apply to Reed Elsevier
businesses may be amended by the relevant
authorities. Such amendments, or their application to
Reed Elsevier businesses, could adversely affect our
reported results.
Further details on risk management and internal
control procedures are set out in the Structure and
Corporate Governance description on pages 22 to 26.

OPERATING AND FINANCIAL REVIEW

34 countries, attracting over 85,000 exhibitors and more
than 4.5 million visitors annually. Its exhibitions and
conferences encompass a wide range of sectors,
including IT, manufacturing, aerospace, defence,
leisure, electronics, food and hospitality, travel and
entertainment.

Further information on the performance of the

individual businesses in 2003 is set out in the Review of
Operations below.

Risks
The key risks facing Reed Elsevier arise from the highly
competitive and rapidly changing nature of our
markets, the increasingly technological nature of our
products and services, the international nature of our
operations, and legal and regulatory uncertainties.
Certain businesses are also affected by the impact on
publicly funded customers of changes in funding and by
cyclical pressures on advertising and promotional
spending.

Reed Elsevier has an established risk management

system that is embedded into the operations of the
businesses and is reviewed by the Boards and Audit
Committees. Specific risks that have been identified
and are continuously addressed include:
•Reed Elsevier’s businesses are dependent on the
continued acceptance by our customers of our
products and services and the prices which we charge
for them. We cannot predict whether there will be
changes in the future, either in market demand or
from the actions of competitors, which will affect the
acceptability of products, services and prices to our
customers.

•We are investing significant amounts to develop and

promote electronic products and platforms. The
provision of these products and services is very
competitive and is to some extent subject to factors
outside our control such as competition from new
technologies. There is no assurance that this
investment will produce satisfactory long term
returns. 

•Reed Elsevier’s businesses are increasingly dependent

on electronic platforms and distribution systems,
primarily the internet, for delivery of their products
and services. Although plans and procedures are in
place to reduce such risks, our businesses could be
adversely affected if their electronic delivery platforms

6 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

OPERATING AND FINANCIAL REVIEW

REVIEW OF OPERATIONS

Turnover
Science & Medical
Legal
Education
Business
Total

Adjusted operating profit
Science & Medical
Legal
Education
Business
Total

2003
£m

1,381
1,318
898
1,328
4,925

467
301
174
236
1,178

2002
£m

1,295
1,349
993
1,383
5,020

429
287
183
234
1,133

2003
€m

2,002
1,911
1,302
1,926
7,141

677
437
252
342
1,708

2002
€m

2,059
2,145
1,579
2,199
7,982

682
456
291
372
1,801

% change
at constant
currencies

8%
3%
–3%
–4%
1%

8%
10%
2%
–
6%

Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before amortisation of
goodwill and intangible assets and exceptional items. 

The Review of Operations refers to adjusted operating profit performance. Adjusted figures are used by Reed
Elsevier as additional performance measures and are stated before amortisation of goodwill and intangible
assets and exceptional items. Reported operating results, including amortisation of goodwill and intangible
assets and exceptional items, are analysed in note 1 to the combined financial statements and discussed
further below in the Financial Review, and are reconciled to the adjusted figures in note 10 to the combined
financial statements.

Unless otherwise indicated, all percentage movements in the following commentary refer to constant currency
rates, using 2002 full year average rates, and are stated before the amortisation of goodwill and intangible
assets and exceptional items.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

7

OPERATING AND FINANCIAL REVIEW

SCIENCE & MEDICAL

Turnover
Elsevier 

Science & Technology
Health Sciences

Adjusted operating profit
Adjusted operating margin

Elsevier has had another successful year against

a background of considerable pressure on

institutional budgets. Strong subscriptions

renewals and growing online sales drove revenue

growth in Science & Technology and a successful

book publishing programme delivered good

growth in Health Sciences. Underlying operating

margins were improved by further actions to

streamline operations. Continued investment in

new publishing and in expanding ScienceDirect

and other online services are expected to deliver

future growth.

8 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

2003
£m

2002
£m

2003
€m

2002
€m

% change
at constant
currencies

789
592
1,381
467
33.8%

746
549
1,295
429
33.1%

1,144
858
2,002
677
33.8%

1,186
873
2,059
682
33.1%

5%
11%
8%
8%
0.7pts

Revenue and adjusted operating profits both
increased by 8% at constant exchange rates, or 5%
and 8% excluding the Holtzbrinck STM business
acquired at the beginning of the year and other
small acquisitions and disposals. Both the Science &
Technology and Health Sciences divisions saw
underlying revenue growth of 5%.

In the Science & Technology division, growth was
driven by strong subscription renewals and growing
online sales including recently introduced back files
and subject collections. Usage of ScienceDirect
more than doubled to 175 million article downloads
during the year, reflecting the dramatic increase in
access and utility that this web based service
provides. ScienceDirect now holds over 5 million
scientific research articles that can be searched,
accessed and linked at the click of a mouse,
anywhere and at any time. Increasingly customers,
either individually or through consortia, are
subscribing to content hitherto outside their
collections at attractive discounts. Electronic only
subscriptions grew by 55% and now account for 23%
of journal subscriptions by value.

In Health Sciences, growth was driven by the strong
book publishing programme with successful new
titles and editions coupled with increased demand
from the growing healthcare professions. Electronic

Turnover 
£ sterling

m
2
5
6
£

m
3
9
6
£

m
4
2
0
,
1
£

m
5
9
2
,
1
£

m
1
8
3
,
1
£

Turnover 
€ euro

m
7
3
1
,
1
€

m
9
4
6
,
1
€

m
9
5
0
,
2
€

m
2
0
0
,
2
€

m
1
9
9
€

99

00

01

02

03

99

00

01

02

03

The outlook for the Science & Medical business is
good. Although academic institutional and corporate
budgets remain under pressure, Elsevier continues
to see strong subscription renewals and take up of
its electronic products. Investment in content and
new online services is being increased to address
further market opportunities.

OPERATING AND FINANCIAL REVIEW

Turnover by business
ELSEVIER

Health Sciences
£592m /€858m

43%
42%

57%
58%

Science & Technology
£789m /€1,144m

revenues continue to grow strongly, albeit from a
much smaller base than in Science & Technology,
from the expansion of online services in addition to
migration from print subscriptions. Demand from
the pharmaceutical industry for projects and
conferences was however weaker leading to
consolidation of these activities. The International
business was expanded in the year through more
aggressive versioning and distribution of
international content in local markets and the
acquisition of the Holtzbrinck STM publishing
business, adding high quality German language
medical publishing and strong local market and
distribution channels for other international content.

Significant investments continue to be made in
ScienceDirect, most particularly in new navigation
services, and in web platforms to support the launch
of new online products within Health Sciences.
Continued action on costs, including further benefits
of integration of the Harcourt STM businesses,
funded increases in investment and improved the
adjusted overall margin, i.e. before exceptional items
and the amortisation of goodwill and intangible
assets, by 0.7 percentage points.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

9

OPERATING AND FINANCIAL REVIEW

LEGAL

Turnover
LexisNexis

North America
International

Adjusted operating profit
Adjusted operating margin

The LexisNexis business has continued to

perform well in markets seeing slower growth.

The US legal business is performing ahead of the

market, whilst the continued slow down within US

corporate and federal markets for corporate

business information has been offset by the

stronger growth in the risk solutions business.

Continued investment is being made in new

content and online services whilst further cost

actions have improved operational efficiency

and margins. 

10 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

2003
£m

2002
£m

2003
€m

2002
€m

% change
at constant
currencies

992
326
1,318
301
22.8%

1,056
293
1,349
287
21.3%

1,438
473
1,911
437
22.8%

1,679
466
2,145
456
21.3%

2%
7%
3%
10%
1.5pts

Revenues and adjusted operating profits increased
by 3% and 10% respectively at constant exchange
rates, or 3% and 8% excluding acquisitions and
disposals. LexisNexis North America saw underlying
revenue growth at 2% held back by the late cycle
impact of the economic slowdown, particularly in
corporate markets. Outside the US, revenue growth
before acquisitions was 4% which, while seeing
similar weakness in UK corporate information
markets, saw strong growth in Asia-Pacific.
Adjusted operating margins improved by 1.5
percentage points to 22.8% as a result of the
continued action to improve efficiency and release
funds for investment.

In US legal markets, revenues grew by 3%. Online
revenue growth was 7% with good growth in national
law firms and, in particular, in the small law firm
market. Print and CD sales were marginally lower as
the market continues to move online. The legal
directories business again performed well with
strong renewals and expanded web services. In US
corporate and federal markets, underlying revenues
were flat. Strong growth in the risk solutions
business was offset by declines in corporate and
academic information markets reflecting the difficult
budgetary environment. Continued action on the cost
base funded further increases in investment and
delivered underlying operating profit growth in
LexisNexis North America of 10%.

OPERATING AND FINANCIAL REVIEW

Turnover by business
LEXISNEXIS

North America
£992m /€1,438m

25%
42%

75%
58%

Turnover 
£ sterling

m
7
8
0
,
1
£

m
1
0
2
,
1
£

m
0
3
3
,
1
£

m
9
4
3
,
1
£

m
8
1
3
,
1
£

Turnover 
€ euro

m
2
5
6
,
1
€

m
0
7
9
,
1
€

m
1
4
1
,
2
€

m
5
4
1
,
2
€

m
1
1
9
,
1
€

International
£326m /€473m

99

00

01

02

03

99

00

01

02

03

The LexisNexis International businesses outside
North America saw revenues and adjusted operating
profits up 4% and 2% respectively at constant
exchange rates before acquisitions. Strong growth in
online sales of legal, tax and regulatory product
across all major markets was in part offset by print
migration and by weakness in demand in the UK for
corporate news and business information.
Underlying operating margins were broadly
maintained, despite increased investment in new
online services and expansion of the business in
Germany, as a result of continued cost actions, most
particularly in rationalisation of editorial and
production processes within Europe.

LexisNexis is continuing to invest in new content and
improved online functionalities for its core products as
well as expanding into contiguous markets through
investment in new development and acquisitions.
Good further progress has been made in expanding
coverage of annotated codes for individual states and
in case law summaries. The first development phase
of the global online delivery platform has been
completed, with the launch of services on the new
platform in France, with the UK and Australia to
follow later in the year, significantly enhancing
product functionality and, after the initial launch
phases, delivering greater operational efficiency. 

Two acquisitions made in the second half of the year
in the US have expanded LexisNexis’ position in fast
growing contiguous markets. Applied Discovery Inc
is the leading provider in the US of electronic
discovery services, which is a rapidly growing
market. The public records business of Dolan Media,
including important electronic information on court
judgements and liens, has further expanded
LexisNexis’ position in the strongly growing risk
management market. Courtlink, the leading provider
of electronic court document filing and court access
services acquired just over two years ago, is
continuing to grow strongly as these markets
expand. LexisNexis is increasing investment behind
faster growth opportunities, to continue to drive
above market revenue growth and which positions
the business well for the future.

The outlook for the LexisNexis business is good.
Revenue growth is being stimulated by new
publishing and product initiatives and the declines
seen in corporate and business information markets
appear to be abating. Increases in investment are
expected to be funded by the actions taken to further
improve operational efficiency.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

11

OPERATING AND FINANCIAL REVIEW

EDUCATION

Turnover
Harcourt Education

US Schools & Testing
International

Adjusted operating profit
Adjusted operating margin

The Harcourt Education business performed well

given the difficult schools markets, with

education budgets under pressure and a trough in

the US state textbook adoption cycle, and the

effect on revenues of past contract losses.

Harcourt performed well in new US state

textbook adoptions and saw good growth in

backlist sales and non-adoption states. 

12 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

2003
£m

2002
£m

2003
€m

2002
€m

% change
at constant
currencies

745
153
898
174
19.4%

846
147
993
183
18.4%

1,080
222
1,302
252
19.4%

1,345
234
1,579
291
18.4%

–5%
5%
–3%
2%
1.0pts

Revenues, before acquisitions and disposals, were
2% lower than in the prior year whilst adjusted
operating profits were 3% ahead at constant
exchange rates. Excluding the impact of the loss of
the California state testing contract announced in
2002, underlying revenue growth would have been 
1-2%, broadly in line with the market. Despite lower
revenues, adjusted operating margins improved by
1.0 percentage points to 19.4% as substantial cost
savings were realised from rationalisation of
editorial and production processes and further
integration. 

The Harcourt US K-12 schools business performed
well in 2003 state adoptions, gaining the joint overall
market share leadership in new state adoption
opportunities. Taking into account that Harcourt did
not participate in the second year implementation of
the 2002 California elementary reading adoption, this
is an impressive performance. Particular successes
in the Elementary market were achieved in Georgia
reading and in social studies in North Carolina and
Texas. In the secondary market, whilst performance
in social studies was below expectation, the
literature and language arts programmes have
maintained their leading positions with successes in
California and Florida and the science programme
also led with a major win in Tennessee. The market
for state adoptions was however weak due to the

OPERATING AND FINANCIAL REVIEW

Turnover by business
HARCOURT EDUCATION

US Schools & Testing
£745m /€1,080m

17%

83%

Turnover 
£ sterling

m
1
8
1
£

m
2
0
2
£

m
9
7
5
£

m
3
9
9
£

m
8
9
8
£

Turnover 
€ euro

m
5
7
2
€

m
1
3
3
€

m
2
3
9
€

m
9
7
5
,
1
€

m
2
0
3
,
1
€

International
£153m /€222m

99

00

01

02

03

99

00

01

02

03

trough in the US state textbook adoption cycle and
some adoption deferrals due to the pressures on
state budgets. This was compensated by good
growth in backlist sales and sales to open territories
in both elementary and secondary schools markets.
Overall revenues were however held back by
weakness in the supplemental business ahead of
new publishing that addresses federally funded
programmes. Underlying operating profits were up
2%, reflecting the significant cost savings achieved
through supply chain rationalisation and further
integration of the supplemental businesses.

The Harcourt Assessment businesses saw
underlying revenues down 5%, reflecting the loss of
the California state testing contract which was
announced in 2002. Without this, underlying revenue
growth would have been over 15%. This has been
primarily driven by strong new publishing in the
clinical testing market. The new edition of the
Stanford Achievement Test, which combines the
power of the well established norm-reference test
with the flexibility to test state-specific criteria, has
been well received in the market and has been
instrumental in winning a number of new state
contracts, including Nevada, New Mexico and
Minnesota, which will impact in 2004. Underlying
operating profits were up 10% due to the strong
growth in higher margin product and the actions

taken to improve operational efficiency. Increased
investment is being put into classroom-based
assessment to improve individual educational
outcomes, linking assessment to reinforcement of
learning through linked curriculum and remediation
products.

The Harcourt Education International businesses
saw revenues 5% ahead and adjusted operating
profits 1% ahead, with strong growth in academic
publishing and the global library business offset by a
marked reduction in the UK schools market due to
shortfalls in governmental funding. 

In 2004, the US schools market is expected to
decline further as the low point is reached in the
three year trough in the adoptions cycle combined
with continuing state budget pressures. Harcourt
expects to perform well in the new 2004 adoptions
and the early market reaction to new publishing
programmes has been encouraging. The assessment
business will benefit from the recent state contract
wins and the International business is expected to
recover from the UK funding constraints seen last
year. 2005 and the following years are expected to
see a significant recovery in US market growth given
the much stronger adoption calendar and Harcourt
should be well placed to perform strongly.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

13

OPERATING AND FINANCIAL REVIEW

BUSINESS

Turnover
Reed Business Information

US
UK
Continental Europe

Reed Exhibitions
Other

Adjusted operating profit
Adjusted operating margin

The Reed Business division has again performed

well in yet another difficult year. The continued

decline of advertising volumes was in part

compensated by continued market share gains,

yield improvement and significant growth in

online sales. The exhibitions business has been

tightly managed through weak economic

conditions but has been adversely affected by the

net cycling out of non-annual shows as well as

the impact of the war in Iraq and the SARS

outbreak. Underlying margins improved through

firm cost management.

14 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

2003
£m

2002
£m

2003
€m

2002
€m

% change
at constant
currencies

365
234
277
420
32
1,328
236
17.8%

438
241
256
425
23
1,383
234
16.9%

529
339
402
609
47
1,926
342
17.8%

696
383
407
676
37
2,199
372
16.9%

–6%
–3%
–6%
–3%
8%
–4%
–
0.9pts

Revenues and adjusted operating profits were
respectively 4% lower and flat at constant exchange
rates, or 5% and 2% lower excluding acquisitions
and disposals. The underlying magazine and
information publishing businesses saw a revenue
decline of 5% due to the advertising market
weakness, and the exhibitions business revenues
were 6% lower, or 3% before taking account of the
net cycling out of non-annual shows. Adjusted
operating margin was 0.9 percentage points ahead at
17.8% reflecting the actions taken on costs to
mitigate the impact of lower revenues and to fund
investment.

In the US, Reed Business Information saw revenues
6% lower than in the prior year. Growth in the
entertainment sector was more than offset by
declines in the manufacturing, electronics and
construction sectors. Significant focus on improving
yields and building share could not compensate for
the volume decline. Despite the revenue decline,
underlying operating profits have risen by 23%
reflecting the significant actions taken to reduce
costs.

In the UK, Reed Business Information revenues were
down 3%. Whilst display and recruitment advertising
markets saw lower revenues, good growth was
achieved in online sales. Adjusted operating profits

OPERATING AND FINANCIAL REVIEW

Turnover by business
REED BUSINESS

UK 
£234m/€339m

18%

27%

21%

32%

US 
£365m/€529m

Other 
£32m/€47m

2%

Turnover 
£ sterling

m
0
7
4
,
1
£

m
2
7
6
,
1
£

m
7
2
6
,
1
£

m
3
8
3
,
1
£

m
8
2
3
,
1
£

Turnover 
€ euro

m
5
3
2
,
2
€

m
2
4
7
,
2
€

m
0
2
6
,
2
€

m
9
9
1
,
2
€

m
6
2
9
,
1
€

Continental Europe 
£277m/€402m

Reed Exhibitions 
£420m/€609m

99

00

01

02

03

99

00

01

02

03

Reed Business is not yet budgeting for any real
upturn in its markets and, taken with increased
investment in online services, is not anticipating
growth this year. If, however, an economic recovery
really does take hold and becomes more broadly
based, then Reed Business should recover quickly,
most immediately in its advertising revenues. Given
the dramatic improvements made in operational
efficiency over the last three years, the flow through
to increased profitability will be strong.

were similar to the prior year, with operating
margins improved through firm cost management. In
Continental Europe, Reed Business Information saw
underlying revenues down 5%. Continued focus on
market share gains and improving yields mitigated to
an extent the significant decline in advertising
markets. Economic conditions in the Netherlands
remain very weak, with only the healthcare and
regulatory titles showing growth. Significant cost
actions taken throughout the year resulted in
adjusted operating profits 5% higher despite the
revenue decline.

At Reed Exhibitions, revenues and adjusted operating
profits were lower by 3% and 9% respectively at
constant exchange rates. Underlying revenues,
excluding acquisitions and disposals, were 6% lower,
or 3% lower before the effect of the net cycling out of
non-annual shows. Growth in Asia-Pacific and the
majority of North American shows was offset by
weakness in the US manufacturing sector and in
Europe, particularly in the international shows.
Underlying operating profits were 14% lower, or 3%
lower before the cycling out of non-annual shows.
Given the weak economic conditions in most
markets and the impact on business travel of the
Iraq war and the SARS outbreak, this is a very
resilient performance and reflects the quality of the
exhibitions business and very focused management. 

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

15

OPERATING AND FINANCIAL REVIEW

FINANCIAL REVIEW

REED ELSEVIER COMBINED BUSINESSES

Reported figures
Turnover
Operating profit
Profit before taxation
Net borrowings
Adjusted figures
Operating profit
Operating margin
Profit before taxation
Operating cash flow
Operating cash flow conversion
Interest cover (times)

2003
£m

4,925
661
519
2,372

1,178
24%
1,010
1,028
87%
7.0

2002
£m

5,020
507
289
2,732

1,133
23%
927
1,010
89%
5.5

2003
€m

7,141
958
752
3,368

1,708
24%
1,465
1,491
87%
7.0

Change at
constant
currencies
%

1%
29%
75%

6%
1.3pts
10%
3%

2002
€m

7,982
806
460
4,180

1,801
23%
1,474
1,606
89%
5.5

Adjusted figures, which exclude the amortisation of goodwill and intangible assets and exceptional items, are used by Reed
Elsevier as additional performance measures. A reconciliation between the reported and adjusted figures is provided in
note 10 to the combined financial statements.

Profit and loss
The reported profit before tax for the Reed Elsevier
combined businesses, after the amortisation of goodwill and
intangible assets and exceptional items, was £519m/€752m,
which compares with a reported profit of £289m/€460m in
2002. The increase principally reflects higher underlying
operating profits, lower goodwill and intangible asset
amortisation and a £65m/€108m reduction in exceptional
charges, as well as reduced net interest expense. The
reported attributable profit of £334m/€484m increased
against a reported attributable profit of £181m/€288m in
2002, reflecting the improved operating performance and
the lower interest costs.

The year on year decline of the US dollar since 2002 has
had adverse translation effects on the results expressed in
sterling and, more particularly, in euros. The strengthening
of the euro relative to sterling has compounded this adverse
translation effect on the results expressed in euros, whilst
mitigating the impact on the results expressed in sterling.
This translation effect does not however have any impact on
the underlying performance of the businesses.

Turnover decreased by 2% expressed in sterling to
£4,925m, and by 11% expressed in euros to €7,141m. At
constant exchange rates, turnover was 1% higher, or flat
excluding acquisitions and disposals. 

Adjusted operating profits, excluding the amortisation of
goodwill and intangible assets and exceptional items, were
up 4% expressed in sterling at £1,178m, whilst down 5%
expressed in euros at €1,708m. At constant exchange rates,
adjusted operating profits were up 6%, or 5% excluding
acquisitions and disposals. 

Adjusted operating margins improved by 1.3 percentage
points to 23.9% reflecting the continued tight management
of costs.

16 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

The amortisation charge for intangible assets and

goodwill, including in joint ventures, amounted to
£445m/€645m, down £82m/€193m on the prior year as a
result of translation effects and some past acquisitions
becoming fully amortised.

Exceptional items showed a pre-tax charge of

£46m/€68m, comprising, £49m/€72m of Harcourt and
other acquisition integration and related costs, £23m/€33m
in respect of restructuring actions taken in response to the
effect of the protracted global economic slowdown, less a
£26m/€37m net gain on disposal of businesses and fixed
asset investments. After a tax credit of £84m/€122m
principally arising on the exceptional costs and in respect of
prior year disposals, exceptional items showed a net
post-tax gain of £38m/€54m. This compares with a net
post-tax exceptional gain of £11m/€18m in 2002.

Net interest expense, at £168m/€243m, was £38m/€84m

lower than in the prior year, reflecting the benefit of the
2002 free cash flow, lower interest rates and currency
translation effects. Net interest cover on an adjusted basis
was 7.0 times.

Adjusted profits before tax, before the amortisation of
goodwill and intangible assets and exceptional items, at
£1,010m/€1,465m, were up 9% expressed in sterling, whilst
down 1% expressed in euros. At constant exchange rates,
adjusted profits before tax were up 10%. 

The effective tax rate on adjusted earnings was little

changed at 26%. The adjusted profit attributable to
shareholders of £744m/€1,079m was up 9% expressed in
sterling, and down 1% expressed in euros. At constant
exchange rates, the adjusted profit attributable to
shareholders was up 10%.

OPERATING AND FINANCIAL REVIEW

Cash flows and debt 
Adjusted operating cash flow, before exceptional items,
was £1,028m/€1,491m representing an 87% conversion rate
of adjusted operating profits into cash. This compares with a
conversion rate in 2002 of 89%. Capital expenditure in the
year amounted to £168m/€244m and depreciation was
£134m/€194m, both similar to the prior year.

Free cash flow – after interest and taxation but before
acquisition spend, exceptional receipts and payments and
dividends – was £669m/€970m, compared to
£651m/€1,035m in 2002. After dividends, free cash flow was
£377m/€547m compared to £378m/€601m in 2002. Net
exceptional cash inflows of £34m/€50m included
£96m/€140m proceeds from disposals of businesses and
fixed asset investments and £36m/€52m of reduced tax
payments, less exceptional acquisition related and
restructuring payments of £98m/€142m.

In 2003, acquisitions were made for a total consideration

of £226m/€328m, including £3m/€5m deferred to future
years, and after taking account of £9m/€13m of net cash
acquired. An amount of £229m/€332m was capitalised as
goodwill and intangible assets. Deferred consideration paid
in respect of prior year acquisitions and payment of change
of control and other non-operating liabilities assumed on
the acquisition of Harcourt totalled £35m/€50m. The 2003
acquisitions contributed £16m/€25m to adjusted operating
profit in the year and added £15m/€22m to adjusted
operating cash flow.

Net borrowings at 31 December 2003 were

£2,372m/€3,368m, a decrease of £360m in sterling and
€812m in euros since 31 December 2002, reflecting the free
cash flow less acquisition spend, and favourable exchange
translation effects from the weaker US dollar.

Gross borrowings at 31 December 2003 amounted to
£3,010m/€4,274m, denominated mostly in US dollars, and
were partly offset by cash balances totalling £638m/€906m
invested in short term deposits and marketable securities.

After taking account of interest rate derivatives, a total of
65% of Reed Elsevier’s gross borrowings were at fixed rates,
including £1,270m/€1,797m of floating rate debt fixed
through the use of interest rate derivatives, and had a
weighted average interest coupon of 6.3% and an average
remaining life of 5.8 years.

ACCOUNTING POLICIES
Introduction
The accounting policies of the Reed Elsevier combined
businesses are described in the combined financial
statements. Prior to 2003, the Reed Elsevier combined
financial statements were presented in accordance with
both UK and Dutch Generally Accepted Accounting
Principles (“GAAP”). Following changes to Dutch GAAP
effective for the 2003 financial year in respect of the
presentation of dividends and pension accounting, UK and
Dutch GAAP have diverged such that the Reed Elsevier
accounting policies no longer accord with Dutch GAAP.
Under Article 362.1 of Book 2 Title 9 of the Netherlands Civil
Code, UK GAAP may be adopted by Dutch companies with
international operations for the preparation of financial
statements and, accordingly, UK GAAP has been so adopted,
ensuring consistency with the prior year of the accounting
policies applied in the combined financial statements.

Reed Elsevier NV has adopted UK GAAP in its statutory

financial statements and has therefore presented both
group financial statements, in which its investments in Reed
Elsevier Group plc and Elsevier Reed Finance BV are
presented using the gross equity method, and parent
company financial statements, in which its investments are
presented using the historical cost method. The adoption of
UK GAAP by Reed Elsevier NV had no impact on group
shareholders’ funds as at 1 January 2003 or on the group
earnings for the year ended 31 December 2003. The
adoption of UK GAAP had the effect of reducing parent
company shareholders’ funds as at 1 January 2003 by €34m
and parent company attributable profit for the year ended

Turnover by business segment 

Turnover by geographical market

Turnover by source

Science & Medical 28%

Legal 27%

Education 18%

Business 27%

North America 59%

United Kingdom 11%

The Netherlands 4%

Rest of Europe 14%

Rest of world 12%

Subscriptions 39%

Circulation 31%

Advertising 13%

Exhibitions 9%

Other 8%

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

17

OPERATING AND FINANCIAL REVIEW

31 December 2003 by €39m compared to the amounts that
would have been reported under Dutch GAAP.

The most significant accounting policies in determining the

financial condition and results of the combined businesses,
and those requiring the most subjective or complex
judgement, relate to the valuation and amortisation of
goodwill and intangible assets, taxation and pensions.

Revenue recognition policies, while an area of

management focus, are generally straightforward in
application as the timing of product or service delivery and
customer acceptance for the various revenue types can be
readily determined. Allowances for product returns are
deducted from revenues based on historical return rates.

Pre-publication costs incurred in the origination of content

are capitalised and amortised over their estimated useful
lives based on sales profiles. Annual reviews are carried out
to assess the recoverability of carrying amounts.

Goodwill and intangible assets
Reed Elsevier’s accounting policy is that, on acquisition of a
subsidiary, associate, joint venture or business, the
purchase consideration is allocated between the net
tangible and intangible assets other than goodwill on a fair
value basis, with any excess purchase consideration
representing goodwill. The valuation of intangible assets
other than goodwill represents the estimated economic
value in use, using standard valuation methodologies,
including as appropriate, discounted cash flow, relief from
royalty and comparable market transactions. Acquired
goodwill and intangible assets are capitalised and amortised
systematically over their estimated useful lives up to a
maximum of 40 years, subject to impairment review.
Appropriate amortisation periods are selected based on
assessments of the longevity of the brands and imprints, the
market positions of the acquired assets and the
technological and competitive risks that they face.

The carrying amounts of goodwill and intangible assets are

regularly reviewed, at least twice a year. The carrying

amounts of goodwill and intangible assets arising on all
significant acquisitions, on all acquisitions made in the
previous financial year, and on any acquisitions for which
there are indications of possible impairment are compared
with estimated values in use based on latest management
cash flow projections. Key areas of judgement in estimating
the values in use of businesses are the forecast long term
growth rates and the appropriate discount rates to be
applied to forecast cash flows. Based on the latest value in
use calculations, no goodwill or intangible assets were
impaired as at 31 December 2003.

Taxation
The Reed Elsevier combined businesses seek to organise
their affairs in a tax efficient manner, taking account of the
jurisdictions in which they operate. Reed Elsevier’s policy is
to make prudent provision for tax uncertainties.

Reed Elsevier’s policy in respect of deferred taxation is to

provide in full for timing differences using the liability
method. Deferred tax assets are only recognised to the
extent that they are considered recoverable in the short
term based on an assessment of the forecast level of
taxable profits in jurisdictions where such assets have
arisen.

Pensions
Pension costs are accounted for in accordance with the UK
accounting standard SSAP24: Pension costs.

Accounting for pension schemes involves judgement about

uncertain events, including the life expectancy of the
members, salary and pension increases, inflation, the return
on scheme assets and the rate at which the future pension
payments are discounted. Estimates for all of these factors
are used in determining the pension cost and liabilities
reported in the financial statements. These best estimates
of future developments are made in conjunction with
independent actuaries. Each scheme is subject to a periodic
review by the independent actuaries.

Use of adjusted
operating cash flow

Currency profile – 2003
adjusted pre-tax profit

Currency profile – 2003 
net cash/borrowings

Free cash flow
after dividends 
£377m/€547m
Taxation 
£182m/€264m

Dividends 
£292m/€423m

Net interest 
£177m/€257m

18 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

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Euro 31%

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OPERATING AND FINANCIAL REVIEW

For defined contribution schemes, the profit and loss

account charge represents contributions payable.

International Accounting Standards
Under a Regulation adopted by the European Parliament in
2002, the Reed Elsevier combined financial statements will
be prepared under International Accounting Standards (IAS)
with effect from the 2005 financial year.

Impact assessments have been carried out during 2003 to

identify the changes of accounting policy that will be
necessary to comply with IAS and implementation plans
have been prepared to modify accounting systems and
procedures as necessary. The key changes arising on
adoption of IAS are expected to relate to the accounting for
goodwill and intangible assets, share based payments,
pensions, financial instruments and deferred taxation.

Final IAS have yet to be issued and endorsed in respect of

most of these and other accounting policy areas, and
developments will be monitored closely.

TREASURY POLICIES
The boards of Reed Elsevier PLC and Reed Elsevier NV have
requested that Reed Elsevier Group plc and Elsevier Reed
Finance BV have due regard to the best interests of Reed
Elsevier PLC and Reed Elsevier NV shareholders in the
formulation of treasury policies.

Financial instruments are used to finance the Reed
Elsevier businesses and to hedge transactions. Reed
Elsevier’s businesses do not enter into speculative
transactions. The main treasury risks faced by Reed Elsevier
are liquidity risk, interest rate risk and foreign currency risk.
The boards of the parent companies agree overall policy
guidelines for managing each of these risks and the boards
of Reed Elsevier Group plc and Elsevier Finance SA agree
policies (in conformity with parent company guidelines) for
their respective business and treasury centres. These
policies are summarised below and remained broadly
unchanged during 2003.

Funding
Reed Elsevier develops and maintains a range of borrowing
facilities and debt programmes to fund its requirements, at
short notice and at competitive rates. The significance of
Reed Elsevier Group plc’s US operations means that the
majority of debt is denominated in US dollars and is raised
in the US debt markets. A mixture of short term and long
term debt is utilised and Reed Elsevier maintains a maturity
profile to facilitate refinancing. Reed Elsevier’s policy is that
no more than US$1,000m of long term debt should mature
in any 12-month period. In addition, minimum levels of net
debt with maturities over three years and five years are
specified, depending on the level of the total borrowings. 
After taking account of the maturity of committed bank
facilities that back short term borrowings, at 31 December
2003, nil% of debt after utilising available cash resources

matures in the first, second and third years, 72% in the
fourth and fifth years, 14% in five to ten years, and 14%
beyond ten years.

At 31 December 2003, Reed Elsevier had access to
US$3,000 million (2002 US$3,500 million) of committed
bank facilities, of which US$91 million was drawn. These
facilities principally provide back up for short term debt but
also security of funding for future acquisition spend in the
event that commercial paper markets are not available. Of
the total committed facilities, US$750 million
(2002:US$2,860 million) matures within one year, US$nil
(2002: US$640 million) within two to three years, and
US$2,250 million (2002: US$nil) within four to five years.

Interest rate exposure management
Reed Elsevier’s interest rate exposure management policy is
aimed at reducing the exposure of the combined businesses
to changes in interest rates. The proportion of interest
expense that is fixed on net debt is determined by reference
to the level of net interest cover. Reed Elsevier uses fixed
rate term debt, interest rate swaps, forward rate
agreements and a range of interest rate options to manage
the exposure. Interest rate derivatives are used only to
hedge an underlying risk and no net market positions are
held.

At 31 December 2003, US$4,126 million of Reed Elsevier’s

net debt was denominated in US dollars on which
approximately 75% of forecast net interest expense was
fixed or capped for the next 12 months. This fixed or capped
percentage reduces to approximately 60% by the end of the
third year and reduces thereafter with all the interest rate
derivatives which fix or cap expense and approximately three
quarters of fixed rate term debt having matured by the end
of 2009 and 2011 respectively.

At 31 December 2003, fixed rate US dollar term debt (not
swapped back to floating rate) amounted to US$1.2 billion
and had a weighted average life remaining of 13.0 years
(2002: 14.3 years) and a weighted average interest coupon of
6.9%. Interest rate derivatives in place at 31 December 2003
which fix or cap the interest cost on an additional
US$2.0 billion (2002: US$2.1 billion) of variable rate US
dollar debt, have a weighted average maturity of 1.9 years
(2002: 2.2 years) and a weighted average interest rate
of 6.0%.

Foreign currency exposure management
Translation exposures arise on the earnings and net assets
of business operations in countries other than those of each
parent company. These exposures are hedged, to a
significant extent, by a policy of denominating borrowings in
currencies where significant translation exposures exist,
most notably US dollars.

Currency exposures on transactions denominated in a
foreign currency are required to be hedged using forward
contracts. In addition, recurring transactions and future

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

19

OPERATING AND FINANCIAL REVIEW

investment exposures may be hedged, within defined limits,
in advance of becoming contractual. The precise policy
differs according to the commercial situation of the
individual businesses. Expected future net cash flows may
be covered for sales expected for up to the next 12 months
(50 months for Elsevier science and medical subscription
businesses up to limits staggered by duration). Cover takes
the form of foreign exchange forward contracts.

At the year-end, the amount of outstanding foreign
exchange cover in respect of future transactions was
US$1.2 billion.

ELSEVIER REED FINANCE BV

Structure
Elsevier Reed Finance BV, the Dutch resident parent
company of the Elsevier Reed Finance BV group (“ERF”), is
directly owned by Reed Elsevier PLC and Reed Elsevier NV.
ERF provides treasury, finance and insurance services to the
Reed Elsevier Group plc businesses through its subsidiaries
in Switzerland: Elsevier Finance SA (“EFSA”), Elsevier
Properties SA (“EPSA”) and Elsevier Risks SA (“ERSA”).
These three Swiss companies are organised under one
Swiss holding company, which is in turn owned by Elsevier
Reed Finance BV.

Activities
EFSA, EPSA and ERSA each focus on their own specific area
of expertise.

EFSA is the principal treasury centre for the combined

businesses. It is responsible for all aspects of treasury
advice and support for Reed Elsevier Group plc’s businesses
operating in Continental Europe, South America, the Pacific
Rim and certain other territories, and undertakes foreign
exchange and derivatives dealing services for the whole of
Reed Elsevier. EFSA also arranges or directly provides Reed
Elsevier Group plc businesses with financing for acquisitions
and product development and manages cash pools and

investments on their behalf. EPSA is responsible for the
exploitation of tangible and intangible property rights whilst
ERSA is responsible for insurance activities relating to risk
retention.

Major developments
EFSA continued to diversify its sources of funding in 2003
with an additional US$149 million of term debt raised
through bilateral term loans and private placements.

In 2003, EFSA organised bank tenders and implemented
cash-pooling arrangements in several European and Asian
countries. EFSA also provided specialist advice concerning
the management of interest exposures and also advised
Reed Elsevier Group plc companies in Europe on the
further development of their collection and payment
mechanisms.

The average balance of cash under management, on

behalf of Reed Elsevier Group plc and its parent
companies, was approximately US$0.3 billion.

Liabilities and assets
At the end of 2003, 88% (2002: 90%) of ERF’s gross assets
were held in US dollars and 12% (2002: 10%) in euros,
including US$7.2 billion (2002: US$7.1 billion) and €0.7
billion (2002: €0.8 billion) in loans to Reed Elsevier Group
plc subsidiaries. Loans made to Reed Elsevier Group plc
businesses are funded from equity, long term debt of
US$0.8 billion and short term debt of €1.3 billion backed
by committed bank facilities. These committed facilities
were renegotiated in 2003. Term debt is derived from a
Swiss domestic public bond issue, bilateral term loans and
private placements. Short term debt is primarily derived
from euro and US commercial paper programmes.

20 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

OPERATING AND FINANCIAL REVIEW

PARENT COMPANIES

Reported profit attributable
Adjusted profit attributable
Average exchange rate €:£
Reported earnings per share
Adjusted earnings per share
Dividend per share

Reed Elsevier PLC

Reed Elsevier NV

2003
£m
169
394
1.45
13.4p
31.2p
12.0p

2002
£m
89
361
1.59
7.0p
28.5p
11.2p

%
change
90%
9%

91%
9%
7%

2003
€m
242
540
1.45
€0.31
€0.69
€0.30

2002
€m
144
542
1.59
€0.18
€0.69
€0.30

%
change
68%
–

72%
–
–

The results of Reed Elsevier PLC reflect its shareholders’ 52.9% economic interest in the Reed Elsevier combined businesses.
The results of Reed Elsevier NV reflect its shareholders’ 50% economic interest in the Reed Elsevier combined businesses.
The respective economic interests of the Reed Elsevier PLC and Reed Elsevier NV shareholders take account of Reed Elsevier
PLC’s 5.8% interest in Reed Elsevier NV. Both parent companies gross equity account for their respective interests in the Reed
Elsevier combined businesses. Adjusted figures, excluding the amortisation of goodwill and intangible assets, exceptional
items and related tax effects, are presented as additional performance measures and are reconciled to the reported figures in
the notes to the respective financial statements.

Profit and loss
Adjusted earnings per share, measured before the effect
of amortisation of goodwill and intangible assets and
exceptional items, for Reed Elsevier PLC were 31.2p, up
9% on the previous year, and for Reed Elsevier NV were
€0.69, unchanged from 2002. The difference in percentage
change is entirely attributable to the impact of currency
movements on the translation of reported results. At
constant rates of exchange, the adjusted earnings per
share of both companies would have shown an increase of
10% over the previous year. 

After their share of the charge in respect of goodwill and
intangible asset amortisation and of the exceptional items,
the reported earnings per share of Reed Elsevier PLC
after tax credit equalisation and Reed Elsevier NV were
13.4p and €0.31 respectively, compared to 7.0p and €0.18
in 2002.

Dividends
Dividends to Reed Elsevier PLC and Reed Elsevier NV
shareholders are equalised at the gross level, including the
benefit of the UK attributable tax credit of 10% received by
certain Reed Elsevier PLC shareholders. The exchange
rate used for each dividend calculation – as defined in the
Reed Elsevier merger agreement – is the spot
euro/sterling exchange rate, averaged over a period of
five business days commencing with the tenth business
day before the announcement of the proposed dividend. 
The Board of Reed Elsevier PLC has proposed a final
dividend of 8.7p, giving a total dividend of 12.0p for the
year, up 7% on 2002. The Boards of Reed Elsevier NV, in
accordance with the dividend equalisation arrangements,
have proposed a final dividend of €0.22. This results in a
total dividend of €0.30 for the year, the same as in 2002.
The difference in dividend growth rates reflects the impact
of the significant appreciation of the euro against sterling
since the prior year dividend declaration dates.

Dividend cover for Reed Elsevier PLC, using adjusted

earnings before the amortisation of goodwill and intangible
assets and exceptional items and related tax effects, was
2.6 times and for Reed Elsevier NV was 2.3 times.
Measured for the combined businesses on a similar basis,
dividend cover was 2.4 times, unchanged from 2002.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

21

Structure and Corporate Governance

STRUCTURE
Corporate structure
Reed Elsevier came into existence in January 1993, when
Reed Elsevier PLC and Reed Elsevier NV contributed their
businesses to two jointly owned companies, Reed Elsevier
Group plc, a UK registered company which owns the
publishing and information businesses, and Elsevier Reed
Finance BV, a Dutch registered company which owns the
financing activities. Reed Elsevier PLC and Reed Elsevier NV
have retained their separate legal and national identities
and are publicly held companies. Reed Elsevier PLC’s
securities are listed in London and New York, and Reed
Elsevier NV’s securities are listed in Amsterdam and New
York.

Equalisation arrangements
Reed Elsevier PLC and Reed Elsevier NV each hold a 50%
interest in Reed Elsevier Group plc. Reed Elsevier PLC holds
a 39% interest in Elsevier Reed Finance BV, with Reed
Elsevier NV holding a 61% interest. Reed Elsevier PLC
additionally holds an indirect equity interest in Reed Elsevier
NV, reflecting the arrangements entered into between the
two companies at the time of the merger, which determined
the equalisation ratio whereby one Reed Elsevier NV
ordinary share is, in broad terms, intended to confer
equivalent economic interests to 1.538 Reed Elsevier PLC
ordinary shares. The equalisation ratio is subject to change
to reflect share splits and similar events that affect the
number of outstanding ordinary shares of either Reed
Elsevier PLC or Reed Elsevier NV.

Under the equalisation arrangements, Reed Elsevier PLC

shareholders have a 52.9% economic interest in Reed
Elsevier, and Reed Elsevier NV shareholders (other than
Reed Elsevier PLC) have a 47.1% economic interest in Reed
Elsevier. Holders of ordinary shares in Reed Elsevier PLC
and Reed Elsevier NV enjoy substantially equivalent dividend
and capital rights with respect to their ordinary shares.

The boards of both Reed Elsevier PLC and Reed Elsevier

NV have agreed, except in exceptional circumstances, to
recommend equivalent gross dividends (including, with
respect to the dividend on Reed Elsevier PLC ordinary
shares, the associated UK tax credit), based on the
equalisation ratio. A Reed Elsevier PLC ordinary share pays
dividends in sterling and is subject to UK tax law with
respect to dividend and capital rights. A Reed Elsevier NV
ordinary share pays dividends in euros and is subject to
Dutch tax law with respect to dividend and capital rights.

CORPORATE GOVERNANCE
Compliance with codes of best practice
The boards of Reed Elsevier PLC and Reed Elsevier NV have
implemented standards of corporate governance and
disclosure policies applicable to companies listed on the
stock exchanges of the United Kingdom, the Netherlands

22 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

and the United States. The effect of this is that an obligation
applying to one will, where practicable and not in conflict,
also be observed by the other. 

Reed Elsevier PLC, which has its primary listing on the

London Stock Exchange, has complied throughout the
period under review with the provisions and principles of
Section 1 of the Principles of Good Governance and Code of
Best Practice, issued by the UK Financial Services Authority.
The boards of Reed Elsevier PLC and Reed Elsevier NV
support the provisions and principles of corporate
governance set out in the Combined Code on Corporate
Governance issued by the UK Financial Reporting Council in
July 2003 (the “UK Combined Code”) and believe that each
company complied with the provisions and principles of the
UK Combined Code at the close of the period under review.

Reed Elsevier NV, which has its primary listing on
Euronext in Amsterdam, has complied throughout the
period under review with the listing rules of Euronext in
Amsterdam and best custom and practice appropriate to
internationally focused Dutch companies. The boards of
Reed Elsevier NV and Reed Elsevier PLC support the
principles of corporate governance set out in the Dutch
Corporate Governance Code issued in December 2003 (the
“Dutch Code”) and believe that they will have no significant
issues regarding compliance with the Dutch Code during
2004, subject to reconciliation with the UK Combined Code.
The ways in which the relevant principles of corporate

governance are applied and complied with within Reed
Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and
Elsevier Reed Finance BV are described below.

THE BOARDS
The boards of Reed Elsevier PLC, Reed Elsevier NV, Reed
Elsevier Group plc and Elsevier Reed Finance BV each
comprise a balance of executive and non-executive directors
who bring a wide range of skills and experience to the
deliberations of the boards. All non-executive directors are
independent of management and free from any business or
other relationship which could materially interfere with the
exercise of their independent judgment.

All directors have full and timely access to the information

required to discharge their responsibilities fully and
efficiently.

The boards of Reed Elsevier PLC, Reed Elsevier NV and

Reed Elsevier Group plc are harmonised. Subject to
approval by the respective shareholders, all the directors of
Reed Elsevier Group plc are also directors of Reed Elsevier
PLC and of Reed Elsevier NV. No individual may be
appointed to the boards of Reed Elsevier PLC, Reed Elsevier
NV or Reed Elsevier Group plc unless recommended by the
joint Nominations Committee, although members of the
Committee abstain when their own re-appointment is being
considered. The Reed Elsevier PLC and Reed Elsevier NV
shareholders maintain their rights to appoint individuals to

STRUCTURE AND CORPORATE GOVERNANCE

their respective boards, in accordance with the provisions of
the Articles of Association of those companies.

On appointment, directors receive training appropriate to
their level of previous experience. This includes the provision
of a tailored induction programme, so as to provide newly
appointed directors with information about the Reed
Elsevier businesses and other information to assist them in
performing their duties. Non-executive directors are
encouraged to visit the Reed Elsevier businesses to meet
directors and senior executives. All directors have access to
the services of the respective company secretaries and may
take independent professional advice in the furtherance of
their duties, at the relevant company’s expense.

All Reed Elsevier PLC and Reed Elsevier NV directors are
subject to retirement at least every three years, and are able
then to make themselves available for re-election by
shareholders at the respective Annual General Meetings.

As a general rule, non-executive directors of Reed Elsevier

PLC and members of the Reed Elsevier NV supervisory
board serve on the respective board for two, three year
terms, although the boards may invite individual directors to
serve up to one additional three year term.

Reed Elsevier PLC
The Reed Elsevier PLC board consists of five executive
directors: Crispin Davis – Chief Executive Officer, Mark
Armour – Chief Financial Officer, Gerard van de Aast,
Andrew Prozes and Patrick Tierney – appointed April 2003,
and seven independent non-executive directors: Morris
Tabaksblat – Chairman, John Brock, Mark Elliott –
appointed April 2003, Cees van Lede – appointed April 2003,
David Reid – appointed April 2003, Lord Sharman and Rolf
Stomberg – senior independent non-executive director.
Roelof Nelissen and Steven Perrick retired as directors in
April 2003 and Derk Haank resigned as a director in June
2003. The board met five times during the year. Due to a
prior commitment, Mr van Lede was not able to attend one
meeting, otherwise there was full attendance.

At the Reed Elsevier PLC Annual General Meeting to be
held on 28 April 2004, Messrs Tabaksblat, van de Aast and
Stomberg and Lord Sharman will retire by rotation. Being
eligible, they offer themselves for re-election.

Reed Elsevier NV
Reed Elsevier NV has a two-tier board structure comprising
a supervisory board of eight members, all of whom are
independent non-executives, and an executive board of five
members. The executive board is responsible for the
management of the company and the supervisory board
supervises the executive board. The members of the
supervisory board are Morris Tabaksblat – Chairman, Dien
de Boer-Kruyt, John Brock, Mark Elliott – appointed April
2003, Cees van Lede – appointed April 2003, David Reid –

appointed April 2003, Lord Sharman and Rolf Stomberg. The
executive board comprises Crispin Davis – Chief Executive
Officer, Mark Armour – Chief Financial Officer, Gerard van
de Aast, Andrew Prozes and Patrick Tierney – appointed
April 2003. Roelof Nelissen and Steven Perrick retired as
members of the supervisory board in April 2003 and Derk
Haank resigned as a member of the executive board in June
2003. The boards met five times during the year. Due to a
prior commitment Mr van Lede was not able to attend one
meeting and Mrs de Boer-Kruyt was not able to attend three
meetings due to illness, otherwise there was full
attendance.

At the Reed Elsevier NV Annual General Meeting to be

held on 29 April 2004, Messrs Tabaksblat and Stomberg and
Lord Sharman will retire by rotation as members of the
supervisory board, and Mr van de Aast will retire by rotation
as a member of the executive board. Being eligible, they
offer themselves for re-election.

Reed Elsevier Group plc
The Reed Elsevier Group plc board consists of five executive
directors: Crispin Davis – Chief Executive Officer, Mark
Armour – Chief Finance Officer, Gerard van de Aast, Andrew
Prozes and Patrick Tierney – appointed April 2003, and
seven independent non-executive directors: Morris
Tabaksblat – Chairman, John Brock, Mark Elliott –
appointed April 2003, Cees van Lede – appointed April 2003,
David Reid – appointed April 2003, Lord Sharman and Rolf
Stomberg. Roelof Nelissen and Steven Perrick retired as
directors in April 2003 and Derk Haank resigned as a
director in June 2003. The board met six times during the
year. Due to a prior commitment, Messrs Haank, van Lede
and Reid were each not able to attend one meeting,
otherwise there was full attendance.

Biographical information in respect of the current

members of the boards appears on pages 10 and 11 of the
Annual Review and Summary Financial Statements.

Elsevier Reed Finance BV
The management board and the supervisory board of
Elsevier Reed Finance BV met three times during the year.
All members of these boards attended all board meetings
during the year, with the exception of Mrs de Boer-Kruyt
who was not able to attend one meeting. The supervisory
board comprises Roelof Nelissen – Chairman, Mark Armour
and Dien de Boer-Kruyt, with the management board
consisting of Willem Boellaard and Jacques Billy.
Appointments to the supervisory and management boards
are made by the shareholders, in accordance with the
company’s Articles of Association. In April 2003 Steven
Perrick retired from the supervisory board.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

23

STRUCTURE AND CORPORATE GOVERNANCE

BOARD COMMITTEES
In accordance with the principles of good corporate
governance, the following committees, all of which have
written terms of reference, have been established by the
respective boards. The terms of reference of these
committees are published on the Reed Elsevier website
(www.reedelsevier.com).

Audit Committees
Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier
Group plc have established Audit Committees. The
Committees comprise only non-executive directors, all of
whom are independent. The Committees are chaired by
Lord Sharman, the other members being John Brock and
David Reid – appointed in April 2003. A report of the Audit
Committees, setting out the role of the Committees and
their main activities during the year, appears on pages 27
and 28.

The Committees met four times during the year, and there

was full attendance.

Corporate Governance Committee
Reed Elsevier PLC and Reed Elsevier NV have established a
joint Corporate Governance Committee, which comprises
only non-executive directors, all of whom are independent.
The Committee is chaired by Morris Tabaksblat, the other
members being Dien de Boer-Kruyt, John Brock, Mark
Elliott – appointed in April 2003, Cees van Lede – appointed
in April 2003, David Reid – appointed in April 2003,
Lord Sharman and Rolf Stomberg. The Committee met
twice during the year and, with the exception of Mrs de
Boer-Kruyt who was absent through illness, there was full
attendance.

In addition to reviewing ongoing developments and best
practice in corporate governance, the Committee is also
responsible for recommending the structure and operation
of the various committees of the boards and the
qualifications and criteria for membership of each
committee, including the independence of members of the
boards. 

During the period the Committee reviewed ongoing

developments and best practice in corporate governance.
The Committee also assessed the performance of individual
executive directors and the functioning and constitution of
the boards and their Committees and the Chairman
assessed the individual performance of the non-executive
directors, in consultation with the other directors. The
Committee, led by the senior independent non-executive
director, also assessed the performance of the Chairman.
Based on these assessments, the Committee believes that
the performance of each director continues to be effective
and that they demonstrate commitment to their respective
roles in Reed Elsevier.

24 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

During the course of 2004 the Committee will keep under

review the implications of the UK Combined Code and the
Dutch Code on the corporate governance structure and
practices of Reed Elsevier PLC and Reed Elsevier NV.

Nominations Committee
Reed Elsevier PLC and Reed Elsevier NV have established a
joint Nominations Committee, which provides a formal and
transparent procedure for the appointment of new directors
to the boards. The Committee comprises a majority of
independent non-executive directors. The Committee is
chaired by Morris Tabaksblat, the other members being
Crispin Davis – Chief Executive Officer, Cees van Lede –
appointed in April 2003, Lord Sharman – appointed in
August 2003 and Rolf Stomberg. The Committee believes
that it is appropriate for the Chief Executive Officer to be a
member of the Committee since he provides a perspective
which assists the Committee in nominating candidates to
the board who will be able to work as a team with both the
executive and non-executive directors. The Committee met
twice during the year, and there was full attendance. 

The Committee’s terms of reference include assuring
board succession and making recommendations to the
boards of Reed Elsevier PLC, Reed Elsevier NV and Reed
Elsevier Group plc concerning the appointment or
reappointment of directors to, and the retirement of
directors from, those boards. In conjunction with the
Chairman of the Reed Elsevier Group plc Remuneration
Committee and external consultants, the Committee is also
responsible for developing proposals for the remuneration
and fees for new directors.

During the period the Committee recommended to the
boards of Reed Elsevier PLC, Reed Elsevier NV and Reed
Elsevier Group plc the appointment of an additional
executive director and three non-executive directors, as set
out on pages 31 and 32. In each case the Committee
retained the services of external search consultants to
produce short lists of potential candidates. 

Remuneration Committee
Reed Elsevier Group plc has established a Remuneration
Committee which comprises only independent non-
executive directors. The Committee is chaired by Rolf
Stomberg, the other members being Mark Elliott –
appointed in April 2003 and Cees van Lede – appointed in
April 2003. The Committee met three times during the year.
Mr van Lede was not able to attend one meeting, otherwise
there was full attendance.

The Committee is responsible for recommending to the

board the remuneration in all its forms of executive
directors of Reed Elsevier Group plc, and provides advice to
the Chief Executive Officer on the remuneration of
executives at a senior level below the board. It also makes
recommendations to the board of Reed Elsevier PLC and

STRUCTURE AND CORPORATE GOVERNANCE

Reed Elsevier NV regarding the remuneration of the
executive directors of these companies.

The fees of non-executive directors are determined by

each of the boards as a whole.

A Directors’ Remuneration Report, which has been

approved by the boards of Reed Elsevier Group plc, Reed
Elsevier PLC and Reed Elsevier NV, appears on pages 29 to
38. This report also serves as disclosure of the directors’
remuneration and interests in shares of the two parent
companies, Reed Elsevier PLC and Reed Elsevier NV.

Strategy Committee
Reed Elsevier Group plc has established a Strategy
Committee, comprising a majority of independent non-
executive directors. The Committee is chaired by Morris
Tabaksblat, the other members being Crispin Davis, Mark
Elliott – appointed in April 2003 and David Reid – appointed
in April 2003. The Committee met once during the year, and
there was full attendance.

The Committee’s terms of reference include reviewing the

major features of the strategy proposed by the Chief
Executive Officer, and subsequently recommending the
proposed strategy to the board. The Committee is also
responsible for reviewing any acquisition or investment,
which would have major strategic or structural implications
for Reed Elsevier Group plc.

RELATIONS WITH SHAREHOLDERS
Reed Elsevier PLC and Reed Elsevier NV participate in
regular dialogue with institutional shareholders, and
presentations on the Reed Elsevier combined businesses
are made after the announcement of the interim and full
year results. The boards of Reed Elsevier PLC and Reed
Elsevier NV commission periodic reports on the attitudes
and views of the companies’ institutional shareholders and
the results are the subject of formal presentations to the
respective boards. A trading update is provided at the
respective Annual General Meetings of the two companies,
and near the end of the financial year. The Annual General
Meetings provide an opportunity for the boards to
communicate with individual shareholders. The Chairman,
the Chief Executive Officer, the Chief Financial Officer, the
Chairmen of the board committees, other directors and a
representative of the external auditor are available to
answer questions from shareholders. The interim and
annual results announcements and presentations, together
with the trading updates and other important
announcements concerning Reed Elsevier, are published on
the Reed Elsevier website (www.reedelsevier.com).

INTERNAL CONTROL
Parent companies
The boards of Reed Elsevier PLC and Reed Elsevier NV
exercise independent supervisory roles over the activities

and systems of internal control of Reed Elsevier Group plc
and Elsevier Reed Finance BV. The boards of Reed Elsevier
PLC and Reed Elsevier NV have each adopted a schedule of
matters which are required to be brought to them for
decision. In relation to Reed Elsevier Group plc and Elsevier
Reed Finance BV, the boards of Reed Elsevier PLC and Reed
Elsevier NV approve the strategy and the annual budgets,
and receive regular reports on the operations, including the
treasury and risk management activities, of the two
companies. Major transactions proposed by the boards of
Reed Elsevier Group plc or Elsevier Reed Finance BV
require the approval of the boards of both Reed Elsevier
PLC and Reed Elsevier NV.

The Reed Elsevier PLC and Reed Elsevier NV Audit

Committees meet on a regular basis to review the systems
of internal control of Reed Elsevier Group plc and Elsevier
Reed Finance BV.

Operating companies
The board of Reed Elsevier Group plc is responsible for the
system of internal control of the Reed Elsevier publishing
and information businesses, while the boards of Elsevier
Reed Finance BV are responsible for the system of internal
control in respect of the finance group activities. The boards
of Reed Elsevier Group plc and Elsevier Reed Finance BV
are also responsible for reviewing the effectiveness of their
system of internal control. The objective of these systems is
to manage, rather than eliminate, the risk of failure to
achieve business objectives. Accordingly, they can only
provide reasonable, but not absolute, assurance against
material misstatement or loss.

The boards of Reed Elsevier Group plc and Elsevier Reed

Finance BV have implemented an ongoing process for
identifying, evaluating and managing the significant risks
faced by their respective businesses. This process has been
in place throughout the year ended 31 December 2003 and
up to the date of the approvals of the Annual Reports and
Financial Statements.

Reed Elsevier Group plc
Reed Elsevier Group plc has an established framework of
procedures and internal controls, which is set out in a group
Policies and Procedures Manual, and with which the
management of each business is required to comply. Group
businesses are required to maintain systems of internal
control, which are appropriate to the nature and scale of
their activities and address all significant operational and
financial risks that they face. The board of Reed Elsevier
Group plc has adopted a schedule of matters that are
required to be brought to it for decision.

Each business group has identified and evaluated its major

risks, the controls in place to manage those risks and the
level of residual risk accepted. Risk management and
control procedures are embedded into the operations of the

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

25

STRUCTURE AND CORPORATE GOVERNANCE

business and include the monitoring of progress in areas
for improvement that come to management and board
attention. The major risks identified include business
continuity, protection of IT systems and data, challenges to
intellectual property rights, management of strategic and
operational change, evaluation and integration of
acquisitions, and recruitment and retention of personnel.
The major strategic risks facing the Reed Elsevier Group
plc businesses are considered by the Strategy Committee.
Litigation and other legal and regulatory matters are
managed by legal directors in Europe and the United States.

The Reed Elsevier Group plc Audit Committee receives
regular reports on the management of material risks and
reviews these reports. The Audit Committee also receives
regular reports from both internal and external auditors on
internal control matters. In addition, each Business Group is
required, at the end of the financial year, to review the
effectiveness of its internal controls and report its findings
on a detailed basis to the management of Reed Elsevier
Group plc. These reports are summarised and, as part of
the annual review of effectiveness, submitted to the Audit
Committee of Reed Elsevier Group plc. The Chairman of the
Audit Committee reports to the board on any significant
internal control matters arising.

Elsevier Reed Finance BV
Elsevier Reed Finance BV has established policy guidelines,
which are applied for all Elsevier Reed Finance BV
companies. The boards of Elsevier Reed Finance BV have
adopted schedules of matters that are required to be
brought to them for decision. Procedures are in place for
monitoring the activities of the finance group, including a
comprehensive treasury reporting system. The major risks
affecting the finance group have been identified and
evaluated and are subject to regular review. The controls in
place to manage these risks and the level of residual risk
accepted are monitored by the boards. The internal control
system of the Elsevier Reed Finance BV group is reviewed
each year by its external auditors.

Annual review
As part of the year end procedures, the boards of Reed
Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc
and Elsevier Reed Finance BV have reviewed the
effectiveness of the systems of internal control during the
last financial year.

RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The directors of Reed Elsevier PLC, Reed Elsevier NV, Reed
Elsevier Group plc and Elsevier Reed Finance BV are
required to prepare financial statements as at the end of
each financial period, which give a true and fair view of the

26 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

state of affairs, and of the profit or loss, of the respective
companies and their subsidiaries, joint ventures and
associates. They are responsible for maintaining proper
accounting records, for safeguarding assets, and for taking
reasonable steps to prevent and detect fraud and other
irregularities. The directors are also responsible for
selecting suitable accounting policies and applying them on
a consistent basis, making judgements and estimates that
are prudent and reasonable.

Applicable accounting standards have been followed and
the Reed Elsevier combined financial statements, which are
the responsibility of the directors of Reed Elsevier PLC and
Reed Elsevier NV, are prepared using accounting policies
which comply with UK Generally Accepted Accounting
Principles.

US CERTIFICATIONS
As required by section 302 of the US Sarbanes-Oxley Act
2002 and by related rules issued by the US Securities and
Exchange Commission, the Chief Executive Officer and Chief
Financial Officer of Reed Elsevier PLC and of Reed Elsevier
NV certify in the respective Annual Reports 2003 on Form
20-F filed with the Commission that they are responsible for
establishing and maintaining disclosure controls and
procedures and that they have:
•designed such disclosure controls and procedures to

ensure that material information relating to Reed Elsevier
is made known to them;

•evaluated the effectiveness of Reed Elsevier’s disclosure

controls and procedures;

•based on their evaluation, disclosed to the Audit

Committees and the external auditors all significant
deficiencies in the design or operation of disclosure
controls and procedures and any frauds, whether or not
material, that involve management or other employees
who have a significant role in Reed Elsevier internal
controls; and

•presented in the Annual Reports on Form 20-F their
conclusions about the effectiveness of the disclosure
controls and procedures.
A Disclosure Committee, comprising the company

secretaries of Reed Elsevier PLC and Reed Elsevier NV and
other senior Reed Elsevier managers, provides assurance to
the Chief Executive Officer and Chief Financial Officer
regarding their certifications.

GOING CONCERN
The directors of Reed Elsevier PLC and Reed Elsevier NV,
having made appropriate enquiries, consider that adequate
resources exist for the combined businesses to continue in
operational existence for the foreseeable future and that,
therefore, it is appropriate to adopt the going concern basis
in preparing the financial statements.

Report of the Audit Committees

This report has been prepared by the Audit Committees of
Reed Elsevier PLC and Reed Elsevier NV, in conjunction
with the Audit Committee of Reed Elsevier Group plc, (the
“Committees”) and has been approved by the respective
boards.

The report meets the requirements of The Combined Code

of Corporate Governance, issued by the UK Financial
Services Authority.

AUDIT COMMITTEES
The main role and responsibilities of the Committees in
relation to the respective companies are set out in written
terms of reference and include:
(i)

to monitor the integrity of the financial statements of
the company, and any formal announcements relating
to the company’s financial performance, reviewing
significant financial reporting judgements contained in
them;

(ii) to review the company’s internal financial controls and

the company’s internal control and risk management
systems;

(iii) to monitor and review the effectiveness of the company’s

internal audit function;

(iv) to make recommendations to the board, for it to put to

the shareholders for their approval in general meetings,
in relation to the appointment, re-appointment and
removal of the external auditor and to approve the
remuneration and terms of engagement of the external
auditor;

(v) to review and monitor the external auditor’s

independence and objectivity and the effectiveness of
the audit process, taking into consideration relevant
professional and regulatory requirements; and

(vi) to develop and recommend policy on the engagement of
the external auditor to supply non-audit services, taking
into account relevant ethical guidance regarding the
provision of non-audit services by the external audit
firm, and to monitor compliance.

The Committees report to the respective boards on their

activities identifying any matters in respect of which they
consider that action or improvement is needed and making
recommendations as to the steps to be taken.

The Reed Elsevier Group plc Audit Committee fulfils this
role in respect of the publishing and information operating
business. The functions of an audit committee in respect of
the financing activities are carried out by the supervisory
board of Elsevier Reed Finance BV. The Reed Elsevier PLC
and Reed Elsevier NV Audit Committees fulfil their roles
from the perspective of the parent companies and both
committees have access to the reports to and the work of
the Reed Elsevier Group plc Audit Committee and the
Elsevier Reed Finance BV supervisory board in this respect. 
The Committees have explicit authority to investigate any
matters within their terms of reference and have access to
all resources and information that they may require for this
purpose. The Committees are entitled to obtain legal and

other independent professional advice and have the
authority to approve all fees payable to such advisers.

A copy of the terms of reference of each Audit Committee

is published on the Reed Elsevier website
(www.reedelsevier.com).

COMMITTEE MEMBERSHIP
The Committees each comprise at least three independent
non-executive directors, at least one of which has
significant, recent and relevant financial experience. The
current members of each of the Committees are: Lord
Sharman (Chairman of the Committees), John Brock and
David Reid (appointed April 2003). 

Lord Sharman (61), a chartered accountant, spent his

professional career at KPMG and now serves as non-
executive chairman of Aegis Group plc and Securicor plc
and is a member of the supervisory board of ABN-AMRO
and a non-executive director of BG Group plc. He was
elected UK senior partner of KPMG in 1994 and served as
Chairman of KPMG Worldwide between 1997 and 1999.
John Brock (55) is chief executive officer of Interbrew SA
and formerly chief operating officer of Cadbury Schweppes
plc. David Reid (57), a chartered accountant, was until
December 2003 executive deputy chairman of Tesco PLC,
with responsibility for strategy, business development and
international operations; he was previously its finance
director and is its non-executive chairman designate.
During the 2003 financial year, until April 2003, Rolf
Stomberg, Roelof Nelissen and Steven Perrick served on
the Committees, all being non executive directors and, other
than Mr Perrick, independent. Mr Stomberg is the senior
independent non executive director and his biographical
details are set out in the Reed Elsevier Annual Review.
Mr Nelissen has served on a number of supervisory boards
and is a former chairman of the managing board of ABN
AMRO. Mr Perrick is a partner in Freshfields Bruckhaus
Deringer in the Netherlands, an international firm of
advisers which provides legal advice to Reed Elsevier.
Appointments to the Committees are made on the

recommendation of the Nominations Committee and are for
periods of up to three years, extendable by no more than
two additional three-year periods, so long as the member
continues to be independent. Details of the remuneration
policy in respect of members of the Committees and the
remuneration paid to members for the year ended
31 December 2003 are set out in the Directors’
Remuneration Report on pages 29 to 38.

COMMITTEE ACTIVITIES
The Committees typically hold meetings five times a year:
around January, February, June, August and December, and
report on these meetings to the respective boards at the
next board meetings. The principal business of these
meetings includes:
- January: review of critical accounting policies and

practices, and significant financial reporting issues and
judgements made in connection with the annual financial

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

27

REPORT OF THE AUDIT COMMITTEES

statements; review of internal control effectiveness;
reviewing and approving the internal audit plan; review of
internal audit findings

update reports on accounting and regulatory
developments, including in relation to International
Accounting Standards.

- February: review and approval of annual financial

(iii) received and discussed regular reports on the

management of material risks and reviewed the
effectiveness of the systems of internal control. As part
of this review, detailed internal control evaluation and
self-certification is obtained from management across
the operating businesses, reviewed by internal audit and
discussed with the Committees. 

(iv) received and discussed regular reports from the director
of internal audit summarising the status of the Reed
Elsevier risk management activities and the findings
from internal audit reviews and the actions agreed with
management. An area of focus in 2003 has been the
development and agreement of plans to meet the new
requirements, effective for the 2005 financial year, of
Section 404 of the Sarbanes-Oxley Act relating to the
documentation and testing of internal financial controls.

(v) reviewed and approved the internal audit plan for 2003
and monitored execution. Reviewed the resources and
budget of the internal audit function. 

The external auditors have attended all meetings of the

Committees. They have provided written reports at the
August, December and February meetings summarising the
most significant findings from their audit work. These
reports have been discussed by the Committees and actions
agreed where necessary. 

The external auditors have confirmed their independence
from management and compliance with the Reed Elsevier
policy on auditor independence. This policy sets out inter
aliathe requirements for rotation of the lead, review and
other senior partners, as well as guidelines for the provision
of permitted non-audit services. The Committees have
reviewed and agreed the non-audit services provided by the
external auditors, together with the associated fees. The
external auditors’ fees for audit services have been reviewed
and approved by the Committees. 

Based on their observations on the planning and execution

of the external audits, the Committees have recommended
to the respective boards that resolutions for the
re-appointment of the external auditors be proposed at the
forthcoming Annual General Meetings. At their meeting in
June 2004, the Committees will conduct a more formal
review of the performance of the auditors and the
effectiveness of the audit process for both the external and
internal audit activities.

Lord Sharman of Redlynch
Chairman of the Audit Committees
18 February 2004

statements, results announcement and related formal
statements; review of external audit findings

- June: monitoring and assessing the qualification,
performance, expertise, resources, objectivity and
independence of the external auditors and the
effectiveness of the external and internal audit process;
agreeing the external audit plan; reviewing significant
financial reporting issues and judgements arising in
connection with the interim financial statements; review of
risk management activities; review of report from external
auditors on control matters; review of internal audit
findings

- August: review and approval of the interim financial

statements, results announcement and related formal
statements; review of external audit findings; review of
internal audit findings

- December: review of year end financial reporting and

accounting issues; review of significant external financial
reporting and regulatory developments; review of external
audit findings to date; review of internal audit findings.
The Audit Committee meetings are typically attended by
the chief financial officer, group chief accountant, director of
internal audit and senior representatives of the external
auditors. Additionally, the managing director and senior
representatives of the external auditors of Elsevier Reed
Finance BV attend the August and February meetings of the
parent company Audit Committees. At two or more of the
meetings each year, the Committees additionally meet
separately with the external auditors without management
present, and also with the director of internal audit.

In discharging their principal responsibilities in respect of

the 2003 financial year, the Committees have:
(i)

received and discussed reports from the Reed Elsevier
Group plc group chief accountant that set out areas of
significance in the preparation of the financial
statements, including: review of the carrying values of
goodwill and intangible assets for possible impairment,
review of estimated useful lives of goodwill and
intangible assets, pensions accounting and related
assumptions, accounting treatment for acquisitions and
disposals and exceptional items, application of revenue
recognition and cost capitalisation and provisioning
policies, review of tax reserves and provisions for lease
obligations. Discussion of reporting matters has
additionally focused on the adoption of UK GAAP by
Reed Elsevier NV, the format and content of the
operating and financial review to meet the new UK best
practice guidelines, and compliance with the new SEC
restrictions on the use of non-GAAP financial measures
in the Annual Report on Form 20-F. 

(ii) reviewed the critical accounting policies and compliance

with applicable accounting standards and other
disclosure requirements and have received regular

28 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Directors’ Remuneration Report

DIRECTORS’ REMUNERATION REPORT
This report has been prepared by the Remuneration
Committee (the “Committee”) of Reed Elsevier Group plc
and approved by the boards of Reed Elsevier Group plc,
Reed Elsevier PLC and Reed Elsevier NV. The report has
been prepared in accordance with the UK Directors'
Remuneration Report Regulations 2002 (the "Regulations")
and serves the requirements for Reed Elsevier NV under the
Netherlands Civil Code. The Report also meets the
requirements of Schedule A of the Principles of Good
Governance and Code of Best Practice, issued by the UK
Financial Services Authority and describes how the
Principles of Good Governance relating to directors'
remuneration have been applied.
Information relating to the emoluments of the directors on
pages 32 to 34 and directors’ interests in share options on
pages 36 and 37 has been audited. 

REMUNERATION COMMITTEE
The Committee is responsible for recommending to the
boards the remuneration (in all its forms), and the terms
of the service contracts and all other terms and
conditions of employment of the executive directors, and
for providing advice to the Chief Executive Officer on major
policy issues affecting the remuneration of executives at a
senior level below the board. A copy of the terms of
reference of the Committee is published on the Reed
Elsevier website at www.reedelsevier.com.
Throughout 2003 the Committee consisted wholly of
independent non-executive directors. The current
members of the Committee are Rolf Stomberg (Chairman
of the Committee), Mark Elliott (appointed in April 2003)
and Cees van Lede (appointed in April 2003). John Brock
and Roelof Nelissen were members of the Committee
until April 2003. At the invitation of the Chairman, the
Chief Executive Officer attends meetings of the
Committee, except when his own remuneration is under
consideration.
The Committee has appointed Towers Perrin, an external
consultancy which has wide experience of executive
remuneration in multinational companies, to advise in
developing its performance-related remuneration policy.
Towers Perrin also provides actuarial and other Human
Resources consultancy services direct to some Reed
Elsevier companies.
In addition to Towers Perrin, the following provided
material advice or services to the Committee during the
year: Jean-Luc Augustin, Human Resources Director;
Christopher Thomas, Director, Compensation and
Benefits; and Crispin Davis, Chief Executive Officer.

REMUNERATION POLICY
The remuneration policy is set out below:
The principal objectives of the remuneration policy are to
attract, retain and motivate people of the highest calibre

and experience needed to shape and execute strategy and
deliver shareholder value in the context of an ever more
competitive and increasingly global employment market.
The Committee also has regard to, and balances as far as
is practicable, the following objectives:
(i)

to link reward to individual directors’ performance and
company performance so as to align the interests of
the directors with the shareholders of the parent
companies;

(ii) to ensure that it maintains a competitive package of
pay and benefits, commensurate with comparable
packages available within other leading multinational
companies operating in global markets;

(iii) to deliver upper quartile total remuneration for clearly

superior levels of performance;

(iv) to ensure that it encourages enhanced performance
by directors and fairly recognises the contribution of
individual directors to the attainment of the results of
Reed Elsevier, whilst also encouraging a team
approach which will work towards achieving the long
term strategic objectives of Reed Elsevier; and

(v) to provide a consistent approach towards senior

executives, including the directors, irrespective of
geographical location.

In order to meet the above objectives, the remuneration of
executive directors comprises a balance between “fixed”
remuneration and “variable performance-related”
incentives. The policy is that the predominant proportion of
reward potential should be linked to performance, and the
package composition for 2004 shows that for superior
performance some 70% of the total remuneration would
be performance related. Effective from January 2003 the
Committee adopted a policy of common levels,
irrespective of geographical location, for both annual and
longer term incentives for executive directors, reflecting
the global nature of the role of each director.

REMUNERATION ELEMENTS
Executive directors remuneration consists of the following
elements:
• Base salary, which is based on comparable positions in

leading multinational businesses of similar size and
complexity. Salaries are reviewed annually by the
Committee to take into account both market movement
and individual performance.

• A variable annual cash bonus, based on achievement of
three financial performance measures (revenue, profit
and cash flow) and individual key performance
objectives. Targets are set at the beginning of the year by
the Committee and are aligned with the annual budget
and strategic business objectives. For 2004, no bonus
will become payable in respect of an individual financial
performance measure unless 94% of the set target for
that measure is achieved. Up to 90% of salary may be
earned for the achievement of highly stretching targets

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

29

DIRECTORS’ REMUNERATION REPORT

set by the Committee. For exceptional performance
beyond these stretching targets, the Committee has the
discretion to award up to 110% of salary. The Committee
has also applied the foregoing criteria in assessing the
2003 bonuses.

•A bonus investment plan, under which directors and

other senior executives were able to invest up to half of
their 2002 annual performance related bonus in Reed
Elsevier PLC/Reed Elsevier NV shares. 38 senior
executives participated in the bonus investment
arrangements in respect of their 2002 bonus. Subject to
continuing to hold the shares and remaining in
employment, at the end of a three year period, the
participants will be awarded an equivalent number of
Reed Elsevier PLC/Reed Elsevier NV shares at nil cost.
Following approval of the 2003 Reed Elsevier Group plc
Bonus Investment Plan (the "2003 Bonus Investment
Plan) by shareholders of Reed Elsevier PLC and Reed
Elsevier NV in April 2003, the Committee has agreed to
award options under the 2003 Bonus Investment Plan to
directors and selected key employees in respect of the
2003 bonus. Awards under the 2003 Bonus Investment
Plan will be made annually, and will be subject to a
performance condition requiring the achievement of
compound growth in the average of the Reed Elsevier
PLC and Reed Elsevier NV adjusted EPS (i.e. before
amortisation of goodwill and intangible assets,
exceptional items and UK tax credit equalisation)
measured at constant exchange rates (“adjusted EPS”)
of 6% per annum compound during the three year
vesting period.

•Share options, where the directors and other senior

executives are granted options annually over shares in
Reed Elsevier PLC and Reed Elsevier NV at the market
price at the date of grant. The Committee approves the
grant of any option and sets performance conditions
attaching to options. Following approval of the Reed
Elsevier Group plc Share Option Scheme (the "Share
Option Scheme") by shareholders of Reed Elsevier PLC
and Reed Elsevier NV in April 2003, the Remuneration
Committee has agreed to award options under the Share
Option Scheme to executive directors and selected
employees from 2004. The size of the annual grant pool
will be determined by reference to the compound annual
growth in adjusted EPS over the three years prior to
grant, with individual grant size determined by the
Committee based on individual performance. At
compound growth of between 8% and 10% per annum,
the pool of options available will be broadly comparable to
the level of options granted under the previous scheme.
At executive director level the grants are expected to be
up to 3 times salary. For executive directors, option grants
will be subject to a performance condition requiring the
achievement of 6% per annum compound growth in
adjusted EPS at constant exchange rates during the three

30 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

years following the grant. There will be no re-testing of
the 3 year EPS performance period.

•Long term incentive plan. Following approval of the Reed

Elsevier Group plc Long Term Incentive Share Option
Scheme (the “2003 LTIS”) by shareholders of Reed
Elsevier PLC and Reed Elsevier NV in April 2003, the
Committee has decided to make the first awards under
the 2003 LTIS to directors and a small number of key
senior executives (approximately 40) during 2004. This
award covers the period 2004 to 2006 during which time
no further awards under the 2003 LTIS will be made to
participants. The Rules require that approximately 50%
of the total implied value of grants under the 2003 LTIS
will take the form of nil cost conditional shares and 50%
will take the form of conventional market value options.
On the basis of the current implied values, this will
result in a grant of 2.5 times salary in conditional shares
and 5.5 times salary in conventional share options.
Grants will vest subject to the achievement of compound
annual adjusted EPS growth at constant exchange rates,
achieved over a three-year performance period from
2004 to 2006, of between 8% and 12%. At 8% compound
annual adjusted growth 25% of the award will vest; at
10% compound annual adjusted growth 100% of the
award will vest; and at 12% compound annual adjusted
growth 125% of the award would vest. Awards will vest
on a straight-line basis between each of these points.
There will be no re-testing of the three year performance
period. Acceptance of an award under the 2003 LTIS by
any individual will automatically terminate any award
under the previous Reed Elsevier Group plc Senior
Executive Long Term Incentive Plan (the “2000 LTIP”).
Participants in the 2003 LTIS are required to build up a
significant personal shareholding in Reed Elsevier PLC
and/or Reed Elsevier NV. At executive director level, the
requirement is that they should own shares equivalent to
11⁄2 times salary, to be acquired over a three year period.

•Post-retirement pensions, where different retirement

schemes apply depending on local competitive market
practice, length of service and age of the director. The
only element of remuneration that is pensionable is base
salary.

The Committee considers that a successful remuneration
policy needs to be sufficiently flexible to take account of
future changes in Reed Elsevier's business environment
and in remuneration practice. Consequently, the above
policy will apply in 2004 but may require to be amended.
Any changes in policy will be described in future
Directors' Remuneration Reports.

TOTAL SHAREHOLDER RETURN
The graphs below show the Reed Elsevier PLC and Reed
Elsevier NV total shareholder return performance,
assuming dividends were reinvested. The top two graphs
compare the Reed Elsevier PLC performance with the

DIRECTORS’ REMUNERATION REPORT

performance achieved by the FTSE 100, of which Reed Elsevier PLC is a member, and the Reed Elsevier NV performance
with the performance achieved by the Amsterdam Stock Exchange (“AEX”) Index, of which Reed Elsevier NV is a member,
for the four years 2000–2003. This period reflects the implementation of the new strategy, announced in February 2000, by
the current management team. The other two graphs, which have been prepared in accordance with the Regulations, show
the performance over the five years 1999-2003 compared to the performances of the FTSE 100 and the AEX. As Reed
Elsevier PLC and Reed Elsevier NV are members of the FTSE 100 and AEX respectively, the Committee considers these
indices to be appropriate for comparison purposes.
For the four year period since 1 January 2000, the total shareholder return for Reed Elsevier PLC was 24%, significantly
outperforming the FTSE 100 which saw a negative return of 26%. For Reed Elsevier NV, in the same four year period total
shareholder return was 2%, also significantly outperforming the AEX Index which had a negative return of 41%.

Reed Elsevier PLC total shareholder return v FTSE 100
2000–2003

Reed Elsevier NV total shareholder return v AEX Index
2000–2003

180

160

140

120

100

80

60

40

Reed Elsevier PLC

FTSE 100

180

160

140

120

100

80

60

40

Reed Elsevier NV

AEX Index

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Reed Elsevier PLC total shareholder return v FTSE 100
1999–2003

Reed Elsevier NV total shareholder return v AEX Index
1999–2003

180180

160

140

120

100

80

60

Reed Elsevier PLC

FTSE 100

160

140

120

100

80

60

Reed Elsevier NV

AEX Index

Dec 98

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 98

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

The total shareholder return set out above is calculated on the basis of the average share price in the 30 trading days prior
to the respective year ends and on the assumption that dividends were reinvested.

Source: FTSE International

Source: Datastream

SERVICE CONTRACTS
As a condition of receiving an award under the 2003 LTIS, each executive director will be required to enter into a new
service contract. The new contract will have a notice period of 12 months and will contain strengthened covenants that will
apply for 12 months after leaving employment, preventing a director from working with specified competitors, recruiting
Reed Elsevier employees and soliciting Reed Elsevier clients.
Each of the executive directors has a service contract, the notice periods of which are described below:
G J A van de Aast was appointed a director in December 2000. His service contract, which is dated 15 November 2000, is
subject to English law and provides for a notice period of twelve months.
M H Armour was appointed a director in July 1996. His service contract, which is dated 7 October 1996, is subject to
English law and since 10 June 2003 his contract has provided for a notice period of twelve months, when Mr Armour
agreed to a reduction in his notice period from twenty-four months. Mr Armour did not receive any compensation in return
for agreeing to this change in his notice period.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

31

DIRECTORS’ REMUNERATION REPORT

C H L Davis was appointed a director in September 1999. His service contract, which is dated 19 July 1999, is subject to
English law and provides for a notice period of twelve months. 
A Prozes was appointed a director in August 2000. His service contract, which is dated 5 July 2000, is subject to New York
law and provides that, in the event of termination without cause by the company, twelve months’ base salary would be
payable.
P Tierney was appointed a director on 8 April 2003. His service contract, which is dated 19 November 2002, is subject to
New York law and provides that, in the event of termination without cause by the company, twelve months' base salary will
be payable.
The notice periods in respect of individual directors have been reviewed by the Committee. The Committee believes that as
a general rule for future contracts, the notice period should be twelve months, and that the directors should, subject to
practice within the country in which the director is based, be required to mitigate their damages in the event of
termination. The Committee will, however, have regard to local market conditions so as to ensure that the terms offered
are appropriate to recruit and retain key executives operating in a global business. 

EXTERNAL APPOINTMENTS
Executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive
directors on the boards of up to two non-associated companies (of which only one may be to the board of a major
company). The Committee believes that Reed Elsevier can benefit from the broader experience gained by executive
directors in such appointments. Directors may retain remuneration arising from such non-executive directorships. During
the year CHL Davis was appointed a non-executive director of GlaxoSmithKline plc and received a fee of £28,848 during the
year from that company in such capacity.

REMUNERATION OF NON-EXECUTIVE DIRECTORS
The remuneration of the non-executive directors is determined by the boards of Reed Elsevier Group plc, Reed Elsevier
PLC and Reed Elsevier NV, with the aid of external professional advice from Towers Perrin. Non-executive directors receive
an annual fee and are reimbursed expenses incurred in attending meetings. They do not receive any performance related
bonuses, pension provisions, share options or other forms of benefit.
During 2003 the boards initiated a review of the fees paid to the non-executive directors compared against the fees paid to
non-executive directors of other leading multinational companies operating in global markets. With effect from 1 May 2003
the fees paid to the non-executive directors (other than the Chairman) who serve on the boards of Reed Elsevier Group plc,
Reed Elsevier PLC and Reed Elsevier NV were reviewed for the first time since 1999 and were increased to
£45,000/€65,000. The respective Chairmen of the Remuneration Committee and Audit Committee also receive an
additional fee of £7,000/€12,000 in respect of those additional duties.
The non-executive directors serve under letters of appointment, and do not have contracts of service.

EMOLUMENTS OF THE DIRECTORS
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or
emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows:

(a) Aggregate emoluments

Salaries and fees
Benefits
Annual performance-related bonuses
Pension contributions
Pension to former director
Payment to former directors
Total

£000

€000

2003

3,473
93
2,254
243
213
95
6,371

2002

3,022
91
1,453
267
231
–
5,064

2003

5,035
134
3,269
352
307
139
9,236

2002

4,805
145
2,310
425
368
–
8,053

No compensation payments have been made for loss of office or termination in 2002 and 2003.
Details of share options exercised by the directors over shares in Reed Elsevier PLC and Reed Elsevier NV during the year
are shown on pages 36 and 37. The aggregate notional pre-tax gain made by the directors on the exercise of share options
during the year was £5,201,190/€7,541,726 (2002: £306,843/€487,880).

32 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

DIRECTORS’ REMUNERATION REPORT

(b) Individual emoluments of executive directors

G J A van de Aast
M H Armour
C H L Davis 
D J Haank (until 
18 June 2003)
A Prozes
P Tierney (from
8 April 2003)

Salary

Benefits

£
Bonus

Total

2002

Salary

Benefits

Bonus

Total

2002

€

369,000
471,000
945,000

681,009 538,674
17,492 294,517
23,466 362,764
857,230 689,127
27,035 746,344 1,718,379 1,366,543

535,050
682,950
1,370,250

25,363 427,050
987,463 856,492
34,026 526,008 1,242,984 1,095,712
39,201 1,082,199 2,491,650 2,172,803

200,217
582,822

207,131 563,240
6,914
8,353 431,055 1,022,230 1,030,820

–

290,315
845,092

300,340 895,552
10,025
12,112 625,030 1,482,234 1,639,005

–

423,333

9,434 419,632

852,399

–

613,833

13,680 608,466 1,235,979

–

Total

2,991,372

92,694 2,254,312 5,338,378 4,188,404

4,337,490 134,407 3,268,753 7,740,650 6,659,564

Benefits include the provision of a company car, medical insurance and life assurance.
C H L Davis was the highest paid director in 2003, including gains of £4,960,150/€7,192,217 on the exercise of nil cost
options awarded on his appointment as Chief Executive Officer in 1999. Mr Davis invested the entire after tax gain arising
from the exercise of his options in Reed Elsevier PLC/Reed Elsevier NV shares.
D J Haank served as a director until 18 June 2003 and remained an employee until 31 August 2003. During the period
18 June to 31 August 2003 he received emoluments of £87,759/€127,251, comprising salary (£84,839/€123,017) and other
benefits (£2,920/€4,234). In accordance with the terms of the share options in force at the time of their grant in 1999,
Mr Haank has retained his entitlement to options over 18,497 Reed Elsevier PLC shares and 10,925 Reed Elsevier NV
shares, as detailed in the schedules on pages 36 and 37. All other options granted to Mr Haank lapsed on termination of
his employment.

(c) Pensions

The Committee reviews the pension arrangements for the executive directors to ensure that the benefits provided are
consistent with those provided by other multinational companies in its principal countries of operation.
Executive directors based in the United Kingdom are provided with pension benefits at a normal retirement age of 60,
equivalent to two thirds of base salary in the 12 months prior to retirement, provided they have completed 20 years’ service
with Reed Elsevier or at an accrual rate of 1/30th of pensionable salary per annum if employment is for less than 20 years.
The target pension for C H L Davis at normal retirement age of 60 is 45% of base salary in the 12 months prior to
retirement. 
In 1989, the Inland Revenue introduced a cap on the amount of pension that can be provided from an approved pension
scheme. M H Armour’s, G J A van de Aast’s and C H L Davis’s pension benefits will be provided from a combination of the
Reed Elsevier Pension Scheme and the company’s unapproved, unfunded pension arrangements.
The target pension for A Prozes, a US based director, is US$300,000 per annum, which becomes payable on retirement
only if he completes a minimum of seven years’ service. This pension has no associated contingent benefits for a spouse
or dependants, and will be reduced in amount by the value of any other retirement benefits payable by the company or any
former employer, other than those attributable to employee contributions.
The target pension for P Tierney, a US based director, after completion of five years pensionable service is US$440,000 per
annum, inclusive of any other retirement benefits from any former employer. In the event of termination of employment
before completion of five years’ pensionable service, the pension payable will be reduced proportionately, subject to a
minimum pension of US$220,000 per annum in the event of termination of employment for reasons other than resignation
or dismissal for cause.
The pension arrangements for all the directors include life assurance cover whilst in employment, an entitlement to a
pension in the event of ill health or disability and, except in the case of A Prozes, a spouse’s and/or dependants’ pension
on death.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

33

DIRECTORS’ REMUNERATION REPORT

The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown below:

Age
31 December

Directors
2003 contributions

2,957
2,957
2,957

G J A van de Aast
M H Armour
C H L Davis
D J Haank (resigned
18 June 2003)
A Prozes 
P Tierney

46
49
54

50
57
58

£

Transfer value
of accrued
pension
31 December
2002

191,063
1,036,652
1,779,585

Transfer value
of accrued
pension
31 December
2003

333,533
1,378,566
2,748,864

Increase in
transfer
value during
the period
(net of directors’
contributions)

139,513
338,957
966,322

11,201
–
–

1,484,705
–
–

1,925,916
–
1,325,718

430,010
–
1,325,718

Accrued annual
pension
31 December
2003

Increase in
accrued annual
pension during
the period

Increase in
accrued annual
pension during
the period
(net of inflation)

Transfer value of
increase in
accrued annual
pension during
the period
(net of inflation
and directors’
contributions)

37,945
139,956
193,038

181,007
–
126,298

13,760
22,820
53,023

20,017
–
126,298

13,058
19,432
48,963

111,824
188,446
694,279

15,348
–
126,298

152,104
–
1,325,718

€

Transfer value

of accrued Transfer value of
pension accrued pension
31 December
2003

31 December
2002

Directors’
contributions

4,288
4,288
4,288

303,790
1,648,277
2,829,540

483,623
1,998,920
3,985,853

Increase in
transfer value
during the
period (net of
directors’
contributions)

202,294
491,488
1,401,167

Accrued
annual
pension
31 December
2003

55,020
202,936
279,905

16,241
–
–

2,152,822
–
–

2,792,578
–
1,922,292

623,515
–
1,922,292

262,460
–
183,132

Increase in
accrued annual
pension during
the period

Increase in
accrued annual
pension during
the period
(net of inflation)

Transfer value
of increase in
accrued annual
pension during
the period
(net of inflation
and directors’
contributions)

19,952
33,089
76,883

29,025
–
183,132

18,934
28,176
70,996

162,145
273,247
1,006,705

22,255
–
183,132

220,551
–
1,922,292

G J A van de Aast
M H Armour
C H L Davis
D J Haank (resigned
18 June 2003)
A Prozes
P Tierney

Transfer values have been calculated in accordance with the guidance note "GN11" published by the UK Institute of
Actuaries and Faculty of Actuaries.
The transfer value in respect of individual directors represents a liability in respect of directors’ pensions entitlement, and
is not an amount paid or payable to the director.

(d)

Individual emoluments of non-executive directors

G J de Boer-Kruyt
J F Brock
M W Elliott (from 8 April 2003)
C J A van Lede (from 8 April 2003)
R J Nelissen (until 8 April 2003) 
S Perrick (until 8 April 2003)
D E Reid (from 8 April 2003)
Lord Sharman
R W H Stomberg
M Tabaksblat
D G C Webster (until 9 April 2002)
Total

£

€

2003
15,758
43,448
36,742
36,897
10,172(i)
10,172
36,742
48,544
49,655
193,103
–
481,233

2002
13,522
35,849
–
–
35,849
35,849
–
35,849
35,849
176,101
8,962
377,830

2003
22,850
63,000
53,276
53,500
14,750(i)
14,750
53,276
70,388
72,000
280,000
–
697,790

2002
21,500
57,000
–
–
57,000
57,000
–
57,000
57,000
280,000
14,250
600,750

(i) R J Nelissen has served as chairman of the supervisory board of Elsevier Reed Finance BV throughout the year. During

the period 9 April to 31 December 2003 he received fees of £7,758/€11,250 in such capacity.

34 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

DIRECTORS’ REMUNERATION REPORT

SHARE OPTIONS AND INTERESTS IN SHARES
Options over shares in Reed Elsevier PLC and Reed
Elsevier NV have been granted to executive directors and
other senior executives under the Reed Elsevier Group
plc 1993 Share Option Scheme (the "1993 Scheme").
Approximately 1,500 executives were granted options
under the 1993 Scheme during 2003. The terms of the
1993 Scheme were approved by the shareholders of Reed
Elsevier PLC and Reed Elsevier NV at their respective
Annual General Meetings in 1993. The 1993 Scheme has
granted options at the market price at the date of grant,
which are normally exercisable between three and ten
years from the date of grant. Since 1999 all options
granted under the 1993 Scheme have been subject to the
performance condition that the compound growth at
constant exchange rates in adjusted EPS in the three
years immediately preceding vesting must exceed the
compound growth in the average of the UK and Dutch
retail price indices by a minimum of 6%. 
Options over shares in Reed Elsevier PLC and Reed
Elsevier NV have been granted, at the market price at the
date of grant, under the Reed Elsevier Group plc Senior
Executive Long Term Incentive Scheme (the “2000 LTIP”).
Implementation of the 2000 LTIP was approved by
shareholders of Reed Elsevier PLC and Reed Elsevier NV
at their respective Annual General Meetings in April 2000.
The terms of the 2000 LTIP permitted a one off grant of
options to be made to executive directors and a limited
number of key employees responsible for reshaping the

business, executing the strategy for growth announced in
February 2000 and producing a sustainable improvement
in shareholder value. 38 key executives have been
granted options under the 2000 LTIP. All grants were
approved by the Committee, and may only be exercised
during the period 1 January 2005 and 31 December 2005,
and then only if 20% per annum compound total
shareholder return is achieved, together with individual
performance targets. In accordance with the terms of the
grants proposed to be made under the 2003 LTIS in 2004,
acceptance of an award under the 2003 LTIS by any
individual will automatically terminate any award under
the 2000 LTIP.
The performance conditions applicable to the 1993
Scheme and the LTIP were chosen in order to provide an
appropriate balance between operational focus and
producing a sustainable improvement in shareholder
value over the longer term.
Options have also been granted over shares in Reed
Elsevier PLC under the Reed Elsevier Group plc UK SAYE
Option Scheme, in which all eligible UK employees are
invited to participate. The SAYE Scheme grants options at
a maximum discount of 20% to the market price at the
time of grant, and are normally exercisable after the
expiry of three or five years from the date of grant. No
performance targets attach to options granted under
this scheme as it is an all employee scheme.
Approximately 1,600 employees participated in the SAYE
Scheme during 2003.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

35

DIRECTORS’ REMUNERATION REPORT

Details of options held by directors in the ordinary shares of Reed Elsevier PLC and Reed Elsevier NV during the period are
shown below. There have been no changes in the options held by directors over Reed Elsevier PLC and Reed Elsevier NV
ordinary shares since 31 December 2003.

(a) Over shares in Reed Elsevier PLC

1 January
2003
G J A van de Aast– Executive Scheme 50,940
49,317
58,000

– LTIP

Total
M H Armour

– Executive Scheme

509,404
667,661
39,600
30,000
52,000
66,900
33,600
88,202
62,974
74,000

Total
C H L Davis

– 2002 Bonus investment plan
882,016
– LTIP
3,924
– SAYE Scheme
1,333,216
– Executive Scheme 160,599
80,300
80,300
171,821
122,914
148,500

– 2002 Bonus investment plan
1,718,213
– LTIP
535,332
– Nil cost options
5,019
– SAYE Scheme
3,022,998

– Executive Scheme

18,498(ii)
18,497
51,368
51,110(ii)
59,843(ii)

Total
D J Haank
(resigned 18 June
2003)

Total
A Prozes

Total
P Tierney

Total

– LTIP

513,680(ii)
712,996
– Executive Scheme 188,281
83,785
103,722

– 2002 Bonus investment plan
941,406
– LTIP
20,170
– Nil cost options
1,337,364

– Executive Scheme 396,426(v)
1,321,420(v)
– LTIP
1,717,846

Granted
during the
year

81,728

81,728

104,319
11,327

115,646

209,192
22,731

231,923

93,231(ii)

93,231

132,142
20,040

152,182

Exercised
during the
year

Market
price at
exercise date

Option
price
638.00p
659.00p
600.00p
451.50p
638.00p

400.75p
585.25p
565.75p
523.00p
537.50p
436.50p
659.00p
600.00p
451.50p

Nil

436.50p
430.00p

467.00p
467.00p
467.00p
436.50p
659.00p
600.00p
451.50p

Nil

436.50p

Nil

535,332(i)

498.00p

336.20p

677.25p
537.50p
436.50p
659.00p
600.00p
451.50p
436.50p

566.00p
659.00p
600.00p
451.50p

Nil

566.00p

Nil

451.50p
451.50p

535,332

51,368

525.00p

51,368

20,170(iv)
20,170

492.00p

Exercisable
from
1 Dec 2003

31 December
Exercisable
2003
until
50,940
1 Dec 2010
49,317 23 Feb 2004 23 Feb 2011
58,000 22 Feb 2005 22 Feb 2012
81,728 21 Feb 2006 21 Feb 2013
1 Jan 2005 31 Dec 2005

509,404
749,389

39,600 26 Apr 1998 26 Apr 2005
30,000 23 Apr 1999 23 Apr 2006
52,000 21 Apr 2000 21 Apr 2007
66,900 17 Aug 2001 17 Aug 2008
33,600 21 Feb 2003 19 Apr 2009
88,202
2 May 2010
62,974 23 Feb 2004 23 Feb 2011
74,000 22 Feb 2005 22 Feb 2012
104,319 21 Feb 2006 21 Feb 2013
11,327 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005
1 Aug 2004 31 Jan 2005

2 May 2003

882,016
3,924
1,448,862

2 May 2003

160,599 21 Feb 2003 1 Sept 2009
80,300 1 Sept 2003 1 Sept 2009
80,300 1 Sept 2004 1 Sept 2009
171,821
2 May 2010
122,914 23 Feb 2004 23 Feb 2011
148,500 22 Feb 2005 22 Feb 2012
209,192 21 Feb 2006 21 Feb 2013
22,731 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

1 Aug 2005 31 Jan 2006

18,497(iii)19 Apr 1999 19 Apr 2009

9 Aug 2003

9 Aug 2010
83,785 23 Feb 2004 23 Feb 2011
103,722 22 Feb 2005 22 Feb 2012
132,142 21 Feb 2006 21 Feb 2013
20,040 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

396,426 21 Feb 2006 21 Feb 2013
1 Jan 2008 31 Dec 2008

1,321,420
1,717,846

1,718,213
–
5,019
2,719,589
–

–
–
–
–
–
18,497
188,281

941,406
–
1,469,376

(i) Retained an interest in 321,200 shares
(ii) Options lapsed unexercised during the year
(iii) At date of resignation as a director
(iv) Retained an interest in all of the shares
(v) At date of appointment as a director
The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range 392p to 552p and at
31 December 2003 was 467.25p.

36 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

DIRECTORS’ REMUNERATION REPORT

(b) Options over shares in Reed Elsevier NV

1 January
2003

Granted
during the
year

G J A van de Aast – Executive Scheme35,866
35,148
40,699

– 2002 Bonus investment plan
358,658
– LTIP

58,191
12,057

Total

470,371

70,248

M H Armour

– Executive Scheme

20,244
61,726
44,882
51,926

– 2002 Bonus investment plan
617,256
– LTIP

Total

C H L Davis

– Executive Scheme

796,034

95,774
47,888
47,888
120,245
87,601
104,204

– 2002 Bonus investment plan
1,202,446
– LTIP
319,250
– Nil cost options

74,276
8,030

82,306

148,946
16,115

Option
price
€14.87
€14.75
€13.94
€9.34
Nil
€14.87

€13.55
€10.73
€14.75
€13.94
€9.34
Nil
€10.73

€12.00
€12.00
€12.00
€10.73
€14.75
€13.94
€9.34
Nil
€10.73
Nil

Total

2,025,296

165,061

– Executive Scheme

D J Haank
(resigned 18 June
2003)

30,000(ii)
10,926(ii)
10,925
35,949(ii)
36,426(ii)
41,993(ii)

– 2002 Bonus investment plan
359,485(ii)
– LTIP

€15.25
€17.07
€13.55
€10.73
€14.75
€13.94
66,381(ii) €9.34
14,332(ii)
Nil
€10.73

Total

A Prozes

Total

P Tierney

Total

525,704

80,713

– Executive Scheme 131,062
59,714
72,783

– 2002 Bonus investment plan
655,310
– LTIP
14,040
– Nil cost options

94,086
14,552

932,909

108,638

– Executive Scheme 282,258(v)
940,860(v)
– LTIP

1,223,118

€13.60
€14.75
€13.94
€9.34
Nil
€13.60
Nil

€9.34
€9.34

Exercised
during the
year

Market
price at
exercise date

31 December
2003

Exercisable
from

Exercisable
until

1 Dec 2003

35,866
1 Dec 2010
35,148 23 Feb 2004 23 Feb 2011
40,699 22 Feb 2005 22 Feb 2012
58,191 21 Feb 2006 21 Feb 2013
12,057 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

358,658

540,619

2 May 2003

20,244 21 Feb 2003 19 Apr 2009
61,726
2 May 2010
44,882 23 Feb 2004 23 Feb 2011
51,926 22 Feb 2005 22 Feb 2012
74,276 21 Feb 2006 21 Feb 2013
8,030 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

617,256

878,340

120,245

2 May 2003

95,774 21 Feb 2003 1 Sept 2009
47,888 1 Sept 2003 1 Sept 2009
47,888 1 Sept 2004 1 Sept 2009
2 May 2010
87,601 23 Feb 2004 23 Feb 2011
104,204 22 Feb 2005 22 Feb 2012
148,946 21 Feb 2006 21 Feb 2013
16,115 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

1,202,446
–

1,871,107

–
–

10,925(iii)19 Apr 1999 19 Apr 2009

–
–
–
–
–
–

10,925

131,062

9 Aug 2003

9 Aug 2010
59,714 23 Feb 2004 23 Feb 2011
72,783 22 Feb 2005 22 Feb 2012
94,086 21 Feb 2006 21 Feb 2013
14,552 21 Mar 2006 21 Mar 2006
1 Jan 2005 31 Dec 2005

655,310
–

1,027,507

282,258 21 Feb 2006 21 Feb 2013
1 Jan 2005 31 Dec 2005
940,860

1,223,118

319,250(i)

319,250

€10.42

14,040(iv)

14,040

€9.95

(i) Retained an interest in 191,550 shares
(ii) Options lapsed unexercised during the year
(iii) At date of resignation as a director
(iv) Retained an interest in all of the shares
(v) At date of appointment as a director
The market price of a Reed Elsevier NV ordinary share during the year was in the range €8.13 to €12.03 and at
31 December 2003 was €9.85.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

37

DIRECTORS’ REMUNERATION REPORT

(c)

Interests in shares

The interests of the directors of Reed Elsevier PLC and Reed Elsevier NV in the issued share capital of the respective
companies at the beginning and end of the year are shown below:

G J A van de Aast

M H Armour

G J de Boer Kruyt

J F Brock

C H L Davis

M W Elliott

C J A van Lede

A Prozes

D E Reid

Lord Sharman

R W H Stomberg

M Tabaksblat

P Tierney

D J Haank (resigned 18 June 2003)

R J Nelissen (resigned 8 April 2003)

S Perrick (resigned 8 April 2003)

(i) At date of appointment as a director, if later
(ii) At date of resignation as a director.

Reed Elsevier PLC ordinary shares
31 December
2003

1 January
2003(i)

Reed Elsevier NV ordinary shares
31 December
2003

1 January
2003(i)

–

22,500

–

3,000

–

31,738

–

3,000

12,500

2,500

–

–

19,684

22,284

–

–

115,571

450,293

81,553

282,704

–

–

–

–

63,497

96,525

–

–

–

–

–

–

–

–

–

–

–

–

12,000

–(ii)
–(ii)
–(ii)

–

11,100

44,400

–

–

–

8,000

–

31,880

5,000

4,000

–

11,100

67,774

–

–

–

8,000

8,000
38,735(ii)
5,000(ii)
4,000(ii)

Any ordinary shares required to fulfil entitlements under nil cost share option grants are provided by the Employee Benefit
Trust (“EBT”) from market purchases. As a potential beneficiary under the EBT in the same way as other employees of
Reed Elsevier, each executive director is deemed to be interested in all the shares held by the EBT which, at 31 December
2003, amounted to 6,383,333 Reed Elsevier PLC ordinary shares and 1,327,777 Reed Elsevier NV ordinary shares.

There have been no changes in the interests of the directors in the share capital of Reed Elsevier PLC or Reed Elsevier NV
since 31 December 2003.

Approved by the board of Reed Elsevier Group plc
on 18 February 2004

Rolf Stomberg
Chairman of the Remuneration Committee

Approved by the board of Reed Elsevier PLC
on 18 February 2004

Approved by the combined board of Reed Elsevier NV
on 18 February 2004

Rolf Stomberg
Non-executive director

Rolf Stomberg
Member of the supervisory board

38 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Combined financial statements
REED ELSEVIER COMBINED
FINANCIAL STATEMENTS

40 Accounting policies
42 Combined profit and loss account
43 Combined cash flow statement
44 Combined balance sheet
45 Combined statement of total
recognised gains and losses
45 Combined shareholders’ funds

reconciliation

46 Notes to the combined financial

statements

70 Independent auditors’ report

COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS

Accounting policies

These financial statements are presented under the
historical cost convention and in accordance with applicable
UK Generally Accepted Accounting Principles (“GAAP”).
Prior to 2003, the financial statements were presented in
accordance with both UK and Dutch GAAP. Following
changes to Dutch GAAP effective for the 2003 financial year
in respect of the presentation of dividends and pension
accounting, UK and Dutch GAAP have diverged such that the
Reed Elsevier accounting policies no longer accord with
Dutch GAAP. Under Article 362.1 of Book 2 Title 9 of the
Netherlands Civil Code, UK GAAP may be adopted by Dutch
companies with international operations for the preparation
of financial statements and, accordingly, UK GAAP has been
so adopted ensuring consistency with the prior year of the
accounting policies applied in the combined financial
statements.

Basis of preparation
The equalisation agreement between Reed Elsevier PLC and
Reed Elsevier NV has the effect that their shareholders can
be regarded as having the interests of a single economic
group. The Reed Elsevier combined financial statements
(“the combined financial statements”) represent the
combined interests of both sets of shareholders and
encompass the businesses of Reed Elsevier Group plc and
Elsevier Reed Finance BV and their respective subsidiaries,
associates and joint ventures, together with the parent
companies, Reed Elsevier PLC and Reed Elsevier NV (“the
combined businesses”).

These financial statements form part of the statutory

information to be provided by Reed Elsevier NV, but are not
for a legal entity and do not include all the information
required to be disclosed by a company in its financial
statements under the UK Companies Act 1985 or
Netherlands Civil Code. Additional information is given in
the annual reports and financial statements of the parent
companies set out on pages 72 to 104. A list of principal
businesses is set out on page 115.

In addition to the figures required to be reported by
applicable accounting standards, adjusted profit and
operating cash flow figures have been presented as
additional performance measures. Adjusted profit is shown
before the amortisation of goodwill and intangible assets and
exceptional items. Adjusted operating cash flow is measured
after dividends from joint ventures, tangible fixed asset spend
and proceeds from the sale of tangible fixed assets, but
before exceptional payments and proceeds.

Foreign exchange translation
The combined financial statements are presented in both
pounds sterling and euros.

Balance sheet items are translated at year end

exchange rates and profit and loss account and cash flow
items are translated at average exchange rates.

40 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Exchange translation differences on foreign equity
investments and the related foreign currency net
borrowings and on differences between balance sheet
and profit and loss account rates are taken to reserves.

Transactions entered into in foreign currencies are
recorded at the exchange rates applicable at the time of
the transaction. The results of hedging transactions for
profit and loss amounts in foreign currency are accounted
for in the profit and loss account to match the underlying
transaction.

The principal exchange rates used are set out in note 28.

Turnover
Turnover represents the invoiced value of sales less
anticipated returns on transactions completed by
performance, excluding customer sales taxes and sales
between the combined businesses.

Sales are recognised for the various revenue sources as
follows: subscriptions – over the period of the subscription;
circulation – on despatch; advertising – on publication or
period of online display; exhibitions – on exhibition date;
educational testing contracts – on performance against
delivery milestones.

Development spend
Development spend incurred on the launch of new products
or services is expensed to the profit and loss account as
incurred.

The cost of developing application infrastructure and

product delivery platforms is capitalised as a tangible fixed
asset and written off over the estimated useful life. 

Pensions
The expected costs of pensions in respect of defined benefit
pension schemes are charged to the profit and loss account
so as to spread the cost over the service lives of employees
in the schemes. Actuarial surpluses and deficits are
allocated over the average expected remaining service lives
of employees. Pension costs are assessed in accordance
with the advice of qualified actuaries. For defined
contribution schemes, the profit and loss account charge
represents contributions payable.

Taxation
Deferred taxation is provided in full for timing differences
using the liability method. No provision is made for tax
which would become payable on the distribution of retained
profits by foreign subsidiaries, associates or joint ventures,
unless there is an intention to distribute such retained
earnings giving rise to a charge. Deferred tax assets are
only recognised to the extent that they are considered
recoverable in the short term. Deferred taxation balances
are not discounted.

COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

Accounting policies (continued)

Goodwill and intangible assets
On the acquisition of a subsidiary, associate, joint venture or
business, the purchase consideration is allocated between
the underlying net tangible and intangible assets on a fair
value basis, with any excess purchase consideration
representing goodwill.

Acquired goodwill and intangible assets are capitalised and

amortised systematically over their estimated useful lives
up to a maximum of 40 years, subject to annual impairment
review. For the majority of acquired goodwill and intangible
assets, the maximum estimated useful life is 20 years,
which is the rebuttable presumption under UK GAAP. In view
of the longevity of certain of the goodwill and intangible
assets relating to acquired science and medical and
educational publishing businesses, this presumption has
been rebutted in respect of these assets and a maximum
estimated useful life of 40 years determined. The longevity
of these assets is evidenced by their long established and
well regarded brands and imprints, and their
characteristically stable market positions.

Intangible assets comprise publishing rights and titles,
databases, exhibition rights and other intangible assets,
which are stated at fair value on acquisition and are not
subsequently revalued.

Tangible fixed assets
Tangible fixed assets are stated in the balance sheet at cost
less accumulated depreciation. No depreciation is provided
on freehold land.

Freehold buildings and long leases are depreciated over
their estimated useful lives up to a maximum of 50 years.
Short leases are written off over the duration of the lease.
Plant, equipment and computer systems are depreciated on
a straight line basis at rates from 5%–33%.

Investments
Fixed asset investments in joint ventures and associates are
accounted for under the gross equity and equity methods
respectively. Other fixed asset investments are stated at
cost, less provision, if appropriate, for any impairment in
value. Short term investments are stated at the lower of cost
and net realisable value.

Inventories and pre-publication costs
Inventories and pre-publication costs are stated at the lower
of cost, including appropriate attributable overheads, and
estimated net realisable value. Pre-publication costs,
representing costs incurred in the origination of content prior
to publication, are expensed systematically over the economic
lives of the related products, generally up to five years.

Finance leases
Assets held under leases which confer rights and
obligations similar to those attaching to owned assets are
capitalised as tangible fixed assets and the corresponding
liability to pay rentals is shown net of interest in the
accounts as obligations under finance leases. The
capitalised values of the assets are written off on a straight
line basis over the shorter of the periods of the leases or the
useful lives of the assets concerned. The interest element of
the lease payments is allocated so as to produce a constant
periodic rate of charge.

Operating leases
Operating lease rentals are charged to the profit and loss
account on a straight line basis over the period of the
leases.

Financial instruments
Payments and receipts on interest rate hedges are
accounted for on an accruals basis over the lives of the
hedges and included respectively within interest payable and
interest receivable in the profit and loss account. Gains and
losses on foreign exchange hedges, other than in relation to
net currency borrowings hedging equity investments, are
recognised in the profit and loss account on maturity of the
underlying transaction. Gains and losses on net currency
borrowings hedging equity investments are taken to
reserves. Gains and losses arising on hedging instruments
that are closed out due to the cessation of the underlying
exposure are taken directly to the profit and loss account.

Currency swap agreements are valued at exchange rates
ruling at the balance sheet date with net gains and losses
being included within short term investments or borrowings.
Interest payable and receivable arising from the swap is
accounted for on an accruals basis over the life of the swap.
Finance costs associated with debt issuances are charged

to the profit and loss account over the life of the related
borrowings.

Prior year adjustment
Following the issuance of UITF38: Accounting for ESOP
Trusts in December 2003, shares held in the parent
companies by the Reed Elsevier Group plc Employee Benefit
Trust, previously included within other fixed asset
investments, are now presented as shares held in treasury
and deducted within combined shareholders’ funds. Prior
year comparatives have been restated accordingly.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

41

COMBINED FINANCIAL STATEMENTS

Combined profit and loss account
For the year ended 31 December 2003

Turnover
Including share of turnover of joint ventures
Less: share of turnover of joint ventures

Continuing operations before acquisitions
Acquisitions

Cost of sales

Gross profit
Operating expenses

Before amortisation and exceptional items
Amortisation of goodwill and intangible assets
Exceptional items

Operating profit (before joint ventures)

Continuing operations before acquisitions
Acquisitions

Share of operating profit of joint ventures

Operating profit including joint ventures
Non operating exceptional items 
Net profit/(loss) on disposal of businesses and fixed asset investments

Profit on ordinary activities before interest
Net interest expense

Profit on ordinary activities before taxation
Tax on profit on ordinary activities

Profit on ordinary activities after taxation
Minority interests

Profit attributable to parent companies’ shareholders
Equity dividends paid and proposed

Retained profit/(loss) taken to combined reserves

Adjusted figures

Adjusted operating profit
Adjusted profit before tax
Adjusted profit attributable to parent companies’ shareholders

Note

2003
£m

2002
£m

2003
€m

2002
€m

1

2

2

6

1,5

6

7

8

26
9

5,006
(81)

4,925
4,845
80

(1,764)

3,161
(2,516)
(2,002)
(442)
(72)

645
659
(14)

16

661

26

687
(168)

519
(183)

336
(2)

334
(304)

30

5,094
(74)

5,020
5,020
–

(1,794)

3,226
(2,736)
(2,113)
(524)
(99)

490
490
–

17

507

(12)

495
(206)

289
(107)

182
(1)

181
(282)

(101)

7,259
(118)

7,141
7,025
116

(2,558)

4,583
(3,648)
(2,902)
(641)
(105)

935
955
(20)

23

958

37

995
(243)

752
(265)

487
(3)

484
(441)

43

8,099
(117)

7,982
7,982
–

(2,852)

5,130
(4,351)
(3,361)
(833)
(157)

779
779
–

27

806

(19)

787
(327)

460
(171)

289
(1)

288
(448)

(160)

Note

1,10
10
10

2003
£m

1,178
1,010
744

2002
£m

1,133
927
682

2003
€m

1,708
1,465
1,079

2002
€m

1,801
1,474
1,084

Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax
effects, are presented as additional performance measures, and are reconciled to the reported figures in note 10 to the
combined financial statements.

42 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS

Combined cash flow statement 
For the year ended 31 December 2003

Net cash inflow from operating activities before exceptional items
Payments relating to exceptional items charged to operating profit 

Net cash inflow from operating activities

Note

11
6

2003
£m

1,163
(98)

1,065

2002
£m

1,154
(119)

1,035

2003
€m

1,686
(142)

1,544

2002
€m

1,835
(190)

1,645

Dividends received from joint ventures

15

14

13

20

21

Interest and similar income received
Interest and similar charges paid 

Returns on investments and servicing of finance

Taxation before exceptional items
Exceptional items

Taxation

Purchase of tangible fixed assets
Purchase of fixed asset investments
Proceeds from sale of tangible fixed assets
Exceptional proceeds from disposal of fixed asset investments

Capital expenditure and financial investment

Acquisitions
Exceptional net proceeds/(costs) from disposal of businesses

Acquisitions and disposals

Equity dividends paid to shareholders of the parent companies

Cash inflow before changes in short term investments and financing
Increase in short term investments
Financing

(Decrease)/increase in cash

17
(194)

(177)

(182)
36

(146)

(155)
(7)
6
19

(137)

(258)
77

(181)

25
(230)

(205)

(154)
20

(134)

(163)
(5)
6
118

(44)

(184)
(12)

(196)

25
(282)

(257)

(264)
52

(212)

(225)
(10)
10
28

(197)

(374)
112

(262)

40
(366)

(326)

(245)
32

(213)

(259)
(8)
9
188

(70)

(293)
(19)

(312)

(292)

(273)

(423)

(434)

146
(165)
(86)

(105)

196
(55)
(69)

72

213
(240)
(125)

(152)

311
(88)
(109)

114

6

15

6

11
6

11
11

11

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

Adjusted operating cash flow
Adjusted operating cash flow conversion

Note

10

2003
£m

1,028
87%

2002
£m

1,010
89%

2003
€m

1,491
87%

2002
€m

1,606
89%

Reed Elsevier businesses focus on adjusted operating cash flow as a 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 tangible fixed assets
but before exceptional payments and proceeds, and is reconciled to the reported figures in note 10 to the combined financial
statements. Adjusted operating cash flow conversion expresses adjusted operating cash flow as a percentage of adjusted
operating profit.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

43

COMBINED FINANCIAL STATEMENTS

Combined balance sheet 
As at 31 December 2003

Fixed assets
Goodwill and intangible assets
Tangible fixed assets
Investments

Investments in joint ventures:

Share of gross assets
Share of gross liabilities
Share of net assets

Other investments

Current assets
Inventories and pre-publication costs
Debtors – amounts falling due within one year
Debtors – amounts falling due after more than one year
Cash and short term investments

Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Minority interests

Net assets

Capital and reserves
Combined share capitals
Combined share premium accounts
Combined shares held in treasury
Combined reserves

Combined shareholders’ funds

Note

13
14
15

27

16
17
18
19

20

21
24

26

2003
£m

2002
£m

2003
€m

2002
€m

5,153
482
101

5,814
484
121

118
(58)
60
41

132
(70)
62
59

7,317
684
144

168
(83)
85
59

8,895
741
185

202
(107)
95
90

5,736

6,419

8,145

9,821

526
1,044
249
638

2,457
(3,474)

(1,017)

4,719
(2,105)
(168)
(12)

2,434

190
1,784
(37)
497

2,434

500
923
321
570

2,314
(3,629)

(1,315)

5,104
(2,270)
(187)
(7)

2,640

187
1,708
(19)
764

2,640

747
1,482
354
906

3,489
(4,933)

(1,444)

6,701
(2,989)
(239)
(17)

3,456

270
2,533
(53)
706

3,456

765
1,412
491
872

3,540
(5,552)

(2,012)

7,809
(3,473)
(286)
(11)

4,039

286
2,613
(29)
1,169

4,039

Approved by the boards of Reed Elsevier PLC and Reed Elsevier NV, 18 February 2004.

44 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS

Combined statement of total recognised gains and losses
For the year ended 31 December 2003

Profit attributable to parent companies’ shareholders
Exchange translation differences

Total recognised gains and losses for the year

Combined shareholders’ funds reconciliation
For the year ended 31 December 2003

Profit attributable to parent companies’ shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Exchange translation differences

Net decrease in combined shareholders’ funds
Combined shareholders’ funds at 1 January

As originally reported
Prior year adjustment in relation to presentation of shares held
in treasury

2003
£m

334
(232)

102

2002
£m

181
(187)

(6)

2003
€m

484
(620)

(136)

2002
€m

288
(604)

(316)

Note

2003
£m

334
(304)
14
(18)
(232)

(206)
2,640
2,659

2002
£m

181
(282)
30
(1)
(187)

(259)
2,899
2,917

2003
€m

484
(441)
20
(26)
(620)

(583)
4,039
4,068

2002
€m

288
(448)
48
(2)
(604)

(718)
4,757
4,784

27

(19)

(18)

(29)

(27)

Combined shareholders’ funds at 31 December

2,434

2,640

3,456

4,039

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

45

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

1

Segment analysis

Business segment
Science & Medical
Legal
Education
Business

Total

Geographical origin
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world

Total

Business segment
Science & Medical
Legal
Education
Business

Total

Geographical origin
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world

Total

Turnover

2003
£m

2002
£m

Operating profit
2003
£m

2002
£m

Adjusted
operating profit
2003
£m

2002
£m

Capital employed

2003
£m

2002
£m

1,381
1,318
898
1,328

4,925

2,822
823
502
541
237

4,925

1,295
1,349
993
1,383

5,020

3,158
782
419
456
205

5,020

375
95
91
100

661

225
168
162
73
33

661

294
61
102
50

507

142
129
153
55
28

507

467
301
174
236

429
287
183
234

1,178

1,133

603
210
189
136
40

616
190
169
119
39

1,178

1,133

1,476
1,985
1,390
763

5,614

4,639
432
2
516
25

5,614

1,550
2,192
1,569
834

6,145

5,190
481
(22)
475
21

6,145

Turnover

2003
€m

2002
€m

Operating profit
2003
€m

2002
€m

Adjusted
operating profit
2003
€m

2002
€m

Capital employed

2003
€m

2002
€m

2,002
1,911
1,302
1,926

7,141

4,092
1,193
728
784
344

7,141

2,059
2,145
1,579
2,199

7,982

5,021
1,243
666
725
327

7,982

544
138
132
144

958

326
244
235
106
47

958

467
97
162
80

806

226
205
243
87
45

806

677
437
252
342

682
456
291
372

1,708

1,801

874
305
274
197
58

979
302
269
189
62

1,708

1,801

2,096
2,819
1,974
1,083

7,972

6,587
613
3
733
36

7,972

2,372
3,354
2,401
1,275

9,402

7,941
736
(34)
727
32

9,402

Adjusted operating profit is presented as an additional performance measure and is shown after share of operating profit of
joint ventures and before amortisation of goodwill and intangible assets and exceptional items. Within prior year capital
employed, goodwill of £183m/€280m arising on the Harcourt acquisition has been reclassified from the Education segment to
the Science & Medical segment. 
Turnover is analysed before the £81m/€118m (2002: £74m/€117m) share of joint ventures’ turnover, of which £20m/€29m
(2002: £17m/€27m) relates to the Legal segment, principally to Giuffrè, and £61m/€89m (2002: £57m/€90m) relates to the
Business segment, principally to exhibition joint ventures.
Share of operating profit in joint ventures of £16m/€23m (2002: £17m/€27m) comprises £5m/€7m (2002: £5m/€8m) relating
to the Legal segment and £11m/€16m (2002: £12m/€19m) relating to the Business segment.

46 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

1

Segment analysis (continued)

Analysis of turnover by geographical market
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world

Total

Reconciliation of capital employed to combined shareholders’ funds
Capital employed
Taxation
Dividends and net interest
Net borrowings
Minority interests

Combined shareholders’ funds

2003
£m

2002
£m

2003
€m

2002
€m

2,921
551
207
695
551

4,925

3,152
545
207
611
505

5,020

4,235
799
300
1,008
799

7,141

5,012
867
329
971
803

7,982

2003
£m

2002
£m

2003
€m

2002
€m

5,614
(549)
(247)
(2,372)
(12)

2,434

6,145
(528)
(238)
(2,732)
(7)

2,640

7,972
(780)
(351)
(3,368)
(17)

3,456

9,402
(809)
(363)
(4,180)
(11)

4,039

Business segment
Science & Medical
Legal
Education
Business

Total

Business segment
Science & Medical
Legal
Education
Business

Total

Capital expenditure

Depreciation

Amortisation

2003
£m

2002
£m

2003
£m

2002
£m

46
83
14
25

36
84
20
39

30
61
13
30

27
62
13
34

168

179

134

136

2003
£m

72
185
63
125

445

Capital expenditure

Depreciation

Amortisation

2003
€m

67
120
20
37

244

2002
€m

57
134
32
62

285

2003
€m

2002
€m

43
89
19
43

43
99
21
53

194

216

2003
€m

104
268
91
182

645

2002
£m

101
197
71
158

527

2002
€m

161
313
113
251

838

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

47

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

2

Cost of sales and operating expenses

Before Amortisation
of goodwill
and
intangible
assets
£m

amortisation
and
exceptional
items
£m

Exceptional
items
£m

1,733
31

1,764

1,036
14

1,050

933
19

952

1,969
33

2,002

–
–

–

–
–

–

418
24

442

418
24

442

–
–

–

–
–

–

66
6

72

66
6

72

Before Amortisation
of goodwill
and
intangible
assets
€m

amortisation
and
exceptional
items
€m

Exceptional
items
€m

2,513
45

2,558

1,502
21

1,523

1,353
26

1,379

2,855
47

2,902

–
–

–

–
–

–

606
35

641

606
35

641

–
–

–

–
–

–

96
9

105

96
9

105

2003

Total
£m

1,733
31

1,764

1,036
14

1,050

1,417
49

1,466

2,453
63

2,516

2003

Total
€m

2,513
45

2,558

1,502
21

1,523

2,055
70

2,125

3,557
91

3,648

Before Amortisation
of goodwill
and
intangible
assets
£m

amortisation
and
exceptional
items
£m

Exceptional
items
£m

1,794
–

1,794

1,117
–

1,117

996
–

996

2,113
–

2,113

–
–

–

–
–

–

524
–

524

524
–

524

–
–

–

–
–

–

99
–

99

99
–

99

Before Amortisation
of goodwill
and
intangible
assets
€m

amortisation
and
exceptional
items
€m

Exceptional
items
€m

2,852
–

2,852

1,776
–

1,776

1,585
–

1,585

3,361
–

3,361

–
–

–

–
–

–

833
–

833

833
–

833

–
–

–

–
–

–

157
–

157

157
–

157

2002

Total
£m

1,794
–

1,794

1,117
–

1,117

1,619
–

1,619

2,736
–

2,736

2002

Total
€m

2,852
–

2,852

1,776
–

1,776

2,575
–

2,575

4,351
–

4,351

Cost of sales
Continuing operations
Acquisitions

Total

Distribution and selling costs
Continuing operations
Acquisitions

Administrative expenses
Continuing operations
Acquisitions

Operating expenses
Continuing operations
Acquisitions

Total

Cost of sales
Continuing operations
Acquisitions

Total

Distribution and selling costs
Continuing operations
Acquisitions

Administrative expenses
Continuing operations
Acquisitions

Operating expenses
Continuing operations
Acquisitions

Total

48 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

3

Personnel

Number of people employed

Business segment
Science & Medical
Legal 
Education
Business

Total

Geographical location
North America
United Kingdom
The Netherlands
Rest of Europe
Rest of world

Total

4

Pension schemes

At 31 December

Average during the year

2003

2002

2003

2002

6,800
12,800
5,300
10,100

35,000

19,600
5,900
2,700
3,900
2,900

35,000

6,400
13,300
5,600
10,800

36,100

20,700
6,000
2,800
3,800
2,800

36,100

6,700
13,100
5,400
10,400

35,600

20,200
5,900
2,700
3,900
2,900

35,600

6,400
13,300
5,800
11,300

36,800

21,300
6,100
2,800
3,800
2,800

36,800

A number of pension schemes are operated around the world. The major schemes are of the defined benefit type with
assets held in separate trustee administered funds. The two largest schemes, which cover the majority of employees, are
in the UK and US. The main UK scheme was subject to a triennial valuation by Watson Wyatt Partners as at 5 April 2003.
The main US scheme is valued annually and was subject to a valuation by Towers Perrin as at 1 January 2003.

The principal valuation assumptions for the main UK scheme were:
Actuarial method
Annual rate of return on investments
Annual increase in total pensionable remuneration
Annual increase in present and future pensions in payment

Projected unit method
6.8%
4.5%
2.5%

The principal valuation assumptions used for the US scheme were a rate of return on investments of 7.75%, increase in
pensionable remuneration of 4.5%, and increase in present and future pensions in payment of 3.0%, applied under the
projected unit method.

The actuarial values placed on scheme assets under SSAP24 as at their last valuation date were sufficient to cover 113%
and 104% of the benefits that had accrued to members of the main UK and US schemes, respectively. Actuarial surpluses
are spread as a level amount over the average remaining service lives of employees. The actuarial values of the schemes’
assets as at the valuation dates, excluding assets held in respect of members’ additional voluntary contributions, were
£1,350m/€1,958m and £260m/€369m in respect of the UK and US schemes respectively.

Assessments for accounting purposes in respect of other funded schemes, including the Netherlands scheme, have been
carried out by external qualified actuaries using prospective benefit methods. The actuarial value of assets of the schemes
approximated to the aggregate benefits that had accrued to members, after allowing for expected future increases in
pensionable remuneration and pensions in course of payment. The assets of the Netherlands scheme as at 31 December
2003 were sufficient to cover 101% of the actuarial value placed on the benefits that had accrued to the members of the
scheme as at that date.
The liabilities in respect of unfunded schemes have been determined by actuaries. As at 31 December 2003 £52m/€74m
(2002: £52m/€80m) has been provided for within creditors.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

49

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

4

Pension schemes (continued)
The net pension charge was £59m/€86m (2002: £59m/€94m). Pension contributions made in the year amounted to
£49m/€72m (2002: £47m/€75m). The net SSAP24 charge on the main UK scheme comprises a regular cost of
£23m/€33m (2002: £27m/€43m), less amortisation of the net actuarial surplus of £13m/€19m (2002: £24m/€38m). Based
on the advice of the scheme actuaries, and with the agreement of the scheme trustees, no employer contributions have
been made to the main UK scheme in 2003 (2002: nil) and, with effect from 1 January 2004, employer contributions will be
made at a rate of 5% of pensionable salaries until the next triennial valuation in 2006.
A prepayment of £115m/€163m (2002: £125m/€191m) is included in debtors falling due after more than one year,
representing the excess of the net pension credit to the profit and loss account since 1988 over the amounts funded to the
main UK scheme.

Pension costs are accounted for in accordance with the UK accounting standard, SSAP24. A new UK financial reporting
standard, FRS17: Retirement Benefits requires additional information to be disclosed based on methodologies set out in
the standard which are different from those used under SSAP24 and by the scheme actuaries in determining funding
arrangements.

The assumed rates of return on scheme assets, the fair value of those assets and the present value of the scheme
liabilities based on the methodologies and presentation prescribed by FRS17 were as follows:

Assumed rate of
return on assets

7.8%
4.8%
4.3%

Assumed rate of
return on assets

9.0%
4.5%
3.8%

2003
Equities
Bonds
Other

Total fair value of assets
Present value of scheme liabilities

Net deficit
Related deferred tax

Net pension liability

2002
Equities
Bonds
Other

Total fair value of assets
Present value of scheme liabilities

Net surplus/(deficit)
Related deferred tax

Net pension asset/(liability)

Main UK Scheme

Assumed rate of
€m return on assets

Aggregate of Schemes

£m

€m

£m

1,050
442
38

1,530
(1,588)

(58)
17

(41)

1,491
628
54

2,173
(2,255)

(82)
24

(58)

8.0%
5.0%
4.6%

1,341
639
50

2,030
(2,281)

(251)
84

(167)

1,904
907
72

2,883
(3,239)

(356)
119

(237)

Main UK Scheme

Aggregate of Schemes

£m

825
487
45

1,357
(1,305)

52
(16)

36

Assumed rate of
€m return on assets

£m

€m

1,262
745
69

2,076
(1,996)

80
(25)

55

9.0%
4.9%
3.8%

1,068
670
53

1,791
(1,928)

(137)
50

(87)

1,634
1,025
81

2,740
(2,950)

(210)
77

(133)

At 31 December 2003, the aggregate net deficit in respect of the defined benefit schemes under FRS17 comprised
£189m/€268m (2002: £66m/€101m) in respect of funded schemes and liabilities of £62m/€88m (2002: £71m/€109m) in
respect of unfunded schemes, of which £52m/€74m (2002: £52m/€80m) is provided for within creditors under SSAP24.

At 31 December 2001, for the aggregate of schemes, the fair value of equities, bonds and assets, and the related assumed
rates of return for those asset classes were £1,267m/€2,078m, £721m/€1,182m and £81m/€133m and 7.7%, 5.5% and 4.0%
respectively.

50 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

4

Pension schemes (continued)
The movement in the net FRS17 surplus/(deficit) before taxation during the year was as follows:

Net surplus/(deficit) in schemes at beginning of the year
Movement in the year:

Total operating charge
Contributions
Finance income
Actuarial loss
Exchange translation differences

Net deficit in schemes at end of the year

Main UK Scheme

£m

52

(32)
–
23
(101)
–

(58)

€m

80

(46)
–
33
(146)
(3)

(82)

The principal assumptions made in valuing pension scheme liabilities for the purposes of FRS17 were:

Inflation
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate

Main UK Scheme
2003

2002

2.8%
4.8%
2.8%
5.5%

2.3%
4.3%
2.3%
5.7%

Aggregate of Schemes
€m

£m

(137)

(210)

(65)
38
17
(113)
9

(251)

(94)
55
25
(164)
32

(356)

Aggregate of Schemes

2003

2.9%
4.4%
2.8%
5.6%

2002

2.5%
4.2%
2.5%
5.9%

The combined profit and loss reserves as at 31 December 2003 of £497m/€706m (2002: £764m/€1,169m) would have been
£285m/€405m (2002: £623m/€953m), had the accounting methodologies of FRS17 been applied in the 2003 and 2002 financial
years.

The operating charge, the amount credited to other finance income and the amounts recognised in the statement of total
recognised gains and losses in the financial year based on the methodologies and presentation prescribed by FRS17 would
have been as follows:

Main UK Scheme

£m

€m

Aggregate of Schemes
€m

£m

2003
Charged to operating profit

Current service cost
Past service cost

Total operating charge

Credited to other finance income

Expected return on pension scheme assets
Interest on pension scheme liabilities

Net return

Amounts recognised in the statement of total recognised 
gains and losses

Actual return less expected return on pension scheme assets
Experience losses arising on the scheme liabilities
Changes in assumptions underlying the present value of the

scheme liabilities

Actuarial loss

(32)
–

(32)

96
(73)

23

125
(57)

(169)

(101)

(46)
–

(46)

139
(106)

33

181
(83)

(244)

(146)

(76)
11

(65)

131
(114)

17

153
(96)

(170)

(113)

(94)
–

(94)

190
(165)

25

222
(139)

(247)

(164)

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

51

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

4

Pension schemes (continued)

2002
Charged to operating profit

Current service cost
Past service cost

Total operating charge

Credited to other finance income

Expected return on pension scheme assets
Interest on pension scheme liabilities

Net return

Amounts recognised in the statement of total recognised 
gains and losses

Actual return less expected return on pension scheme assets
Experience losses arising on the scheme liabilities
Changes in assumptions underlying the present value of the

scheme liabilities

Actuarial loss

Main UK Scheme

£m

€m

Aggregate of Schemes

£m

€m

(34)
–

(34)

97
(72)

25

(254)
(21)

86

(189)

(54)
–

(54)

154
(114)

40

(404)
(33)

136

(301)

(75)
–

(75)

137
(107)

30

(352)
(13)

43

(322)

(119)
–

(119)

218
(170)

48

(560)
(21)

69

(512)

The difference between the actual and expected returns on scheme assets, the experience losses arising on scheme liabilities,
and the total actuarial loss that would have been recognised under FRS17 in the statement of total recognised gain and losses,
expressed as a percentage of scheme assets and liabilities as appropriate, were as follows:

Actual return less expected return on scheme assets,

as a percentage of scheme assets

Experience losses arising on scheme liabilities, as a

percentage of the present value of scheme liabilities

Total actuarial loss that would have been recognised in the
statement of total recognised gains and losses, as a

Main UK Scheme
2003

2002

Aggregate of Schemes

2003

2002

8%

–19%

8%

–20%

4%

2%

4%

1%

percentage of the present value of the scheme liabilities

6%

14%

5%

17%

52 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

5

Operating profit
Operating profit is stated after the following:

Hire of plant and machinery
Other operating lease rentals
Depreciation (including £7m/€10m (2002: £6m/€10m) in respect

of assets held under finance leases)

Amortisation

Amortisation of goodwill and intangible assets
Amortisation of goodwill and intangible assets in joint ventures

Total amortisation

Staff costs

Wages and salaries
Social security costs
Pensions

Total staff costs

Auditors’ remuneration
For audit services
For non audit services

Note

4

2003
£m

9
94

134

442
3

445

1,255
136
59

1,450

2.5
2.1

2002
£m

12
87

136

524
3

527

1,277
127
59

1,463

2.3
3.6

2003
€m

13
136

194

641
4

645

1,820
197
86

2,103

3.6
3.2

2002
€m

19
138

216

833
5

838

2,030
202
94

2,326

3.7
5.7

Auditors’ remuneration for non audit services comprises £0.8m/€1.2m (2002: £0.7m/€1.1m) for audit related services, £0.6m/€0.9m
(2002: £1.4m/€2.2m) for due diligence and other transaction related services, £0.6m/€0.9m (2002: £0.7m/€1.1m) for tax compliance
and advisory work, and £0.1m/€0.2m (2002: £0.8m/€1.3m) for other non audit services. Included in auditors‘ remuneration for
non audit services is £0.4m/€0.6m (2002: £0.7m/€1.1m) paid to Deloitte & Touche LLP and its associates in the UK.
Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is
set out in the Directors’ Remuneration Report on pages 29 to 38.

6

Exceptional items

Reorganisation costs
Acquisition related costs

Charged to operating profit
Net profit/(loss) on disposal of businesses and fixed asset investments

Exceptional charge before tax
Net tax credit

Total exceptional credit

Note

(i)
(ii)

(iii)

(iv)

2003
£m

(23)
(49)

(72)
26

(46)
84

38

2002
£m

(42)
(57)

(99)
(12)

(111)
122

11

2003
€m

(33)
(72)

(105)
37

(68)
122

54

2002
€m

(67)
(90)

(157)
(19)

(176)
194

18

(i) Reorganisation costs relate to employee severance principally in the Legal and Business segments.
(ii) Acquisition related costs include employee severance and property rationalisation costs arising on the further integration

and rationalisation of Harcourt and on other recent acquisitions.

(iii) The net profit on disposal of businesses and fixed asset investments relates principally to a profit on the sale of

LexisNexis Document Solutions less losses on other disposals and on fixed asset investments.

(iv) The net tax credit in 2003 and 2002 arises principally in respect of prior year disposals and tax relief related to

restructuring and acquisition integration costs.

Cash flows in respect of exceptional items were as follows:

Reorganisation costs
Acquisition related costs

Exceptional operating cash outflow
Net proceeds from disposal of businesses and fixed asset investments

Exceptional cash outflow before tax
Exceptional tax cash inflow

Total exceptional cash inflow

2003
£m

(51)
(47)

(98)
96

(2)
36

34

2002
£m

(56)
(63)

(119)
106

(13)
20

7

2003
€m

(74)
(68)

(142)
140

(2)
52

50

2002
€m

(89)
(101)

(190)
169

(21)
32

11

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

53

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

7

Net interest expense

Interest receivable and similar income
Interest payable and similar charges
Promissory notes and bank loans
Other loans
Other interest and similar charges

Total

Interest cover (times)

2003
£m

18

(46)
(139)
(1)

(168)

7.0

2002
£m

24

(76)
(152)
(2)

(206)

5.5

2003
€m

26

(67)
(201)
(1)

(243)

7.0

Interest cover is calculated as the number of times adjusted operating profit is greater than the net interest expense.

8

Tax on profit on ordinary activities

Current tax

United Kingdom
The Netherlands
Rest of world

Total current tax
Deferred tax

Origination and reversal of timing differences

Sub-total
Share of tax attributable to joint ventures

Total

2003
£m

2
58
57

117

60

177
6

183

2002
£m

(6)
62
(14)

42

58

100
7

107

2003
€m

3
84
83

170

87

257
8

265

The tax charge for the year as a proportion of profit before tax was increased due to non tax-deductible amortisation and
reduced by exceptional tax credits arising on prior year disposals.

A reconciliation of the notional current tax charge based on average standard rates of tax (weighted in proportion to
accounting profits) to the actual current tax charge is set out below:

Profit on ordinary activities before tax

Tax at average standard rates
Net impact of amortisation of goodwill and intangible assets
Prior year disposals
Permanent differences and other items
Origination and reversal of timing differences

Current tax charge

9

Equity dividends paid and proposed

Reed Elsevier PLC
Reed Elsevier NV

Total

2003
£m

519

152
108
(76)
(7)
(60)

117

2003
£m

152
152

304

2002
£m

289

79
109
(100)
12
(58)

42

2002
£m

143
139

282

2003
€m

752

220
157
(110)
(10)
(87)

170

2003
€m

220
221

441

2002
€m

38

(120)
(242)
(3)

(327)

5.5

2002
€m

(10)
99
(22)

67

92

159
12

171

2002
€m

460

126
173
(159)
19
(92)

67

2002
€m

227
221

448

Dividends comprise a total dividend for Reed Elsevier PLC of 12.0p (2002: 11.2p) per ordinary share and a total dividend for
Reed Elsevier NV of €0.30 (2002: €0.30) per ordinary share.

Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK
tax credit of 10% received by certain Reed Elsevier PLC shareholders.

54 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

10

Adjusted figures
Adjusted profit and cash flow figures are used by the Reed Elsevier businesses as additional performance measures. The
adjusted figures are stated before the amortisation of goodwill and intangible assets, exceptional items and related tax effects,
and are derived as follows:

Operating profit including joint ventures
Adjustments:

Amortisation of goodwill and intangible assets (including joint ventures)
Reorganisation costs
Acquisition related costs

2003
£m

661

445
23
49

2002
£m

507

527
42
57

2003
€m

958

645
33
72

2002
€m

806

838
67
90

Adjusted operating profit

1,178

1,133

1,708

1,801

Profit before tax
Adjustments:

Amortisation of goodwill and intangible assets (including joint ventures)
Reorganisation costs
Acquisition related costs
Net (profit)/loss on disposal of businesses and fixed asset investments

Adjusted profit before tax

Profit attributable to parent companies’ shareholders
Adjustments:

Amortisation of goodwill and intangible assets (including joint ventures)
Reorganisation costs
Acquisition related costs
Net profit on disposal of businesses and fixed asset investments

Adjusted profit attributable to parent companies’ shareholders

Net cash inflow from operating activities
Dividends received from joint ventures
Purchase of tangible fixed assets
Proceeds from sale of tangible fixed assets
Payments in relation to exceptional items charged to operating profit

Adjusted operating cash flow

519

445
23
49
(26)

1,010

334

448
17
32
(87)

744

1,065
14
(155)
6
98

1,028

289

527
42
57
12

927

181

512
32
43
(86)

682

1,035
13
(163)
6
119

1,010

752

645
33
72
(37)

460

838
67
90
19

1,465

1,474

484

288

649
24
47
(125)

814
51
68
(137)

1,079

1,084

1,544
20
(225)
10
142

1,491

1,645
21
(259)
9
190

1,606

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

55

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

11

Cash flow statement
Reconciliation of operating profit to net cash inflow from operating activities

Note

6

Operating profit (before joint ventures)
Exceptional charges to operating profit

Operating profit before exceptional items

Amortisation of goodwill and intangible assets
Depreciation

Total non cash items

Increase in inventories and pre-publication costs
Increase in debtors
Increase/(decrease) in creditors

Movement in working capital

Net cash inflow from operating activities before exceptional items
Payments relating to exceptional items charged to operating profit

6

Net cash inflow from operating activities

Acquisitions

Purchase of businesses
Payment of Harcourt change of control and other non operating

liabilities assumed

Deferred consideration of prior year acquisitions

Total

Financing

Net movement in promissory notes and bank loans
Repayment of other loans 
Issuance of other loans 
Repayment of finance leases

Issue of ordinary shares
Purchase of treasury shares
Total

Note

12

Note

27

2003
£m

645
72

717

442
134

576

(51)
(112)
33

(130)

1,163
(98)

1,065

2003
£m

(223)

(23)
(12)

(258)

2003
£m

(46)
(118)
94
(12)

(82)
14
(18)

(86)

2002
£m

490
99

589

524
136

660

(51)
(12)
(32)

(95)

1,154
(119)

1,035

2002
£m

(90)

(76)
(18)

(184)

2002
£m

(74)
(173)
162
(10)

(95)
30
(4)

(69)

2003
€m

935
105

1,040

641
194

835

(75)
(162)
48

(189)

1,686
(142)

1,544

2003
€m

(323)

(33)
(18)

(374)

2003
€m

(67)
(171)
136
(17)

(119)
20
(26)

(125)

2002
€m

779
157

936

833
216

1,049

(81)
(19)
(50)

(150)

1,835
(190)

1,645

2002
€m

(143)

(121)
(29)

(293)

2002
€m

(118)
(275)
258
(16)

(151)
48
(6)

(109)

The repayment of other loans in 2003 relates primarily to the maturity of a US$125m Private Placement and the redemption of
subordinated debentures with a nominal value of US$39m. The issuance of other loans in 2003 relates to term debt raised by
a subsidiary of Elsevier Reed Finance BV.

56 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

11

Cash flow statement (continued)

Reconciliation of net borrowings

Net borrowings at 1 January

(Decrease)/increase in cash
Increase in short term investments
Decrease in borrowings

Change in net borrowings resulting from cash flows

Borrowings in acquired businesses
Inception of finance leases
Exchange translation differences

Net borrowings at 31 December

Net borrowings at 1 January

(Decrease)/increase in cash
Increase in short term investments
Decrease in borrowings

Change in net borrowings resulting from cash flows

Borrowings in acquired businesses
Inception of finance leases
Exchange translation differences

Net borrowings at 31 December

Cash
£m

169

(105)
–
–

(105)

–
–
4

68

Cash
€m

259

(152)
–
–

(152)

–
–
(10)

97

Short term
investments
£m

401

–
165
–

165

–
–
4

Borrowings
£m

2003
£m

2002
£m

(3,302)

(2,732)

(3,229)

–
–
82

82

(9)
(13)
232

(105)
165
82

142

(9)
(13)
240

72
55
95

222

–
(16)
291

570

(3,010)

(2,372)

(2,732)

Short term
investments
€m

Borrowings
€m

2003
€m

2002
€m

613

(5,052)

(4,180)

(5,296)

–
240
–

240

–
–
(44)

809

–
–
119

119

(13)
(19)
691

(152)
240
119

207

(13)
(19)
637

114
88
151

353

–
(25)
788

(4,274)

(3,368)

(4,180)

Net borrowings comprise cash and short term investments, loan capital, finance leases, promissory notes and bank and other
loans, and are analysed further in notes 19 to 22.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

57

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

12

Acquisitions
During the year a number of acquisitions were made for a total consideration amounting to £226m/€328m, including
£3m/€5m deferred to future years, and after taking account of net cash acquired of £9m/€13m. The most significant
acquisitions were the Holtzbrinck STM business in Germany, and, in the US, Applied Discovery Inc and the public records
business of Dolan Media Company.

The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of
the consideration given and the assets and liabilities acquired are summarised below:

Goodwill
Intangible fixed assets
Tangible fixed assets
Current assets
Current liabilities
Borrowings

Net assets acquired

Consideration (after taking account of £9m net cash acquired)
Less: deferred to future years

Net cash flow

Goodwill
Intangible fixed assets
Tangible fixed assets
Current assets
Current liabilities
Borrowings

Net assets acquired
Consideration (after taking account of €13m net cash acquired)
Less: deferred to future years

Net cash flow

Book value
on acquisition
£m

Fair value
adjustments
£m

–
28
4
44
(42)
(9)

25

93
108
(1)
–
1
–

201

Book value
on acquisition
€m

Fair value
adjustments
€m

–
41
6
64
(62)
(13)

36

135
156
(2)
–
3
–

292

Fair
value
£m

93
136
3
44
(41)
(9)

226

226
(3)

223

Fair
value
€m

135
197
4
64
(59)
(13)

328

328
(5)

323

The fair value adjustments in relation to the acquisitions made in 2003 relate principally to the valuation of intangible assets to
conform with Reed Elsevier accounting policies. Goodwill represents the excess of the consideration over the net tangible and
intangible assets acquired. The businesses acquired in 2003 contributed £80m/€116m to turnover, £16m/€25m to adjusted
operating profit, before the amortisation of goodwill and intangible assets and exceptional items, and £15m/€22m to net cash
inflow from operating activities for the part year under Reed Elsevier ownership.

58 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

13

Goodwill and intangible assets

Cost
At 1 January 2003
Acquisitions
Disposal of businesses
Exchange translation differences

At 31 December 2003

Accumulated amortisation
At 1 January 2003
Disposal of businesses
Charge for the year
Exchange translation differences

At 31 December 2003

Net book amount
At 1 January 2003
At 31 December 2003

Goodwill
£m

Intangible
assets
£m

Total
£m

Goodwill
€m

Intangible
assets
€m

Total
€m

4,527
93
(62)
(308)

4,250

1,717
(53)
257
(108)

1,813

4,311
136
(74)
(282)

4,091

1,307
(48)
185
(69)

1,375

8,838
229
(136)
(590)

8,341

3,024
(101)
442
(177)

3,188

6,926
135
(90)
(936)

6,035

2,627
(77)
373
(349)

2,574

6,596
197
(107)
(877)

13,522
332
(197)
(1,813)

5,809

11,844

2,000
(69)
268
(246)

1,953

4,627
(146)
641
(595)

4,527

2,810
2,437

3,004
2,716

5,814
5,153

4,299
3,461

4,596
3,856

8,895
7,317

At 31 December 2003, the weighted average remaining estimated useful life of goodwill and intangible assets was 24 years
(2002: 25 years).

14

Tangible fixed assets

Cost
At 1 January 2003
Acquisitions
Capital expenditure
Disposals 
Exchange translation differences

At 31 December 2003

Accumulated depreciation
At 1 January 2003
Disposals
Charge for the year
Exchange translation differences

At 31 December 2003

Net book amount
At 1 January 2003
At 31 December 2003

Land and
buildings
£m

Computer
systems,
plant and
equipment
£m

206
–
3
(13)
(11)

185

77
(7)
7
(5)

72

129
113

1,018
3
165
(46)
(55)

1,085

663
(36)
127
(38)

716

355
369

Total
£m

1,224
3
168
(59)
(66)

1,270

740
(43)
134
(43)

788

484
482

Land and
buildings
€m

Computer
systems,
plant and
equipment
€m

Total
€m

1,873
4
244
(86)
(232)

1,803

1,132
(62)
194
(145)

1,119

1,558
4
240
(67)
(195)

1,540

1,014
(52)
184
(130)

1,016

544
524

741
684

315
–
4
(19)
(37)

263

118
(10)
10
(15)

103

197
160

At 31 December 2003 and 2002, all assets were included at cost. No depreciation was provided on freehold land. The net book
amount of tangible fixed assets includes £29m/€41m (2002: £24m/€37m) in respect of assets held under finance leases.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

59

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

15

Fixed asset investments

At 1 January 2003 as originally reported
Prior year adjustment

At 1 January 2003 as restated
Share of attributable profit
Amortisation of goodwill and intangible assets
Dividends received from joint ventures
Additions
Transfers/disposals
Provided
Exchange translation differences

At 31 December 2003

Note

27

Investments in
joint ventures
£m

Other
investments
£m

62
–

62
13
(3)
(14)
1
–
–
1

60

78
(19)

59
–
–
–
6
(14)
(7)
(3)

41

Total
£m

140
(19)

121
13
(3)
(14)
7
(14)
(7)
(2)

101

Investments in
joint ventures
€m

Other
investments
€m

95
–

95
19
(4)
(20)
1
–
–
(6)

85

119
(29)

90
–
–
–
9
(20)
(10)
(10)

59

The principal joint venture at 31 December 2003 is Giuffrè (an Italian legal publisher in which Reed Elsevier has a 40%
shareholding). The cost and net book amount of goodwill and intangible assets in joint ventures were £37m/€53m and
£19m/€27m respectively (2002: £36m/€55m and £21m/€32m).

16

Inventories and pre-publication costs

Raw materials
Pre-publication costs
Finished goods

Total

17

Debtors – amounts falling due within one year

Trade debtors
Other debtors
Prepayments and accrued income

Total

18

Debtors – amounts falling due after more than one year

Trade debtors
Pension prepayment
Prepayments, accrued income and other debtors
Deferred taxation assets

Total

Note

4

24

2003
£m

13
322
191

526

2003
£m

852
85
107

1,044

2003
£m

8
115
30
96

249

2002
£m

15
306
179

500

2002
£m

743
73
107

923

2002
£m

9
125
26
161

321

2003
€m

18
457
272

747

2003
€m

1,210
120
152

1,482

2003
€m

11
163
44
136

354

Total
€m

214
(29)

185
19
(4)
(20)
10
(20)
(10)
(16)

144

2002
€m

23
468
274

765

2002
€m

1,137
111
164

1,412

2002
€m

14
191
40
246

491

60 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

19

Cash and short term investments

Cash at bank and in hand
Short term investments

Total

2003
£m

68
570

638

2002
£m

169
401

570

2003
€m

97
809

906

2002
€m

259
613

872

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.

20

Creditors: amounts falling due within one year

Borrowings

Promissory notes and bank loans
Other loans
Obligations under finance leases

Trade creditors
Other creditors
Taxation
Proposed dividends
Accruals and deferred income

Total

Note

23

2003
£m

2002
£m

2003
€m

2002
€m

1,180
2
16

1,198
228
144
323
226
1,355

3,474

1,279
80
8

1,367
251
165
328
205
1,313

3,629

1,675
3
23

1,701
324
204
459
321
1,924

4,933

1,957
122
12

2,091
384
252
502
314
2,009

5,552

21

Creditors: amounts falling due after more than one year

Borrowings

Loans repayable:

Within one to two years
Within two to five years
After five years

Obligations under finance leases

Other creditors
Taxation
Accruals and deferred income

Total

Note

23

2003
£m

2002
£m

2003
€m

2002
€m

84
1,067
654
7

1,812
9
229
55

2,105

2
903
1,016
14

1,935
15
269
51

2,270

119
1,515
929
10

2,573
13
325
78

2,989

3
1,382
1,554
22

2,961
22
412
78

3,473

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

61

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

22

Financial instruments

Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments are set out in the
Operating and Financial Review on pages 3 to 21.

For the purpose of the disclosures which follow in this note, short term debtors and creditors have been excluded, as
permitted under FRS13: Derivatives and Other Financial Instruments.

Currency and interest rate profile of financial liabilities
The currency and interest rate profile of the aggregate financial liabilities of £3,074m/€4,365m (2002: £3,391m/€5,188m), after
taking account of interest rate and currency derivatives, is set out below:

2003
US dollar
Sterling
Euro
Other currencies

Total

2002
US dollar
Sterling
Euro
Other currencies

Total

Floating rate
financial
liabilities
£m

Fixed rate
financial
liabilities
£m

Floating rate
financial 
liabilities
€m

Fixed rate
financial 
liabilities
€m

Fixed rate financial liabilities

Weighted
average
interest rate

Weighted
average
term (years)

674
5
380
70

1,129

1,789
–
156
–

1,945

957
7
540
99

1,603

2,540
–
222
–

2,762

6.3%
–
5.4%
–

6.3%

6.0
–
2.8
–

5.8

Floating rate
financial
liabilities
£m

Fixed rate
financial
liabilities
£m

Floating rate
financial 
liabilities
€m

Fixed rate
financial 
liabilities
€m

Fixed rate financial liabilities

Weighted
average
interest rate

Weighted
average
term (years)

478
19
363
81

941

2,307
–
143
–

2,450

731
29
555
124

1,439

3,530
–
219
–

3,749

6.5%
–
5.6%
–

6.4%

7.6
–
4.3
–

7.4

Included within fixed rate financial liabilities as at 31 December 2003 are £nil/€nil (2002: £78m/€119m) of US dollar term debt
and £421m/€598m (2002: £281m/€430m) of interest rate swaps and options denominated principally in US dollars that
mature within one year.

Currency and interest rate profile of financial assets
The currency and interest rate profile of the aggregate financial assets of £702m/€997m (2002: £649m/€993m), after taking
account of interest rate swaps, is set out below:

2003
US dollar
Sterling
Euro
Other currencies

Total

Interest
bearing
financial
assets
£m

Non interest
bearing
financial
assets
£m

Interest
bearing
financial
assets
€m

Non interest
bearing
financial
assets
€m

88
326
192
32

638

54
–
6
4

64

125
463
273
45

906

77
–
9
5

91

62 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

22

Financial instruments (continued)

2002
US dollar
Sterling
Euro
Other currencies

Total

Interest
bearing
financial
assets
£m

Non interest
bearing
financial
assets
£m

Interest
bearing
financial
assets
€m

Non interest
bearing
financial
assets
€m

81
207
246
36

570

67
–
5
7

79

124
317
376
55

872

95
–
7
10

112

Non interest bearing financial assets reflect the prior year adjustment in respect of other investments, as described in
note 27.

At 31 December 2003 there were interest rate swaps in place with a principal amount totalling £100m/€142m (2002: £nil/€nil)
and interest rate floors in place with a principal amount totalling £50m/€71m (2002: £150m/€230m) denominated in sterling
that mature within one year.

Floating rate interest rates payable on US commercial paper are based on US dollar commercial paper rates. Other financial
assets and liabilities bear interest by reference to LIBOR or other national LIBOR equivalent interest rates. Included within non
interest bearing financial assets are £41m/€58m (2002: £59m/€90m) of investments denominated principally in sterling and
US dollars which have no maturity date.

Forward starting interest rate derivatives
At 31 December 2003, agreements totalling £653m/€927m (2002: £187m/€286m) were in place to enter into interest rate
swaps at future dates. Of these, individual swap agreements totalling £449m/€638m (2002: £125m/€191m) were to fix the
interest expense on US dollar borrowings commencing in 2004 and 2006 for periods of up to 30 months, at a weighted average
interest rate of 2.5%. A further £104m/€148m (2002: £nil/€nil) interest rate swap agreement starting in 2004 was to swap a
US dollar fixed rate debt issue, to be drawn down in 2004, to floating rate debt for a period of 10 years. Interest rate swap
agreements totalling £100m/€142m (2002: £nil/€nil) and starting in 2004 were to fix the interest income on sterling short
term investments for one year, at a weighted average interest rate of 3.6%. There were no forward starting interest rate
options (2002: £62m/€95m) or interest rate floors (2002: £nil/€nil).
At 31 December 2003, forward rate agreements totalling £253m/€359m (2002: £780m/€1,193m) were in place. These
comprised a succession of agreements to fix the interest expense on short term US dollar borrowings commencing in 2004
and 2006 for periods of three months only, at a weighted average interest rate of 3.2%.

Maturity profile of financial liabilities
The maturity profile of financial liabilities at 31 December comprised:

Repayable:

Within one year
Within one to two years
Within two to five years
After five years

Total

2003
£m

2002
£m

2003
€m

2002
€m

1,198
107
1,099
670

3,074

1,367
35
944
1,045

3,391

1,701
152
1,561
951

4,365

2,091
53
1,445
1,599

5,188

Financial liabilities repayable within one year include US commercial paper and euro commercial paper. Short term
borrowings are supported by committed facilities and by centrally managed cash and short term investments. As at 
31 December 2003, a total of £1,684m/€2,372m (2002: £2,188m/€3,348m) of committed facilities were available, of which
£51m/€72m (2002: £63m/€96m) was drawn and is included in financial liabilities repayable within one year. Of the total
committed facilities, £421m/€598m (2002: £1,788m/€2,736m) matures within one year, £nil/€nil (2002: £400m/€612m) within
two to three years and £1,263m/€1,794m (2002: £nil/€nil) within four to five years. Secured borrowings under finance leases
were £23m/€33m (2002: £22m/€34m).

Currency exposure
The business policy is to hedge all significant transaction exposures on monetary assets and liabilities fully and consequently
there are no material currency exposures that would give rise to gains and losses in the profit and loss account in the
functional currencies of the operating units.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

63

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22

Financial instruments (continued)
Fair values of financial assets and liabilities
The notional amount, book value and fair value of financial instruments are as follows:

Primary financial instruments held or issued to 

finance operations

Investments
Cash
Short term investments 
Other financial assets
Short term borrowings and current portion of long term

borrowings

Long term borrowings
Other financial liabilities
Provisions

Derivative financial instruments held to manage 

interest rate and currency exposure

Interest rate swaps
Interest rate options
Interest rate floors
Forward rate agreements
Forward foreign exchange contracts

Total financial instruments

Notional
amount
£m

Book value
£m

Fair value
£m

Notional
amount
£m

Book value
£m

Fair value
£m

2003

2002

41
68
570
23

41
68
570
23

(1,198)
(1,812)
(13)
(51)

(1,197)
(1,903)
(13)
(51)

(2,372)

(2,462)

1,405
618
50
253
52

2,378

2,378

(7)
(4)
–
–
–

(11)

(54)
(33)
–
–
5

(82)

(2,383)

(2,544)

59
169
401
20

(1,367)
(1,935)
(18)
(71)

(2,742)

(9)
(4)
–
–
–

59
169
400
20

(1,374)
(2,043)
(18)
(71)

(2,858)

(73)
(65)
–
(1)
8

729
686
150
968
246

2,779

2,779

(13)

(131)

(2,755)

(2,989)

64 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

22

Financial instruments (continued)

Primary financial instruments held or issued

to finance operations

Investments
Cash
Short term investments 
Other financial assets
Short term borrowings and current portion of

long term borrowings

Long term borrowings
Other financial liabilities 
Provisions

Derivative financial instruments held to manage 

interest rate and currency exposure

Interest rate swaps
Interest rate options
Interest rate floors
Forward rate agreements
Forward foreign exchange contracts

Total financial instruments

Notional
amount
€m

Book value
€m

Fair value
€m

Notional
amount
€m

Book value
€m

Fair value
€m

2003

2002

58
97
809
33

58
97
809
33

(1,701)
(2,573)
(19)
(72)

(1,700)
(2,702)
(19)
(72)

(3,368)

(3,496)

1,995
878
71
359
74

3,377

3,377

(10)
(6)
–
–
–

(16)

(77)
(46)
–
–
7

(116)

(3,384)

(3,612)

1,115
1,050
230
1,481
376

4,252

4,252

90
259
613
31

(2,091)
(2,961)
(27)
(109)

(4,195)

(14)
(6)
–
–
–

(20)

90
259
612
31

(2,102)
(3,127)
(27)
(109)

(4,373)

(112)
(99)
–
(2)
13

(200)

(4,215)

(4,573)

The amounts shown as the book value of derivative financial instruments represent accruals or deferred income arising from
these financial instruments. The fair value of long term debt has been based on current market rates offered to Reed Elsevier
for debt of the same remaining maturities. The fair values for interest rate swaps, interest rate options and forward rate
agreements represent the replacement cost calculated using market rates of interest at 31 December 2003 and 2002. The fair
values of all other items have been calculated by discounting expected future cash flows at market rates.

Hedges
The unrecognised and deferred gains and losses on financial instruments used for hedging purposes as at 31 December 2003,
and before taking into account gains and losses arising in the year and included in the profit and loss account, are derived as
follows:

On hedges at 1 January 2003
Arising in previous years included in 2003 profit and loss account

Arising in previous years not included in 2003 profit and loss account
Arising in 2003 not included in 2003 profit and loss account

On hedges at 31 December 2003

Of which:
Expected to be included in 2004 profit and loss account
Expected to be included in 2005 profit and loss account or later

Unrecognised

Deferred

Gains
£m

8
(8)

–
7

7

4
3

Losses
£m

(126)
49

(77)
(1)

(78)

(35)
(43)

Gains
£m

58
(30)

28
41

69

44
25

Losses
£m

(15)
8

(7)
(18)

(25)

(14)
(11)

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

65

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

22

Financial instruments (continued)

On hedges at 1 January 2003
Arising in previous years included in 2003 profit and loss account

Arising in previous years not included in 2003 profit and loss account
Arising in 2003 not included in 2003 profit and loss account

On hedges at 31 December 2003

Of which:
Expected to be included in 2004 profit and loss account
Expected to be included in 2005 profit and loss account or later

Unrecognised

Deferred

Gains
€m

12
(12)

–
10

10

6
4

Losses
€m

(193)
84

(109)
(2)

(111)

(50)
(61)

Gains
€m

89
(49)

40
58

98

62
36

Losses
€m

(23)
13

(10)
(26)

(36)

(20)
(16)

23

Obligations under leases
Future finance lease obligations are:

Repayable:

Within one year
Within one to two years
Within two to five years
After five years

Less: interest charges allocated to future periods

Total

Obligations falling due within one year
Obligations falling due after more than one year

20
21

Total

Annual commitments under operating leases are:

On leases expiring:
Within one year
Within two to five years
After five years

Total

Note

2003
£m

2002
£m

2003
€m

2002
€m

17
4
4
–
(2)

23

16
7

23

2003
£m

9
38
59

106

9
6
3
7
(3)

22

8
14

22

2002
£m

7
37
59

103

24
6
6
–
(3)

33

23
10

33

2003
€m

13
54
84

151

14
9
5
11
(5)

34

12
22

34

2002
€m

11
57
90

158

Of the above annual commitments, £100m/€142m relates to land and buildings (2002: £99m/€152m) and £6m/€9m to other
leases (2002: £4m/€6m).

66 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

24

Provisions for liabilities and charges

At 1 January 2003
Transfers
Provided
Utilised
Exchange translation differences

At 31 December 2003

At 1 January 2003
Transfers
Provided
Utilised
Exchange translation differences

At 31 December 2003

Deferred
taxation
liabilities
£m

Property
lease
obligations
£m

92
(16)
27
(4)
(6)

93

95
–
–
(11)
(9)

75

Deferred
taxation
liabilities
€m

Property
lease
obligations
€m

141
(23)
39
(6)
(19)

132

145
–
–
(16)
(22)

107

The provision for property lease obligations relates to estimated sub-lease shortfalls and guarantees given by Harcourt
General, Inc in favour of a former subsidiary for certain property leases for various periods up to 2016.

Deferred taxation comprises:

Deferred taxation liabilities

Excess of tax allowances over related amortisation
Pension prepayment
Short term timing differences

Deferred taxation assets

Excess of amortisation over related tax allowances
Short term timing differences
Tax losses carried forward

Net deferred tax asset

Net deferred tax asset at 1 January
Transfers
Deferred tax charge in profit and loss account
Exchange translation differences

Net deferred tax asset at 31 December

Note

2003
£m

2002
£m

45
32
16

93

(9)
(69)
(18)

(96)

(3)

(69)
3
60
3

(3)

46
35
11

92

(8)
(151)
(2)

(161)

(69)

(126)
(12)
58
11

(69)

18

8

2003
€m

64
45
23

132

(13)
(98)
(25)

(136)

(4)

(105)
4
87
10

(4)

Total
£m

187
(16)
27
(15)
(15)

168

Total
€m

286
(23)
39
(22)
(41)

239

2002
€m

70
54
17

141

(12)
(231)
(3)

(246)

(105)

(206)
(19)
92
28

(105)

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

67

COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS

25

Contingent liabilities
There are contingent liabilities amounting to £77m/€109m (2002: £118m/€181m) in respect of property lease guarantees, in
excess of provided amounts of £26m/€37m (2002: £32m/€49m), given by Harcourt General, Inc in favour of a former
subsidiary (see note 24).

26

Combined shareholders’ funds

At 1 January 2003 as originally reported
Prior year adjustment

At 1 January 2003 as restated
Profit attributable to parent companies’ shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Exchange translation differences 

At 31 December 2003

At 1 January 2003 as originally reported
Prior year adjustment

At 1 January 2003 as restated
Profit attributable to parent companies’ shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Exchange translation differences 

At 31 December 2003

Note

27

Note

27

Combined
share
capitals
£m

Combined
share
premium
accounts
£m

Combined
shares
held in
treasury
£m

Combined
reserves
£m

187
–

187
–
–
1
–
2

190

1,708
–

1,708
–
–
13
–
63

1,784

–
(19)

(19)
–
–
–
(18)
–

(37)

Combined
share
capitals
€m

Combined
share
premium
accounts
€m

Combined
shares
held in
treasury
€m

286
–

286
–
–
1
–
(17)

270

2,613
–

2,613
–
–
19
–
(99)

2,533

–
(29)

(29)
–
–
–
(26)
2

(53)

764
–

764
334
(304)
–
–
(297)

497

Combined
reserves
€m

1,169
–

1,169
484
(441)
–
–
(506)

706

Total
£m

2,659
(19)

2,640
334
(304)
14
(18)
(232)

2,434

Total
€m

4,068
(29)

4,039
484
(441)
20
(26)
(620)

3,456

Combined share capital excludes the shares of Reed Elsevier NV held by Reed Elsevier PLC.
Combined reserves include a £4m/€6m (2002: £4m/€6m) capital redemption reserve following the redemption of non equity
shares in Reed Elsevier PLC in 1999.

At 31 December 2003, shares held in treasury related to the 6,383,333 (2002: 2,840,047) Reed Elsevier PLC ordinary shares and
1,327,777 (2002: 1,554,381) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust
(“EBT”). The aggregate market value of these shares at 31 December 2003 was £39m/€55m (2002: £27m/€41m). The EBT
purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the
exercise of share options.

27

Prior year adjustment
In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK
Accounting Standards Board, shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee
Benefit Trust are now presented as shares held in treasury and deducted within combined shareholders’ funds. Previously, such
shares were included within other fixed asset investments. Within the combined cash flow statement, the purchase of such shares
is now presented as a financing transaction and not as a purchase of fixed asset investments. The combined balance sheet as at
31 December 2002 and the combined cash flow statement for the year ended 31 December 2002 have been restated accordingly.

68 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

COMBINED FINANCIAL STATEMENTS> NOTES TO THE COMBINED FINANCIAL STATEMENTS

28

Exchange rates
The following exchange rates have been applied in preparing the combined financial statements:

Euro to sterling
US dollars to sterling
Euro to US dollars 
US dollars to euro

Profit and loss
2003

2002

Balance sheet
2003

2002

1.45
1.63
0.89
1.12

1.59
1.50
1.06
0.94

1.42
1.78
0.80
1.25

1.53
1.60
0.96
1.05

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

69

businesses’ corporate governance procedures or their risk
and control procedures.

Basis of audit opinion
We conducted our audit in accordance with auditing
standards generally accepted in the United Kingdom and
the Netherlands. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures
in the financial statements and the parts of the
Remuneration Report described as having been audited. It
also includes an assessment of the significant estimates
and judgements made by the directors in the preparation
of the financial statements, and of whether the accounting
policies are appropriate to the circumstances, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all

the information and explanations which we considered
necessary in order to provide us with sufficient evidence to
give reasonable assurance that the combined financial
statements and the parts of the Remuneration Report
described as having been audited are free from material
misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of
information in the combined financial statements and the
parts of the Remuneration Report described as having
been audited.

Opinion
In our opinion: 
• the combined financial statements give a true and fair
view of the state of affairs of the combined businesses
as at 31 December 2003, and of their profits for the year
then ended; and

• the parts of the Remuneration Report described as
having been audited have been properly prepared in
accordance with the United Kingdom Companies Act
1985.

Deloitte & Touche LLP
Chartered Accountants and
Registered Auditors
London
18 February 2004

Deloitte Accountants
Amsterdam
18 February 2004

COMBINED FINANCIAL STATEMENTS

Independent auditors’ report to the
members of Reed Elsevier PLC and
shareholders of Reed Elsevier NV
We have audited the combined financial statements of
Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group
plc, Elsevier Reed Finance BV and their respective
subsidiaries, associates and joint ventures (together “the
combined businesses’’) for the year ended 31 December
2003 which comprise the accounting policies, the profit
and loss account, the cash flow statement, the balance
sheet, the statement of total recognised gains and losses,
the shareholders’ funds reconciliation and the related
notes 1 to 28. These financial statements have been
prepared under the accounting policies set out therein.

We have also audited the information in the parts of the

directors’ remuneration report presented in the Annual
Reports and Financial Statements (“the Remuneration
Report”) that are described as having been audited.

Our audit work has been undertaken so that we might

state to the members of Reed Elsevier PLC and
shareholders of Reed Elsevier NV those matters we are
required to state to them in an auditors’ report and for no
other purpose. To the fullest extent permitted by applicable
law, we do not accept or assume responsibility to anyone
other than Reed Elsevier PLC and Reed Elsevier NV and
the members of Reed Elsevier PLC and shareholders of
Reed Elsevier NV as a body, for our audit work, for this
report, or for the opinions we have formed.

Respective responsibilities of directors and auditors
As described in the statement of directors’ responsibilities,
the directors of Reed Elsevier PLC and Reed Elsevier NV
are responsible for the preparation of the financial
statements in accordance with applicable United Kingdom
accounting standards. They are also responsible for the
preparation of the other information contained in the
Annual Report and Financial Statements including the
Remuneration Report. Our responsibilities, as independent
auditors of the combined financial statements and the
parts of the Remuneration Report described as having
been audited, are set out in auditing standards generally
accepted in the United Kingdom and the Netherlands and
by our respective professions’ ethical guidance.

We report to you our opinion as to whether the combined
financial statements give a true and fair view. We read the
other information contained in the Annual Reports and
Financial Statements, as described in the contents section,
and consider the implications for our report if we become
aware of any apparent misstatements or material
inconsistencies with the combined financial statements.
We are not required to consider whether the boards’
statements on internal control cover all risks and controls,
or form an opinion on the effectiveness of the combined

70 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Reed Elsevier PLC
REED ELSEVIER PLC ANNUAL REPORT
AND FINANCIAL STATEMENTS

72 Financial highlights
73 Directors’ report
76 Accounting policies
77 Financial statements
81 Notes to the financial statements
88 Independent auditors’ report

Company number: 77536

REED ELSEVIER PLC

Financial highlights
For the years ended 31 December

PROFIT AND LOSS ACCOUNT
Reported profit before tax
Reported profit/(loss) attributable to shareholders
Adjusted profit before tax
Adjusted profit attributable to shareholders

PER SHARE INFORMATION
Earnings/(loss) per ordinary share
Adjusted earnings per ordinary share
Net dividend per ordinary share
Dividend cover

Ordinary share prices  – high
– low

Market capitalisation (£m)

1999
£m

57
(33)
376
279

(2.9)p
24.4p
10.0p
2.4

630p
344p

5,310

2000
£m

102
17
365
270

1.5p
23.3p
10.0p
2.1

700p
391p

8,837

2001
£m

146
67
449
330

5.3p
26.1p
10.5p
2.5

700p
493p

7,196

2002
£m

153
96
490
361

7.6p
28.5p
11.2p
2.5

696p
488p

6,733

2003
£m

275
177
534
394

14.0p
31.2p
12.0p
2.6

552p
392p

5,909

(i) All amounts presented are based on the 52.9% share of Reed Elsevier combined profits attributable to the Reed Elsevier
PLC shareholders (see note 9 to the financial statements). The statutory profit for Reed Elsevier PLC includes the impact
of sharing the UK tax credit with Reed Elsevier NV as a reduction in reported profits. On this basis, the consolidated profit
before tax, attributable profit and basic earnings per share for the year ended 31 December 2003 are £267m, £169m and 
13.4p respectively.

(ii) Adjusted figures are shown before amortisation of goodwill and intangible assets, exceptional items and related tax

effects, and equalisation adjustments. The Reed Elsevier businesses focus on adjusted profit and cash flow as additional
performance measures. These are reconciled to the reported figures in note 9 to the financial statements.

(iii) Dividend cover is calculated as the number of times adjusted profit attributable to shareholders, after taking account of

the sharing of the UK tax credit with Reed Elsevier NV, covers the annual dividend.

(iv) Share prices quoted are the closing mid-price. Market capitalisation is the number of shares outstanding at the year end,

excluding Reed Elsevier PLC shares held in treasury, multiplied by the closing mid-price at the year end date.

72 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER PLC
REED ELSEVIER PLC

Directors’ report
The directors present their report, together with the
financial statements of the company, for the year ended
31 December 2003.

As a consequence of the merger of the company’s
businesses with those of Reed Elsevier NV in 1993,
described on page 22, the shareholders of Reed Elsevier
PLC and Reed Elsevier NV can be regarded as having the
interests of a single economic group. The Reed Elsevier
combined financial statements represent the combined
interests of both sets of shareholders and encompass the
businesses of Reed Elsevier Group plc, Elsevier Reed
Finance BV and their respective subsidiaries, associates
and joint ventures, together with the parent companies,
Reed Elsevier PLC and Reed Elsevier NV (“the combined
businesses” or “Reed Elsevier”). This directors’ report and
the financial statements of the company should be read in
conjunction with the combined financial statements and
other reports set out on pages 3 to 69, as well as the
Report of the Chairman and the Chief Executive Officer in
the Annual Review and Summary Financial Statements.

Principal activities
The company is a holding company and its principal
investments are its direct 50% shareholding in Reed
Elsevier Group plc and its 39% shareholding in Elsevier
Reed Finance BV, which are engaged in publishing and
information activities and financing activities, respectively.
The remaining shareholdings in these two companies are
held by Reed Elsevier NV. Reed Elsevier PLC also has an
indirect equity interest in Reed Elsevier NV. Reed Elsevier
PLC and Reed Elsevier NV have retained their separate
legal identities and are publicly held companies. Reed
Elsevier PLC’s securities are listed in London and New
York and Reed Elsevier NV’s securities are listed in
Amsterdam and New York.

Financial statement presentation
The consolidated financial statements of Reed Elsevier
PLC include the 52.9% economic interest that
shareholders have under the equalisation arrangements in
the Reed Elsevier combined businesses, accounted for on
a gross equity basis.

Under the terms of the merger agreement, dividends paid
to Reed Elsevier PLC and Reed Elsevier NV shareholders
are equalised at the gross level inclusive of the UK tax
credit received by certain Reed Elsevier PLC shareholders.
Because of the tax credit, Reed Elsevier PLC normally
requires less cash to fund its net dividend than Reed
Elsevier NV does to fund its gross dividend. An adjustment
is, therefore, required in the statutory profit and loss
account of Reed Elsevier PLC to share this tax benefit
between the two sets of shareholders in accordance with

the equalisation agreement. The equalisation adjustment
arises on dividends paid by Reed Elsevier PLC to its
shareholders and it reduces the statutory attributable
earnings of the company by 47.1% of the total amount of
the tax credit, which in 2003 was £8m (2002: £7m).

In addition to the reported figures, adjusted profit figures
are presented as additional performance measures. These
exclude the tax credit equalisation adjustment, the
amortisation of goodwill and intangible assets and
exceptional items and provide a basis for performance
comparison that is not dependent on the choice of method
of adoption of FRS10 in accounting for goodwill and
intangible assets.

Profit and loss account
The company’s share of the operating profits of Reed
Elsevier was £343m, up from £262m in 2002. The science
& medical business performed well with strong publishing
and new electronic products driving above market revenue
growth. The legal business also continued to outperform
its markets with consistent improvements in product
performance and expansion of its online services. The
education business had a mixed performance in weak
markets, affected by the low level of textbook adoption
opportunities compounded by state budget pressures. The
business division continued to show impressive resilience
in depressed markets. Underlying operating margins in all
four divisions improved despite the high levels of
investment, due to cost efficiency. Strong cash flows
reinforced the quality of the financial result.

The company’s share of the charge for amortisation of
goodwill and intangible assets was £235m, down £44m
from 2002, reflecting translation effects and some past
acquisitions becoming fully amortised. The company’s
share of the operating exceptional items was £38m (2002:
£52m), principally comprising its share of integration and
rationalisation costs relating to Harcourt and other
acquisitions and other restructuring costs.

The profit for the year also includes a £14m share of the
gain (2002: loss £6m) on disposals of businesses and fixed
asset investments. The reported attributable profit for
Reed Elsevier PLC was £169m (2002: £89m). The adjusted
profit attributable to shareholders – before the
amortisation of goodwill and intangible assets and
exceptional items – was £394m (2002: £361m).

Adjusted earnings per share increased 9% to 31.2p (2002:
28.5p). Including the effect of the tax credit equalisation as
well as the amortisation of goodwill and intangible assets
and exceptional items and related tax effects, the basic
earnings per share was 13.4p (2002: 7.0p).

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

73

REED ELSEVIER PLC
REED ELSEVIER PLC

Directors’ report (continued)
Balance sheet
The balance sheet of Reed Elsevier PLC reflects the
shareholders 52.9% economic interest in the net assets of
Reed Elsevier, which at 31 December 2003 amounted to
£1,288m (2002: £1,397m). The £109m decrease in net
assets principally reflects the company’s share in the
attributable profits of Reed Elsevier, less dividends paid
and proposed and exchange translation effects.

Dividends
The board is recommending a final dividend of 8.7p per
ordinary share to be paid on 21 May 2004 to shareholders
on the Register on 30 April 2004 which, when added to the
interim dividend already paid on 5 September 2003
amounting to 3.3p per ordinary share, makes the total
dividend for the year 12.0p (2002: 11.2p).

The total dividend on the ordinary shares for the financial
year will amount to £152m (2002: £143m), leaving a
retained profit of £17m (2002: loss £54m).

Directors
The following served as directors during the year:

M Tabaksblat (Chairman)
CHL Davis (Chief Executive Officer)
MH Armour (Chief Financial Officer)
GJA van de Aast
JF Brock
MW Elliott (appointed 8 April 2003)
CJA van Lede (appointed 8 April 2003)
DJ Haank (resigned 18 June 2003)
RJ Nelissen (resigned 8 April 2003)
S Perrick (resigned 8 April 2003)
A Prozes
DE Reid (appointed 8 April 2003)
Lord Sharman of Redlynch OBE
RWH Stomberg (senior independent non-executive
director)
P Tierney (appointed 8 April 2003)

Biographical details of the directors at the date of this
Report are given on pages 10 and 11 of the Annual Review
and Summary Financial Statements.

Messrs Tabaksblat, van de Aast and Stomberg and Lord
Sharman will retire by rotation at the forthcoming Annual
General Meeting. Being eligible, they will each offer
themselves for re-election.

The notice period applicable to the service contracts of Mr
van de Aast is set out in the Directors’ Remuneration
Report on page 31, Messrs Tabaksblat and Stomberg and
Lord Sharman do not have service contracts.

74 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Details of directors’ remuneration and their interests in the
share capital of the company are provided in the Directors’
Remuneration Report on pages 29 to 38.

Share capital
During the period 2,737,010 ordinary shares in the
company were issued in connection with the following
share option schemes:

932,994 under a UK SAYE share option scheme at prices
between 336.20p and 543.20p per share.

1,804,016 under executive share option schemes at prices
between 321.75p and 537.50p per share.

At 17 February 2004, the company had received notification
of the following substantial interests in the company’s
issued ordinary share capital:

The Capital Group Companies, Inc 77,918,935 shares 6.13%

Legal & General Group plc 44,174,343 shares 3.47%

Oechsle International Advisors, LLC 42,907,149 shares
3.37%

At the 2003 Annual General Meeting a resolution was
passed to extend the authority given to the company to
purchase up to 10% of its ordinary shares by market
purchase. At 31 December 2003, this authority remained
unutilised. A resolution to further extend the authority is to
be put to the 2004 Annual General Meeting.

Charitable and political donations
Reed Elsevier companies made donations during the year
for charitable purposes amounting to £1.3m of which
£0.3m was in the United Kingdom. In the United States,
Reed Elsevier companies contributed £49,000 to political
parties. There were no donations made in the European
Union for political purposes.

Statement of directors’ responsibilities
The directors are required by English company law to
prepare financial statements for each financial period,
which give a true and fair view of the state of affairs of the
company and the group, and of the profit or loss for that
period. In preparing those financial statements, the
directors ensure that suitable accounting policies,
consistently applied and supported by reasonable and
prudent judgements and estimates, have been used, and
accounting standards have been followed.

The directors are responsible for keeping proper
accounting records, which disclose with reasonable
accuracy at any time the financial position of the company
and enable them to ensure that the financial statements
comply with the law.

REED ELSEVIER PLC

Directors’ report (continued)
The directors have general responsibility for taking
reasonable steps to safeguard the assets of the group and
to prevent and detect fraud and other irregularities.

Corporate governance
The company has complied throughout the period under
review with the provisions of Section 1 of the Combined
Code – the Principles of Good Governance and Code of
Best Practice, issued by the UK Financial Services
Authority (“the Combined Code”).

Details of how the provisions of the Combined Code have
been applied and the directors’ statement on internal
control are set out in the Structure and Corporate
Governance report on pages 22 to 26.

Details of the role and responsibilities, membership and
activities of the Reed Elsevier PLC Audit Committee are set
out in the Report of the Audit Committees on pages on 27
and 28.

Going concern
After making enquiries, the directors have a reasonable
expectation that the group has adequate resources to
continue in operational existence for the foreseeable future
and that, therefore, it is appropriate to adopt the going
concern basis in preparing the financial statements.

Payments to suppliers
Reed Elsevier companies agree terms and conditions for
business transactions with suppliers and payment is made
on these terms. The average time taken to pay suppliers
was between 30 and 45 days.

Auditors
On 1 August 2003, Deloitte & Touche, the company’s
auditors, transferred their business to Deloitte & Touche
LLP, a limited liability partnership incorporated under the
Limited Liability Partnership Act 2000. The company’s
consent has been given to treating the appointment of
Deloitte & Touche as extending to Deloitte & Touche LLP
with effect from 1 August 2003 under the provisions of
Section 26(5) of the Companies Act 1989. 

Resolutions for the reappointment of Deloitte & Touche
LLP as auditors of the company and authorising the
directors to fix their remuneration will be submitted to the
forthcoming Annual General Meeting.

By order of 
the board
Stephen J Cowden
Secretary

18 February 2004

Registered
Office
1-3 Strand
London
WC2N 5JR

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

75

In the parent company accounts, investments are stated at
cost, less provision, if appropriate, for any impairment in
value.

Foreign exchange translation
Profit and loss and cash flow items are translated at
average exchange rates. In the consolidated balance sheet,
assets and liabilities are translated at rates ruling at the
balance sheet date or contracted rates where applicable.
The gains or losses relating to the retranslation of Reed
Elsevier PLC’s 52.9% economic interest in the net assets of
the combined businesses are taken directly to reserves.

Taxation
Deferred taxation is provided in full for timing differences
using the liability method. No provision is made for tax
which might become payable on the distribution of
retained profits by foreign subsidiaries or joint ventures
unless there is an intention to distribute such retained
earnings giving rise to a charge.

Deferred tax assets are only recognised to the extent that
they are considered recoverable in the short term.
Deferred taxation balances are not discounted.

Prior year adjustment
Following the issuance of UITF38: Accounting for ESOP
Trusts in December 2003, shares held in the parent
companies by the Reed Elsevier Group plc Employee
Benefit Trust, previously included within share of gross
assets of joint ventures, are now presented as shares held
in treasury and deducted within consolidated shareholders’
funds. Prior year comparatives have been restated
accordingly.

REED ELSEVIER PLC

Accounting policies
These financial statements have been prepared under the
historical cost convention in accordance with applicable
accounting standards.

Basis of preparation
These statutory financial statements report the profit and
loss account, cash flow and financial position of Reed
Elsevier PLC, and have been prepared in accordance with
UK generally accepted accounting principles. Unless
otherwise indicated, all amounts shown in the financial
statements are in millions of pounds.

The basis of the merger of the businesses of Reed Elsevier
PLC and Reed Elsevier NV is set out on page 22.

As permitted by section 230 of the Companies Act 1985,
the Company has not presented its own profit and loss
account.

Determination of profit
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 results arising in Reed Elsevier PLC
and its subsidiary undertakings. Dividends paid to Reed
Elsevier PLC and Reed Elsevier NV shareholders are
equalised at the gross level inclusive of the UK tax credit
received by certain Reed Elsevier PLC shareholders. In the
financial statements, an adjustment is required to equalise
the benefit of the tax credit between the two sets of
shareholders in accordance with the equalisation
agreement. This equalisation adjustment arises on
dividends paid by Reed Elsevier PLC to its shareholders
and reduces the attributable earnings of the company by
47.1% of the total amount of the tax credit.

The accounting policies adopted in the preparation of the
combined financial statements are set out on pages 40
and 41.

Basis of valuation of assets and liabilities
Reed Elsevier PLC’s 52.9% economic interest in the net
assets of the combined businesses has been shown on the
balance sheet as interests in joint ventures, net of the
assets and liabilities reported as part of Reed Elsevier PLC
and its subsidiaries. Joint ventures are accounted for using
the gross equity method.

76 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER PLC

Consolidated profit and loss account
For the year ended 31 December 2003

Turnover
Including share of turnover of joint ventures
Less: share of turnover of joint ventures

Administrative expenses

Operating loss (before joint ventures)

Share of operating profit of joint ventures

Before amortisation and exceptional items
Amortisation of goodwill and intangible assets
Exceptional items

Operating profit including joint ventures

Share of non operating exceptional items of joint ventures

Net interest income/(expense)

Group
Share of net interest of joint ventures

Profit on ordinary activities before taxation
Tax on profit on ordinary activities

UK corporation tax
Share of tax of joint ventures

Profit attributable to ordinary shareholders
Equity dividends paid and proposed

Retained profit/(loss) taken to reserves

Adjusted figures

Adjusted profit before tax
Adjusted profit attributable to ordinary shareholders

Note

2003
£m

2002
£m

2,605
(2,605)

2,656
(2,656)

–
(1)

(1)

616
(235)
(38)

343

342

14

14

3
(92)

(89)

267
(98)
(1)
(97)

169
(152)

17

2003
£m

534
394

–
(1)

(1)

593
(279)
(52)

262

261

(6)

(6)

3
(112)

(109)

146
(57)
(1)
(56)

89
(143)

(54)

2002
£m

490
361

3

1

6

7

8

Note

9
9

Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects,
are presented as additional performance measures, and are reconciled to the reported figures in note 9 to the financial
statements.

Earnings per ordinary share (“EPS”)

Basic EPS
Diluted EPS
EPS based on 52.9% economic interest in the Reed Elsevier combined businesses
Adjusted EPS

The above amounts derive from continuing activities.

Note

10
10
10
10

2003
pence

13.4
13.4
14.0
31.2

2002
pence

7.0
7.0
7.6
28.5

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

77

REED ELSEVIER PLC

Consolidated cash flow statement
For the year ended 31 December 2003

Net cash outflow from operating activities

Dividends received from Reed Elsevier Group plc
Returns on investments and servicing of finance – interest received
Taxation
Equity dividends paid

Cash (outflow)/inflow before changes in short term investments and financing

Financing

Issue of ordinary shares
Increase in net funding balances to Reed Elsevier Group plc group

Change in net cash

Note

11

11

2003
£m

(1)

144
3
(3)
(144)

(1)

1

12
(11)

–

2002
£m

–

135
3
(1)
(135)

2

(2)

16
(18)

–

78 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER PLC

Balance sheets
As at 31 December 2003

Fixed assets
Investment in joint ventures:
Share of gross assets
Share of gross liabilities
Share of net assets

Investments

Current assets
Debtors

Creditors: amounts falling due within one year

Net current assets

Total assets less current liabilities
Creditors: amounts falling due after more than one year

Net assets

Capital and reserves
Called up share capital
Share premium account
Shares held in treasury
Capital redemption reserve
Profit and loss reserve

Shareholders’ funds

Note

12

13

14

15

16

17
19
19
19
19

Consolidated
2003
£m

2002
£m

Company

2003
£m

2002
£m

4,370
(3,511)
859
–

859

584

584
(119)

465

1,324
(36)

1,288

159
963
(20)
4
182

4,656
(3,683)
973
–

973

573

573
(113)

460

1,433
(36)

1,397

159
951
(10)
4
293

–
–
–
1,411

1,411

584

584
(196)

388

1,799
(36)

1,763

159
963
–
4
637

–
–
–
1,411

1,411

573

573
(190)

383

1,794
(36)

1,758

159
951
–
4
644

1,288

1,397

1,763

1,758

The financial statements were approved by the board of directors, 18 February 2004.

M Tabaksblat
Chairman

MH Armour
Chief Financial Officer

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

79

REED ELSEVIER PLC

Consolidated statement of total recognised gains and losses
For the year ended 31 December 2003

Profit attributable to ordinary shareholders
Exchange translation differences 

Total recognised gains and losses for the year

Recognised gains and losses include gains of £53m (2002: losses of £3m) in respect of joint ventures.

2003
£m

169
(123)

46

2002
£m

89
(98)

(9)

Company

2003
£m

145
(152)
12
–
–
–

5
1,758
1,758

2002
£m

136
(143)
16
–
–
–

9
1,749
1,749

Note

Consolidated
2003
£m

2002
£m

169
(152)
12
(10)
(123)
(5)

(109)
1,397
1,407

89
(143)
16
(1)
(98)
–

(137)
1,534
1,543

21

(10)

(9)

–

–

1,288

1,397

1,763

1,758

Reconciliation of shareholders’ funds
For the year ended 31 December 2003

Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Exchange translation differences 
Equalisation adjustments

Net (decrease)/increase in shareholders’ funds
Shareholders’ funds at 1 January

As originally reported
Prior year adjustment in relation to presentation of shares held
in treasury

Shareholders’ funds at 31 December

80 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

1

Income from interests in joint ventures

Share of operating profit before amortisation and exceptional items

(based on 52.9% economic interest in the Reed Elsevier combined businesses)

Effect of tax credit equalisation on distributed earnings
Items consolidated within Reed Elsevier PLC group

Total

Note

2

2003
£m

623
(8)
1

616

2002
£m

599
(7)
1

593

2

3

4

5

Segmental analysis of the Reed Elsevier combined results is shown in the Reed Elsevier combined financial statements.

Effect of tax credit equalisation on distributed earnings
The tax credit equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the
earnings of the company by 47.1% of the total amount of the tax credit, as set out in the accounting policies on page 76.

Operating loss
The operating loss comprises administrative expenses and includes £330,000 (2002: £318,000) paid in the year to Reed
Elsevier Group plc under a contract for the services of directors and administrative support. The company has no employees
(2002: nil).

Auditors’ remuneration
Audit fees payable for the group were £23,000 (2002: £23,000).

Directors’ emoluments
Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is
set out in the Directors’ Remuneration Report on pages 29 to 38.

6

Net interest

Interest receivable and similar income

On loans to Reed Elsevier Group plc group

Net interest income

2003
£m

2002
£m

3

3

3

3

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

81

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

7

Tax on profit on ordinary activities

UK corporation tax 
Share of tax arising in joint ventures:

Before amortisation and exceptional items
On amortisation and exceptional items

Total

UK corporation tax has been provided at 30% (2002: 30%).

2003
£m

1

139
(42)

98

2002
£m

1

128
(72)

57

The share of tax arising in joint ventures as a proportion of the share of profit before tax is increased due to non tax-deductible
amortisation and reduced due to exceptional tax credits.

8

Dividends 

Ordinary shares of 12.5 pence each

Interim
Final (2003 proposed)

Total

2003
pence

3.3
8.7

12.0

2002
pence

3.2
8.0

11.2

2003
£m

42
110

152

9

Adjusted figures
Adjusted profit and cash flow figures are used as additional performance measures. The adjusted figures are derived as
follows:

Profit before tax
Effect of tax credit equalisation on distributed earnings

Profit before tax based on 52.9% economic interest in the Reed Elsevier combined businesses
Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted profit before tax

Profit attributable to ordinary shareholders
Effect of tax credit equalisation on distributed earnings

Profit attributable to ordinary shareholders based on 52.9% economic interest in the 

Reed Elsevier combined businesses

Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted profit attributable to ordinary shareholders

Basic earnings per ordinary share
Effect of tax credit equalisation on distributed earnings

Earnings per share based on 52.9% economic interest in the Reed Elsevier combined businesses
Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted earnings per ordinary share

82 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

2003
£m

267
8

275

235
24

534

169
8

177

237
(20)

394

2003
pence

13.4
0.6

14.0

18.8
(1.6)

31.2

2002
£m

41
102

143

2002
£m

146
7

153

279
58

490

89
7

96

271
(6)

361

2002
pence

7.0
0.6

7.6

21.4
(0.5)

28.5

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

10

Earnings per ordinary share (EPS)

Basic EPS
Diluted EPS
EPS based on 52.9% economic interest in the Reed Elsevier combined businesses
Adjusted EPS

Basic EPS
Diluted EPS
EPS based on 52.9% economic interest in the Reed Elsevier combined businesses
Adjusted EPS

Note

Earnings
£m

169
169
177
394

Earnings
£m

89
89
96
361

9

9

The diluted EPS figures are calculated after taking into account the effect of share options.

11

Cash flow statement
Reconciliation of operating loss to net cash outflow from operating activities

Operating loss
Net movement in debtors and creditors

Net cash outflow from operating activities

Reconciliation of net funding balances to Reed Elsevier Group plc group

At 1 January 2003
Cash flow

At 31 December 2003

2003
Weighted
average
number
of shares
(millions)

1,263.7
1,265.4
1,263.7
1,263.7

2002
Weighted
average
number
of shares
(millions)

1,264.7
1,270.8
1,264.7
1,264.7

2003
£m

(1)
–

(1)

EPS
pence

13.4
13.4
14.0
31.2

EPS
pence

7.0
7.0
7.6
28.5

2002
£m

(1)
1

–

£m

537
11

548

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

83

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

12

Fixed asset investments – consolidated investment in joint ventures

Share of operating profit 
Share of non operating exceptional items
Share of net interest payable 

Share of profit before tax
Share of taxation 

Share of profit after tax
Dividends received 
Increase in shares held in treasury
Exchange translation differences
Equalisation adjustments

Net movement in the year
At 1 January

As originally reported
Prior year adjustment (note 21)

At 31 December

The investment in joint ventures comprises the group’s share at the following amounts of:

Fixed assets
Current assets
Creditors: amounts falling due within one year
Creditors: amounts falling due after more than one year
Provisions
Minority interests

Total

2003
£m

343
14
(92)

265
(97)

168
(144)
(10)
(123)
(5)

(114)
973
983
(10)

859

2003
£m

3,034
1,336
(2,303)
(1,114)
(89)
(5)

859

2002
£m

262
(6)
(112)

144
(56)

88
(135)
(1)
(98)
–

(146)
1,119
1,128
(9)

973

2002
£m

3,396
1,260
(2,380)
(1,201)
(99)
(3)

973

Included within share of current assets and creditors are cash and short term investments of £338m (2002: £302m) and
borrowings of £1,592m (2002: £1,747m) respectively.

13

Fixed asset investments – company

At 1 January and 31 December 2003

14

Debtors

Amounts owed by Reed Elsevier Group plc group

Subsidiary
undertakings
£m

303

Joint
ventures
£m

1,108

Total
£m

1,411

Consolidated
2003
£m

584

2002
£m

573

Company

2003
£m

584

2002
£m

573

Amounts falling due after more than one year are £40m (2002: £40m). These amounts are denominated in sterling and earn
interest at a fixed rate of 9.8% (2002: 9.8%) for a remaining duration of four years (2002: five years). At 31 December 2003
these amounts had a fair value of £47m (2002: £49m).

15

Creditors: amounts falling due within one year

Other creditors
Proposed dividend
Taxation
Amounts owed to group undertakings

Total

84 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Consolidated
2003
£m

1
110
8
–

119

2002
£m

1
102
10
–

113

Company

2003
£m

1
110
8
77

196

2002
£m

1
102
10
77

190

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

16

Creditors: amounts falling due after more than one year

Amounts owed to Reed Elsevier Group plc group

Consolidated
2003
£m

36

2002
£m

36

Company

2003
£m

36

2002
£m

36

These amounts are denominated in sterling and earn interest at a fixed rate of 10.5% (2002: 10.5%) for a remaining duration of
two years (2002: three years). At 31 December 2003 these amounts had a fair value of £40m (2002: £42m).

17

Called up share capital

Authorised

Issued and fully paid

No. of
shares

£m

2003

No. of
shares

Ordinary shares of 12.5p each 
Unclassified shares of 12.5p each

1,271,111,509
200,341,667

159 1,271,111,509
–

25

Total

184

Details of shares issued under share option schemes are set out in note 18.

2002

No. of
shares

1,268,374,499
–

£m

159
–

159

£m

159
–

159

18

Share option schemes
During the year a total of 2,737,010 ordinary shares in the company, having a nominal value of £0.3m, were allotted in
connection with the exercise of share options. The consideration received by the company was £11.5m. Options were granted
during the year under the Reed Elsevier Group plc Executive Share Option Scheme to subscribe for 15,004,082 ordinary
shares, at prices between 431p and 540p per share. Options were also granted during the year under the Reed Elsevier Group
plc SAYE Share Option Scheme to subscribe for 1,825,263 ordinary shares at a price of 399.6p per share.

Options outstanding at 31 December 2003 over the company’s ordinary share capital were:

UK and overseas executive share option schemes
Senior Executive Long Term Incentive Scheme
UK SAYE share option scheme

Number of
ordinary shares

45,311,222
12,385,458
3,675,932

Range of
subscription prices

400.75p-700.0p
436.50p-700.0p
336.2p-543.2p

Exercisable

2004-2013
2005
2004-2009

The above entitlements are expected, upon exercise, to be met principally by the issue of new ordinary shares.

Options to subscribe for 3,539,646 ordinary shares in the company lapsed during the year.

Excluded from above are 2,407,064 options at subscription prices ranging between 424p and 537.5p and 232,461 nil cost options
which, upon exercise, will be met by the Reed Elsevier Group plc Employee Benefit Trust from shares purchased in the market.

19

Reserves

At 1 January 2003 as originally reported
Prior year adjustment (note 21)

At 1 January 2003 as restated
Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses
Increase in shares held in treasury
Exchange translation differences
Equalisation adjustments

At 31 December 2003

Share
premium
account
£m

Shares
held in
treasury
£m

Consolidated

Capital
redemption
reserve
£m

Profit
and loss
reserve
£m

951
–

951
–
–
12
–
–
–

963

–
(10)

(10)
–
–
–
(10)
–
–

(20)

4
–

4
–
–
–
–
–
–

4

293
–

293
169
(152)
–
–
(123)
(5)

182

Total
£m

1,248
(10)

1,238
169
(152)
12
(10)
(123)
(5)

1,129

Details of shares held in treasury are provided in note 26 to the combined financial statements.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

85

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

19

Reserves (continued)

At 1 January 2003
Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of ordinary shares, net of expenses

At 31 December 2003

Company

Share
premium
account
£m

Capital
redemption
reserve
£m

Profit
and loss
reserve
£m

951
–
–
12

963

4
–
–
–

4

644
145
(152)
–

637

Total
£m

1,599
145
(152)
12

1,604

Reed Elsevier PLC’s share of the revenue reserves of the Reed Elsevier combined businesses is £261m (2002: £402m).

20

Contingent liabilities
There are contingent liabilities in respect of borrowings of the Reed Elsevier Group plc group and Elsevier Reed Finance BV
group guaranteed by Reed Elsevier PLC as follows:

Guaranteed jointly and severally with Reed Elsevier NV

2003
£m

2002
£m

2,692

2,934

Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 22 to the
Reed Elsevier combined financial statements.

21

Prior year adjustment
In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK
Accounting Standards Board, the Reed Elsevier combined businesses now present the shares in Reed Elsevier PLC and Reed
Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust as shares held within treasury, which are deducted
within combined shareholders’ funds. Previously, such shares were included within the other fixed asset investments of the
combined businesses. The consolidated balance sheet as at 31 December 2002 has been restated to reflect Reed Elsevier
PLC’s share of the restatement made in the combined financial statements in relation to the presentation of shares held in
treasury.

22

Principal joint ventures

The principal joint ventures are:

Reed Elsevier Group plc
Incorporated and operating in Great Britain
1-3 Strand
London WC2N 5JR

£10,000 ordinary “R” shares
£10,000 ordinary “E” shares
£100,000 7.5% cumulative preference non voting shares

Holding company for operating businesses involved
in science & medical, legal, educational and
business publishing

Equivalent to a 50% equity interest

Elsevier Reed Finance BV
Incorporated in the Netherlands
Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands

133 ordinary “R” shares
205 ordinary “E” shares

Holding company for financing businesses

Equivalent to a 39% equity interest

The “E” shares in Reed Elsevier Group plc and Elsevier Reed Finance BV are owned by Reed Elsevier NV.

% holding

100%
–
100%

100%
–

86 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER PLC > NOTES TO THE FINANCIAL STATEMENTS

23

Principal subsidiary undertaking
The principal subsidiary undertaking is:

Reed Holding BV
Incorporated in the Netherlands
Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands

41 ordinary shares

% holding

100%

Reed Holding BV owns 4,679,249 shares of a separate class in Reed Elsevier NV, giving Reed Elsevier PLC a 5.8% indirect
equity interest in Reed Elsevier NV.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

87

REED ELSEVIER PLC

Independent auditors’ report to the
members of Reed Elsevier PLC
We have audited the financial statements of Reed Elsevier
PLC for the year ended 31 December 2003 which comprise
the accounting policies, the profit and loss account, the
cash flow statement, the balance sheets, the statement of
total recognised gains and losses, the reconciliation of
shareholders’ funds and the related notes 1 to 23. These
financial statements have been prepared under the
accounting policies set out therein.

We have also audited the information in the parts of the

directors’ remuneration report presented in the Annual
Reports and Financial Statements (“the Remuneration
Report”) that are described as having been audited.

This report is made solely to the company’s members, as

a body, in accordance with section 235 of the Companies
Act 1985. Our audit work has been undertaken so that we
might state to the company’s members those matters we
are required to state to them in an auditors’ report and for
no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body,
for our audit work, for this report, or for the opinions we
have formed.

Respective responsibilities of directors and auditors
As described in the statement of directors’ responsibilities,
the company’s directors are responsible for the
preparation of the financial statements in accordance with
applicable United Kingdom law and accounting standards.
They are also responsible for the preparation of the other
information contained in the Annual Report and Financial
Statements including, together with the directors of Reed
Elsevier NV, the Remuneration Report. Our responsibility
is to audit the financial statements and the parts of the
Remuneration Report described as having been audited in
accordance with relevant United Kingdom legal and
regulatory requirements and auditing standards.

We report to you our opinion as to whether the financial

statements give a true and fair view and whether the
financial statements and the parts of the Remuneration
Report described as having been audited have been
properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the directors’
report is not consistent with the financial statements, if the
company has not kept proper accounting records, if we
have not received all the information and explanations we
require for our audit, or if information specified by law
regarding directors’ remuneration and transactions with
the company and other members of the group is not
disclosed.

We review whether the corporate governance statement

reflects the company’s compliance with the seven
provisions of the Combined Code specified for our review
by the Listing Rules of the Financial Services Authority,
and we report if it does not. We are not required to
consider whether the board’s statements on internal

88 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

control cover all risks and controls, or form an opinion on
the effectiveness of the group’s corporate governance
procedures or its risk and control procedures.

We read the directors’ report and the other information

contained in the Annual Report for the above year as
described in the contents section including the unaudited
parts of the Remuneration Report and consider the
implications for our report if we become aware of any
apparent misstatements or material inconsistencies with
the financial statements.

Basis of audit opinion
We conducted our audit in accordance with United
Kingdom auditing standards issued by the Auditing
Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures
in the financial statements and the parts of the
Remuneration Report described as having been audited. It
also includes an assessment of the significant estimates
and judgements made by the directors in the preparation
of the financial statements, and of whether the accounting
policies are appropriate to the circumstances of the
company and the group, consistently applied and
adequately disclosed.

We planned and performed our audit so as to obtain all

the information and explanations which we considered
necessary in order to provide us with sufficient evidence to
give reasonable assurance that the financial statements
and the parts of the Remuneration Report described as
having been audited are free from material misstatement,
whether caused by fraud or other irregularity or error. In
forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial
statements and the parts of the Remuneration Report
described as having been audited.

Opinion
In our opinion:

• the financial statements give a true and fair view of the

state of affairs of the company and the group as at
31 December 2003 and of the profit of the group for the
year then ended; and

• the financial statements and the parts of the

Remuneration Report described as having been audited
have been properly prepared in accordance with the
Companies Act 1985.

Deloitte & Touche LLP
Chartered Accountants and 
Registered Auditors
London
18 February 2004

Reed Elsevier NV
REED ELSEVIER NV ANNUAL REPORT
AND FINANCIAL STATEMENTS

90 Financial highlights
91 The Supervisory Board’s report
91 The Executive Board’s report
92 Accounting policies
94 Financial statements
97 Notes to the financial statements
104 Independent auditors’ report
104 Other information

REED ELSEVIER NV

Financial Highlights
For the years ended 31 December

(in €m, unless otherwise indicated)

PROFIT AND LOSS ACCOUNT
Reported profit before tax
Reported profit/(loss) attributable to shareholders
Adjusted profit before tax
Adjusted profit attributable to shareholders

PER SHARE INFORMATION (in €)
Earnings/(loss) per ordinary share
Adjusted earnings per ordinary share
Cash dividend per ordinary share
Dividend cover

Ordinary share prices

– high
– low
– closing

Number of shares outstanding at year end (in millions)
Market capitalisation (€m)

Note

1999

2000

2001

2002

2003

80
(48)
540
401 

(0.07)
0.57
0.27
2.1

15.25
8.95
11.86

709
8,409

157
27 
566
419 

0.04
0.59
0.28
2.1

16.07
9.30
15.66

221
101 
683
503 

0.13
0.64
0.30
2.1

15.66
10.92
13.28

776
12,152

783
10,398

230
144
737
542 

0.18
0.69
0.30
2.3

16.01
10.86
11.65

784
9,134

376
242
733
540

0.31
0.69
0.30
2.3

12.03
8.13
9.85

784
7,722

(ii)
(ii)

(ii)

(iv)

(v)

(vi)
(vii)

The information provided above is based on Reed Elsevier NV's gross equity share of the Reed Elsevier combined businesses.

(i)

Financial information for 1999 has been calculated on the basis of the official exchange rate of Dfl 2.20371 to one euro.
Percentage changes and financial ratios have been calculated using historic Dutch guilder figures and may be affected by
rounding.

(ii) Adjusted profit before tax, adjusted profit attributable and adjusted earnings per share are presented as additional

performance measures and stated before amortisation of goodwill and intangible assets, exceptional items and related
tax effects. These are reconciled to the reported figures in note 8 to the financial statements.

(iii) Per share information has been calculated using the average number of shares outstanding, taking into account that the

R-shares can be converted into ten ordinary shares. 

(iv) Dividend cover is the number of times the adjusted earnings, before amortisation of goodwill and intangible assets,

exceptional items and related tax effects, cover the cash dividends paid and proposed for the year.

(v) The closing price is the final quotation at year end on the stockmarket of Euronext Amsterdam N.V. for ordinary shares.

(vi) The number of shares outstanding at year end include the R-shares, assuming that they have been converted into ten

ordinary shares, and exclude Reed Elsevier NV shares held in treasury. 

(vii) Market capitalisation is the number of shares outstanding at year end multiplied by the closing price.

90 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV

The Supervisory Board’s report
Supervisory Board
M Tabaksblat, Chairman
GJ de Boer-Kruyt
JF Brock
MW Elliott
CJA van Lede
DE Reid
Lord Sharman of Redlynch OBE
RWH Stomberg

Together with the Executive Board, we herewith submit Reed
Elsevier NV’s annual report and financial statements for the
financial year ended 31 December 2003 to the shareholders’
meeting for adoption. The financial statements have been
drawn up in accordance with the accounting principles
explained on pages 92 and 93 of this document. They have
been examined by Deloitte Accountants, Amsterdam. Their
report and opinion is set out on page 104. The combined
financial statements on pages 40 to 69 are part of the notes
to and form an integral part of these statutory financial
statements. 

We refer to the Report of the Chairman and the Chief
Executive Officer and to the other reports contained within
the Reed Elsevier Annual Review and Summary Financial
Statements 2003 and the Reed Elsevier Annual Reports and
Financial Statements 2003. These reports explain the
business results of 2003, the financial state of the company
at the end of 2003, and the key strategic issues. 

The equalisation agreement between Reed Elsevier NV
and Reed Elsevier PLC has the effect that shareholders can
be regarded as having the interests of a single economic
group and provides that Reed Elsevier NV shall declare
dividends such that the dividend on one Reed Elsevier NV
ordinary share, which shall be payable in euros, will equal
1.538 times the cash dividend, including the related UK tax
credit, paid on one Reed Elsevier PLC ordinary share. In that
context, the combined meeting of the Supervisory and
Executive Boards (“the Combined Board”) determines the
amounts of the company’s profit to be retained. The ordinary
shares and the R-shares are entitled to receive distribution
in proportion to their nominal value. The combined board
may resolve to pay less per R-share, but not less than 1% of
the nominal value. Details of dividends are contained in the
Operating and Financial Review on page 21.

We have assessed Reed Elsevier NV’s compliance with the

Dutch Corporate Governance Code (“the Code“) issued on
9 December 2003 and believe that Reed Elsevier’s policies
and practices, as set out in the Reed Elsevier Annual Review
and Summary Financial Statements 2003 and the Reed
Elsevier Annual Reports and Financial Statements 2003,
substantially comply with the recommendations of the Code.
While some aspects of the Code are still being considered,
we do not expect that there will be any significant issues
regarding compliance during 2004. The agenda for the
Annual General Meeting of the shareholders to be held on

29 April 2004 in the Hotel Okura in Amsterdam will include a
discussion of Reed Elsevier’s corporate governance policies,
practices and disclosures. 

At the Reed Elsevier NV Annual General Meeting, Lord
Sharman, Mr Stomberg and Mr Tabaksblat will retire by
rotation as members of the Supervisory Board. Having
reviewed their performance, qualifications and availability,
and the overall Supervisory Board profile, the Nominations
Committee has recommended their re-appointment.
Resolutions proposing the re-appointment of Lord Sharman,
Mr Stomberg and Mr Tabaksblat will be submitted to the
2004 Annual General Meeting.

The Supervisory Board
18 February 2004

Registered office
Sara Burgerhartstraat 25
1055 KV Amsterdam

The Executive Board’s report
Executive Board

CHL Davis, Chairman
MH Armour, Chief Financial Officer
GJA van de Aast 
A Prozes
P Tierney

We refer to the Report of the Chairman and the Chief
Executive Officer and to the other reports contained within
the Reed Elsevier Annual Review and Summary Financial
Statements 2003 and the Reed Elsevier Annual Reports and
Financial Statements 2003. These reports explain the
business results of 2003, the financial state of the company
at the end of 2003, and the key strategic issues. 

As explained in the financial statements on pages 92 and

93, Reed Elsevier NV prepares its financial statements in
accordance with generally accepted accounting principles in
the UK and therefore presents both group financial
statements and parent company financial statements. In the
group financial statements, the profit attributable to the
shareholders of Reed Elsevier NV was €242m (2002 €144m)
and net assets as at 31 December 2003, principally
representing the investments in Reed Elsevier Group plc and
Elsevier Reed Finance BV under the gross equity method,
were €1,728m (2002 €2,019m). In the parent company
financial statements, the profit attributable to the
shareholders of Reed Elsevier NV was €203m (2002 €152m)
and net assets as at 31 December 2003, principally
representing the investments in Reed Elsevier Group plc and
Elsevier Reed Finance BV under the historical cost method,
were €1,985m (2002 €2,000m).

At the Reed Elsevier NV Annual General Meeting, Mr van
de Aast will retire by rotation as a member of the Executive
Board. The Nominations Committee has recommended his
re-appointment and a resolution will be submitted to the
2004 Annual General Meeting.

The Executive Board
18 February 2004

Registered office
Sara Burgerhartstraat 25
1055 KV Amsterdam

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

91

REED ELSEVIER NV

Accounting policies

These statutory financial statements report the profit and
loss account, cash flow and financial position of Reed
Elsevier NV. Unless otherwise indicated, all amounts
shown in the financial statements are in millions of euros.

The financial statements have been prepared under the
historical cost convention and in accordance with
applicable accounting standards.

The Reed Elsevier combined financial statements on pages
40 to 69 form an integral part of the notes to Reed Elsevier
NV’s statutory financial statements.

The basis of the merger of the businesses of Reed Elsevier
NV and Reed Elsevier PLC is set out on page 22.
As a consequence of the merger of the company’s
businesses with those of Reed Elsevier PLC, described on
page 22, the shareholders of Reed Elsevier NV and Reed
Elsevier PLC can be regarded as having the interests of a
single economic group, enjoying substantially equivalent
ordinary dividend and capital rights in the earnings and net
assets of the Reed Elsevier combined businesses.

Adoption of UK GAAP
The financial statements have been prepared in accordance
with generally accepted accounting principles in the United
Kingdom (“UK GAAP”). Prior to 2003, Reed Elsevier NV
presented statutory financial statements prepared in
accordance with generally accepted accounting principles
in the Netherlands (“Dutch GAAP”) and the combined
financial statements were prepared in accordance with both
UK and Dutch GAAP. Following changes to Dutch GAAP
effective for the 2003 financial year in respect of the
presentation of dividends and pension accounting, UK GAAP
and Dutch GAAP have diverged. As permitted by Article
362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed
Elsevier NV has therefore determined to prepare its
financial statements in accordance with UK GAAP, thereby
ensuring consistency with the prior year of the accounting
policies applied within the Reed Elsevier combined financial
statements, and with the accounting policies of Reed
Elsevier PLC. 

Parent company financial statements
Under UK GAAP, Reed Elsevier NV presents financial
statements for the parent company which reflect, in the
profit and loss account, its own income, including
dividends from Reed Elsevier Group plc and Elsevier Reed
Finance BV companies, and expenses, and, in the balance
sheet, its fixed asset investments in these joint ventures
accounted for using the historical cost method. These
parent company financial statements have been presented
for the first time as if UK GAAP had been adopted in prior

92 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

years. The impact of the change in accounting principles
from Dutch to UK GAAP on the parent company financial
statements of Reed Elsevier NV is set out in note 18.

Group financial statements

Reed Elsevier NV holds a majority interest in Elsevier Reed
Finance BV (61%) and is therefore prima facie required to
prepare consolidated financial statements in accordance
with Book 2 Title 9 of the Netherlands Civil Code. However,
management believes that a better insight into the
financial position and results of Reed Elsevier NV is
provided by looking at the investment in the combined
businesses in aggregate, as presented in the Reed Elsevier
combined financial statements.

Reed Elsevier NV group financial statements are
presented, as in prior years, incorporating Reed Elsevier
NV’s investments in the Reed Elsevier combined
businesses accounted for using the gross equity method,
as adjusted for the effects of the equalisation arrangement
between Reed Elsevier NV and Reed Elsevier PLC. The
arrangement lays down the distribution of dividends and
net assets in such a way that Reed Elsevier NV’s share in
the profit and net assets of the Reed Elsevier combined
businesses equals 50%, with all settlements accruing to
shareholders from the equalisation arrangements taken
directly to reserves. These group financial statements also
meet the additional information requirements of the UK
financial reporting standard FRS9: Associates and Joint
Ventures where consolidated financial statements are not
prepared.

Because the dividend paid to shareholders by Reed
Elsevier NV is equivalent to the Reed Elsevier PLC dividend
plus the UK tax credit received by certain Reed Elsevier
PLC shareholders, Reed Elsevier NV normally distributes a
higher proportion of the combined profit attributable than
Reed Elsevier PLC. Reed Elsevier PLC’s share in this
difference in dividend distributions is settled with Reed
Elsevier NV and is credited directly to group reserves
under equalisation. Reed Elsevier NV can pay a nominal
dividend on its R-shares held by Reed Elsevier PLC that is
lower than the dividend on the ordinary shares. Reed
Elsevier PLC is compensated by direct dividend payments
by Reed Elsevier Group plc. Equally, Reed Elsevier NV has
the possibility to receive dividends directly from Dutch
affiliates. The settlements flowing from these
arrangements are also taken directly to group reserves
under equalisation.

In accordance with UITF38: Accounting for ESOP Trusts
issued in December 2003 by the UK Accounting Standards
Board, shares in Reed Elsevier NV and Reed Elsevier PLC
purchased by the Reed Elsevier Group plc Employee
Benefit Trust, previously included within share of gross
assets of joint ventures, are presented as shares held in

REED ELSEVIER NV

treasury and deducted within group shareholders’ funds.
Prior year comparatives have been restated accordingly.

Other than in respect of the representation of shares held
in treasury, the adoption of UK GAAP had no effect on
group shareholders’ funds or on the group earnings
compared to the amounts that would have been reported
under Dutch GAAP.

In the parent company financial statements, fixed asset
investments in the combined businesses are stated at cost,
less provision, if appropriate, for any impairment in value.

Short term investments are stated at the lower of cost and
net realisable value. Other assets and liabilities are stated
at historical cost, less provision, if appropriate, for any
impairment in value.

Combined financial statements
The accounting policies adopted in the preparation of 
the combined financial statements are set out on pages 
40 and 41.

These include policies in relation to goodwill and intangible
assets. Such assets are amortised over their estimated
useful economic lives, which due to their longevity, may be
for periods in excess of five years. 

Foreign exchange translation
Profit and loss and cash flow items are translated at
average exchange rates. In the balance sheets, assets and
liabilities are translated at rates ruling at the balance
sheet date or contracted rates where applicable. The gains
or losses relating to the retranslation of Reed Elsevier NV’s
50% interest in the net assets of the combined businesses
are taken directly to group reserves.

Basis of valuation of assets and liabilities
Reed Elsevier NV’s 50% economic interest in the net
assets of the combined businesses has been shown on the
group balance sheet as interests in joint ventures, net of
the assets and liabilities reported as part of Reed Elsevier
NV. Joint ventures are accounted for using the gross equity
method. 

Taxation
Deferred taxation is provided in full for timing differences
using the liability method. No provision is made for tax
which might become payable on the distribution of
retained profits by foreign subsidiaries or joint ventures
unless there is an intention to distribute such retained
earnings giving rise to a charge.

Deferred tax assets are only recognised to the extent that
they are considered recoverable in the short term.
Deferred taxation balances are not discounted.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

93

REED ELSEVIER NV

Profit and loss accounts
For the year ended 31 December 2003

Turnover
Including share of turnover of joint ventures
Less: share of turnover of joint ventures

Administrative expenses

Operating loss (before joint ventures)

Share of operating profit of joint ventures

Before amortisation and exceptional items
Amortisation of goodwill and intangible assets
Exceptional items

Operating profit/(loss) including joint ventures

Share of non operating exceptional items of joint ventures

Dividends received from joint ventures
Net interest income/(expense)

Company
Share of net interest of joint ventures

Profit on ordinary activities before taxation
Tax on profit on ordinary activities

Profit attributable to ordinary shareholders
Equity dividends paid and proposed

Retained profit/(loss) taken to reserves

Earnings per ordinary share ("EPS")

Basic EPS
Diluted EPS
Adjusted EPS (before amortisation of goodwill and intangible
assets and exceptional items)

The above amounts derive from continuing activities.

Adjusted figures

Adjusted group profit before tax
Adjusted group profit attributable to ordinary shareholders

Note

Group

2003
€m

2002
€m

Parent Company
2003
€m

2002
€m

3,571
(3,571)

3,991
(3,991)

1

2

5

6

7

–
(3)

(3)

858
(323)
(53)

482

479

19

19

–

7
(129)

(122)

376
(134)

242
(221)

21

Note

9
9 

9 

Group

2003
€

0.31
0.31

0.69

–
(3)

(3)

904
(419)
(79)

406

403

(9)

(9)

–

7
(171)

(164)

230
(86)

144
(221)

(77)

2002
€

0.18
0.18

0.69

Note

8
8

–
–

–
(3)

(3)

–
–
–

–

(3)

–

–

–
–

–
(3)

(3)

–
–
–

–

(3)

–

–

200

150

7
–

207

204
(1)

203
(221)

(18)

7
–

157

154
(2)

152
(221)

(69)

Parent Company
2003
€

2002
€

0.26
0.26

0.19
0.19

2003
€m

733
540

2002
€m

737
542 

Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects,
are presented as additional performance measures, and are reconciled to the reported figures in note 8 to the financial
statements.

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are
presented using the gross equity method.

94 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV

Cash flow statements
For the year ended 31 December 2003

Net cash outflow from operating activities

Dividends received from joint ventures
Returns on investments and servicing of finance – interest received
Taxation
Equity dividends paid

Note

10

Group

2003
€m

(2)

200
7
(2)
(215)

2002
€m

–

150
6 
(3)
(222)

Parent Company
2003
€m

2002
€m

(2)

–

200
7
(2)
(215)

150
6 
(3)
(222)

Cash outflow before changes in short term investments and financing

(12)

(69)

(12)

(69)

Decrease in short term investments

Financing

Issue of shares, net of expenses
Net issue/(repayment) of debenture loans
Decrease in funding balances to joint ventures

Change in net cash

8

4

3
1
–

–

10

59 

22
(1)
38 

–

8

4

3
1
–

–

10

59 

22
(1)
38 

–

10 

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.

Statements of total recognised gains and losses
For the year ended 31 December 2003

Profit attributable to ordinary shareholders
Exchange translation differences

Total recognised gains and losses

Group

2003
€m

242
(310)

(68)

2002
€m

144 
(303)

(159)

Parent Company
2003
€m

2002
€m

203
–

203

152 
–

152

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are
presented using the gross equity method.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

95

REED ELSEVIER NV

Balance sheets
As at 31 December 2003

Fixed assets
Investment in joint ventures

Share of gross assets
Share of gross liabilities

Share of net assets

Investments

Current assets
Debtors 
Short term investments

Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities
Creditors: amounts falling due after more than one year

Net assets

Capital and reserves
Share capital issued
Paid in surplus
Shares held in treasury
Reserves

Shareholders’ funds

Note

11

12

13

14

15

Group

2003
€m

2002
€m

Parent Company
2003
€m

2002
€m

5,805
(3,901)

6,609
(4,429)

1,904
–

1,904

2,180
–

2,180

56
7

63
(174)

(111)

56 
15

71 
(167)

(96)

–
–

–
2,161

2,161

56
7

63
(174)

(111)

– 
–

–
2,161

2,161

56 
15 

71 
(167)

(96)

1,793
(65)

1,728

2,084 
(65)

2,019

2,050
(65)

1,985

2,065
(65)

2,000

17,18
18
18
18

18

47
1,463
(27)
245

1,728

47
1,460
(15)
527

2,019

47
1,463
–
475

1,985

47
1,460
–
493

2,000

Reconciliations of shareholders’ funds
For the year ended 31 December 2003

Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of shares, net of expenses
Increase in shares held in treasury
Exchange translation differences
Equalisation adjustments

Net decrease in shareholders' funds
Shareholders' funds at 1 January
Before prior year adjustment
Prior year adjustment in relation to the presentation of
shares held in treasury

Shareholders' funds at 31 December

18

20

Group

2003
€m

242
(221)
3
(13)
(310)
8

(291)
2,019
2,034

2002
€m

144 
(221)
22 
(1)
(303)
–

(359)
2,378 
2,392

Parent Company
2003
€m

2002
€m

203
(221)
3
–
–
–

(15)
2,000
2,000

152
(221)
22 
–
–
–

(47)
2,047
2,047

(15)

(14)

–

–

1,728

2,019

1,985

2,000

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, are
presented using the gross equity method.

96 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

1

Operating loss
Operating loss is stated after the gross remuneration for present and former directors of Reed Elsevier NV in respect of
services rendered to Reed Elsevier NV and the combined businesses. Fees for members of the supervisory board of Reed
Elsevier NV of €0.2m (2002: €0.1m) are included in gross remuneration. In so far as gross remuneration is related to services
rendered to Reed Elsevier Group plc and Elsevier Reed Finance BV, it is borne by these companies.

2

Income from interests in joint ventures

Share of operating profit before amortisation and exceptional items
Administrative expenses reported within Reed Elsevier NV group

Total

2003
€m

855
3

858

2002
€m

901
3

904

3

4

Auditors' remuneration
Audit fees payable for the company were €44,000 (2002: €43,000).

Directors’ emoluments
Information on directors' remuneration, share options, longer term incentive plans, pension contributions and entitlements is
set out in the Directors' Remuneration Report on pages 29 to 38.

5

Net interest

Interest receivable and similar income

Interest on receivables from joint ventures
Other interest

Net interest income

6

Tax on profit on ordinary activities

Dutch corporation tax
Share of tax arising in joint ventures

Before amortisation and exceptional items
On amortisation and exceptional items

Total

Dutch corporation tax has been provided at 34.5%.

2003
€m

2002
€m

3
4

7

2003
€m

1

192
(59)

134

3
4

7

2002
€m

2

193
(109)

86

The share of tax arising in joint ventures as a proportion of the share of profit before tax is increased due to non tax-deductible
amortisation and reduced due to exceptional tax credits.

7

Dividends

Ordinary shares of €0.06 each

Interim
Final (2003 proposed)

R-shares of €0.60 each
Total

2003
€

2002
€

0.08
0.22
–

0.30

0.09 
0.21 
–

0.30 

2003
€m

59
162
–

221

2002
€m

65
156
–

221

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

97

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

8

Adjusted figures
Adjusted group profit and cash flow figures are used as additional performance measures. The adjusted figures are derived as
follows:

Group profit before tax
Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted group profit before tax

Group profit attributable to ordinary shareholders
Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted group profit attributable to ordinary shareholders

Group earnings per ordinary share
Adjustments:

Amortisation of goodwill and intangible assets
Exceptional items

Adjusted group earnings per ordinary share

2003
€m

376

323
34

733

242

325
(27)

540

2003
€

0.31

0.41
(0.03)

0.69

9

Earnings per ordinary share (EPS)

Basic EPS
Diluted EPS
Adjusted EPS

Group

2003

2002

Weighted
average number
of shares
(millions)

783.9
783.9
783.9

Earnings
€m

242
242
540

Note

8

Weighted
average number
of shares
(millions)

783.2
786.6
783.2

EPS
€

0.31
0.31
0.69

Earnings
€m

144
144
542

2002
€m

230

419
88

737

144

407
(9)

542

2002
€

0.18

0.52
(0.01)

0.69

EPS
€

0.18
0.18
0.69

Basic and diluted EPS for the parent company was €0.26 (2002: €0.19) based on earnings of €203m (2002: €152m) and a
weighted average number of shares in issue of 785.3m (2002: 784.7m) and on a diluted basis of 785.3m (2002: 788.1m). The
weighted average number of shares for the group is after deducting shares held in treasury.

The diluted EPS figures are calculated after taking into account the effect of share options.

98 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

10

Cash flow statement
Reconciliation of operating loss to net cash outflow from operating activities

Operating loss
Net movement in debtors and creditors

Net cash flow from operating activities

Reconciliation of net funding balances with joint ventures

At 1 January 2003
Cash flow

At 31 December 2003

11

Fixed asset investments – group
Gross equity accounted investments in joint ventures

Share of operating profit
Share of non operating exceptional items
Share of net interest payable

Share of profit before tax
Share of taxation

Share of profit after tax
Dividends received
Increase in shares held in treasury
Exchange translation differences
Equalisation adjustments

Net movement in the year
At 1 January 

Before prior year adjustment
Prior year adjustment

At 31 December

The investment in joint ventures comprises the group share at the following amounts of:

Fixed assets
Current assets
Creditors: amounts falling due within one year
Creditors: amounts falling due after more than one year
Provisions
Minority interests

Total

2003
€m

(3)
1

(2)

2003
€m

482
19
(129)

372
(133)

239
(200)
(13)
(310)
8

(276)
2,180
2,195
(15)

1,904

2003
€m

4,073
1,732
(2,343)
(1,430)
(120)
(8)

1,904

2002
€m

(3)
3

–

€m

50
–

50

2002
€m

406
(9)
(171)

226
(84)

142
(150)
(1)
(303)
–

(312)
2,492
2,506
(14)

2,180

2002
€m

4,910
1,699
(2,609)
(1,731)
(84)
(5)

2,180

Note

20

Included within share of current assets and creditors are cash and short term investments of €446m (2002: €421m) and
borrowings of €2,130m (2002: €2,520m) respectively.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

99

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

12

Fixed asset investments – parent company

Investment in joint ventures

13

Debtors

Joint ventures
Other accounts receivable

Total

Amounts falling due after more than one year are €nil (2002: €nil). 

14

Creditors: amounts falling due within one year

Proposed dividend
Taxation
Other creditors

Total

15

Creditors: amounts falling due after more than one year

Debenture loans
Taxation
Other creditors

Total

2003
€m

2002
€m

2,161

2,161

2003
€m

50
6

56

2003
€m

162
9
3

174

2003
€m

7
58
–

65

2002
€m

50
6

56

2002
€m

156
10
1

167

2002
€m

6
58
1

65

Debenture loans comprise four convertible personnel debenture loans with a weighted average interest rate of 5.2%.
Depending on the conversion terms, the surrender of €227 or €200 par value debenture loans qualifies for the acquisition of
20-50 Reed Elsevier NV ordinary shares.

100 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

16

Share option schemes
During the year a total of 405,812 ordinary shares in the company, having a nominal value of €0.02m, were allotted in
connection with the exercise of share options. The net consideration received by the company was €3m.

Share options are granted under the Reed Elsevier Group plc Executive Share Option Scheme, the Reed Elsevier Group plc
Senior Executive Long Term Incentive Scheme, and, prior to 1999, under the Reed Elsevier NV share option scheme. In
addition nil cost options were granted to certain senior executives. Share options will generally be met by the issue of new
Reed Elsevier NV shares. Certain share options will be met by the Reed Elsevier Employee Benefit Trust ("EBT") from shares
purchased in the market.

A summary of the movement in share options is presented in the table below:

Issued in

Expiring in

1998
1999
2000
2001
2002
2003

Total

2004 – 2008
2004 – 2009
2004 – 2010
2006 – 2011
2007 – 2012
2006 – 2013

Outstanding
1 January
2003

1,245,040
8,391,092
10,868,544
6,138,599
6,058,445
–

Granted 
during the 
year

–
–
–
–
–
11,141,912

32,701,720

11,141,912

Exercised
during the
year

–
694,689
36,137
–
–
43,919

774,745

Lapsed
during the
year

681,208
469,216
579,052
340,574
262,884
317,137

Outstanding
31 December
2003

Exercise
price range
(Euro)

7,227,187
10,253,355

563,832 12.50 – 15.70
Nil – 17.07
Nil – 15.70
5,798,025 11.65 – 15.43
5,795,561 11.97 – 16.00
Nil – 11.04

10,780,856

2,650,071

40,418,816

The average exercise price of share options outstanding at the end of the year was €11.62 (2002: €12.36) and the average
term of these options is four years (2002: four years).

17

Called up share capital

Ordinary shares €0.06
R-shares €0.60

Total

Authorised

Issued and fully paid

No. of shares

2,100,000,000
30,000,000

2003
No. of shares

738,760,906
4,679,249

€m

126
18

144

2002

No. of shares

738,355,094
4,679,249

€m

44
3

47

€m

44
3

47

The R-shares are held by a subsidiary company of Reed Elsevier PLC. The R-shares are convertible at the election of the holder
into ten ordinary shares each. They have otherwise the same rights as the ordinary shares, except that Reed Elsevier NV may
pay a lower dividend on the R-shares.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

101

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

18

Shareholders' funds

Group and Parent Company

Group

Parent Company

At 1 January 2002

Before prior year adjustment
Prior year adjustment (note 20)

–

Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of shares, net of expenses
Increase in shares held in treasury
Exchange translation differences

At 1 January 2003

Before prior year adjustment
Prior year adjustment (note 20)

–
Profit attributable to ordinary shareholders
Equity dividends paid and proposed
Issue of shares, net of expenses
Increase in shares held in treasury
Equalisation adjustments
Exchange translation differences

At 31 December 2003

Share capital
issued
€m

47
–

47
–
–
–
–
–

47
47
–
–
–
–
–
–
–

47 

Paid-in
surplus
€m

1,438
–

1,438
–
–
22
–
–

1,460
1,460
–
–
–
3
–
–
–

1,463

Shares
held in
treasury
€m

Reserves
€m

Total
€m

Reserves
€m

Total
€m

–
(14)

(14)
–
–
–
(1)
–

(15)
–
(15)
–
–
–
(13)
–
1

(27)

907
–

907
144
(221)
–
–
(303)

527
527
–
242
(221)
–
–
8
(311)

245

2,392
(14)

2,378
144
(221)
22
(1)
(303)

2,019
2,034
(15)
242
(221)
3
(13)
8
(310)

1,728

562
–

562
152
(221)
–
–
–

493
493
–
203
(221)
–
–
–
–

475

2,047
–

2,047
152
(221)
22
–
–

2,000
2,000
–
203
(221)
3
–
–
–

1,985

Other than in respect of the representation of shares held in treasury (see note 20), the adoption of UK GAAP by Reed Elsevier
NV had no impact on group shareholders’ funds as at 1 January 2003 or on the group earnings for the year ended
31 December 2003. The adoption of UK GAAP had the effect of reducing parent company shareholders’ funds as at 1 January
2003 by €34m and parent company attributable profit for the year ended 31 December 2003 by €39m compared to the
amounts that would have been reported under Dutch GAAP.

Within paid-in surplus, an amount of €1,286m (2002: €1,283m) is free of tax.

Details of shares held in treasury are provided in note 26 to the combined financial statements.

A reconciliation between the parent company profit attributable to ordinary shareholders and the group profit attributable to
ordinary shareholders presented under the gross equity method is provided below: 

Parent company profit attributable to ordinary shareholders
Share of profit after tax of joint ventures
Dividends received from joint ventures

Group profit attributable to ordinary shareholders using the gross equity method

2003
€m

203
239
(200)

242

2002
€m

152
142
(150)

144

A reconciliation between the parent company shareholders’ funds and group shareholders’ funds presented under the gross
equity method is provided below:

Parent company shareholders‘ funds
Cumulative profit attributable from joint ventures less cumulative dividends received
Cumulative currency translation adjustments
Cumulative equalisation adjustments and other adjustments
Shares held in treasury

Group shareholders‘ funds using the gross equity method

2003
€m

1,985
(148)
(204)
122
(27)

1,728

2002
€m

2,000
(187)
107
114
(15)

2,019

102 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

REED ELSEVIER NV > NOTES TO THE FINANCIAL STATEMENTS

19

Contingent liabilities

There are contingent liabilities in respect of borrowings of Reed Elsevier Group plc group and Elsevier Reed Finance BV group
guaranteed by Reed Elsevier NV as follows:

Guaranteed jointly and severally with Reed Elsevier PLC

2003
€m

2002
€m

3,822

4,493

Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 22 to the
Reed Elsevier combined financial statements.

20

Prior year adjustment

In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK
Accounting Standards Board, the Reed Elsevier combined businesses now present the shares in Reed Elsevier PLC and Reed
Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust as shares held within treasury, which are deducted
within combined shareholders' funds. Previously, such shares were included within the other fixed asset investments of the
combined businesses. The group balance sheet as at 31 December 2002 has been restated to reflect Reed Elsevier NV's share
of the restatement made in the combined financial statements in relation to the presentation of shares held in treasury.

21

Principal joint ventures

The principal joint ventures are:

Reed Elsevier Group plc
Incorporated and operating in Great Britain
1-3 Strand
London WC2N 5JR

Holding company for operating businesses
involved in science & medical, legal,
educational and business publishing

Elsevier Reed Finance BV
Incorporated in the Netherlands
Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands

£10,000 ordinary "R" shares
£10,000 ordinary "E" shares
£100,000 7.5% cumulative preference non voting shares

Equivalent to a 50% equity interest

133 ordinary "R" shares
205 ordinary "E" shares

% holding

–
100%
–

–
100%

Holding company for financing businesses

Equivalent to a 61% equity interest

The "R" shares in Reed Elsevier Group plc and Elsevier Reed Finance BV are owned by Reed Elsevier PLC.

In addition, Reed Elsevier NV holds €0.14m par value in shares with special dividend rights in Reed Elsevier Overseas BV and
Reed Elsevier Nederland BV, both with registered offices in Amsterdam. These shares are included in the amount shown
under investments in joint ventures. They enable Reed Elsevier NV to receive dividends from companies within the same tax
jurisdiction.

A list of companies within the Reed Elsevier combined businesses is filed with the Amsterdam Chamber of Commerce in the
Netherlands.

M Tabaksblat

Chairman

M H Armour

Chief Financial Officer

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

103

REED ELSEVIER NV
REED ELSEVIER NV

Independent auditors’ report to the shareholders of Reed Elsevier NV

We have audited the 2003 financial statements of Reed Elsevier NV, Amsterdam, which comprise the accounting policies, the
profit and loss account, cash flow statement, reconciliation of shareholders’ funds, balance sheet, the statement of total
recognised gains and losses and the related notes 1 to 21. These financial statements have been prepared under the
accounting policies set out therein and include the Reed Elsevier combined financial statements for the year ended
31 December 2003 which comprise the accounting policies, the profit and loss account, the balance sheet, the cash flow
statement, the statement of total recognised gains and losses, the shareholders’ funds reconciliation and the related
notes 1 to 28, having been prepared under the accounting policies set out therein, dated 18 February 2004. These financial
statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial
statements based on our audit.

Basis of audit opinion
We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

Opinion
In our opinion, the financial statements of Reed Elsevier NV, which include the Reed Elsevier combined financial statements,
give a true and fair view of the financial position of Reed Elsevier NV at 31 December 2003 and the result and the cash flows
for the year then ended in accordance with accounting principles generally accepted in the United Kingdom and comply with
the legal requirements for financial statements as included in Book 2 Title 9 of the Netherlands Civil Code.

Deloitte Accountants
Amsterdam
18 February 2004

Proposal for allocation of profit

Interim dividend on ordinary shares
Final dividend on ordinary shares
Dividend on R-shares
Retained loss

2003
€m

59
162
–
(18)

203

2002
€m

65
156
–
(69)

152

The combined Supervisory and Executive Board determines the part of the profit to be retained. The profit to be
distributed is paid on the ordinary shares and the R-shares in proportion to their nominal value. The combined board
may resolve to pay less per R-share, but not less than 1% of the nominal value.

The company is bound by the Governing Agreement with Reed Elsevier PLC, which provides that Reed Elsevier NV
shall declare dividends such that the dividend on one Reed Elsevier NV ordinary share, which shall be payable in
euros, will equal 1.538 times the dividend, including the related UK tax credit, paid on one Reed Elsevier PLC ordinary
share.

104 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

Additional information for
US investors
ADDITIONAL INFORMATION FOR US
INVESTORS

106 Reed Elsevier combined businesses
111 Reed Elsevier PLC
113 Reed Elsevier NV

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER COMBINED BUSINESSES

Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier combined financial statements into US dollars
at the stated rates of exchange. The financial information provided below is prepared under UK GAAP as used in the
preparation of the Reed Elsevier combined financial statements. It does not represent a restatement under US GAAP which
would be different in some significant respects.

Exchange rates for translation

Sterling
Profit and loss and cash flow
Balance sheet

Euro
Profit and loss and cash flow
Balance sheet

Profit and loss account
For the year ended 31 December 2003

Net sales
Operating profit
Profit before tax
Profit attributable
Adjusted operating profit
Adjusted profit before tax
Adjusted profit attributable to parent companies’ shareholders

2003
US$

1.63
1.78

2002
US$

1.50
1.60

1.124
1.254

0.943
1.046

2003
US$m

8,028
1,077
846
544
1,920
1,646
1,213

2002
US$m

7,530
760
434
272
1,700
1,391
1,023

Adjusted figures are used by Reed Elsevier as additional performance measures and are stated before the amortisation of
goodwill and intangible assets and exceptional items.

Cash flow statement
For the year ended 31 December 2003

Net cash inflow from operating activities
Dividends received from joint ventures
Returns on investments and servicing of finance
Taxation (including US$59m (2002: US$30m) exceptional net inflow)
Capital expenditure and financial investment
Acquisitions and disposals
Equity dividends paid to shareholders of the parent companies

Cash inflow before changes in short term investments and financing
Increase in short term investments
Financing

(Decrease)/increase in cash

Adjusted operating cash flow
Adjusted operating cash flow conversion

2003
US$m

1,736
23
(289)
(238)
(223)
(295)
(476)

238
(269)
(140)

(171)

1,676
87%

2002
US$m

1,553
20
(308)
(201)
(66)
(294)
(410)

294
(83)
(103)

108

1,515
89%

Reed Elsevier businesses focus on adjusted operating cash flow as a 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 tangible fixed assets but
before exceptional payments and proceeds. Adjusted operating cash flow conversion expresses adjusted operating cash flow as
a percentage of adjusted operating profit.

106 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER COMBINED BUSINESSES

Summary financial information in US dollars (continued)

Balance sheet
As at 31 December 2003

Goodwill and intangible assets
Tangible fixed assets and investments

Fixed assets

Inventories and pre-publication costs
Debtors – amounts falling due within one year
Debtors – amounts falling due after more than one year
Cash and short term investments

Current assets
Creditors: amounts falling due within one year

Net current liabilities

Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions for liabilities and charges
Minority interests

Net assets

2003
US$m

9,172
1,038

2002
US$m

9,302
968

10,210

10,270

936
1,858
443
1,136

4,373
(6,183)

(1,810)

8,400
(3,747)
(299)
(21)

4,333

800
1,476
514
912

3,702
(5,806)

(2,104)

8,166
(3,633)
(299)
(11)

4,223

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

107

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER COMBINED BUSINESSES

Summary of the principal differences to
US GAAP
The combined financial statements are prepared in
accordance with UK GAAP, which differ in certain
significant respects to US GAAP. The principal differences
that affect net income and combined shareholders’ funds
are explained below and their approximate effect is shown
on page 110. The Reed Elsevier Annual Report 2003 on
Form 20-F provides further information for US investors.

Goodwill and intangible assets
Under UK GAAP, acquired goodwill and intangible assets
are capitalised and amortised systematically over their
estimated useful lives up to a maximum of 40 years,
subject to impairment review.

Under US GAAP, acquired goodwill and intangible assets
are accounted for in accordance with SFAS141: Business
Combinations and SFAS142: Goodwill and Other Intangible
Assets. In accordance with these SFAS, goodwill and
intangible assets with indefinite lives are not amortised
and are subject to at least annual impairment review.
Other intangible assets with definite lives are amortised
over periods up to 40 years, also subject to annual
impairment review under SFAS144.

Under US GAAP, as at 31 December 2003, the carrying
value of goodwill is £3,045m (2002: £3,225m), the gross
cost of intangible assets is £5,000m (2002: £5,264m) and
accumulated amortisation of intangible assets is £1,522m
(2002: £1,352m).

Deferred taxation
Under UK GAAP, the combined businesses provide in full
for timing differences using the liability method. Under US
GAAP, deferred taxation is provided on all temporary
differences under the liability method subject to a valuation
allowance on deferred tax assets where applicable, in
accordance with SFAS109: Accounting for Income Taxes.
The most significant adjustment to apply SFAS109 arises
on the recognition of a deferred tax liability in respect of
acquired intangible assets for which amortisation is not tax
deductible. Under the timing difference approach applied
under UK GAAP, no such liability would be recognised.

Pensions
Under UK GAAP, the combined businesses account for
pension costs under the rules set out in SSAP24:
Accounting for Pension Costs. Its objectives and principles
are broadly in line with SFAS87: Employers’ Accounting for
Pensions. However, SSAP24 is less prescriptive in the
application of the actuarial methods and assumptions to
be applied in the calculation of pension assets, liabilities
and costs.

Under UK GAAP, pension plan assets and liabilities are
based on the results of the latest actuarial valuation.
Pension assets are valued at the discounted present value
determined by expected future income. Liabilities are
assessed using the expected rate of return on plan assets.
Under US GAAP, plan assets are valued by reference to
market-related values at the date of the financial
statements. Liabilities are assessed using the rate of
return obtainable on fixed or inflation-linked bonds.

Stock based compensation
Under US GAAP, the combined businesses apply the
accounting requirements of APB25: Accounting for Stock
Issued to Employees and related interpretations in
accounting for stock based compensation. Under APB25
compensatory plans with performance criteria qualify as
variable plans, for which total compensation cost must be
recalculated each period based on the current share price.
The total compensation cost is amortised over the vesting
period. Under UK GAAP, compensation cost is determined
based on a comparison of the exercise price with the share
price on the date of grant.

Also under US GAAP, SFAS123: Accounting for Stock
Based Compensation establishes a fair value based
method of computing compensation cost. It encourages
the application of this method in the profit and loss
account but, where APB25 is applied, the proforma effect
on net income must be disclosed.

The disclosure only provisions of SFAS123, as amended by
SFAS148: Accounting for Stock Based Compensation –
Transition and Disclosure, have been adopted. If
compensation costs based on fair value at the grant date
had been recognised in the profit and loss account, net
income under US GAAP would have been reduced by £43m
in 2003 (2002: £36m).

Derivative instruments
Under US GAAP, SFAS133: Accounting for Derivative
Instruments and Hedging Activities requires all derivative
instruments to be carried at fair value on the balance
sheet. Changes in fair value are accounted for through the
profit and loss account or comprehensive income
statement, depending on the derivative’s designation and
effectiveness as a hedging instrument. Certain derivative
instruments used by Reed Elsevier have not been
designated as qualifying hedge instruments under
SFAS133 and, accordingly, a charge or credit as
appropriate to net income is recorded under US GAAP for
the changes in the fair value of those derivative
instruments. Under UK GAAP, derivative instruments
intended as hedges are recorded at appropriate historical
cost amounts, with fair values shown as a disclosure item.
The adoption of SFAS133, which was effective from

108 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER COMBINED BUSINESSES

1 January 2001, resulted in a cumulative transition
adjustment in other comprehensive income, of which £7m
was charged to US GAAP net income in 2003 (2002: £7m).

Equity dividends
Under UK GAAP, dividends are provided for in the year in
respect of which they are proposed by the directors. Under
US GAAP, such dividends would not be provided for until
they are formally declared by the directors.

Available for sale investments
Under UK GAAP, fixed asset investments (excluding
investments in joint ventures) are recorded at historical
cost less provision for any impairment in value. Under
US GAAP, investments in equity securities with readily
determinable fair values are classified as available for sale
and are reported at fair value, with unrealised gains or
losses reported as a separate component of shareholders’
funds.

Acquisition accounting
Under UK GAAP, severance and integration costs in
relation to acquisitions are expensed as incurred and,
depending on their size and incidence, these costs may be
disclosed as exceptional items charged to operating profit.
Under US GAAP, certain integration costs may be provided
for as part of purchase accounting adjustments on
acquisition.

Exceptional items
Exceptional items are material items within the combined
businesses’ ordinary activities which, under UK GAAP, are
required to be disclosed separately due to their size or
incidence. These items do not qualify as extraordinary
under US GAAP.

Adjusted earnings
In the combined financial statements adjusted profit and
cash flow measures are presented as permitted by UK
GAAP as additional performance measures. US GAAP does
not permit the presentation of alternative earnings
measures.

Short term obligations expected to be refinanced
Under US GAAP, where it is expected to refinance short
term obligations on a long term basis and this is
supported by an ability to consummate the refinancing,
such short term obligations should be excluded from
current liabilities and shown as long term obligations.
Under UK GAAP, such obligations can only be excluded
from current liabilities where, additionally, the debt and
facility are under a single agreement or course of dealing
with the same lender or group of lenders. Short term
obligations at 31 December 2003 of £1,182m (2002:
£1,359m) would be excluded from current liabilities under
US GAAP and shown as long term obligations.

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

109

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER COMBINED BUSINESSES

Effects on net income of material differences to US GAAP
For the year ended 31 December 2003

Net income as reported
US GAAP adjustments:

Goodwill and intangible assets
Deferred taxation
Pensions
Stock based compensation
Derivative instruments

Net income under US GAAP

2003
£m

334

121
(40)
75
7
41

538

2002
£m

181

223
(50)
56
–
(45)

365

2003
€m

484

176
(58)
109
10
59

780

2002
€m

288

355
(80)
89
–
(72)

580

Effects on combined shareholders’ funds of material differences to US GAAP
As at 31 December 2003

Combined shareholders’ funds as reported
US GAAP adjustments:

Goodwill and intangible assets
Deferred taxation
Pensions
Derivative instruments
Available for sale investments
Equity dividends
Other items

Combined shareholders’ funds under US GAAP

2003
£m

2002
£m

2003
€m

2002
€m

2,434

2,640

3,456

4,039

1,354
(828)
185
(69)
3
226
(2)

3,303

1,302
(838)
151
(117)
3
205
(2)

3,344

1,923
(1,176)
263
(98)
4
321
(3)

4,690

1,992
(1,283)
231
(179)
5
314
(3)

5,116

110 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER PLC

Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of Reed Elsevier PLC’s consolidated financial statements into US
dollars at the stated rates of exchange. The financial information provided below is prepared under UK GAAP as used in the
preparation of the Reed Elsevier PLC consolidated financial statements. It does not represent a restatement under US GAAP
which would be different in some significant respects.

Exchange rates for translation of sterling ($:£1)

Profit and loss 
Balance sheet

Consolidated profit and loss account

For the year ended 31 December 2003

Profit attributable to ordinary shareholders: statutory

Profit attributable to 52.9% interest in Reed Elsevier combined businesses

Adjusted profit attributable
Amortisation of goodwill and intangible assets
Exceptional items

Data per American Depositary Share

Earnings per American Depositary Share based on 52.9% interest in Reed Elsevier combined businesses

Adjusted
Basic 

Net dividend per American Depositary Share

Consolidated balance sheet
As at 31 December 2003

Shareholders’ funds

2003

1.63
1.78

2002

1.50
1.60

2003
US$m

275

642
(386)
33

289

2002
US$m

134

542
(407)
9

144

2003
US$

2002
US$

$2.03
$0.91
$0.78

$1.71
$0.46
$0.67

2003
US$m

2,293

2002
US$m

2,235

Adjusted earnings per American Depositary Share is based on Reed Elsevier PLC shareholders’ 52.9% share of the adjusted
profit attributable of the Reed Elsevier combined businesses, which excludes amortisation of goodwill and intangible assets
and exceptional items. Adjusted figures are described in note 9 to the Reed Elsevier PLC consolidated financial statements.

Reed Elsevier PLC shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary
Shares (“ADSs”), evidenced by American Depositary Receipts (“ADRs”), representing four Reed Elsevier PLC ordinary shares of
12.5p each. (CUSIP No. 758205108; trading symbol, RUK; Bank of New York is the ADS Depositary.)

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

111

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER PLC

Summary of the principal differences between UK and US GAAP
Reed Elsevier PLC accounts for its 52.9% economic interest in the Reed Elsevier combined businesses, before the effect of tax
credit equalisation, using the gross equity method in conformity with UK GAAP which is similar to the equity method in US
GAAP. Using the equity method to present its net income and shareholders’ funds under US GAAP, Reed Elsevier PLC reflects
its 52.9% share of the effects of differences between UK and US GAAP relating to the combined businesses as a single
reconciling item. The most significant differences relate to the capitalisation and amortisation of goodwill and intangibles,
pensions, deferred taxes and derivative financial instruments. A more complete explanation of the accounting policies used by
the Reed Elsevier combined businesses and the differences between UK and US GAAP is given on pages 108 and 109. The
Reed Elsevier Annual Report 2003 on Form 20-F provides further information for US investors.

Effects on net income of material differences between UK and US GAAP
For the year ended 31 December 2003

Net income under UK GAAP
Impact of US GAAP adjustments to combined financial statements

Net income under US GAAP

Earnings per ordinary share under US GAAP

2003
£m

169
109

278

2002
£m

89
97

186

22.0p

14.7p

Effects on shareholders’ funds of material differences between UK and US GAAP
As at 31 December 2003

Shareholders’ funds under UK GAAP
Impact of US GAAP adjustments to combined financial statements
Equity dividends not declared in the period

Shareholders’ funds under US GAAP

2003
£m

1,288
350
110

1,748

2002
£m

1,397
269
102

1,768

112 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER NV

Summary financial information in US dollars
Basis of preparation
The summary financial information is a simple translation of the Reed Elsevier NV group financial statements into US dollars
at the stated rates of exchange. The financial information provided below is prepared under UK GAAP as used in the
preparation of the Reed Elsevier NV statutory financial statements. It does not represent a restatement under US GAAP which
would be different in some significant respects.

Exchange rates for translation of euros (€:$1)

Profit and loss 
Balance sheet

Group profit and loss account
For the year ended 31 December 2003

Profit attributable to 50% interest in Reed Elsevier combined businesses

Adjusted profit attributable
Amortisation of goodwill and intangible assets
Exceptional items

Data per American Depositary Share

Earnings per American Depositary Share based on 50% interest in Reed Elsevier combined businesses

Adjusted
Basic 

Net dividend per American Depositary Share

Group balance sheet
As at 31 December 2003

Shareholders’ funds

2003

0.890
0.798

2002

1.060
0.956

2003
US$m

2002
US$m

607
(365)
30

272

511
(383)
8

136

2003
US$m

2002
US$m

$1.55
$0.70
$0.67

$1.30
$0.34
$0.57

2003
US$m

2,165

2002
US$m

2,111

Adjusted earnings per American Depositary Share is based on Reed Elsevier NV’s 50% share of the adjusted profit attributable
of the Reed Elsevier combined businesses, which excludes amortisation of goodwill and intangible assets and exceptional
items. Adjusted figures are described in note 8 to the Reed Elsevier NV statutory financial statements.

Reed Elsevier NV shares are quoted on the New York Stock Exchange and trading is in the form of American Depositary
Shares (“ADSs”), evidenced by American Depositary Receipts (“ADRs”), representing two Reed Elsevier NV ordinary shares of
€0.06 each. (CUSIP No. 758204101; trading symbol, ENL; Bank of New York is the ADS Depositary.)

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

113

ADDITIONAL INFORMATION FOR US INVESTORS > REED ELSEVIER NV

Summary of the principal differences between UK and US GAAP
Reed Elsevier NV accounts for its 50% economic interest in the Reed Elsevier combined businesses, before the effect of tax
credit equalisation, using the gross equity method in its group financial statements. Using the equity method to present its net
income and shareholders’ funds under US GAAP, Reed Elsevier NV reflects its 50% share of the effects of differences between
UK and US GAAP relating to the combined businesses as a single reconciling item. The most significant differences relate to
the capitalisation and amortisation of goodwill and intangibles, pensions, deferred taxes and derivative financial instruments.
A more complete explanation of the accounting policies used by the Reed Elsevier combined businesses and the differences
between UK and US GAAP is given on pages 108 and 109. The Reed Elsevier Annual Report 2003 on Form 20-F provides further
information for US investors.

Effects on group net income of material differences between UK and US GAAP
For the year ended 31 December 2003

Group net income under UK GAAP
Impact of US GAAP adjustments to combined financial statements

Net income under US GAAP

Group earnings per share under US GAAP

2003
€m

242
159

2002
€m

144
159

401
€0.51

303
€0.39

Effects on group shareholders’ funds of material differences between UK and US GAAP
As at 31 December 2003

Group shareholders’ funds as reported under UK GAAP
Impact of US GAAP adjustments to combined financial statements
Equity dividends not declared in the period

Group shareholders’ funds under US GAAP

2003
€m

1,728
455
162

2,345

2002
€m

2,019
383
156

2,558

114 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

PRINCIPAL OPERATING LOCATIONS

Reed Elsevier

1-3 Strand, London, WC2N 5JR, UK
Tel: +44 (0)20 7930 7077
Fax: +44 (0)20 7166 5799

Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands
Tel: +31 (0)20 485 2434
Fax: +31 (0)20 618 0325

125 Park Avenue, 23rd Floor
New York, NY 10017, USA
Tel: +1 212 309 5498
Fax: +1 212 309 5480

Elsevier Reed Finance BV
Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands
Tel: +31 (0)20 485 2434
Fax: +31 (0)20 618 0325

Elsevier

Elsevier
Sara Burgerhartstraat 25
1055 KV Amsterdam, The Netherlands
www.elsevier.com

Elsevier
The Boulevard, Langford Lane
Kidlington, Oxford OX5 1GB, UK
www.elsevier.com

Elsevier
360 Park Avenue South
New York
NY 10010-1710, USA
www.elsevier.com

Elsevier
Independence Square West
Suite 300, The Curtis Centre
Philadelphia, PA 19106-3399, USA
www.us.elsevierhealth.com

Elsevier
11830 Westline Industrial Drive
St. Louis, M063146, USA
www.us.elsevierhealth.com

LexisNexis

LexisNexis US
9393 Springboro Pike
Miamisburg, Ohio 45342, USA
www.lexisnexis.com

LexisNexis US
121 Chanlon Road
New Providence, N107974, USA
www.martindale.com

For further information or contact details, please consult our website:
www.reedelsevier.com

LexisNexis UK
Halsbury House, 35 Chancery Lane
London WC2A 1EL, UK
www.lexisnexis.co.uk

Harcourt Education International
Halley Court, Jordan Hill
Oxford OX2 8EJ, UK
www.harcourteducation.co.uk

Reed Business

Reed Business Information US
360 Park Avenue South
New York
NY 10010-1710, USA
www.reedbusiness.com

Reed Business Information UK
Quadrant House, The Quadrant
Sutton, Surrey SM2 5AS, UK
www.reedbusiness.co.uk

Reed Business Information Netherlands
Hanzestraat 1
7006 RH Doetinchem
The Netherlands
www.reedbusiness.nl

Reed Exhibitions
Oriel House, 26 The Quadrant
Richmond, Surrey TW9 1DL, UK
www.reedexpo.com

LexisNexis Juris Classeur
141 rue de Javel, 75747 Paris Cedex 15
France
www.lexisnexis.fr

Harcourt Education

Harcourt School Publishers
6277 Sea Harbor Drive
Orlando
FL 32819, USA
www.harcourtschool.com

Holt Rinehart and Winston
10801 N. MoPac Expressway
Building 3, Austin,
TX 78759-5415, USA
www.hrw.com

Harcourt Assessment
19500 Bulverde Road
San Antonio
TX 78259, USA
www.harcourtassessment.com

Harcourt Achieve
10801 N. MoPac Expressway
Building 3, Austin,
TX 78759-5415, USA
www.harcourtachieve.com

Design: Corporate Edge www.corporateedge.com
Pillans & Waddies. ISO 14001 accredited
Print:

REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003

115

INDISPENSABLE 
GLOBAL 
INFORMATION

ANNUAL REPORTS AND FINANCIAL STATEMENTS 2003

For the Reed Elsevier Combined Businesses,
Reed Elsevier PLC and Reed Elsevier NV

www.reedelsevier.com

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